QUICKFLIX (QFX) INVESTOR BRIEFING October 2012
Disclaimer This presentation contains references to certain plans of the Company which may or may not be achieved. The performance and operations of the Company may be influenced by a number of factors, uncertainties and contingencies many of which are outside the control of the Company and its Directors and management. The Company makes no undertaking to subsequently update or revise the forward looking statements made in this presentation to reflect events or circumstances after the date of this presentation. 2
COMPANY OVERVIEW
INTRODUCING QUICKFLIX #1 online movie and TV company now with streaming. Australia and New Zealand s only online DVD rental and subscription streaming service. Listed on the Australian Stock Exchange (ASX:QFX) since 2005. Over 110k paying subscribers and $20m run rate revenue (annualised). 59% YOY growth to June 2012. 28% of subscribers (over 30k) have opted for streaming since launching in November 2011 in Australia and March 2012 in NZ. TimeWarner s HBO 16% strategic investor. Quickflix added streaming to Apple ipad and iphones in May 2012. Head office in Sydney. Operational centres in major Australian cities. 4
COMPANY MILESTONES In 2012, Quickflix transformed from a DVD-only to a DVD plus streaming business. Launched online DVD rental 2004 Listed on ASX 1,000 subscribers Jun 2005 Expanded national operations 2006 50k paying customers Dec 2010 Consolidated BigPond Movies DVD Sep 2011 Launched streaming in Australia Nov 2011 Streaming to PC, Mac, Sony Bravia TV & PS3 Dec 2011 100k paying customers Feb 2012 HBO 16% invests $10M Mar 2012 Launched streaming in NZ Mar 2012 Streaming to Samsung, Panasonic smart TV Apr 2012 Streaming to iphone & ipad May 2012 5
BUSINESS OVERVIEW Online DVD Rental and Streaming
LEADING POSITION IN ONLINE ENTERTAINMENT Significant and growing DVD base Profitable DVD by mail business provides access to over 55,000 titles including early release windows and upsell to online streaming First to market and early success building streaming base Systems (UI/App) in place, marketing and branding to build awareness, early success Distribution / device availability Broad digital distribution platform / available via the widest range of devices Content Negotiated deals with major studios and in discussions to expand Online streaming products Developed and launched both subscription (SVOD) and transaction/pay-per-view (TVOD). Development underway for new / premium products 7
QUICKFLIX POST : ONLINE DVD RENTAL SUBSCRIPTION Achieving scale with continued growth. Quickflix offers the largest range of any movie service in Australia - over 55,000 movie and TV show titles including latest release immediately after the cinema window. Large, loyal customer base providing a positive profit contribution Shipping over 0.5 million discs per month and with improving operating efficiencies. Large content asset of over 1 million discs to monetise from growing subscriber base. Subscription plans bundled with unlimited streaming offered at $24.99 per month (4 DVDs plus unlimited streaming) and $29.99 per month (unlimited DVDs 2-at-a-time and streaming). Physical DVD stores under pressure from high cost of rent and labour. The long term trend of store closures is driving Quickflix online DVD growth. Online DVD rental expected to grow for several the next years with streaming overtaking to drive our next growth wave. 8
QUICKFLIX PLAY STREAMING Catalyst for the next wave of growth. First ever subscription streaming in Australia providing unlimited access to movies for affordable monthly subscription of $14.99. Pay-per-view latest release streaming launched in March 2012. Subscription Video On Demand content deals with Sony Pictures, Warners Bros, NBCUniversal, MGM, HBO, BBC and ITV. Now available on PCs, Macs, Sony Bravia connected TVs and Blu-ray players, Sony PlayStation 3, Samsung and Panasonic connected TVs, Samsung Galaxy Smartphone, Apple ipad and iphone. Coming soon to Xbox. Addressable market today is the 65% of households with connections speeds of 1.5 megabytes per second or better. NBN will increase our addressable streaming market through improving connectivity in rural and regional Australia. Delivery costs of streaming are significantly lower than online DVD generating future improvement in contribution margin. Service launched in New Zealand in March 2012. 9
SECURED POSITIONING IN RANGE OF CONNECTED DEVICES Direct to lounge room or on the go. Launching in October 2012 10
CONTENT AVAILABILITY WINDOWS A combination of DVDs, SVOD and TVOD provides access to most home entertainment windows and comprehensive range. Typical movie release windows Cinema TVOD Home entertainment windows DVD & Blu-ray (all titles) PayTV IPTV (TVOD, SVOD) DVD & Blu-ray (all titles) 55,000+ titles TVOD IPTV (TVOD, SVOD) 2,000+ titles TVOD PayTV IPTV (TVOD,SVOD) 2,000+ titles TVOD IPTV (TVOD) TVOD- Transaction Video On Demand (or Pay-Per-View) SVOD- Subscription Video On Demand IPTV- Internet Protocol Television 11
