Entrepreneur

5 Reasons Why It Made Sense For Tencent To Buy Struggling Streaming Site iflix

Often considered as Netflix’s Southeast Asian rival, Malaysia based streaming service iflix has been in an unfavourable position for years, recording a net loss of US$158.1 million in 2018.

As of September 2019, it had only US$12.7 million of cash reserves, which the company estimated would be just enough capital for ongoing corporate and administrative overheads until November 30, 2019.

In April 2020, iflix announced that it would be laying off more than 50 people across its various locations as a cost cutting measure due to the coronavirus pandemic’s impact.

It also faced a looming debt crisis just weeks away from today, whereby it would have had to redeem just over US$47.5 million of convertible loans if it wasn’t listed by July 31, 2020.

Dictionary Time: Convertible loans are when investors can choose to convert the loan into shares or equity upon evaluation of your company.

iflix already anticipated being unable to meet its planned IPO back in April, but now Chinese internet giant Tencent Holdings (who owns brands like WeChat, JOOX, and Riot Games) has confirmed its purchase of the company.

At first glance, you might be scratching your head as to why, since iflix’s gradual downfall thus far should appear unappealing.

However, here are some reasons as to why Tencent sees an opportunity in iflix, in spite of all that.

1. It’s Present In Multiple Global Territories

iflix is available in 13 countries across Asia including Malaysia, Indonesia, Bangladesh, the Philippines, Thailand, Brunei, and more.

With an already established presence in these countries, iflix’s purchase by Tencent will allow the giant to expand its influence and reach a broader audience in these countries too.

In fact, Tencent did state that this move was in line with plans to expand its own international streaming platform, WeTV across Southeast Asia, leveraging on iflix’s content, technology and resources to do so.

However, it will initially run iflix as an independent brand first before merging it with WeTV as an end goal.

2. It’s Got A Vast Library Of Curated Content

Working with over 150 studios and content distributors globally, iflix has amassed thousands of TV shows and movies on its platform for free or subscription viewing.

They range from local to Western and even Asian regional content, though it cannot be argued that iflix has always had a focus on hyper-localised content.

Its offerings resonated well with the audience it attracted, most of whom had a large preference for Asian shows produced in South Korea, Thailand, Indonesia, and even the Philippines, for example.

From its track record thus far, Tencent will be able to take a back seat and entrust iflix with continuously building its own library, so that’s less work for the internet giant.

3. It’s Able To Produce Original Shows

Similar to how Netflix has been producing its original shows, iflix also began exploring the possibility of producing originals for its platform sometime in 2017.

Its dedicated short-form production studio, Studio 2:15 was on track to producing a total of 2,500 individual episodes in 2018.

By the end of 2019, iflix was aiming to add at least 12 original television series and 30 movies to its library.

Some of its originals include Indonesian original ‘Magic Hour: The Series’, and Malaysian originals ‘KL Gangster: Underworld’ and ‘Ombak Rindu: The Series’.

Image Credit: iflix

In 2018, iflix stated that each of its published iflix originals achieved the top 5 watched status in its week of release on the platform, pointing to a welcome reception by its audience.

Here, Tencent can also let iflix keep calling the shots of producing more originals, with maybe some budget injections to boost the quality of the productions.

Once merged, WeTV could easily take over the existing resources and produce originals under its own brand.

4. It’s Still Hitting Targets

Despite what seems like an overall bleak outlook for iflix prior to its purchase by Tencent, iflix CEO Marc Barnett actually reported in his letter to shareholders back in April that the company was trading well.

He reported that their monthly active users were at a record high of 21 million, and up 42% since the start of 2020.

He also added that iflix had hit its revenue target for the first 3 months of 2020. Though of course, one could say that the pandemic had an impact on increasing these numbers.

5. Tencent Will Not Take On iflix’s Debt

It appears that Tencent will play no part in lifting iflix out of debt, according to anonymous sources familiar with the matter.

They requested anonymity because they weren’t authorised to talk about the deal publicly, and gave no further information.

At the moment, it doesn’t seem like iflix’s debt is of much concern to Tencent.

With Tencent’s extensive experience in buying over all kinds of companies, they’ve most probably already calculated the risks of acquiring iflix and have a strategy to ensure financial stability in the coming future.

-//-

In May, Financial Times reported that Tencent had actually posted a profit of US$4.1 billion, exceeding the forecasts of analysts.

The pandemic worked out in its favour, growing its sales 26% in Q1 as customers quarantined at home and sought out all kinds of entertainment options under the company.

These numbers have propelled Pony Ma, Tencent’s CEO and founder who’s now worth US$50 billion, into the top ranking of China’s richest, dethroning Alibaba’s Jack Ma, who’s worth US$48 billion.

Based on all this information, it’s safe to assume that Tencent has no worries about acquiring loss-making iflix as it has the means to potentially turn things around for the streaming service.

It’s not like iflix has nothing to offer either; its past efforts now allow Tencent the ability to penetrate the Southeast Asian market with relative ease.

Therefore, iflix’s potential in bringing in WeTV and Tencent’s future ventures in this region most probably outweighs and outshines its losses.

Now’s a pretty good time for Tencent to make such a move too, since online entertainment businesses are no doubt still growing thanks to consumers’ changed behaviours in the new normal.

  • You can read more on what we’ve written about iflix here.

Fetaured Image Credit: TechCrunch on Flickr / Geekception Youtube

Subscribe to Vulcan Post Newsletter

Stay updated with our weekly curated news and updates.
 
Read more about our privacy policy here.