News Ltd, Telstra and PBL have a problem with Foxtel – it’s in the black and earning money for the first time in its long and bumpy life. So do they want to keep it, or will they float it and cash in?

You can bet that Telstra wants to crystallise some of the billions of dollars it’s poured into Foxtel over the past decade. But that’s of no great import for News and PBL, who have made most of the profits in the subscription TV industry in the past few years: more than $200 million from their joint ownership of Fox Sports (now part of the Premier Media Group) by some estimates over recent years.

With Telstra still harbouring ambitions for internet TV (IPTV), an investment in Foxtel hardly seems the way to go. There’s a conflict of interest involved if it offers IPTV to subscribers and has all that money locked up in the HFC cable and Foxtel’s facilities.

News might be ambivalent about a float. After all, it would make it possible for the Murdoch empire to possibly snatch control in a stock market raid and obviate the need for any investment in a free to air network.

But floating Foxtel would be the last thing PBL would want: it would see another media company listed on the exchange and a competitor to PBL and Nine for investors’ money; it would see a more vigorous competitor for advertiser dollars; and it would complicate the media industry just when James Packer seems to have the game sown up.

All this comes as Foxtel moved into the black in the second half, with earnings before interest, tax, depreciation, and amortisation (EBITDA) of $169 million, an improvement of $178 million on the $9 million loss in 2005. That produced pre-tax earnings of $4 million (after depreciation and interest and including joint ventures), a $160 million turnaround on the previous year.

There were 1,129,000 direct connected subscribers at June 30, up 10% in the 12 months and over one million subscribers are now on the Foxtel Digital service (representing around 90% of the customer base).

Now its pay day – so watch this space (and keep an eye on the C7 case in the Federal Court).

Peter Fray

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