Telstra boss Andy Penn has expressed confidence in the long term-outlook for Foxtel and says the telco is committed to its investment in the pay TV platform, despite fierce competition from rival streaming services and its large debt pile.
Mr Penn, who presented at a CEDA event to discuss the future of the workplace, told The Sydney Morning Herald and The Age that despite Foxtel’s challenges, it still made sense to offer telco customers the product and to invest in the company.
“I am committed to [Foxtel],” Mr Penn said on Thursday. “The demand for content has never been greater… demand for people wanting to watch great content – live sport – is increasing.”
Mr Penn’s comments follow a week of significant change for the local streaming market which included the launch of a “freemium” model for Foxtel’s sports platform Kayo Sports. Rival Stan (owned by Nine Entertainment Co, the publisher of this masthead), unveiled its pricing for its sports product.
“Foxtel’s challenge as a traditional broadcaster is to deliver,” Mr Penn said. “It’s a difficult transition but I think Foxtel are doing that now with Kayo and Binge and we are committed because we know our customers value that content and to couple it with communications makes a lot of sense. I’m confident that Foxtel over the long term will be successful.”
Foxtel, once a dominant pay TV company, has faced increased competition in recent years because of the arrival of offshore streaming giants such as Netflix and Amazon Prime and local players such as Stan. The pressure has prompted industry speculation that Telstra, which owns 35 per cent of Foxtel, may want to sell its stake to Rupert Murdoch’s News Corp (which owns 65 per cent).
Mr Penn’s commitment to Foxtel comes during a challenging period for the pay TV company. According to News Corp’s most recent financial statements, Foxtel had $US965 million ($1.3 billion) in debt, excluding related party loans.
Telstra extended Foxtel a $170 million loan last February so it could pay the telco the fees owed for using its cables and as the coronavirus pandemic hit, the company renegotiated the amount it paid for broadcast rights to the NRL and AFL and implemented a major cost-cutting drive.
Months later News Corp announced a $1.4 billion writedown of Foxtel due to intangible assets and an impairment on goodwill. It resulted in a $300 million writedown by Telstra of its stake to $450 million.
MST Marquee partner and media analyst Fraser McLeish said Telstra would not be overly concerned with the challenges as long as it didn’t need to inject Foxtel with more cash.
“As long as they don’t have to recapitalise it, it’s not costing anything,” he said. “That is the key – if they had to recapitalise it again then that would be a decision point for them.”
The Sydney Morning Herald and The Age revealed in December News Corp and Telstra had received a $US2 billion offer for Foxtel from a special purpose acquisition company linked to US cable TV veteran Leo Hindery mid-year, but the bid was rejected. It is unclear why it was rejected, but some industry sources indicated at the time it was below News Corp’s valuation of the asset.
The SPAC would have acquired a major stake in Foxtel and paid off a large amount of the pay TV company’s $2.1 billion debt pile.
According to the US-based media company’s most recent results, Foxtel revenue fell by $US18 million to $US496 million in the first quarter, despite a spike in subscribers across Kayo Sports and entertainment streaming service Binge.
“The focus for Foxtel has to be on turning it around and trying to get back to some kind of earnings growth,” Mr McLeish said. “If they do that there may well be some options around what they can do corporately. They were talking about IPO previously but I don’t think that’s an option while the business is going backwards.”
Total paying subscribers increase by 7 per cent to 3.29 million as of September 30, 2020. Kayo has 681,000 subscribers (644,000 paying) while Binge has 321,000 users (290,000 paying), an increase of 67 per cent. Mr McLeish said Foxtel needed to stabilise its revenue through growing its streaming platforms.
“They need Kayo and Binge to more than offset the declines in broadcast subscribers and at the same time reduce the cost base. It’s not easy but that’s what they’ve got to.“
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