QUICKFLIX (QFX) INVESTOR BRIEFING October 2012 Disclaimer This Presentation Contains References to Certain Plans of the Company Which May Or May Not Be Achieved
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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. Quickflix added streaming to Apple iPad . TimeWarner’s HBO 16% strategic investor. 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. Streaming to iPhone Streaming & iPad to Samsung, Panasonic May 2012 smart TV Launched streaming Apr 2012 HBO in NZ 16% invests Mar 2012 100k $10M Streaming paying Mar 2012 to PC, Mac, customers Launched Sony Bravia streaming TV & PS3 Feb 2012 in Consolidated Australia Dec 2011 BigPond 50k Movies DVD Nov 2011 Expanded paying Listed on customers Sep 2011 ASX national Launched 1,000 operations Dec 2010 online DVD subscribers 2006 rental Jun 2005 2004 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 $14.99. Pay-per-view latest release streaming launched in March 2012. Subscription Video On Demand content deals with Sony Pictures, Warners Bros, NBCUniversal, MGM, HBO, BBC and ITV. Now available on PCs, Macs, Sony Bravia connected TVs and Blu-ray players, Sony PlayStation 3, Samsung and Panasonic connected TVs, Samsung Galaxy Smartphone, Apple iPad and iPhone. Coming soon to Xbox. Addressable market today is the 65% of households with connections speeds of 1.5 megabytes per second or better. NBN will increase our addressable streaming market through improving connectivity in rural and regional Australia. Delivery costs of streaming are significantly lower than online DVD generating future improvement in contribution margin. Service launched in New Zealand in March 2012. 9 SECURED POSITIONING IN RANGE OF CONNECTED DEVICES Direct to lounge room or on the go. Launching in October 2012 10 CONTENT AVAILABILITY WINDOWS A combination of DVDs, SVOD and TVOD provides access to most home entertainment windows and comprehensive range. Home entertainment windows Typical movie release DVD & Blu-ray (all titles) Cinema windows TVOD PayTV IPTV (TVOD, SVOD) DVD & Blu-ray (all titles) 55,000+ titles TVOD IPTV (TVOD, SVOD) 2,000+ titles TVOD PayTV IPTV (TVOD,SVOD) 2,000+ titles TVOD IPTV (TVOD) TVOD- Transaction Video On Demand (or Pay-Per-View) SVOD- Subscription Video On Demand IPTV- Internet Protocol Television 11 OFFERING SUBSCRIPTION AND PAY PER VIEW Options to “Post” and “Play” . Subscriptions – DVD/Blu-ray (“Post”) – Streaming (“Play”) – Bundled (“Post & Play”) – Premium streaming (coming soon) . Pay per view streaming – New release rental – Pay to own (coming soon) . Pre-paid gift vouchers 12 AUSTRALIAN MARKET OVERVIEW THE AUSTRALIAN MARKET Opportunity for Quickflix in a less competitive marketplace than U.S. 2,800 On Netflix penetration levels today, Revenue (A$M) Quickflix would represent 24% of households or 2 million customers. Online DVD rental growing rapidly with streaming the next catalyst for growth. Australian market is less competitive 1,300 than U.S- low penetration of PayTV; no Amazon, Netflix or Hulu. No 600 Blockbuster online service. PayTV (Foxtel/Austar) has only 30% 20 penetration, no growth and high ARPS. Quickflix DVD & Blu-ray DVD & Blu-ray PayTV . Video store closures accelerating/ subscription rental retail subscription audiences fragmenting from free to air. 8.5 million HH; 90% with DVD player; 65% with broadband of 1.5 megabytes 14 per second or better HOME VIDEO RENTAL MARKET Australian Home video rental revenues ($m) – PwC June 2012 . PwC estimate that the 1400 CAGR overall home video rental 07-16 market will decline at a 1200 CAGR of 1.1% to 2016 . The significant decline in in- 1000 store rental (-9.5% CAGR) is offset by the growth in online 800 DVD rental and digital -1.1% downloads (+32.9% CAGR) 600 32.9% . DVD sales have declined 400 over the past 5 years over twice as faster a rate than 200 -9.5% the decline in rentals (source: AHEDA) 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 In-store rental Online DVD + digital download 15 DVD SALES AND VOLUMES Sell through spending (ex music video) ($m) – PwC June 2012 . PwC estimate that the 1400 CAGR 12-16 DVD sell through 1200 market was worth 1000 $1.1bn in 2011 800 . 600 They estimate that -11.1% total sell through 400 spending will decline at 200 a CAGR of 11.1% to 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 . DVD wholesale sales DVD wholesale volumes (‘000s) - AHEDA 120.0 CAGR to retail (sell through) 07-11 100.0 and rental have -8.5% 80.0 declined significantly -16.5% since their peak in 60.0 40.0 2007 reflecting the -7.4% popularity of online 20.0 - rental and the decline 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 of the bricks-and- Retail Rental mortar DVD rental store CONNECTED DEVICES IPTV capable devices (% of households) – PwC survey, June 2012 . Over 50% of 60 households have at 50 least one device 40 capable of being 30 connected for IPTV 20 – Excludes computers and 10 0 mobiles for OTT VOD At least one Connectable TV Connectable Set-top box Not sure Other . CLSA estimate that games console Australia will have Smart TV sets, shipments and HH penetration ($m) – CLSA, July 2012 26.9m Smart TVs by 30 100 90 FY21, achieving 100% 25 80 penetration of 70 20 households 60 15 50 – 10m TV households 40 10 – Average 2.7 TV’s per 30 20 household 5 10 0 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 17 TV AUDIENCES TO SHIFT TO IPTV Average audience per day (m) – CLSA, July 2012 . CLSA forecast that 1.6 45 CAGR IPTV will account for a 07-11 40% share of TV 1.7% 1.4 40 audiences by FY2021 35 – CLSA’s definition of 1.2 IPTV includes: Live/linear OTT, catch- 30 up TV and online VOD 1 . Significant decline in 25 53.4% 0.8 -7.9% Free TV viewing is 20 3.9% expected - CAGR of - 0.6 7.9% 15 . 0.4 Modest rise in 10 Subscription TV - CAGR of +3.9% 0.2 5 0 0 FTV (LHS) STV (LHS) IPTV (LHS) IPTV share (%) 18 COMPETITOR. No direct Netflix-like ANALYSIS 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). Australia’s only online DVD Foxtel-lite plus movies. rental and subscription Limited to Telstra broadband subscribers. streaming service. STB based. Lower cost offering than Foxtel. Low cost IPTV solution (linear + VOD). Profitable ramp-up with DVD Wholesale – bundled with broadband via select ISPs. subscriber base. STB based. Broadest range of availability Announced streaming to start in 2013 across devices Pay per view in Q1 with streaming later in 2013 – Not limited to own hardware. Adds to Kiosk and Cinema offerings – Negotiated key hardware provider access.