COMMENT: Web-based DVD rental service Quickflix, which this week cut a marketing deal with Harvey Norman is set to face a tough future as the content delivery market hots up and new big brand players enter the market.
So will they struggle? Not in the short term, but in the long term as major telecommunication carriers, CE vendors like Sony and Apple, and TV companies like Seven Media and Foxtel start rolling out content delivery systems up against them in the Australian market.
Also set to compete with the local movie vendor is Blockbuster, which is set to roll out a major online download site. It already has 400 stores and over a million rental customers. Other contenders are search engine players like Google, Yahoo and MSN.
Right now Quickfix has as its biggest competitor, Telstra, which while not delivering download numbers for movies, does admit that its game downloads are extremely “Healthy” and that its DVD home delivery service is booming.
Talk to Quickflix executives and they all talk about the success of Netflix in the USA “We are modelled on Netflix” said one executive. The only problem is that Netflix is starting to find the going getting tough with major analysts asking, is the Netflix business model broken or edging past its prime. Will the company survive a triple-feature of lost subscribers, stock plunges and bloody price wars with archrival Blockbuster?
The opening act was brilliant for Netflix, which launched its subscription service in 1999. The company created a nifty niche, allowing customers to select and rent, via its Web site, a stack of DVD movies that would appear in their mailboxes about one business day later. Netflix quickly lured millions of subscribers while brick-and-mortar stores like Blockbuster seemed to age overnight.
Then Act Two: Blockbuster fought back. The movie-rental giant created its own online, mail-delivered rental service in 2004 and undercut the Netflix prices by about $2 a month. Both competitors kept trimming their prices for another year.
But last November, Blockbuster increased the pressure on Netflix by introducing its “Total Access” deal. Under that program, Blockbuster customers had the option of returning online-rented DVDs to their local Blockbuster store instead of sticking them back in the mail. Each online rental could be exchanged at the store for a free, in-store rental. Tens of thousands of Netflix loyalists swapped allegiances and ran to the better value.
For Quickflix the battle has not yet started, and the company is still bleeding capital, this year alone it has already gone through $1.9 million and despite signing up 18,000 subscribers it continues to make losses of around $800,000 a quarter.
However its fortunes could change when fast broadband becomes a reality. It is then that the big content providers will take Quickfix head on with original content fast downloads and bucket loads of marketing dollars to spruik their download services.
I predict that as soon as the telecommunication carriers deliver a fast broadband network we will see an explosion in organisations delivering IP based content via a web browser. And the companies that will win are organisations like Seven Media, Foxtel and the likes of Google who can every day at no cost to them promote their services to millions of consumers.
On the other hand organisations like Sony has a massive installed base of consumers who own Sony devices like a Bravia TV or PS3 Playstation. These people will be given the opportunity to download games, music and first run movies direct from a Sony web site into their Sony hardware.
This week Quickflix imitated a marketing campaign with Harvey Norman and while it will generate subscribers in the short term it will not deliver a long term benefit as consumers are not service loyal. They will go where the best deal is.
WIN TV owns more than 10 percent of Quickfix, and has been promoting it on regional TV stations, and a recent deal with Woolworths and Big W is expected to bring in additional subscribers. However will this be enough to keep it afloat in a sea of content providers all clamouring to deliver the same type of service?
More that 85 percent of the 26,000 titles in Quickfix’s catalogue have been chosen by subscribers during the last 30 days, said Quickfix MD Stephen Langsford. That catalogue now includes 101 Blu-ray and 58 HD DVD titles.
This is okay in the short term but as content delivery moves online the operational parameters will change. The biggest opportunity for Quickfix would be if an investor looking for an installed base of subscribers were to buy them out.