Singtel's streaming service Hooq files for liquidation

Singapore

HOOQ Digital, a joint-venture firm in which Singtel has a 76.5 per cent effective interest, has commenced a creditors' voluntary winding-up.

A shareholder meeting as well as a creditor meeting will take place on April 13, the loss-making video-on-demand streaming service provider said in a media statement on Friday.

Provisional liquidators Messrs Lim and Brendon Yeo will oversee Hooq's ongoing operations in the interim.

In the five years since the firm was founded, "significant structural changes" have occurred in the over-the-top (OTT) video market and competitive landscape, Hooq said. OTT film and television content is provided via high-speed Internet instead of a cable or satellite provider.

"Global and local content providers are increasingly going direct, the cost of content remains high, and emerging-market consumers' willingness to pay has increased only gradually amid an increasing array of choices," Hooq said.

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As a result, a viable business model for an independent OTT distribution platform became increasingly challenged, it added.

Hooq has thus been unable to grow sufficiently to provide sustainable returns while covering escalating content costs and the continuous operating costs of the platform.

"These are permanent structural changes that will not be alleviated even as more people turn to digital entertainment options while staying home amid the Covid-19 outbreak," a company spokesman told The Business Times (BT) .

The company's liabilities climbed 78 per cent year on year to US$70.8 million as at March 31, 2019, - all coming due within 12 months from that date, documents filed with the Accounting and Corporate Regulatory Authority (ACRA) show. Total liabilities to equity stood at -1.31 times.

Compared to the surge in Hooq's liabilities, total assets grew at a slower pace of 17 per cent to US$17 million for FY19 ended March 31.

Although its FY19 revenue more than doubled to US$21.9 million from US$10 million a year ago, Hooq still sank deeper into the red with a pre-tax loss of US$62.5 million for the year, widening from the US$56.6 million loss in FY18, ACRA records show.

BT understands that Hooq's creditors include content providers such as studios whose movies or shows are streaming on the platform.

A source familiar with the matter told BT that, at the moment, it is difficult to estimate the return for Hooq's creditors in a liquidation. "The question now is how much such a video-streaming business is worth, including market share and how many eyeballs it grabs for its content. It's hard to peg a value to it," the source said.

DBS Group Research analyst Sachin Mittal found it "a bit surprising" that Singtel has given up on the OTT space, as the telco had wanted to capture growth in the market in Asia.

Hooq was incurring S$15-20 million losses each quarter, but this financial bleeding is likely to stop from Q1 FY21 if it is wound up, Mr Mittal said. That will thus give a boost of S$60-65 million each year to Singtel's bottom line, he added.

DBS raised its earnings forecast for Singtel by 4.5 per cent for FY21 and by 2.5 per cent for FY22, after including a one-off benefit of S$65 million in FY22 from Singapore's enhanced Wage Credit Scheme.

Janice Chong, Fitch Ratings' director of Asia-Pacific corporate ratings, told BT the OTT business is challenging amid "intense competition" in video-streaming services, significant content investment required and the lack of ability to monetise content for telcos. Other players in the OTT space include Viu, iFlix and Catchplay.

Singtel said it does not expect Hooq's liquidation to have a material impact on the telco's net tangible assets or earnings per share.

For its third quarter ended Dec 31, the bulk of the S$336 million in operating revenue from the digital life segment came from digital marketing arm Amobee. The remaining S$12 million mainly comprised Hooq and DataSpark revenues. Operating revenue from digital businesses made up 7.4 per cent of the S$4.38 billion group operating revenue in the quarter.

Fitch's Ms Chong said there is an "intensifying" need for the telco to turn around its digital life segment, due to challenging growth prospects in Singtel's home markets and impending 5G capital expenditure which are both putting pressure on the group's cash flows.

"Amobee, the largest portion of Singtel's digital life segment, is already Ebitda-positive, and the quickest solution to turn around this segment could possibly lead to the discontinuation of loss-making Hooq operations," she added.

The provisional liquidators typically would be looking at options for Hooq, which may include a possible amalgamation with competitors, BT understands.

Creditors will decide on a plan for Hooq when they meet next month. "It's not over till the fat lady sings. There might still be hope for Hooq," the source said.

Singtel, Sony Pictures Television and Warner Bros Entertainment established Hooq in 2015.

After the liquidation was announced, DBS increased its price target for Singtel to S$2.85 from S$2.80, and maintained its "buy" call.

Singtel shares gained S$0.05 or 2 per cent to close at S$2.57 on Friday.