Serious questions are being asked about the performance of movie download company Quickflix who claim they are growing despite the fact that they are fast running out of cash.Back in July the movie on demand service said they had $5.7M in the bank; in their latest filing with the ASX the Company is now down to only $1.1M in the bank as of November. They have also admitted they are burning cash at $3.5M a quarter with observers claiming the Company could run out of money shortly.
In October the Company had $2.1M in the bank with insiders admitting they have been hunting for funding or a partner during the past six months with little success.
Currently their share price is trading down by 2/3rds at sub $0.6cents with the Company burning through $1.1M in cash in October alone.
In their last round of capital raising, the Perth based Company that took on board former Telstra Digital executive Justin Milne to boost their profile, only managed to raise $4M, despite going after $10M in funding.
SmartHouse has been told that several companies have looked at investing in the content Company including Blockbuster, Fairfax Media, as well as Optus. All proposals have been rejected.
The Company has only 100,000 digital customers and recently struck deals with several TV manufacturers to deliver content to TV screens. A senior TV Company executive said that while several people have signed up for a free trial “very few have returned to pay for movie downloads”.
The Company lost $14M last year and revealed recently that the cost of acquiring a subscriber had risen from $31 (FY11) to $60 (FY12).
The paying subscriber churn is over 69% with the Company now running out of cash to fund new subscription drives.
The DVD and movie rental Company admits they are in the market for cash but refuse to say how they will fund their business moving forward.
Earlier this week, the Company said the number of paying customers lifted by 7 per cent to 119,593 during the quarter while total subscriber numbers lifted by 9 per cent to 129,274.
Revenue climbed to $5.3 million in the quarter, costs were $8.74 million, instigating a situation that could see the Company run out of cash before the end of the year say observers.
US Company HBO bought a $10 million stake in the company earlier this year.
But Telsyte analyst, Sam Yip, says he is “highly doubtful” the content company would go out of business, as it appears to have managed the shift from postal rental to digital content quite well.
However, he added: “Quikflix is a channel for distribution of content and wouldn’t have a massive impact on the industry if it did happen.”
Quikflix’s customer base is rising, but is under intense pressure due to competition on pricing, says Yip, from everyone like YouTube, iTunes, to IPTV providers like Fetch TV and basically any one of the slew of websites flogging downloads to entertainment hungry consumers.
The company is experiencing a decline in its movie postal business, Yip noted, but “we’re seeing that trend across the industry as a whole, including movie rental shops”.
However, Quikflix has done the “smart thing” by partnering with most device makers from LG to Samsung and Panasonic, and embedding its app into their hardware.
This relationship with device makers is “crucial” at the moment, and if Quikflix keeps going down the digital path and stays intouch with seasonality trends it is likely stay relevant, Yip notes.