Why Nine’s investment in Quickflix makes it tougher for Netflix to launch in Australia
Last week Nine Entertainment Co made a $1m investment to buy eight per cent of streaming company Quickflix, whilst preparing to launch its own operation StreamCo. Here Nic Christensen looks at the underlying reasons for Nine buying into a rival.
In the world of video streaming last week’s investment by Nine into rival Quickflix did not go unnoticed, but as always with these deals the devil is in the detail. In this case, a series of warrants and covenants that came with this batch of shares.
Predictably, in the wake of the announcement, speculation quickly followed that US streaming giant Netflix would also seek to invest in the long troubled Australian video service Quickflix. However that theory was quickly scotched. And with good reason.
The history here is important. The 83 million preference shares in question were previously owned by content partner HBO who amid a cashflow crisis in 2012 chose to step in to save Quickflix.
When Nine picked up the shares two weeks ago for humble investment of just $1m it also took over a redemption right put in by HBO which ensure they are protected in the case of a “liquidation event” (page 43 of the annual report).
More importantly the shares include a warrant which sees the owner entitled to a $10.5m payment in the event of “a disposal of substantially all of the Company’s assets, a merger or takeover, a person other than the shareholder acquiring a voting power of more than 51% in the Company, or any change in the majority of the members of the Board of Directors unless the replacement Directors were nominated by the majority of the Company’s Board.”
In a nutshell, if Netflix did come in and try to buy a controlling share in Quickflix it would have to pay Nine $10.5m on top of the price of its shares.
For the long troubled Quickflix which has struggled to sustain a reliable cashflow, let alone profit, in the last few years and has watched its share price steadily decline as it attempted to evolve its business from a DVD rental business to a streaming business the risk of liquidation or takeover has always loomed large.
However, Nine’s investment now makes the latter far less likely. Were Netflix or some other player (say Telstra or Seven West Media) wanting to make an easy leap into the Australian market the price tag and opportunity cost of acquiring Quickflix, which has a market capitalisation of some $17.8m, just went up dramatically.
Would a player like Netflix be willing to spend $30m to enter the market? Perhaps, but it is going to be much more reluctant to spend $11m plus if it knows that money is going to the war chest of a major rival.
Equally were Quickflix to suddenly experience a similar crisis to the one it faced two years ago Nine is now in prime position to take advantage of the opportunity to pick up any rights it might want, as well as a crack at the all-important subscriber data.
Nine’s shareholding arguably serves as an uneasy alliance with Quickflix founder and CEO Stephen Langsford who himself owns around 2 per cent of the company. This may also explain his reluctance to discuss the investment with Mumbrella in an interview last week.
While Langsford may be pleased that Nine’s investment helps avoid another board coup similar to the one he faced a month ago he must also recognise that Nine, which is spending millions of dollars investing in technology, content deals and preparing to build a subscription base, would also be eyeing his assets and it is here that the liquidation first rights must be attractive.
What the future holds for Quickflix, which continues to struggle to gain traction in the market, remains unclear. But what is certain is that at a minimum Nine has made sure anyone eyeing Quickflix as an easy entry point to the Australian streaming marketing will think twice before jumping in.
Nic Christensen is deputy editor of Mumbrella
Whatever happened to bigpond movies? Weren’t they supposed to take over streaming video in AU? Oh the irony if T did invest in quickflix…not under the current CEO anyway. Really T should be doing what BT are doing in UK now but their mobile focus and leadership model really doesn’t allow for deep expertise anywhere other than enterprise services.
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@gone missing
They have over 500,000 tboxes in market streaming movies and TV either on a pay per view or subscription basis.
So rather than going missing they are the quiet achievers.
Puts the 50,000 quikflix and ‘200,000’ Netflix subs into perspective.
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When I discussed the Australian market with Reed Hastings the CEO of Netflix at CES 2014, he said that the only thing stopping him from coming into the Australian market was the high price that Hollywood Studio’s were trying to charge for content. I am told that this issue is now solved.
