Quickflix appears to be engineering a reverse takeover with its new Chinese partner, after having burnt some $30m+ of shareholder money, but Nic Christensen asks if the bigger lesson here may be that Australian media players are too small to go it alone in a global market?
It’s only two months since we had all the key video streaming players on stage at Mumbrella360 and already some of the predictions made that day appear to be playing out.
On stage Fetch TV boss Scott Lorson told the audience the war between Netflix, Presto, Stan, and the struggling Quickflix would claim its first victim “within 12 months”.
‘State of Streaming’ session at Mumbrella360. L:R Nic Christensen, Stan’s Mike Sneesby, Presto’s Shaun James, Quickflix’s Stephen Langsford, FetchTV’s Scott Lorson, Ten’s Rebekah Horne
“This is going to play out very quickly, and anyone who thinks any of us have the wherewithal to sustain losses for two, three, maybe four years… that’s not my opinion,” he said.
You can argue we saw this yesterday with the first of the streaming video on demand (SVOD) players raising the white flag, as Quickflix (ASX: QFX) was forced to junk its much touted reselling deal with Presto in favour of the “acquisition” of an unnamed Shanghai-based film and television company.
The announcement, particularly the Chinese element (note the many headlines about mystery Chinese acquisition), surprised many in the market largely because of how it was spun.
But if you look past the spin the reality is Quickflix as a business was in a lot of trouble.
Its last market update showed it was facing double digit declines in quarterly and year-on-year subscriber numbers despite a massive surge in consumer awareness, and had lost $1.096m last quarter and now had only $913,000 in cash on hand. It has a market capitalisation of somewhere between $4.4m and $2.2m depending on the share price which appears to stagger between $0.002 and $0.001 – to be clear that is a share price of just one tenth of one cent.
Quickflix was quick to emphasise how the unnamed Chinese business was cashflow positive but the reality remains that as of June 30 the company had only $900,000 on hand – today that’s likely to be closer to $600,000 – and the reality is Quickflix can’t afford to buy anything.
Also anyone willing to buy the company would then have to face the issue of Nine Entertainment Co and Fairfax’s streaming venture Stan’s warrants in the company, which entitles it to a $10.5m payment in the event of sale, quadrupling the price for a business losing a million dollars a quarter.
Rather it appears that this deal is more likely to be a reverse takeover, with the Chinese company taking control of the streaming infrastructure and also potentially getting hold of very generous tax losses to carry forward.
Source: Quickflix 2014 annual report
Quickflix has lost well in excess of $30m since 2012 and there are many in the market speculating that this “acquisition” is in fact effectively a backdoor listing, by an as yet unnamed Chinese player, with the intention to oust the current management structure and refocus Quickflix as a niche streaming player, presumably catering to a Chinese audience.
The company’s CEO Stephen Langsford is currently overseas and Quickflix was unable to answer important questions (such as what is the name of the company you have “bought”). It also refused to answer questions about whether Langsford, who founded the company, will stay with it in the long term.
To be honest what happens next to Quickflix is increasingly irrelevant.
Particularly when the other SVOD players have quickly passed them in subscriber numbers and the company struggled with a poor content offering and even poorer financial situation, constantly having to go to the stock market for more capital raisings.
But the real question is is Quickflix just a canary down the coal mine? A forebear for how hard Aussie media enterprises will find it in this increasingly globalised media landscape?
I wrote back in May, on the back of our coverage of the IAB Digital Newfronts, that many local media enterprises aren’t preparing a clear and scalable digital strategy with a focus on local premium content with the result that they could soon find their lunch being eaten by global players like Buzzfeed, Daily Mail/Elite Daily, The Guardian, Vice, Vevo, Yahoo and most significantly YouTube.
The newest of these global entrants The Huffington Post launches here in just two weeks and will join what is an increasingly crowded market for news all of whom are trying to carve out their share of the ad market, mainly at the expense of the incumbent players.
For Fairfax, partners in the Huffpo venture here, you presume the calculation that half of a shared ad dollar is better than no ad dollar at all.
However, in the streaming space, attention will now turn to which, if any, of the other streaming players Fairfax/Nine’s Stan or Foxtel/Seven/Ten’s Presto will be able to challenge the might of what has in the space of just months become the market leader – Netflix.
In recent months, a rumour has been going around suggesting parent company StreamCo chose the name “Stan” because it could stand for ‘Seven, Ten and Nine’ with the theory being that as some point they will all need to come together.
Stan’s management comprehensively denies that’s why they chose then name, but as tens of millions are spent competing with a global giant which already has international scale and reach synergies and some level of cooperation for local free-to-air players might be worth thinking about, lest they become the next Quickflix.
- Nic Christensen is the deputy editor of Mumbrella