Regional Pay TV group, Austar, has shown why it’s one of the three big media plays left in this country with very solid third quarter earnings. And they are going to get better because of a pretty cynical move to raid the wallets of subscribers to help pay the cost of a $300 million return to shareholders.

The company has reported higher revenues, higher revenue per subscriber, more subscribers and a 33% rise in profits for the three months to September. It added about 19,000 new subscribers in the three months and the “churn” fell to just over 1% a month.

Austar now has 658,087 subscribers and in the next month or so they are going to get an unwelcome Christmas present. The Pay TV group is going to restructure its tiered pricing structure with the aim of getting an extra $4 a year (or around $2.6 million a year) from each subscriber (they currently pay an average $76.33 a month).

The amount sounds small, but it’s juicy as it will all be profit. In the third quarter, Austar reported earnings before interest, tax, depreciation and amortisation (EBITDA) up 33% to $46.4 million but revenue rose more slowly, just 13% to $145 million and operating expenses fell 9% to $32 million.

The company has just given $300 million back to shareholders (53% to John Malone’s Liberty Media), so it’s a pretty cynical move to force subscribers to pay some of the interest costs on a capital management program that has only benefitted shareholders.

Austar also launches its Mystar digital set top box later this year with an offer to subscribers on its premium package.

No wonder the shares rose 10c on Friday to $1.63, a return to the territory where speculation on a possible merger with Foxtel picked up earlier this year. That deal fell over but Optus and the Seven Network are battling the company for a deal on its wireless spectrum.

Austar, along with the Ten Network and the about-to-be-formed Consolidated Media Holdings (from PBL’s split), are the three big media plays left in Australia. Foxtel, Seven and even Ten are possible rivals for Austar, along with Optus.

Cons Media is the most fascinating: Telstra is already wondering if the split of PBL and creation of CMH offers it a way to snatch control of Foxtel, just as the Pay TV giant is gearing up its balance sheet to return hundreds of millions of dollars a year to its three shareholders.

Telstra has Foxtel in its books at no value, so it could quite easily mount a value adding deal of up to $4 billion. It had 50% of the Pay TV group and has just received a dividend of $100 million.

It’s early days, James Packer will hold 38% of the 687 million Cons Media shares to be issued, but it’s an asset waiting to be sold, not one to hang on to. Brokers say around $6 a share might win the day, perhaps $6.50. That 25% of Foxtel is valued at $1.3 billion by most brokers; 50% of Premier Media at $750 million and 25% of PBL Media at $500 million.

Packer has a deal with the 75% owner of PBL Media, CVBC, not to sell the remaining 25% before September 2009.

But as with the Foxtel and Premier Media stakes, the holdings are indirect and there seems to be nothing stopping Packer from selling his 38% stake in Cons Media, if he wants to. Telstra and News Ltd are the leaders in that deal.

Peter Fray

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