Foxtel boss shrugs off cost concerns after HBO extension
Foxtel boss Patrick Delany has dismissed concerns the pay TV and streaming company could buckle under rising content costs over the next few years, having signed another lucrative agreement with HBO – the US entertainment giant behind shows like The Last of Us, The White Lotus and House of Dragon.
Delany and Foxtel’s chief content officer Amanda Laing have confirmed reports by this masthead on Sunday that the pay TV company had extended a crucial deal with HBO’s parent company, Warner Discovery, giving it exclusive access to some of the most popular television shows globally, for at least another couple of years.
The deal is the fourth major agreement signed by the Rupert Murdoch-controlled media company in the last six months (it has also signed major deals with the AFL, Cricket Australia and NBC Universal). It also includes options for if and when the US entertainment studio decides to launch its own service in Australia.
Laing said costs could only be considered “too high” if they don’t translate to value. “What we bought delivers the value,” she said. “It’s a strategic decision.”
Warner Discovery was last year considering bringing its own service to market, a move that would have put a lot of pressure on Foxtel’s entertainment service, Binge, which relies heavily on HBO’s programming under the deal. But going direct to consumers in every market is no longer the priority for the larger US entertainment companies that are worried their aggressive pursuit of subscribers could damage their profits.
Foxtel’s renewed deal will initially operate as a licensing arrangement, extending its exclusive access to programs from HBO, Warner Bros, and Discovery, such as Dr. Pimple Popper, The Sopranos and Euphoria. Foxtel and Warner Discovery are planning to evolve this relationship into an aggregation or bundle deal if and when the US giant decides to go direct to market. This is the first local distribution deal for Warner Discovery since its merger in April 2022.
“If they do [come direct to market], this deal allows for it. That’s why we say it’s a multi-year, multi-faceted agreement that gives us optionality,” Delany said.
An extended deal is critical to Binge’s success, but optionality is also vital given Foxtel’s ambitions to launch its own television product and become Australia’s leading streaming aggregator (through a project called Magneto). Warner Discovery launching a standalone service rather than keeping some form of partnership with Foxtel would eat away at its subscription base.
Foxtel launched Binge off the back of the last major Warner Discovery deal, signed in 2020. It formed the programming backbone for the platform, which now has 1.3 million paying subscribers. Data from Media Partners Asia subsidiary AMPD Research suggests that the content provided under the deal accounted for 54 percent of Binge viewership in quarter four of 2022.
“Renewal of the deal with HBO and WB provides a critical anchor point to grow in Australia’s saturated SVOD (subscription video-on-demand) market,” Media Partners Asia said in a report. “The deal along with other deals Binge enjoys with NBCU, Sony and others, will drive continued customer growth and monetisation across the Foxtel group.”
Foxtel’s data backs up AMPD’s research. Laing said the season two premiere of The White Lotus enjoyed a 550 per cent increase in audience compared to the season one premiere. Episodes one to four of The Last of Us have delivered a cumulative audience of more than 1.1 million viewers per episode, and of the 44 per cent of customers who bought a Binge subscription for specific content, half of these did so to watch House of the Dragon.
“These are huge numbers,” Laing said. “We won’t talk about the specific percentage of viewing that it represents, clearly, we think it’s important content … and it’s fundamental to continue to be the driver of the continued growth of Binge.”
Delany declined to comment on how much the new HBO deal will cost, but industry sources believe the new deal is more expensive than the previous arrangement. It adds to a raft of highly expensive agreements signed by Foxtel in the last year with NBC Universal, Cricket Australia and the AFL. Revenue from the subscription video segment – which includes Foxtel and its services Kayo, Binge and Foxtel Now – fell 7 percent in the second fiscal quarter, but earnings climbed by 5 percent. Documents filed with the Australian Securities and Investment Commission last October show Foxtel has committed $2.5 billion to “broadcast rights” over the next five years, and $847.4 million to program costs in the same period.
Delany added the company was in a healthy financial position – in the “high 400s of earnings [before interest, tax, depreciation and amortisation] and kicking off a lot of cash”.
“[Foxtel is] a very different business to what it was five years ago,” he said. “None of this is inexpensive. We’ve had to pay what the market would require, which says that others feel like they would have made money out of it. We feel that we can keep expanding our revenues with these evolving platforms.”
“It’s not as though we’ve just added Warner Bros and the AFL – we already had them. And we have large cost envelopes,” Delany said.
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