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Why Quickflix Ltd shares soared 40% today

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Quickflix Ltd (ASX: QFX) shares soared 40% today, after Nine Entertainment (ASX: NEC) acquired all of HBO’s redeemable preference shares, giving Nine an 8% stake in the movie rental company.

US television giant HBO, maker of the hit Game of Thrones series, had invested $10 million in the small Australian streaming and DVD hire company, in exchange for 83.3 million preference shares (at a price of 12 cents per share) back in February 2012. Quickflix shares are currently trading at around 1.4 cents.

The Australian Financial Review (AFR) reports that Nine paid around $1 million to acquire HBO’s stake (around 91 million preference shares). Quickflix shares have dropped significantly since the HBO deal, with concerns over slow subscription growth and a swarm of international and local movie streaming competitors arriving in Australia, including Netflix, Presto and Ezyflix.

Netflix, the current king of streaming movies, has been reported to be considering entering Australia for some time now. Back in June, ZDNet reported that Village Roadshow Ltd (ASX: VRL) had confirmed that it was in negotiations with Netflix to access its content for an Australian launch.

All three major commercial television broadcasting networks, including Nine, Seven West Media Ltd (ASX: SWM) and Ten Network Holdings Limited (ASX: TEN) have been expected to make a move into the online space, as advertising revenues switch from free-to-air to online.

The AFR reports that Nine is planning to spend between $50 to $65 million to launch its own online streaming service later this year, while Seven, Nine and Ten have all been reported to be considering a deal with Foxtel’s Presto service.

Nine’s deal with Quickflix may not necessarily be a precursor to a full takeover offer, but gives it a stake in any further consolidation in the online streaming media space. The AFR also reports that HBO was keen to sell out, now that it had negotiated a new deal with Foxtel. HBO could also cease its licencing deal with Quickflix, once the current arrangement runs out.

It may only be a matter of time before Quickflix either swallowed up or overrun by its competitors. Investors will obviously be hoping for the former, but for a better bet might want to consider the following…

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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

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