With coronavirus lockdowns across the region causing a spike in stay-at-home viewing, Friday’s news that Southeast Asian video streamer Hooq is to close within a matter of days came as a shock to its friends and competitors alike.
Compared with its regional rivals, Hooq had the most blue-chip backers in Singaporean telecoms giant Singtel, WarnerMedia and Sony Pictures Television. Yet it was Singtel that announced in a terse 83-word statement that it had begun a “creditors voluntary liquidation” of Hooq. The move was made just before the end of Singtel’s financial year to March, and has the appearance of a big corporation tidying up its books.
Neither Singtel nor Hooq have responded to requests for comment by Variety to explain the decision, or to clarify the details of Hooq fundraising over the company’s five-year existence.
The simplest explanation for the collapse is that Hooq was under-capitalized. It was established in 2015 and began operations the following year, with Singtel owning 65% and the two Hollywood studios holding 17.5% each. A capital draw-down in February 2018 disclosed that Hooq raised an initial $70 million in 2015 and that the new funding round lifted that to $95 million.
It appears that later that same year Hooq raised further funds, but Sony and Warner did not participate — or did not participate in full. At some point in 2018, their stakes were diluted and they no longer sat on Hooq’s board of directors. Last week, Singtel describes itself as having a “76.5% effective interest.”
Hooq’s report and accounts for its financial year to March 2019 do not make pretty reading. While revenues doubled from $10 million in the year to March 2018, to $21.9 million, pre-tax losses increased, too, from $56.6 million to $62.5 million. Net liabilities this time last year already stood at $70.8 million, according to documents filed with Singapore’s Accounting and Corporate Regulatory Authority.
“Execution of multi-market OTT video is a capital-intensive business and requires long-term investor commitment as the path to profitability is fraught with challenges and needs considerable resource,” says Vivek Couto, managing partner at consultancy Media Partners Asia.
“Hooq did have a degree of first mover advantage when it launched five years ago. But perhaps what started out as strategically important for a group (Singtel) focused on moving upstream into content as it brought benefits and adjacency to their core telecoms businesses, soon became non-core or non-essential if it was required to invest even more capital to scale successfully in Southeast Asia.”
Hooq itself blamed the market context and other companies for its demise. In its own minimalist statement, it said that over the past five years “significant structural changes have occurred in the OTT video market and its competitive landscape.
“Global and local content providers are increasingly going direct, the cost of content remains high, and emerging market consumers’ willingness to pay has increased only gradually amid an increasing array of choices,” continued the firm. “Because of these changes, a viable business model for an independent, OTT distribution platform has become increasingly challenged.”
The unquestionable, albeit unquantifiable, success of Netflix in the region has certainly made the going harder for regional players such as Hooq, Iflix and Viu. According to one estimate, Netflix may be earning as much as $200 million of revenue in Southeast Asia — and that while still struggling to figure out its local production strategy in the region.
Where Hooq Diverged From Its Competitors
But Hooq’s unwillingness to point even one finger of blame at itself does not sit well with other companies, who believe that there remains a place for a regional OTT video streamer.
Those companies also believe that Singtel’s decision to end discussions of a possible sale of Hooq and simply throw in the towel, give the wrong impression of the state of the marketplace.
“Hooq and Iflix both started with the wrong business models. They learned that local needed to come first,” one business analyst tells Variety. “But Hooq’s problem was that it never fully adjusted.”
That view is borne out by Iflix director and co-founder Mark Britt, who got his company off the ground around the same time as Hooq.
“At the beginning we focused on western-centric content, and expected that people would pay for it. Both assumptions were wrong,” he says.
Both Hooq and Iflix found out the hard way that youthful, local content was what appealed to their audiences. They also discovered that while Singapore has the highest per capita GDP in the world, audiences in Hooq’s territories of the Philippines, Indonesia and Thailand are much less willing to pay for something they expect to be free. And simply making content legally available did not stop content piracy.
Both companies were forced to adjust their strategies, shifting into local acquisition, co-production and commissioning of original local content. In Hooq’s case, it struck deals with Anthony Chen, launched a talent academy, and pacted with Vice Media in Indonesia. It also claimed to have got most of the way to achieving an ambitious target of 100 new originals last year.
Both companies had to water down their SVOD models and launch ad-supported free tiers. They had to introduce “sachet pricing,” encourage impulse buying through endless discounts and special offers, and they had to ingratiate themselves with larger companies — telcos, local cable firms, payment gateways and super apps — which have connections with consumers, and billing infrastructure. Iflix learned to integrate like crazy.
If Hooq attempted to change course once in the Philippines, Singapore, Indonesia and Thailand, it took another course in India. There it sought to be a white label repackager of western content for the sub-continent. Whether that was a decision taken at the urging of Sony and Warner is unknown. But Indian OTT, dominated by Disney’s Hotstar (but also Reliance Jio, Zee5, AltBalaji, SonyLIV, and ErosNow), is as intensely competitive as its TV market. Hooq’s presence seemed an irrelevance to the market and may have been a distraction for its own management.
The widely admired regional contender Viu started out where, five years on, Hooq was still trying to get to. “Rather than focusing (our) proposition on Hollywood and international content to start with, which we saw as a crowded space with both other OTTs as well as incumbent pay-TV players, we focused on an Asian content-centric proposition,” Viu CEO Janice Lee tells Variety.
Despite its roots in Hong Kong, where it is backed telecoms behemoth PCCW, Viu became known as a leading purveyor of Korean-wave content in its territories. Latterly it has carried Thai and Chinese-language shows. Viu’s footprint once reached 17 markets, before last year withdrawing from India. “Viu developed a robust model with dual revenue streams from the get-go, based on a free/advertising-supported tier as well as a premium subscription. This has allowed Viu to monetize its video views and video minutes from year one while the markets were building up SVOD,” says Lee.
While Britt has repeatedly suggested on multiple public platforms that Hooq should have sold itself to Iflix, it is unclear whether either Iflix or Viu can now capitalize on the demise of Hooq.
Neither company feels the need to acquire Hooq’s branding (too weak), its technology (unremarkable), or its Hollywood supply lines (an expensive distraction). But if Hooq closes its doors for good, clients acquired for OTT may be lost.
Netflix is thought unlikely to pick up many Hooq refugees as a result. Its success is at the wealthy, premium end of the business and is unlikely to ever be mass market in the region.
But others still believe in the secular case for an Asian regional OTT company.
In a document issued Tuesday to Iflix shareholders, and seen by Variety, its management acknowledges that the coronavirus has blown its planned IPO off course. But it also shows viewership and advertising to have brighter prospects. Monthly active users are at a record high of 21 million, up 42% since the start of the year, while in Malaysia, where a full lockdown is in place, consumption has doubled, with advertising inventory up 200%.
“While we have seen a number of advertisers needing to pause campaigns during this crisis, total advertising revenue over the last six months is up 600% on the previous period and as a result we have hit our revenue target for Q1,” wrote CEO Marc Barnett.