Australian Streaming Video Sector Heats Up Amid Expected Netflix Launch

2:28 AM PST 07/21/2014 by Pip Bulbeck
Netflix
Netflix's "House of Cards" has a loyal following in Australia.

HBO sells its small stake in streaming firm Quickflix to Nine Entertainment as various sector players prepare service launches.

SYDNEY — The fast evolving Australian streaming video and VOD sector is heating up with the announcement Monday that Nine Entertainment Co. (NEC), parent of the Nine television network, has acquired HBO's 8 percent stake in DVD rental and streaming company Quickflix Ltd.

The news comes on the back of a visit last week to Australia by executives from U.S.-based streaming giant Netflix, who were looking to acquire rights to content for an Australian Netflix service with plans for a mid-to-late 2015 launch, according to local press reports.

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In a statement to the Australian Securities Exchange Monday, Quickflix said "Nine Entertainment Co. has reached agreement to acquire all of Home Box Office Inc.'s 91,165,092 redeemable convertible preference shares it holds in Quickflix."

NEC reportedly acquired the preference shares, which can be converted to an 8 percent stake in the company, for around $939,000 (AUS$1 million). Neither NEC or HBO commented further on the transaction.

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The deal marks HBO's exit from Quickflix, two years after investing $8.74 million (AUS$9.3 million) in the company. HBO last year cut a long-term exclusive agreement with pay TV giant Foxtel, under which Foxtel gets all premiere rights to HBO's original series, including Game of Thrones and True Blood.

Foxtel airs them the same day and date as in the U.S. However, at the end of season four of Game of Thrones last month, the full series was made available on streaming services, including Quickflix, iTunes, Google's Chromecast and Google Play as well as Foxtel's streaming services. Currently, Netflix also supplies its original series such as House of Cards and Orange Is The New Black on an exclusive first-run basis to Foxtel.

In June, Quickflix raised some money from Australian and international institutional investors for working capital and increased investment in content and marketing.

It also said that L.A.-based David P. Smith, a former vice president of 20th Century Fox Television Distribution, had joined as a nonexecutive director, while also acting as a consultant to Quickflix on securing Hollywood content.

Netflix's moves to get content for a possible Australian launch — which the company has consistently refused to comment on — and Nine's acquisition of a minority Quickflix stake both come at a volatile time for the burgeoning sector.

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With Foxtel in just 30 percent of Australian TV homes and a Foxtel pay TV subscription costing up to $101 (AUS$108) a month, Australians have developed a reputation as prolific pirates. Australia is reputedly among the top countries in the world illegally downloading Game of Thrones.

A Netflix launch in Australia is likely to build upon an existing user base, with the company reportedly already serving 200,000 paying subscribers in Australia who use virtual private networks to get around Netflix geoblocks.

But while consumers might be keen on Netflix, local content owners and distributors are aiming to protect their turf.

The Australian newspaper reported Monday that Netflix execs encountered an "aggressive" Australian market that might not be as amenable to the service as expected on their visit down under last week. "They will all protect their territory aggressively," the Australian quoted an unnamed TV industry executive commenting about the free-to-air networks and Foxtel. "They're not going to give them a leg up."

Netflix reportedly met with Australian representatives of U.S. studios but not local production houses.

Despite Nine's new minority shareholding in Quickflix — which has around 100,000 subscribers — the company is well advanced with plans to launch its own subscription VOD service later this year under the brand name StreamCo.

NEC executives earlier this year outlined a business case for StreamCo, saying startup costs would be around $47 million (AUS$50 million) over the next three or four years, with breakeven expected at between 350,000 to 400,000 subscribers.

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"If you've got 350,000 to 400,000 people paying you for something, that's quite a lucrative business, and it doesn't do a lot of damage to your broadcast business," NEC CEO David Gyngell said in March.

He added that the company is moving ahead with plans as "there's a lot of opportunity" around the 70 percent of homes that don't take Foxtel, as well as being a defensive play against companies like Netflix entering the market.

"It's people who have heard about these great shows like Game of Thrones, Breaking Bad and The Waking Dead and all these brands you hear about but most people don't get to see. We're very confident that AUS$9.95 a month, no contract, no ads is a very attractive proposition" for them, Gyngell said.

"It's not about whether people will buy it but whether Hollywood will sell the product we want at the price we want. There's all the product out there. Hollywood will sell to everybody all the time, they'll close windows, they'll open windows they'll move things around," he added.

Other free-to-air broadcasters, such as the Seven and Ten Networks, are also expected to launch streaming services.

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Pay TV giant Foxtel launched Presto, a movie-streaming service priced at $18.78 (AUS$19.99) a month, several months ago.

Some of Australia's film exhibitors have also been planning VOD services. Art house and specialist exhibitor Dendy is set to launch curated streaming service, Dendy Direct, this month. On the other side, multiplex operator Hoyts recently announced it was shelving its plans for Hoyts Stream for the foreseeable future.

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