The Murdoch-owned News Corp is considering the sale of its Australian pay TV subsidiary, Foxtel, following an announcement in its second quarter results last week that it had received a third-party offer. Foxtel is Australia’s biggest pay TV provider currently boasting 1.2m paying subscribers at the end of June 2024. In addition, Foxtel owns two streaming services in Australia: the entertainment-focused Binge, which has exclusive rights to HBO Originals in the market, and the sport-focused Kayo Sports, which has the same rights as parent Foxtel in the market, which includes events such as the AFL, NRL and International and Domestic Cricket.
However, Rory Gooderick, Senior Analyst, Ampere Analysis, explained that the past few years have not all been plain sailing for Foxtel. Its high-margin pay TV customer base has been steadily declining since 2016, dropping to 1.4m in its most recent quarterly results, driven away by the lure of cheaper (although progressively more expensive) streaming services. While Foxtel has seen good growth within its own streaming business, it is an industry with small margins and big competition, with the deep purses of Netflix, Stan, Disney+ and Amazon Prime Video all vying for Australian eyeballs. Meanwhile, from a content perspective, Foxtel’s Binge has a competitive advantage due its exclusive access to HBO Originals in Australia, a perk it has maintained since it launched in 2020. With the long awaited launch of Warner Bros. Discovery’s Max streaming service in Australia speculated to take place next year, it risks losing the crown jewel in its content portfolio - or, at the very least, losing its exclusivity for this content.
Foxtel’s declining cable business could make it a risky proposition for potential sale. However, its position in the Australian market, the sports rights it holds, and its streaming business could present an attractive opportunity to the right buyer. Firstly, Foxtel has the most comprehensive sports rights portfolio of any company in Australia, with current deals with the AFL, NRL, PGA Tour, Formula One, and the likes of the NBA and NFL through a carriage deal signed with ESPN back in 2002. The AFL and International Cricket rights are signed until 2031, and NRL rights until 2027, although it should be noted that these contracts may include “change of control clauses” - meaning there is no guarantee that the rights will not be re-valued or re-structured as they roll over to a new buyer. Sports are a hugely important component of drawing in and retaining subscribers, particularly high-ARPU pay TV subs. Ampere Sports - Consumer data shows that for 51% of sports fans who subscribe to Foxtel sport is the only thing keeping them from unsubscribing from their pay TV platform.
Additionally, Foxtel has had some success with its manoeuvre into streaming. Its Kayo Sports and Binge streaming services are in roughly 2.5m households across Australia, and have so far performed well against competition from the international players in the market. Moreover, an exciting recent move from Foxtel has been its expansion into aggregation through its flagship Hubbl product, which is a streaming-first TV service where customers can combine Foxtel’s premium channels, streaming services, and free-to-air (FTA) channels in one location. While it’s still early days for the aggregator service, initial data from the company reports 70% of sign-ups to Hubbl were existing Foxtel users. While it's not clear exactly which products these customers had used previously, it suggests Foxtel may be successfully catching cord-cutters from its pay TV business and converting them into Hubbl subscribers.
So far, no details have emerged on which company approached News Corp about buying Foxtel. Telstra, whilst theoretically having good synergies with Foxtel, has lent their in-principle support to a sale of Foxtel, with Telstra chief executive Vicki Brady telling Australian reporters this week that “if it got to the stage where there was an offer for Foxtel at the right level of value, then yes, we would be supportive of that with News Corp." Australia’s second largest telco Optus, which is owned by Singtel, is another potentially interested party. In addition to the mobile and broadband consumer synergies, the combination of Optus Sport, which has the rights to the English Premier League and FA Cup, and Foxtel’s Kayo Sports would create a sports powerhouse in Australia. Additionally, with recent inroads into aggregation through its SubHub subscription management tool, acquiring Foxtel’s Hubbl would allow it to directly compete against Telstra TV in the Australian TV aggregation market. Coincidentally, Optus Sport launched on Hubbl last week. One other interested party could be Australian commercial FTA network Nine Entertainment. With the prospect of Binge losing exclusivity to HBO Originals when Max launches in Australia, the combination of Binge with Nine’s Stan, which is the second largest content commissioner in Australia and second largest sports broadcaster by spend on sports rights, would make a strong local rival to the increasing competition from abroad.
Finally, one other potential match here could be NBCUniversal and Sky UK owner, Comcast. The two already have an existing relationship through Hubbl, which is powered by Comcast’s Entertainment OS, and the acquisition of Foxtel’s pay TV operations would complement Comcast’s ownership of Sky Group in the UK, which it outbid News Corp for back in 2018 - allowing for business synergies across both companies. However, whichever company decides to take over Foxtel will have to deal with the challenges of navigating its declining pay TV business, a scenario that is becoming all too familiar for studios and networks across the world in 2024.
Related News
