The September quarter was a tough one for Foxtel. Revenue was down, broadcast subscribers fell, subscriber churn rose and average revenue per user fell 6%, meaning revenue and profits also fell. Rather than the powerhouse News Corp makes the pay TV business out to be, it is something of a stumbling giant at the moment.
As we pointed out earlier this week, Foxtel is a tough business for News Corp now that it owns 65% and includes it in the Murdoch empire’s day-to-day operations, instead of being a 50%-owned, standalone business. The September quarter filing from News, released today, shows that revenues fell US$115 million (AU$159 million) or 17% compared to the September quarter of 2017, because of lower subscriber numbers and the impact of the fall in the value of the Australian dollar.
“The remainder of the revenue decline was driven by the combination of the impact from the changes in the subscriber package mix at new Foxtel, the absence of a high-profile pay-per-view event compared to the prior year, lower advertising revenues and the impact from the adoption of the new revenue recognition standard,” News Corp said in a filing today.
Revenues and segment earnings before interest, tax, depreciation and amortisation (EBITDA, a News Corp non-standard measure) in the quarter was up US$420 million and US$86 million respectively, compared to the prior year, primarily due to the inclusion of Foxtel. “Adjusted Revenues and Adjusted Segment EBITDA, which exclude the impact of foreign currency fluctuations, acquisitions and divestitures, declined 1% and increased 4%, respectively,” News said.
“New Foxtel’s total closing subscribers were 2.9 million, which was higher than the prior year, primarily due to Foxtel Now subscriber growth and the inclusion of commercial subscribers of Fox Sports Australia … Broadcast subscriber churn in the quarter rose to 12.9% compared to 12.7% in the same quarter of 2017.”
News said that on a pro-forma, segment EBITDA basis, Foxtel’s operating earnings fell 27%, or US$41 million, from the September quarter of last year. This was “primarily due to the lower revenues, partially offset by lower non-sports programming and pay-per-view costs”. That means there was less to watch so viewing levels dropped, ad revenues fell and subscriber churn rose as more viewers left.
And with Foxtel staking hundreds of millions on its cricket coverage (with Seven), the added cost of 4K coverage plus the additional marketing costs, it will want to see a significant boost in subscriber numbers and a rise in average revenue per user quick smart, otherwise it will turn into a long, hot and not very profitable summer for Foxtel and News Corp.