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An important Foxtel announcement...

Earlier in the month, News Corp (owner of Australia’s Foxtel) CEO Robert Thomson made the surprise announcement that “potential buyers had emerged for the Foxtel business during a review of the company’s assets.” What is most stunning about this is not that the company is attempting to sell off a cable business in structural decline, but that it also includes the company’s streaming offerings Kayo, Binge and even Hubbl.

Murdoch and his associates have made prudent decisions in the past, splitting News Corp’s media and entertainment assets early last decade and then selling the majority of its (21st Century Fox) entertainment assets to Disney for US$71 billion a few years later, all but exiting the ‘streaming wars’ in the US. Murdoch knew what Disney didn’t: his entertainment assets were not strong enough to compete with Netflix or even Amazon.

But what does the potential sale of growing assets like Kayo, Binge and Hubbl say about the current competitive dynamic in the TV market? We can look to the US to glean some insights.

Houston, we have a problem…

For example, Warner Bros. Discovery reported earnings this month, and despite owning some of the highest quality TV assets in the world (Game of Thrones), it wasn’t pretty. The company’s revenue growth stalled as its cable and broadcast businesses go backwards, only partially offset by growth in the company’s streaming service Max (formerly HBO Max). The company’s cost cutting helped just a little, with the company making a US$9.1 billion write-down in the value of its traditional TV networks business. Meanwhile, Paramount (owner of Channel 10 here in Australia) booked a similar charge, but for a smaller sum of US$6.0 billion, with attendant reductions to its US workforce of 15% (2,000 employees).

So collectively, Warner Bros. Discovery and Paramount erased US$15 billion in value from the traditional TV business in a week. It is the much faster decline in cable television in the US that is forcing these once-were-giants to double down on their global streaming aspirations. This is existential.

Unfortunately for News Corp and Foxtel, HBO, the provider of the most attractive content on Murdoch’s Binge streaming platform (House of the Dragon, The White Lotus, Succession) is entering the Australian market as early as 2025. It is unlikely that Binge will hold on to HBO’s premium programs for much longer.

Sport: same-sized audience, higher costs

Cord-cutting (cable subscribers cancelling in favour of streamers like Netflix) is not a new phenomenon. However, sports content has been cable’s marquee asset. Sticky (in the sense that they don’t move once their team-based bundle is set) sport-viewers have been willing to pay cable subscription prices that grow fast enough to offset the revenue lost to those who ditch the cable bundle and stream instead. This precarious arrangement persisted until last year, when the cable operators (who bundle entertainment content) pushed back (more detail in the insight from September last year: Disney Blinks in the TV streaming wars).

While it has become harder to raise the prices on cable, the cost of cable’s keystone sport content is climbing – squeezing the legacy players on both sides. Sports leagues across the world know that their content is an incredible drawcard. In Australia, this has led to a A$4.5 billion seven-year deal for the AFL (up from A$2.5 billion in 2015) and a A$2 billion five-year deal for the NRL (up from $1.8 billion in 2015). In the US, it’s the same problem, but supersized – US$110 billion for an eleven-year deal for the football (up from a US$28 billion nine-year deal) and US$76 billion for the NBA (up from a US$24 billion 9-year deal).

The movement of sports away from cable and onto streaming is still in its early days. However, the writing is on the wall. Foxtel is moving from a world in which it can charge $90/month for a bundle of what is effectively just news and sports to charging between $25 and $35/month for those very same (increasingly expensive) sports.

Foxtel’s answer to these problems…

is far from obvious – it has launched a set-top box for the streaming world: Hubbl. But this is a decade late, with the market now dominated by the likes of Amazon Fire TV and Google TV in Australia (and Roku in the US). Sam Buckingham-Jones of the AFR puts it succinctly:

“In the face of this, Foxtel has spent $77 million launching Hubbl, a confusing answer to a question no-one was really asking. The numbers circulating of how many Hubbl units have been selling at major retailers are, to put it mildly, rough.”

And so it is that every single part of Foxtel’s streaming strategy is challenged. Fun fact: just like it was in the HBO program Succession!

Is it all ugly and bad? What about the good?

We have long maintained that the companies best positioned within the streaming theme were those that weren’t cannibalising themselves (pure plays) and which are not saddled with extraordinary amounts of debt.

Netflix continues to lead the pack in general entertainment, growing subscribers on its long, long runway, raising prices as engagement grows and now with a fast-growing advertising business (the company points to a >150% increase in ad sales during negotiations this year compared with 2023). It’s also dipping its toe in the water in a smart way in sport – from a position of strength, with NFL Christmas Day specials (no billion-dollar price tag) and a ten-year global deal for wrestling (WWE’s flagship Monday Night Raw).

Meanwhile, Roku as the TV platform for almost half of American broadband households seems well-positioned to benefit from the ongoing shift in viewing to streaming and the likely step-change that occurs as a result of the proliferation of sports streaming.

Industry commentators have been talking about the demise of cable (and linear TV) for decades. Now, with unprecedented TV asset write-downs, surprise business exits from legacy players and sports finally moving to streaming in the US, winter might have finally come. We are positioning investors accordingly.

 

Harry Morrow is a Senior Investment Analyst, and Tom Keir is an Investment Analyst at Loftus Peak. This article is for general information only and does not consider the circumstances of any individual. Loftus Peak Global Disruption Fund (ASX:LPGD) is available to investors on the ASX as an active Exchange Traded Managed Fund.

 

26 Comments
Stuart
September 22, 2024

The WWE is not "sport"... I realise you're aware of that, and you only called it that for convenience. But since all of its events are pre-determined and mostly scripted, wrestling should actually be classified as "reality TV".

Peter Care
September 27, 2024

The WWE is “sports entertainment” . Just ask Vince McMahon.

