Foxtel’s subscriptions boom, revenues bust

One of the biggest structural problems facing Foxtel as it vies to survive in Australia’s increasingly crowded subscription video on demand (SVOD) market is self cannibalisation.

In order to compete against cheaper streaming rivals like Netflix, Amazon, Disney and Stan, Foxtel has introduced online offerings, such as its Binge drama package and its Kayo Sports package.

This pivot to online streaming has cannibalised Foxtel’s own subscriber base by shifting customers away from its traditional high-priced, high-margin broadcast cable business.

It has also shrunk Foxtel’s advertising revenue, since ads are far more prevalent on its cable service than its streaming service.

The end result is that Foxtel’s margins have been crunched as average revenue per user has shrunk, despite growing overall subscriber numbers.

Evidence of this cannibalisation is evident in majority owner NewsCorp’s latest financial report, which recorded a 4% revenue decline for the first quarter:

News Corp says this fall in revenue is driven largely by a fall in residential broadcast subscribers…

Foxtel’s total paid subscribers was 3.287 million as of September 30. This is a 7% increase compared to the year prior. This growth is primarily driven by growth in subscribers for its sports streaming app Kayo and its newly-launched entertainment app Binge partially offset by lower residential and commercial broadcast subscribers…

As of September 30, there were 681,000 Kayo subscribers, 644,000 paying, compared to 430,000 subscribers, 364,000 paying, the prior year…

Binge, which launched in May, had 321,000, 290,000 paying, subscribers as of September 30.

Cannibalisation will continue to plague Foxtel into the future as it is forced to compete harder in the ever-growing SVOD market.

Unlike its online only peers, Foxtel’s cost base is high due to having to maintain legacy cable hardware and infrastructure, as well as having an army of staff, sound engineers and satellites tied to its broadcast service.

Foxtel also only operates in Australia, meaning it lacks economies of scale. This is in stark contrast to its streaming rivals Netflix, Amazon and Disney, which operate across the globe and do not need to succeed in Australia to remain financially viable.

Despite making big strides this year, including securing an exclusive HBO content deal and cutting employee costs (after retrenching 270 permanent staff), Foxtel still faces an uphill battle to survive.

Unconventional Economist
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  1. run to the hillsMEMBER

    I cancelled my Foxtel subscription just yesterday having been a customer for 20 odd years, they threw the kitchen sink at me to stay. There is a 15 minute wait to speak with someone. When I say I wish to cancel my subscription firstly they offered to drop my monthly payment from $82 to $57, I asked why they hadn’t offered this reduction previously. When I mentioned I would just join Kayo to get the sports channels the girl gave me a long story that she was a former Kayo subscriber herself but that unless you have lightning fast internet there is too much buffering and it won’t stream properly, so she subscribed to Foxtel, my reply was “so they have Foxtel in Bangalore do they?” Their last ploy was offering to give discounts to any friends or family who are already Foxtel subscribers, if I was to stay subscribed. She kept asking me to wait for “processing” whilst coming up with endless reasons to stay subscribed, which was obviously deliberate. After about 15 minutes I totally lost it with her and launched into a rant about Murdoch/Sky News/Fox News and their coverage of the US election and that that was the main reason I’m bailing, not long after that I was out. They are absolutely DESPERATE to keep their subscribers. If anyone here is a Foxtel subscriber I suggest you ring them and threaten to cancel and you’ll likely get yourself a nice discount for yourself and any family members who also subscribe.

    • darklydrawlMEMBER

      Similar experience (cancelled after 20 years the other month). Mind you I regularly rang them and tore strips off them for not giving me the best price available, so I hadn’t paid top dollar for Foxie in years – everytime they had a promo with a cheaper price I was on the phone and demanding I get that price.

      Like you I got the run around trying to cancel and was offered endless options – most of which were worthless to me (On a side note I ended up speaking to a South African call centre – it was the middle of the covid lockdowns so the SE Asian sites might of been closed…). I haven’t missed it a bit. Should have cancelled the thing years ago.

    • My question is, with all the expenses of running a network like Sky News – and the fact they are giving it away in regional areas – how long can Foxtel/Telstra continue to justify its existence?

      Credlin, Bolt, Jones and that bearded guy will be very expensive. Also advertisers on Sky News are being targeted by activist groups for supporting its right wing agenda, further reducing its income.

      At what point will shareholders start asking hard questions?