Business Analysis

Foxtel struggling in the streaming market

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Foxtel has been struggling to compete with other streaming services in Australia (Image by Dan Jensen)

As we have been discussing in the past, Foxtel has been struggling and is continuing to struggle in the video streaming market.

The rumour that Telstra is negotiating a majority share in Fetch could further undermine Foxtel, as Telstra still is a shareholder in this venture, be it at a much-reduced level. Its relationship with News Corp has always been a conflicting one after entering into this venture 25 years ago as a defence strategy. It appears it would like to play a far more offensive strategy.

Based on last year’s data from Telsyte, Netflix still dominates this market with 6 million subscribers (close to 13 million viewers a month), Amazon with 2.9 million, Disney+ with 2.6 million, Stan with 2.8 million and Foxtel’s Kayo Sport service at 1.1. There are a few smaller players including Foxtel Now and Binge — both Foxtel services and together they add another 1.1 million to the overall number of Foxtel subscriber services.

Other important services we should mention include: YouTube, Apple TV, Fetch, Optus Sport, Google Play, Hulu and a few smaller ones also attracting 5 million viewers a month.

In all, according to the researchers at Roy Morgan, close to 75% of all Australians watched a subscription TV service in a four-week period.

The good old Foxtel pay-TV service also still exists and has 1.7 million subscribers.

Foxtel has been struggling ever since it arrived in 1996. Their aim of 75% household penetration by the year 2000 never eventuated. At its heights in the mid-00s, it had close to 30% penetration. Customers paid on average $100 a month for the service. 

There was no way Foxtel could compete with a $10-a-month service offered by Netflix when it entered the market in Australia in 2015. It basically let Netflix rip through its market. From that time onwards, for Foxtel to survive, it lowered its price for its pay-TV service and started to launch a range of streaming services. Most of them failed. The latest disaster is the app-based service, Foxtel Now.

So, In 2020, it launched yet another streaming service — Binge. After all those years of hitting its head against a brick wall, it now has put its pricing in line with the competition. Binge costs between $10 and $18 a month, based on the package.

Foxtel released its earnings earlier this month where it reported a total number of 3.9 million pay-TV and streaming services. However, its revenue further dropped 3% to US$498 (AU$683).

The saviour for Foxtel is and has always been its sports content. It is basically for that reason that Foxtel survives in Australia, with a consistently high number of sports fans. However, this market is limited — once you have saturated the sports fan market, there is little room to grow and the growth of Kayo Sport is now flattening.

Kayo, Binge, Foxtel Now and whatever the company will come up next with will never be able to compete with the services of the global players. In the past, Foxtel, through News Corp, has been able to conclude lucrative distribution deals with the big production studios. However, these organisations are increasingly moving directly into the consumer market with Paramount+ being the latest player to enter the Australian streaming market.

The problem for consumers is the costs of all these services. Over 50% of households subscribe to two or more different streaming services. According to Deloitte, the national average spend is around $55 a month. Indications are that this is more than the maximum people are prepared to pay for their entertainment, so how many more services can you add to the package. To manage their costs, we see a large number of consumers subscribing, unsubscribing and using free trials to stay within their budget.

At the same time, the costs for the companies operating in this market is increasing so something will have to give.

A logical direction would be an aggregation model. An online supermarket model for entertainment services (video, music, gaming). As we discussed last week, online gaming is where this battle is taking place now. It is not hard to see that companies such as Amazon, Google and Apple are the prime contenders to operate in this “supermarket” space.

While there potentially would also be a role to play for the telecommunications companies, their track record in the digital space has been appalling. While the opportunity for them is there, it is hard to see that they would be able to operate as successful aggregators in this market. But then, you never know.

Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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