OFFERING SUBSCRIPTION AND PAY PER VIEW Options to Post and Play Subscriptions DVD/Blu-ray ( Post ) Streaming ( Play ) Bundled ( Post & Play ) Premium streaming (coming soon) Pay per view streaming New release rental Pay to own (coming soon) Pre-paid gift vouchers 12
AUSTRALIAN MARKET OVERVIEW
THE AUSTRALIAN MARKET Opportunity for Quickflix in a less competitive marketplace than U.S. On Netflix penetration levels today, Quickflix would represent 24% of households or 2 million customers. Online DVD rental growing rapidly with streaming the next catalyst for growth. Revenue (A$M) 2,800 Australian market is less competitive than U.S- low penetration of PayTV; no Amazon, Netflix or Hulu. No Blockbuster online service. 600 1,300 PayTV (Foxtel/Austar) has only 30% penetration, no growth and high ARPS. Video store closures accelerating/ audiences fragmenting from free to air. 14 20 Quickflix subscription DVD & Blu-ray rental DVD & Blu-ray retail PayTV subscription 8.5 million HH; 90% with DVD player; 65% with broadband of 1.5 megabytes per second or better
HOME VIDEO RENTAL MARKET PwC estimate that the overall home video rental market will decline at a CAGR of 1.1% to 2016 The significant decline in instore rental (-9.5% CAGR) is offset by the growth in online DVD rental and digital downloads (+32.9% CAGR) DVD sales have declined over the past 5 years over twice as faster a rate than the decline in rentals (source: AHEDA) Australian Home video rental revenues ($m) PwC June 2012 1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR 07-16 -1.1% 32.9% -9.5% In-store rental Online DVD + digital download 15
DVD SALES AND VOLUMES PwC estimate that the DVD sell through market was worth $1.1bn in 2011 They estimate that total sell through spending will decline at a CAGR of 11.1% to 2016 DVD wholesale sales to retail (sell through) and rental have declined significantly since their peak in 2007 reflecting the popularity of online rental and the decline of the bricks-andmortar DVD rental Sell through spending (ex music video) ($m) PwC June 2012 1400 1200 1000 800 600 400 200 0 120.0 100.0 80.0 60.0 40.0 20.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 DVD wholesale volumes ( 000s) - AHEDA - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Retail Rental CAGR 12-16 -11.1% CAGR 07-11 -8.5% -16.5% -7.4%
CONNECTED DEVICES Over 50% of households have at least one device capable of being connected for IPTV Excludes computers and mobiles for OTT VOD CLSA estimate that Australia will have 26.9m Smart TVs by FY21, achieving 100% penetration of households 10m TV households Average 2.7 TV s per household IPTV capable devices (% of households) PwC survey, June 2012 60 50 40 30 20 10 0 At least one Connectable TV Connectable games console Set-top box Not sure Other Smart TV sets, shipments and HH penetration ($m) CLSA, July 2012 30 25 20 15 10 5 0 FY11 FY12F FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F Smart TV sets (LHS, m) % TV shipments as Smart TVs Smart TV HH penetration 100 90 80 70 60 50 40 30 20 10 0 17
TV AUDIENCES TO SHIFT TO IPTV CLSA forecast that IPTV will account for a 40% share of TV audiences by FY2021 Average audience per day (m) CLSA, July 2012 1.6 1.4 45 40 CAGR 07-11 1.7% CLSA s definition of IPTV includes: Live/linear OTT, catchup TV and online VOD 1.2 1 35 30 Significant decline in Free TV viewing is expected - CAGR of - 7.9% 0.8 0.6 25 20 15 53.4% -7.9% 3.9% Modest rise in Subscription TV - CAGR of +3.9% 0.4 0.2 10 5 0 0 FTV (LHS) STV (LHS) IPTV (LHS) IPTV share (%) 18
COMPETITOR ANALYSIS No direct Netflix-like competitors in Australia Quickflix competitors - some are constrained by technology or legacy business; others are not prioritizing Australia due to market size. Market leader with best in sports content and strong movie and TV offer. High ARPU (c. A$100) to protect. Set top box (STB) based (IQ). Foxtel-lite plus movies. Limited to Telstra broadband subscribers. STB based. Low cost IPTV solution (linear + VOD). Wholesale bundled with broadband via select ISPs. STB based. Announced streaming to start in 2013 Pay per view in Q1 with streaming later in 2013 Adds to Kiosk and Cinema offerings Well funded competitor with brand recognition & reach. TVOD movies and TV series. Confined to own ecosystem. Well funded competitor with brand recognition & reach. Currently only offering TVOD movies but potential to expand offering. Australia s only online DVD rental and subscription streaming service. Lower cost offering than Foxtel. Profitable ramp-up with DVD subscriber base. Broadest range of availability across devices Not limited to own hardware. Negotiated key hardware provider access. Large addressable market ISP agnostic, versus T-Box & Fetch. Building SVOD and TVOD content rights.