In reality Netflix only have to announce that they are launching in Australia and they will get a lot of publicity along with more than 30 vendors who want to put the Netflix download app on their TV’s tablets, smartphones and PC’s.
I think the Quickflix issue is a side issue for Netflix, the interesting battle is the suggested relationship between Fairfax and Nine.
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@Fred the T box is an OK PVR and has grown slowly given its been in market nearly 5 years now – not sure about the streaming numbers though…care to share? Anyway the point is that BP Movies are conspicuously absent from AN Y serious discussion around the future of streaming in AU. if they have some good numbers to share then their PR needs to wake up.
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Great journalism.
Great leadership.
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You mean to say “enter the market …officially” right?
https://getpocketbook.com/blog/netflix-australia-2-stats-scare-local-players
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If it’s true, that is a genius strategic move. Look forward to seeing how it pans out.
So Nine can force an “event”, then pick over the carcass, and pick up a potential $10 million (plus the cost of the shares), and take out an established streaming competitor, all for a measly $1 million? Reads like a master stroke if that is the case.
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Obviously don’t think netflix is coming to Oz anytime soon
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@Matt etc…so this puts a higher price on Netflix buying quickflix ….but why do they need to in order to enter the market here? Heaps of ppl already use it so the tech and brand is in place all they need to do is address the licensing and lift the geo blocks and BANG it explodes to dominate (caveat below re HBO availability).
So it comes down to whether the quickflix deals are transferable in the event of change of control (Lambo?) and at $11.5m plus price of the rest of the shares they’d need is that a good deal wrt licensing MGs or not?
But really the key insight here is why would HBO sell their stake when in fact their programming is a key driver of Netflix success. The answer I reckon is that they’ve sold exclusive rights to Foxtel so they know that there is zero chance of netflix, quickflix or anyone else getting hold of their content in AU and hence severely denting the chance of these things getting significant traction.
So where is the ACCC in all this? Why is Foxtel allowed a monopoly on HBO and first run BBC programming and goodness knows what else soon. It is a big deal when it comes to what consumers actually want and AU moving into the 21st century media environment.
That is something for Mumbrella to get its teeth into (and more substantial than throwing well deserved rocks at crappy self serving awards anyway!)
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I’m not clear on why HBO would sell those shares? They don’t need the money and getting a $10+ payday on a takeover would be an appealing return for anyone. Guessing Streamco have signed a nice deal with HBO for their content and this is a little bolt on to help Streamco out.
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Buried the lead needs to look up the meaning of monopoly. It’s not like one company owns all of the steel or coal. First, broadcasters do content deals all the time, including FTA. Second, HBO content is available via Google Play, itunes, and DVD. That’s not a monopoly, it’s a free market and Foxtel did the deal.
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Hey people. Let’s all be clear here. Streaming is completely price led. When someone like Dendy announced (again) this week a bespoke streaming service with prices around $6-7 per movie, how on earth are they going to compete with a $7 per month streaming service offered by Netflix with far more breadth. Whether any of the Australian players like it or not, consumers are ONLY price led on this. They’ve completely shunned the video store, Hoyts and VideoEzy rental boxes are struggling and Foxtel market share has only just returned to its 2010 peak. Netflix doesn’t need to enter the Australian market. it’s here. Here’s why: When at least two people told me at children’s birthday party recently they’ve shut their Foxtel account and then went on to say how easy it was to set up a Netflix account, you know the game is up.
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@buried the lead et al, just to clarify one point you seem mistaken on, Netflix DOES NOT have HBO content in the USA, so HBO programming is NOT a key driver of Netflix success in the USA.
HBO content is not available on any independent streaming service in the US. It is only available on HBO GO, HBO’s own streaming service, and you need a cable subscription that includes HBO to gain access to HBO GO.
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Any HBO may enter the AU market themselves, as a stand-alone entity via their HBO GO product.
http://online.wsj.com/articles.....1407106582
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HBO paid $10M for their investment in Quickflix, they recovered this when Foxtel paid $10M upfront for the rights to Game Of Thrones.
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