Market Insight

Quickflix on its way back to growth

February 07, 2013

David Scott David Scott Associate Director – Research and Analysis, Service Providers & Platforms
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Australian online streaming, pay-per-view and disc-by-mail service Quickflix is consolidating its position after delivering a steady performance in final quarter of 2012. The company struggled to achieve the necessary cash balance due to its high volume of investments in mid-2012, however reported a more positive outlook in the final quarter of 2012 and now appears to be progressing toward sustainable growth.

Quickflix increased its total subscriber base by 17 per cent to 129,032 by the end of 2012 compared with a year earlier, of which just over seven per cent were trialists. Paying subscribers grew 27 per cent to 119,520 over the same period. Importantly for the growth of the company, the number of customers streaming via the WatchNow service increased 18 per cent to over 42,000 in the quarter to end December 2012. This growth helped the company achieve positive change in three key areas of its business: subscribers, revenues and operating and investing cash flows. Revenues increased six per cent to A$5.6m in the quarter to end December 2012 whilst operating and investment expenditure reduced significantly from A$3.4m to A$490,000 over the same period. Furthermore, the rate of churn in paying subscribers declined from 6.2 per cent to 5.5 per cent whilst average monthly revenues per subscriber remained steady at A$14.18. In addition, the company's net operating and investing cash outflow was A$500,000 in the quarter; a substantial improvement on the A$3.4m outlay in the quarter to end September 2012. This was largely due to the completion of one-off technology developments associated with its new streaming service.

Meanwhile, Quickflix secured A$5m in funding from US-based entertainment and media investors BluePrint Partners in December 2012 via a convertible loan and bond agreement. The additional funding is timely for Quickflix as it allows the company to continue its strategic initiatives and capitalise on its expanding distribution network in Australia and New Zealand. In 2012, Quickflix signed eight deals with technology manufacturers-Apple, Blackberry, Dlink, Humax, Kogan, Microsoft, Panasonic and Samsung-to deliver its online video service across a range of internet connected devices including smart TVs, Blu-ray Disc (BD) players, game consoles, PCs tablets and smartphones. The company's latest partnership deal was entered into with LG Electronics in January 2013 for the distribution of the Quickflix digital service via connected LG television and BD players during the first quarter of 2013. Quickflix's plan to be represented on devices which have high penetration levels in Australia and New Zealand is a key strategic move to reach new audiences with its streaming services. Without multi-device availability it is almost impossible for a Video-on-Demand (VoD) service to compete at scale within the online video marketplace.

Quickflix experienced encouraging take-up and usage levels following the launch of its digital streaming service on the Xbox360 in November 2012. This reflects the growth in the number of streaming customers and reduction in customer churn over the quarter from October to December 2012. The company's commitment to reducing CapEx and OpEx, increasingly positive attitudes of customers towards the service (indicated by decreased churn rates), and the already-completed integration across the majority of key platforms and devices, bodes well for the company's financial success.  However, with much of the device-related investment complete, the company must now make significant operating cost savings to ensure its cash flow improves. The company has already cut quarterly investing expenses by roughly 50 per cent since H1 2012 - OpEx will have to bear the brunt of future cost-cutting.

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