There is no doubt that Foxtel has made important strides in securing its long-term future.
First, Foxtel has significantly lowered its cost base after axing around 270 permanent jobs at the beginning of the coronavirus pandemic.
Second, Foxtel has secured vital exclusive content deals, including beating local rival Stan for Warner Bros, WarnerMedia, HBO and HBO Max content.
Finally, Foxtel launched its low-cost Binge streaming service in late May, which offers compelling drama content and complete seasons of popular TV shows to compete directly with its low cost streaming rivals.
Despite these strides, Foxtel is still facing a precarious future:
Rupert Murdoch’s Foxtel is under attack on many fronts, from specialist sports streaming services, Netflix, Stan and Amazon Prime to Kevin Rudd’s cancel News Corp petition. A new tie-up between Fetch TV and a cloud application platform ratchet’s up the pressure…
It is getting harder and harder for Foxtel to compete on so many fronts…
Foxtel reportedly has 2 million traditional Foxtel cable and satellite subscribers. One would presume this subscriber number would remain steady because all the people who wanted to cancel would have during the pandemic.
However, Foxtel would no doubt be losing the subscribers who are only interested in sports to its related-company Kayo, which now has 600,000 subscribers. With no contracts to sign, it is easy for subscribers to switch off when the AFL/NRL seasons are over. I am guessing that apart from rusted-on sports superfans, Kayo subscriptions would be very seasonal…
Foxtel are also in quite a lot of debt… At what point of low subscriber numbers will Foxtel parents’ News Corp Australia and Telstra decide it’s not worth it any more?..
Foxtel has a number of structural problems that will be difficult to overcome.
First, Foxtel operates only in Australia and lacks economies of scale. This is in stark contrast to global rivals Netflix, Amazon and Disney who have only entered Australia as an afterthought for the purposes of making some extra money for little additional effort. They have already made their required rate of return in the global market and do not need to succeed in Australia to survive.
Second, Foxtel is still saddled with a high cost base. It’s traditional broadcast business requires an army of staff, sound engineers and satellites. And it has to manage traditional expensive legacy hardware like cable boxes.
Third, Foxtel faces cannibalisation of its own subscriber base and falling average revenue per user as subscribers migrate from traditional high margin cable to lower margin subscription video-on-demand (SVOD) offerings like Kayo, Binge and Foxtel Now. These SVOD services typically do not contain ads and are priced well below Foxtel’s traditional cable offering.
Finally, Foxtel is saddled with around $2.5 billion in debts which needs to be refinanced or repaid.
Perhaps the best that Foxtel can hope for is to replace falling subscriptions in traditional broadcast cable with online SVOD. But even if this occurs, Foxtel is facing crunched margins and bigger losses.
The question is, will Foxtel’s owners – NewsCorp and Telstra – tolerate bleeding money? Or will they grow tired and pull the pin?
Only time will tell.
