Australia’s Quickflix in China Merger Talks

Struggling Australian online video company Quickflix is in merger talks with a Chinese firm.

Quickflix said Wednesday (Aug 5 locally) that it has signed a non-binding memorandum of understanding with the unnamed Chinese company and says it hopes to announce a deal later this month.

The deal could lead to the establishment of a video operation with ambitions that go beyond China and Australia.

The company, which has just 137,000 subscribers (including trial subs) reckons that it has developed technology that could easily be scaled up to a far larger and multi-national audience.

“Quickflix is pleased to announce that it has entered into a non-binding MOU with a Shanghai-based film and television company to combine their businesses and form a global streaming platform for distribution of Chinese film and TV content into and international markets,” it said in a statement. “[Subject to approvals] the parties intent to proceed with a transaction in which Quickflix will acquire the Shanghai-based company for a consideration to be negotiated on completion of due diligence.”

The news emerged shortly after Quicklflix revealed deepening losses and the cancellation of an important content deal with Presto, a rival online video firm backed by New Corp.’s pay-TV operator Foxtel and Seven West Media.

The identity of the Chinese firm currently remains a mystery. “The Shanghai-based company produces original Chinese language film and TV, participates in co-production in China and international markets and has a slate of future production including a co-production with a U.S. studio. The Shanghai-based company is profitable and generates free cash flow. Consolidation with Quickflix would result in the combined entity having a significantly improved financial outlook and ability to access further capital for future growth.”

Given Quickflix’s rocky financial status that points to a reverse takeover — an acquisition involving a massive issuing of shares that leaves the owners of the acquired company as majority shareholders. At A$0.002 per share, Quickflix has a market capitalization of A$4.41 million (US$3.38 million).

Quickflix said last week that it had managed to increase its total number of subscribers by 4% in the past year, but that it had lost A$850,000 in the January to March quarter.

The Australian online video scene is competitive, complicated and weakened by high levels of piracy. Quickflix, which is listed on the Australian Stock Exchange and started in DVD rentals in 2004, is the oldest of a number of local firms were in the market before the arrival of Netflix in March this year. According to some commentators, Netflix has already become the market leader in Australia, with an estimated 559,000 households and 1.42 million viewers according to Roy Morgan Research.

In May, Quickflix announced that it would be a reseller of subscriptions to Presto. “Presto streaming will complement Quickflix’s transactional streaming (pay per view movies and pay per season TV movies) and DVD subscription services,” it argued at the time. On Tuesday (Aug 4), however, it said that the “Conditions precedent to the Foxtel Presto reseller agreement have not been met and that the agreement is therefore terminated.”

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