Damon Kitney had a strong story on the front of today’s Fin Review
painting a very bleak picture for the future of Foxtel as infighting
emerges about the way to stop the haemorrhaging after losses blew out
to $100 million in the December half and accumulated losses to over $1

There has long been tension between the three Foxtel
shareholders – Telstra, News Corp and PBL – but these appear to be
escalating as losses mount from the digital conversion and the road to
profitability looks longer and more difficult than previously promised.

PBL CEO and current Ten Network chairman Nick Falloon perceptively
characterised Foxtel’s long-term problems as being the Telstra and
Optus obsession with “telephony defence” rather than driving the
business with more traditional media and content ambitions.

seems to be the problem once again as Telstra reportedly blocks a push
by News Corp and PBL for Optus to be given incentives to convert its
dwindling 166,000 analogue subscribers to digital. Why would Telstra do
anything to help its arch-rival Optus?

Then you have the longer
term conflict of Telstra’s broadband push potentially undermining the
pay-TV business model when the likes of video-on-demand catches on.
Kitney reports that Telstra’s refusal to include Foxtel in its latest
Bigpond offer has further inflamed shareholder tensions.

Telstra has achieved penty of its “telephone defence” ambitions over
the life of Foxtel’s troubled existence, the cash losses still hurt
given it is the 50% shareholder. Telstra is also subsidising its
partners as the 50-50 joint venture Fox Sports make upwards of $20
million a year for News Corp and PBL by selling its programs at
inflated prices to Foxtel.

The biggest loser from Foxtel is
undoubtly News Corp, which has sunk more than $500 million of cash into
the venture and has received no benefit. At least Telstra has used
Foxtel to block Optus, and PBL’s Nine Network has profited from the
regulatory and structural stifling of Foxtel.

PBL bought its 25%
stake from News Ltd for only $150 million in 1998. Perhaps the best
indication of how pear-shaped Foxtel has gone comes from looking at the
coverage back when Packer took his seat at the Foxtel table as part of
a broader pay-TV peace deal. This is what Clive Mathieson reported in The Australian on 30 October, 1998:

PBL’s entry price of between $150 million and
$160 million values Foxtel – the industry leader with 350,000
subscribers – at up to $640 million. It is understood PBL based its
price on the losses incurred by Foxtel to date about $660 million.

value Foxtel equity at more than $800 million and predict the pay TV
company, which lost $166 million last year, could break into profit as
early as 1999-2000. News values Foxtel at $782 million, although this
includes the value of the Fox Sports program company behind two Foxtel
sports channels.

Hmmm, so much for that profit in 1999-2000. The losses
seem to be going up as a $100 million drop in just six months has got
to hurt, even if much of it was associated with the digitisation

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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