Last week, Foxtel retrenched 200 employees, with another 140 stood down until the end of June.
The retrenchments were presented to staff and shareholders as a response to the coronavirus pandemic, which has cancelled live sporting events across the world, including Foxtel’s prized 2020 AFL and NRL seasons.
Foxtel is the market leader in live sports broadcasting. Therefore, the cancellation of sports events has seen thousands of customers rushing to either cancel or downgrade their subscriptions.
The retrenchments were a desperate move by management to stem losses and keep the company viable for the long run.
The harsh reality is that the coronavirus has merely accelerated Foxtel’s demise, not caused it.
Before the coronavirus, Foxtel was already drowning in $2.3 billion of debt and was losing both subscribers and market share against its streaming rivals:
The company’s fate was sealed in early 2016 when Netfix, Stan and Presto first entered the Australian market.
They offered ad free high definition streaming services for a fraction of the cost of Foxtel without needing to enter into binding contracts or requiring hardware.
Immediately, barriers to entry were smashed and Foxtel lost its monopoly over subscription television services. It was also left carrying the cost of expensive legacy hardware like cable set top boxes.
Since then, other competitors have entered the Australian market, including Amazon and Disney. Each offer good quality streaming content at cheap entry prices, and Australian consumers have greeted them with their wallets.
For its part, Foxtel’s management was far too slow to recognise the changing competitive landscape and adapt. It was too slow to shift into online streaming with Foxtel Now and Kayo Sports. Moreover, at $25 a month for basic packages, they remain price prohibitive against their rivals, which are typically priced at less than half the cost per month.
The question now is: can Foxtel survive, or is it facing an inevitable collapse?
In its current half-pregnant form of traditional broadcast cable mixed with video-on-demand, I believe Foxtel will eventually collapse. Its cost base is simply too high.
However, if Foxtel can transform itself into a ‘lean and mean’ streaming platform like its competitors, then it has a future; albeit a stripped down version of itself.
This transformation would require Foxtel to axe its broadcast component and legacy cable infrastructure. Both are capital and labour intensive and expensive to run.
This would mean having no hardware, no studios, no satellites, no engineers, no journalists, and no news readers. It would also mean syndicating news and sporting content instead of producing it.
In short, unless Foxtel can transform itself into a lean, low-cost operation, then it will likely continue to bleed market share and profits to its streaming competitors and eventually close down.
