Foxtel revealed cheaper Pay TV
prices today for new and intending subscribers that will cut the entry cost of
around 30% from the existing starter price that its million or so subscribers
are paying.

The
reasons for the price cuts are not too hard to work out: at nearly $51 a month
to $99 a month Pay TV is becoming expensive, despite all the glorious viewing
and other benefits spruiked by Foxtel, Austar and
Optus.

But
with around 1.7 million pay TV subscribers across all three groups in Australia,
Foxtel; (and Austar has been
trialling a cheap starter package as well) and no
doubt Optus risk alienating existing customers with these price cuts to new
subscribers.

It also
risks upsetting its steady move to profits (Austar is
already a little ahead of Foxtel in this area).

But the
shareholders in Telstra, PBL and News will have had to sign off on such a
dramatic change in approach, so it can be assumed that the packages and deals on
offer will not be too dangerous financially to Foxtel’s health, a point intending subscribers should
consider when considering the new deals.

(But if
the churn rate rises as existing subscribers drop out as their contracts are
renewed and don’t want to pay the old contract prices, then Foxtel could be in trouble)..

And
that’s another problem: the next year or so sees a large number of subscriber
contracts coming up for rollover after being taken out (for cheap starter rates)
during the early stages of the move to digital transmission. Those were two year
contracts with a credit card direct debit which have proven to be the least subject
to being churned by subscribers.

Existing subscribers will find it hard to drop out and
try and come back under the new cheaper starter packages. And Foxtel is confident there will not be too much
disruption.

The
cheaper packages follow extensive market research late last year in which Foxtel discovered that there were quite a few potential new
subscribers out there who just weren’t interested in subscribing for various
reasons.

These
ranged from location, cost, availability of relevant packages and a general
unease with paying for something that you could watch for nothing on the Free
To Air Networks.

At the
same time Foxtel also discovered that despite signs of
rising viewing in homes with Pay TV of Foxtel channels
(and Optus and Austar in the bush) that there was a
resistance to the idea of Pay TV generally. It trialled a cheap starter offer and was surprised at the
uptake.

This
came as Foxtel (and Austar)
moved into the black for the first time on a consistent basis (but not on an
after tax basis, yet).

Earlier
this year Austar started trialling a cheap starter pack for $29.95 a month compared
to the basic package cost of $46.95 a month. The idea was to try and get the
‘dollar’ a day’ idea in consumers minds about the value for Pay
TV.

Sales
rose strongly in a test market, as they did for another offer, a two month trial
period for new subscribers

Since
the Austar has been having difficulty convincing
suppliers to its platform to cut their charges to allow these starter packs to
be offered, a point which he made earlier this week when Austar released its first quarter results that showed a $10
million pre tax profit had been notched up.

Austar CEO John Porter complained
that negotiating with suppliers was proving tough and he accused them of a lack
of vision.

Foxtel’s starter package looked
similar and today it revealed plans to offer a $1 a day or $36.95 basic package
to new subscribers (Ahh there’s a catch). There are
other offers in new groups of channels or tiers: five such packages can be taken
of additional channels for $14.95 a month extra on top of the starter
package.

That
would take a package of the starter kit plus five other packages to just over
$51 a month or a bit more than the current entry level package price of $50.95.
But there are discounts for some packages so the price will be a bit more,
depending on the combination of packages.

Foxtel seems to have had a
head start on Austar.

Peter Fray

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