Two firsts appeared in recent News Corp and Telstra annual reports, both raising questions about the outlook for Foxtel, and helping to explain why News Corp effectively took over Foxtel this year in a deal that mirrors the mooted marriage of Nine Entertainment and Fairfax Media.
News Corp’s annual report to the US Securities Exchange Commission (filed August 15) contained, for the first time ever, an actual figure for total Foxtel subscriptions — 2,824,645 as of June 30. Previous News Corp annual and quarterly earnings releases have provided a figure of “approximate” or “around” or “more than” 2.8 million. In its profit report released last week, for example, News said Foxtel’s subscriber numbers were “higher than the prior year, primarily due to the launch of Foxtel Now”.
Last year, in its 2016-17 annual report, it announced that the Foxtel group had “more than 2.8 million subscribing households throughout Australia … through cable, satellite and IP distribution.” Both of these underline the problem for Foxtel in that it can’t grow its customer base, no matter what it has been offering. Ad revenues have been falling, the subscriber base is under pressure and revenues are weakening. This is one of the reasons why News wrote down some of the value of Fox Sports in 2017-18.
Buried in Telstra’s annual results on Thursday was news which Foxtel won’t be boasting about. For the first since it has been breaking out the numbers on its media operations, Telstra said there was a loss of Foxtel subscribers from Telstra — 18,000 — which Telstra explained as part of “a broader industry transition from Broadcast to IPTV”. This fall came after an interim report in February in which Telstra said there had been a rise of “51,000” in the number of Telstra Foxtel subscribers. That’s a significant turnaround in six months and came during peak subscriber harvesting time — the AFL and NRL seasons.
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The News Corp annual report also revealed average revenue per user (ARPU) — the key metric as far as subscription TV income is concerned — of $80.45. That figure, according to the News Corp profit announcement a week ago, fell 2% in 2017-18. All up, that’s $2.27 billion from those 2.82 million subscribers. The report said that churn — the number of subscribers who exit and are replaced each year — was 13.8%, higher than the 12.5% figure given in last week’s profit report. A 13.8% churn means Telstra had to replace around 389,000, which is a big, costly selling effort. Remember it had to cover that number and find new subscribers as well, so the actual number of departing and new subscribers was around 780,000.
No wonder News Corp and Foxtel executives are worried about costs. And as News Corp’s chief bean counter Susan Panuccio said last Friday, Foxtel will require added investment to handle the new streaming service and pay for the cricket coverage from this summer, which will see lots of money spent on trying to boost subscriber numbers.
Despite the loss of Foxtel subscribers, the Telstra annual report also confirms that the telco remains the fastest growing media company in the country so far as customers are concerned. Telstra said there are now 1,290,000 Telstra TV devices in the Australian market, an increase of 463,000 (or 55%). Most of those would be Foxtel subscribers on top of taking the other offerings from streaming services such as Stan and Netflix, plus the free-to-air streams.
Telstra said the number of Sports Live Pass users “increased by nearly 1 million to 2,301,000 across AFL, NRL and netball, with most users receiving the service as part of their mobile subscription”. That is significant because it helps keep these people as Telstra mobile customers. If this growth continues, Telstra’s Sports Live Pass will have more subscribers than Foxtel within the next two years. What is intriguing about this is that Telstra’s own services are prospering, while its Foxtel offer has suddenly hit a wall.