Mel
September 13, 2024

We love our Hubbl. Though we still pay for Netflix and Disney. I hope it doesn't change too much. I know a lot of people use foxtel for sport, that is one reason why my dad got it.

Steven P
September 13, 2024

We love our roku device to watch foxtel via a telco now that device is being cut by that telco
We have 2 devices each connected to 2 non mart tvs now we wont be able to connect to foxtel from 1/11
We cant go full foxel due to type of tvs it leaves us with a fixtel subscription not being able to connect unless get thgoogle chromecast or some other type of player with a foxtel now app on it
Getting new tvs is beyondbour budget

SH2071
September 13, 2024

Step #1 - Abandon standard Foxtel, and instead subscribe for Foxtel Now which uses Internet streaming to access programs. Costs around $35/mth (about to increase to $40) and has the same range of programs as standard Foxtel.
Step #2 - buy a Google TV Chromecast stick (about $60) for each of your non-Smart TVs, and use the Foxtel Now App on Google TV Chromecast, accessing the Internet over your Wi-Fi.
Hopefully an acceptable solution, within your budget.

Debbie
September 13, 2024

Foxtel pricing has gone stupid. Way to expensive. YES we still have Foxtel, but thinking seriously about cancelling. Getting to expensive on a pension

Forrest Gump
September 13, 2024

I now need 8 subscriptions, and $300 a month to access what fox was doing for many years on one easy platform. Yes it wasnt cheap but all these accounts that offer little are tedious to navigate. Such a bad time for television.

Michael
September 13, 2024

I have been a foxtel austar customer since it started but the price is starting to hurt as im a pensioner dont know how long i will have it on i love my foxtel but its gone beyond a joke know

Geoffrey Heath
September 13, 2024

I love foxtel because my wife watches football

Martin Floyd
September 13, 2024

Been with Foxtel for 10yrs never felt so betrayed

Terry Crisp
September 13, 2024

I concur with the above critical comments.
The frustration of each week finding another sport or movie channel gone. There is only so many times you can watch the Back to the Future or Harry Potter!!
Free to air sport is slowly but surely overtaking poor old tired Foxtel.

brian
September 14, 2024

Have been a austar,foxtel customer for 25yrs but it is getting very expensive and channels being deleted not sure how much longer I will be ,pity I like foxtel.

tom taylor
September 13, 2024

We got rid of foxtel last year. Did not realise that Kayo is owned by foxtel. The program is another dog.

Joe
September 13, 2024

Currently paying $170 a month for Foxtel, definitely not worth the money

Joan Roots
September 13, 2024

Foxtel is not looking after their customers!!! Very disappointing.

Sue
September 13, 2024

Foxtel got rid of bein sports which is why I subscribed. What a joke I loved the Tennis !!!
Bein sports connect is hopeless and of course too expensive. Also most of the shows on Foxtel are continually repeated time after time. Of course I can’t just get the sport on Foxtel I also have to get a whole lot of other rubbish. When the Netball finishes on Foxtel, which I am sure they will get rid of that too, I will be cancelling my subscription. Hopeless App !!! Sue

Everett
September 13, 2024

And all those dams ads

Jim Sealey
September 13, 2024

They are also saying that you now own the set-top box, if it fails you have to pay for the repairs

Jak
September 13, 2024

Unfair when Foxtel send out 2nd hand set top boxes. I complained until they gave me a brand new iq5. Touch wood it works better than the second hand iq4 boxes they were sending me.

Darrin James
September 13, 2024

Foxtel and Murdoch media is to blame for almost destroying real football ( Soccer ) in Australia. This game is the most played sport around the world. It is not known as the world game for nothing and now there is no football (Soccer ) on Foxtel at all. Removing the Scottish Premier League and the German , Italian and Spanish leagues was the final straw for me

Ron Patterson
September 12, 2024

I have been a foxtel subscriber for more years Thani can remember but what they are doing to their customers now is scandalous. They are increasing their prices almost daily while dropping shows from their lineup and most of their shows are repeats. I am actually old enough to remember when foxtel started the big selling point was Watch shows add free. What a joke that is now and as for taking shows off foxtel and switching them to subscriber apps is disgraceful get your act together or prepare to start losing more and more subscribers

Chris
September 12, 2024

Interesting, I have subscribed to Foxtel Now for about 9 years to stream sport (all the AFL games and V8 Supercars), for $39 a month along with one of their entertainment bundles. They recently contacted me, saying that from mid October I would get the Ultimate pack which is all their content for that price ongoing. Normally all their add-ons would be over $100 a month.

Peter Gaskin
September 12, 2024

Foxtel model is not sustainable. They can not keep Binge and Kayo Sport out of the sale as this is the gem in the group.

Not sure about HUBBL. Still has a lot to prove. No idea how many people have bought a HUBBL.

Australians continue to stop using traditional Foxtel. Foxtel are cutting ties with satellite service. Foxtel is a weird hybrid- a TV service you need internet to watch

Market Observer
September 12, 2024

In the U.S., sports also help push up the price by dividing content between streaming services. To be able to watch all NFL games, you need 4 different streaming services (cost about $500 p.a.) plus another source which alone costs about the same.

You get the feel of that here in Australia where 7 and Kayo covered 5 of 16 games.

Once the streaming services get established enough here, the AFL and NRL may well be able to increase their revenue by following suit. That may explain the very long deals just struck - the incumbents deferring the day that happens.

Rick
September 12, 2024

And guess who misses out the poor pensioners who cant afford your ridiculous prices...duh

Dean Gilchrist
September 12, 2024

All I can sense is foxtel increasing flat rate fees..which will mean opposite attraction. Doomed on a whole

 

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