The chances of being stomped on are high when you dance with the big boys.
ASX-listed Quickflix is about to hit a tipping point where its customer acquisition is so strong that its bigger competitors will start to notice an annoying minnow.
The company, which made its name sending DVDs by post, is now in a high stakes game called streaming media, a business worth about $1.2 billion in Australia.
“We’re dancing with some pretty big elephants,” Stephen Langsford, CEO and Chairman, told Business Insider Australia.
Quickflix, founded in 2005, has done this dance before and won.
When it started sending DVDs by post, bypassing for consumers those senseless and empty searches down video store aisles, both Hoyts and Telstra jumped into the market.
“We were the little guys and that compelled us to innovate and we ended up outperforming Hoyts and acquiring that business and eventually we did the same to Telstra,” says Langsford.
“Now in the streaming game we are getting the same contention: will we be the guys to prevail going up against the big players.”
But Langsford is used to predictions of imminent death.
“Just about every month has gone by there’s always been something which has been going to kill us,” he says. “Whether it’s Telstra or it’s apple TV … you just have to keep batting on and stay fo-cused on what the customer is after.”
And it’s that customer acquisition which is going so well at the moment which will bring the company to the point of take-off, a critical mass of customers. This is due to a combination of factors all coming together at the same time.
Every time a local video store closes, Quickflix gets stronger, picking up new trade. It has a library of 60,000 DVD & Blu-ray tiles and around 85% of those are being used most months.
“Nor surprisingly a lot of people assume that DVD is dead,” says Langsford. “But DVD sales and rentals in the US last year was $8 billion. The aggregate of all digital including streaming activity was about $2.7 billion.”
The DVD side keeps the business healthy but it’s the streaming which holds the upside.
In the three months to December, Quickflix grew its customers 10% to 120,000 including 18,000 or so on trial. For paying customers, growth was 4% for the quarter.
Quickflix lost ground, and customers, when it launched streaming before it was ready in 2012. But the customer numbers are now rising fast.
When Quicklfix this month announces its March quarter results, it is expected to be on the way to 140,000 customers.
“We have indicated to the market we are back in growth mode,” says Langsford.
“The number of hours that we’re streaming is growing at a clip of 20% per quarter. All the graphs are heading firmly in the right way.”
Streaming media is where the elephants, the Foxtels and Telstras, live.
Quickflix streamed in the December quarter 40% more than it did in the same quarter the year be-fore.
Where it wins is on content and the growing lists of devices it can stream to. Some recent additions include PlayStation 4, LG Smart TVs, TiVo, Amazon Kindle Fire.
“Streaming is accessible over the widest range of devices of any player in Australia and New Zea-land including smart TVs; game consoles, mobile and tablet,” Langsford says.
Quickflix has both subscription and pay per view where the US-based Netflix offers only subscrip-tion and ITunes offers only pay per view.
A combination of both allows Quickflix to offer the premium latest release content soon after re-lease plus the full range of top TV and the depth of the DVDs.
Foxtel entered the market this month with Presto, an online movie library priced at $19.99 per months. Of course, it doesn’t include TV shows because that’s what Foxtel’s main service sells.
Compared that to Quickflix’s $14.99 per month for streamed entertainment, including TV shows, plus access to the DVDs.
Foxtel has a relatively low household penetration at 26% compared to the US where cable is in 85% of homes. Presto streaming is its answer to increasing penetration.
Quickflix maintains a presence in Hollywood to make sure its relationships with producers is strong and that it continues to get the very best in content.
The other key strategy is ensuring that Quickflix can stream to any device.
Business Insider Australia asked about Google Chromecast, not yet available here, but rumoured to be on its way. Langsford says: “I can’t say too much about Google Chromecast sorry but suffice to say that it’s an exciting technology and development and one that we think our Quickflix customers would love to use.”
With Quickflix there are the inevitable comparisons to the US giant Netflix which, while officially not available in Australia, is getting used by Australians.
As a model Netfix is a good one for Quickflix.
Netflix, which is now in 30% of US households, also started by delivering DVDs by post then built a streaming platform online. It has a market capitalisation of $19 billion.
As a business Quickflix has hit a sweet spot, and is using the additional capital of $5m raised at the end of last year for marketing, content and product development.
Revenue is running at about $20 million annualised. Bottom line profit is some way off, probably the 2015 financial year, depending on that customer growth.
“With Foxtel only at 26% household penetration that leaves over 70% of the market available to us,” Langsford says.
“If we can get to Netflix’s level of penetration, it means Quickflix becomes another Foxtel in this country. The next 12 months is when I think it all starts to play out.
“We’ve still got work to do to optimise the whole experience. That’s the game. We’ll move on technology, we’ll move on content and move marketing in equal measure.
“There’s plenty going on and I think there are also other deals for us to do when it comes to part-nering and distribution.
“I think an ISP (Internet Service Provider) would be a relevant partner. They are looking at ways to differentiate through content so I think there’s an opportunity.”
The shares are trading at less than one cent but some analysts value the stock at between 5 and 7 cents a share.
Cashel Capital Partners Fund 1, a Singapore-based fund which focuses Australian businesses with an enterprise value of less than $200 million, last month increased its holding in Quickflix to 7% from 5%.