Listed movie rental business Quickflix says it is choosing to continue operating at a loss in order to pump more funds into customer acquisition, after posting 68% growth in customer numbers over 2009-10.
The comments from executive chairman Stephen Langsford come after the company announced yesterday it had 55,367 subscribers at June 30. It also said it will launch a digital distribution product this year to stream films on PCs and iPads.
Langsford says the company is closely watching the success of Netflix in the US, which has also launched digital streaming over iPhones and iPads, to accompany its mail-based rental service for DVDs and Blu-Ray discs.
It has achieved significant success in the US, recording 13.9 million subscribers during the first quarter of the year, and expects revenue of up to $2.16 billion for the full financial year. Net profit is forecast to be between $132-144 million.
In comparison, Quickflix, which counts entrepreneur Simon Baker as an investor and board member, recorded revenue of $2.23 million during the June quarter and operating payments of $2.43 million. It finished the quarter with a net cash balance of $0.98 million.
But Langford says he is happy with the result, considering the company’s growth rate.
“It took us six months to get to our first 500 subscribers. We had 2,000 subscribers in 2005 and in the last week we’ve been close to getting 1,000 subscribers a day – it’s making life much easier.”
But the company has not yet made a profit. Langsford says while the company could be profitable now, it wants to put as much money into marketing and gaining new subscribers as possible, so it can reach a point where the company is self-sustaining.
“I don’t want to give a specific target number, but we’ll be going pretty hard over the next 12 months. If we wanted to cruise along now, we could. But we want to run hard, and we want to be fully self-funded.”
Langford says the company should reach that point within a year, given the previous quarter’s growth rate.
“We may yet see our strongest quarter in September, and we think we have a pretty solid marketing line-up through the next three quarters. The issue for us is letting people know about us, because many don’t know about us at all.”
Part of the company’s marketing strategy is a push into digital distribution – an early version of which should appear later this year with some limited titles. The company has already released an iPhone app, but Langsford says being able to stream over the internet will provide more convenience and attract more customers.
“We will launch a service sometime later this year. We’ll have a few titles, and then expand. We’ve made a significant investment in digital delivery, and we think the iPad is a fantastic device for a streaming service. You only need to look at Netflix to see how it can work.”
Langsford says the company’s iPhone app, which already allows users to queue films for rental delivery, has been expanded for iPad compatibility. The iPad, he says, will be perfect for streaming films.
But overall, the company’s strategy is still focused on the original mail-based transactions.
“The digital offering will complement our Blu-Ray and DVD offers. The reality is that in the US, 95% of Netflix transactions are still by mail.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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