news Australian streamed content provider Quickflix has announced that it has gone into administration, claiming that Nine Entertainment Co and Fairfax Media Limited are to blame for its problems.
In a statement, Quickflix founder and CEO Stephen Langsford said that a block to raising new capital has been the existence of redeemable preference shares held by Stan Entertainment (Stan), a firm owned by Nine Entertainment Co and Fairfax Media Limited.
Langsford explained that the shares were issued to HBO in March 2011 at a cost of $10 million when Quickflix entered a commercial relationship with HBO. In July 2014, Nine Entertainment Co acquired the RPS from HBO for an “undisclosed amount”, he added – though Business Insider reports that amount as $1 million.
“The RPS ranks ahead of ordinary shareholders with respect to dividends and capital returns and whilst from a legal perspective it constitutes equity, accounting standards have required it to be recorded as current debt on the Company’s balance sheet,” said Langsford.
The face value of the RPS is presently $11,730,549, according to the CEO.
“Whilst Stan can only ask for redemption of the RPS in limited circumstances, as previously advised the Company is not in a position to fund redemption and the existence of the RPS held by Stan is a significant disincentive for new investors,” Langsford said.
Although Quickflix was first to the streaming market and held a leadership position in 2014, ongoing growth required capital for investment in content and marketing.
“Neither Nine Entertainment nor Stan have ever participated in any capital raisings to assist Quickflix’s growth and its ability to raise capital from any source has been constrained by the shares,” Langsford claimed.
In response, he said, Quickflix restructured its business, including managing to release the firm from over $7.5 million in obligations with content providers, and making cost-savings across operating and investment areas valued at over $5 million a year.
Quickflix also achieved positive earnings before interest and tax for the first quarter of this year, according to the firm.
However, since addressing the RPS was key to securing new investor interest, Quickflix had sought to negotiate with Stan to “restructure the RPS over an extended period”, said Langsford.
Stan’s reply was that it would only consider restructuring the RPS if Quickflix paid Stan $4 million in cash, or if Quickflix paid Stan $1.25 million in cash, transferred all of its streaming customers to Stan (which Stan apparently valued at $250,000) and signed an agreement to not compete with Stan.
“Neither alternative presents a viable option for Quickflix,” said the CEO, who added that Quickflix does not have the funds to make payments to Stan and does not believe it can raise funds from investors for that purpose.
“Neither alternative leaves Quickflix in a position to fund its unsecured creditors nor with capital necessary to take the business forward,” he said.
“[T]he Company has no other realistic alternative but to appoint voluntary administrators,” Langsford said
To manage the process going forward, the firm has appointed partners from Ferrier Hodgson as voluntary administrators, who intend to operate the Quickflix Australian business as usual for the time being.
“The management of Quickflix remain dedicated to achieving a successful restructure of Quickflix through a Deed of Company Arrangement that will reposition the listed group to a broader-based digital consumer, ecommerce and entertainment player leveraging its existing marketing database, data and platform whilst also pursuing M&A opportunities,” the statement concluded.
Quickflix’s New Zealand business continues to trade as normal and is not in voluntary administration.
Image credit: Quickflix