Market Insight

HBO investment in online rentailer marks strategy shift in Australia

February 15, 2012

David Scott David Scott Associate Director – Research and Analysis, Service Providers & Platforms

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  • HBO acquires 16% stake in Australian online video rental subscription company Quickflix
  • The investment signals an adjustment in HBO's strategic position in Australia
  • Quickflix's paying subscriber base grew 81% to just over 94,000 by the end of 2011

US premium cable television network Home Box Office (HBO) has invested A$10m ($10.3m) for a 15.7% stake in Quickflix, Australia's largest subscription-based online DVD rental service which added online streaming to its offer in November 2011.

The Investment follows the signing of a content licensing agreement between the two companies in January 2012. Quickflix will offer over 500 hours of HBO content spanning television series, films and documentaries via its WatchNow streaming service as part of the agreement.

The investment is subject to shareholder and Australian Stock Exchange approval.

HBO's entry into the Australian market commenced with the launch of the premium television service Movie Network Channels, a bouquet of movie channels founded by HBO's parent Time Warner, Disney-ABC International Television, MGM and Australia's largest independent distributor Village Roadshow, in September 2005.

HBO continues in this role today but its investment in Quickflix strategically adjusts its position in Australia. HBO's move ultimately intends to provide competition to Netflix should the US disc-by-mail and online video provider launch in Australia. As part of its international expansion strategy, Netflix launched a streaming service in Latin America and the Caribbean in September 2011 followed by similar launches in the UK and Ireland in January 2012. Netflix has indicated that it does not plan to launch in further international markets until it returns to global profitability, but should this be in the near future then a launch in Australia may follow shortly thereafter. Australia is an increasingly attractive market for streaming services with high GDP, the recent removal of data caps by several ISPs and the ongoing roll out of the country's National Broadband Network.

The investment will help Quickflix execute its growth strategy including the unveiling of new advertising and marketing initiatives to help increase the company's profile and subscriber base. Quickflix, which was founded in 2003 and has been publicly listed since 2005, increased its total subscriber base by 43% to nearly 111,000 in the year to end December 2011. Of these, almost 17,000 or 15% were trialists, a substantially higher proportion than is the case for Netflix or UK-based Lovefilm. Paying subscribers grew 81% to just over 94,000 over the same period.

Alternatively, HBO may prefer to own a stake in the leading player within the Australian market rather than attempt to compete against the service by extending its HBO Go streaming service, which the company has operated in the US since February 2010. Initial take up of Quickflix's WatchNow service has already resulted in over 10% of subscribers choosing streaming as part of their package since the streaming service launched in November 2011.

Quickflix's streaming service is integrated into a variety of devices including Sony-branded HDTVs and BD players, PCs and the PlayStation 3 games console. Quickflix is also extending its streaming service to Samsung devices including the Galaxy line of Android tablets and smart phones as part of a deal signed by the two companies in January 2012. Quickflix has also signed a range of content deals with major local and US content owners, including HBO, NBC Universal, Sony and Warner.

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