Malaysia video service iflix cuts staff as debt deadline looms

SINGAPORE — Malaysia’s iflix has laid off an undisclosed number of its staff, market sources say, as the on-demand video platform faces uncertainties related to the coronavirus outbreak and as a key debt deadline approaches.

DealStreetAsia understands that the number of staff affected is fewer than 65 and they are scattered across functions and markets. Iflix is available in 13 markets in Asia, including Malaysia, Indonesia, the Philippines and Thailand.

In a statement to DealStreetAsia, iflix chief executive Marc Barnett described the layoffs as a response to the uncertainties surrounding the impact of the spread of the novel coronavirus around the world.

“The industry is not immune to these unprecedented circumstances,” Barnett said. “Our decision to reduce the company’s headcount has come after careful consideration and in conjunction with other cost-cutting measures, to enable the company to endure this indefinite and uncertain period.

“We remain focused on driving the business through to breakeven in 2021 and these steps are part of ensuring we remain on that path and can navigate the current challenges.”

The layoffs will reduce costs for iflix as a key July deadline approaches for the company to complete a public listing. According to financial information filed with the Australian Securities and Investments Commission in September 2019, iflix might be forced to redeem just over $47.5 million of convertible loans if it is not listed by July 31, 2020.

DealStreetAsia in January reported a story, based on multiple industry sources, that the planned initial public offering in Australia had been deferred and that the company was seeking to raise about $50 million from existing investors.

Iflix, which was founded in 2014 and is backed by Southeast Asia internet company Catcha Group, had last disclosed raising capital from Fidelity International, MNC Group, Yoshimoto Kogyo and JTBC in 2019. Its earlier investors include Hearst Communications, EDBI, Liberty Global, Zain, Sky and Evolution Media Capital.

It is not known if the convertibles, issued in February and June 2019, have already been converted, or can be before the listing deadline arrives. But even without the threat of debt redemptions, iflix has been burning cash.

As of the end of 2018, iflix had a net liability position of $68.6 million, including $77.7 million of negative working capital. As of September 2019, after adding funds raised that year — comprising the $47.5 million of convertibles, $3 million of series C preference shares issued in lieu of content and $15.5 million of ordinary shares issued in lieu of content and marketing payments — the company had $12.7 million of cash reserves. In the filing, iflix estimated that it would only have sufficient capital to fund ongoing corporate and administrative overheads until Nov. 30, 2019.

The company has not announced any additional funding since then.

Barnett’s goal of hitting breakeven in 2021 will require significant improvements to the company’s economic position. The company’s net loss widened in 2018 to $158.1 million from a $120.4 million deficit a year earlier. Iflix did, however, narrow its operating cash burn in 2018, reducing net cash flows used in operations to $25.5 million from $67.4 million in 2017.

This week’s layoffs are not the first for iflix, which has let go of staff at various points since 2016, and serve to emphasize the increased pressure faced by Southeast Asian streaming services as they compete with U.S.-based Netflix and other international players.

In March, Singapore-headquartered streaming service HOOQ Digital filed for liquidation, citing an inability to provide sustainable returns and cover escalating costs. HOOQ was backed by Singapore telecom Singtel and global entertainment groups Sony Pictures and Warner Bros Entertainment.

Insignia Ventures founding managing partner Yinglan Tan says he is not surprised to learn of iflix’s layoffs, describing a “larger, overall slowdown” of the early local players and noting the deferred IPO.

“They have long been weighed down by competition from both supply consolidation in media and globalizing distribution in streaming,” Tan said of HOOQ and iflix. “They couldn’t grow fast enough to acquire a significant, defensible user base nor was their original content able to catapult them into sustainable market leadership in the same way that, say, House of Cards did for Netflix.”

The pandemic-driven social distancing measures in the past several weeks have actually been a boon for content and streaming platforms, with Netflix, Disney, Amazon and YouTube all having to reduce streaming quality to handle the surge in traffic. But early local players such as HOOQ and iflix may have struggled to properly capture that trend, Tan said.

“The social distancing measures have certainly been an opportunity for these content and streaming platforms to strengthen adoption, but opportunity needs to meet firepower (capitalization) and direction (a long-term plan),” he said.

“This is a case where the rising tide doesn’t necessarily lift all boats.”

DealStreetAsia is a financial news site based in Singapore that focuses on corporate investment activity in Southeast Asia and India. Nikkei recently announced the acquisition of a majority stake in the company.

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