Netflix has claimed its first Australian victim, with subscription video  on demand (SVOD) company Quickflix Ltd (ASX: QFX) filing for administration today.

Quickflix has placed the blame squarely at the feet of another competitor, Stan, jointly owned by Nine Entertainment Co Holdings Ltd (ASX: NEC) and Fairfax Media Limited (ASX: FXJ). Stan held more than 91 million redeemable preference shares (RPS) in Quickflix, which it bought from Home Box Office (HBO) in 2014 for a reported $1m.

HBO had acquired the preference shares in 2011 for an investment of $10 million, at the same time as Quickflix entered a commercial partnership with HBO. The current face value is $11.7 million.

But with Stan holding those preference shares, Quickflix was struggling to entice new investors and needed more capital to continue investing in content and marketing. Prospective funders have made it clear that a restructure of the RPS held by Stan was a prerequisite of any funding deal.

But Stan either wanted Quickflix to pay it $4 million in cash, or $1.25 million in cash and transfer all its streaming customers to Stan. Quickflix says neither is a viable option, given it doesn’t have the funds, nor does it think it can raise funds for that purpose.

While Quickflix was the first streaming media (SVOD) service to start in Australia, long before Netflix, Stan and Presto, the company had struggled to ramp up content and grow users. That is the real reason Quickflix finds itself in voluntary administration today.

The arrival of Netflix in Australia in March 2015, and the almost simultaneous launch of rivals Stan and Presto by companies with comparatively huge amounts of capital behind them meant Quickflix was always going to struggle. You can see the impact of Netflix on Quickflix in the chart below.

Quickflix customers Apr 2016

Source: Quickflix

HBO recognised that when it sold the RPS to Nine in 2014 for a fraction of what it had paid.

Some could claim that Stan has no desire to see Quickflix rise back up, and the $1 million paid for the RPS to see one competitor crash was money well spent. Stan may well get to buy Quickflix’s assets including its customers at a cheap price now the company is in administration.

Foolish takeaway

Once Netflix arrived in Australia, it was always going to be difficult for Quickflix. The company started losing customers in the June 2015 quarter, and losses continued from there. Without huge sums of capital behind it, the writing was on the wall.

 

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.