US TREND UNDERSCORES OPPORTUNITY IN AUSTRALIA Pathway for Quickflix is significantly de-risked through success of Netflix. Australia is lagging US by 3+ years High speed broadband penetration now catching up. Etailing is taking off. Video store closures beginning to accelerate. Growth is accelerating in line with the Netflix experience Market rationalising to a single active player. Digital streaming launch timed with explosion of connected devices.
QUICKFLIX STRATEGY FOR GROWTH
QUICKFLIX TODAY: PLATFORM ESTABLISHED Significant investment of more than $50M to date to establish the business: Investment in DVD. Investment in streaming. Investment in marketing. Investment in start-up losses. Profitable DVD subscription service Over 100k subscribers. In FY12, $15M revenue and $4.6M contribution after service costs. Streaming service launched in FY12 and scaling. Operating losses driven by investment in growth and streaming start-up. Subscriber growth provides the path to profitability. 22
PLATFORM READY FOR GROWTH Quickflix has developed its platform and is positioned to capture growth. Australian market is lucrative and underpenetrated. Pay television is only 30% penetrated and ARPUs are A$100 (excludes BB). VOD/streaming market is early stage and there is minimal competition. QFX is positioned to capture share during the land grab phase. Quickflix s platform in place to capture growth in VOD/streaming. Content agreements, distribution/devices, User Interface all in place. Quickflix is the only independent player/device agnostic. Pure player model with no need to cannibalise existing revenues. Accessible by 100% of Australian homes. Only online DVD player. $1.6b retail and rental market with long tail. Flexible business model. No capex required with set top boxes. Variable cost structure. Ability to manage pace of growth. Profitable core business (pre growth marketing). 23
LEADERSHIP POSITION TO DRIVE LARGE SUB BASE Quickflix will pursue continued aggressive acquisition of customers. Over 110k paying subscribers and $20m run rate. 59% YOY growth to June 2012. 12% household penetration would equate to 1 million customers & $200 million revenue p.a. Netflix-like penetration would equate to over 2m customers & $400 million revenue p.a. Further growth opportunities in NZ and SE Asia markets. 24 Subject to additional 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Trialists Paying Customers*
BOARD & CEO. Expertise in entertainment, media & technology. Stephen Langsford Executive Chairman, Founder Successful information technology entrepreneur. Background in funds management & finance and internet startups. Christopher Taylor Chief Executive Officer Over fifteen years experience in media & entertainment executive roles in Australian & NZ. Lead the media business of Telstra and launched Australia s first pay-per-view OTT streaming service. Justin Milne Deputy Chairman, Non-Executive Director One of Australia s leading internet and digital media executives. Formerly Group Managing Director of Telstra BigPond, Australia s largest broadband network provider. Simon Hodge Executive Director, Co-Founder Investment banking and corporate advisory background across a range of high growth industries. Former COO and MD of Quickflix. Henry McGee Alternative Non-Executive Director (HBO) President, HBO Home Entertainment, the DVD and digital program distribution division of Home Box Office. Director of the Digital Entertainment Group, for fostering new technologies amongst content owners. Susan Hunter Non-Executive Director, Company Secretary Chartered accountant with over 17 years experience in the corporate finance industry. Company Secretary of Quickflix and several Australian Stock Exchange listed companies. 25
KEY EXECUTIVES 26
investors@quickflix.com.au