Two years after its one-time half owner Telstra did it, Foxtel is now embracing Netflix — sort of. Foxtel revealed yesterday that it had struck a partnership with Netxflix to allow streaming to be offered to Foxtel broadcast subscribers (but not subscribers to its Foxtel Now or Kayo streaming services).
The media swallowed this story whole, but it ain’t exactly news. Netflix on Foxtel’s set-top box has been coming for a while. Back on May 9, at the start of the third-quarter results briefing for analysts, News Corp CEO Robert Thomson said: “We keenly anticipate the integration of Netflix into Foxtel’s next-generation set-top box, which will herald the start of Foxtel aggregating other services.”
That it has taken the best part of two years for Foxtel to match the Telstra offering on its Telstra TV product (now two versions-in since its November 2017 first release of Netflix) tells us more about the resistance to change at Foxtel and News Corp and the way that new technologies frighten the Murdochs and their servants. Telstra TV also offers Stan, now 100% owned by Nine Entertainment, whose absence from yesterday’s Foxtel statement remains amusingly old fashioned but typically News Corp. Telstra added Netflix and Stan because that’s what its customers were wanting and asking for. Foxtel and News Corp could have easily followed suit, but tried to ignore Netflix in the hope it and Stan would cannibalise each other. They’re still holding their breath.
Now, while its deal with Netflix grabbed the media headlines yesterday and this morning, of greater interest around Foxtel and its 65% owner, News Corp, is just who will make a US$150 million loan repayment due July 25 (i.e. today), which is part of a private loan placement done in 2012. At the same time, there has been no word on just who repaid the US$57 million due on July 3 under another funding arrangement. A further US$74 million is due on September 24.
The Netflix deal merely underlines how slow Foxtel has been to do a deal that Telstra (its partner in Foxtel) did in late 2017 for its Telstra TV business. The big question isn’t about that belated recognition of reality; it’s about just who has repaid, or will be repaying, those loans (or rolling them over). It’s a question that arises after News Corp loaned Foxtel A$300 million to repay a US$211 million loan in April. That loan to Foxtel was revealed in the March quarter briefing by News Corp executives. Neither Foxtel nor News Corp have made any statement about a US$142 million loan that was due on May 30.
In total, US$634 million (more than A$900 million) is due to be repaid by Foxtel in calendar 2019. A$300 million has already been effectively repaid by News Corp. Will News be forced to make more loans? The way the pay TV company has been going this year with falling subscriber numbers, rising costs (for cricket especially, in 2019), rising subscriber churn costs, and falling ad revenues means this series of debt repayments is crippling Foxtel at a time when there’s no growth in its most profitable business: broadcast (home) subscribers, down 211,000 in the past 18 months with 100,000 of that figure dropping off in the first few months of this year.
While Foxtel has picked up more subscribers for its Foxtel Now entertainment streaming service and the Kayo sports streamer, they generate far less revenue than the broadcast customers who, in turn, are finding their contract costs slashed if they want to leave. We will know how financially strong Foxtel is based on just who pays today’s huge repayment.
Foxtel and News have been trying to refinance the pay TV group’s debt for more than seven months, without success, hence the $300 million loan from News Corp to make the April payment. Wednesday’s Netflix announcement should be seen against the continuing financial strains now gripping Foxtel. It was all about PR and nothing substantial. The Netflix offer will be aimed at trying to keep broadcast subscribers from leaving, not offering it to new or existing Foxtel Now and Kayo customers — a typical example of News Corp meanness.