Media analysts contend that Foxtel’s business model will need to change if it is going to survive, as it becomes an ever growing problem for majority owner News Corporation.
In revealing that News Corp had lost $US1 billion ($1.5 billion) in the latest quarter as a result of the impact of COVID-19, majority owner News disclosed it had written down the value of its investment in Foxtel by $1.4 billion. Minority owner Telstra has also written down its investment in Foxtel by $300 million.
Among Foxtel’s problems are its high cost base and the fact that its subscription fees are much higher than those of its rivals, as reported by The ABC:
[The write-downs are] a reflection of Foxtel’s deteriorating performance.
Earnings in the quarter were down 31 per cent, or $46 million, on 2019 and the 2019 third quarter result was 23 per cent lower than 2018.
Drilling down further reveals how badly Foxtel is being hit by the pandemic…
On March 31, it had 408,000 paying subscribers to its Kayo Sports streaming service.
By May 2, with all major sports shut down, that number had shrunk to just 272,000.
That’s a loss of a third of its customer base in just four weeks.
Entertainment streaming service, Foxtel Now, has fared better, but is still going backwards with its 317,000 subscribers being 9 per cent lower than a year ago…
It is struggling to grow its overall viewing numbers, its cost base is high, its subscription fees are way more expensive than the competition, and its streaming services are cannibalising its cable operations…
There’s no doubt that Foxtel is experiencing a subscription death spiral. Even before the COVID-19 pandemic hit, it had lost 582,000 subscribers in the two years to February 2020 at the same time as its online streaming competitors experienced explosive growth:
Worse, for those whom remained with Foxtel, revenue per subscriber has plummeted as customers downgraded from expensive to cheaper packages.
The losses since the COVID-19 pandemic hit have been astronomical. As noted above, Kayo Sports has lost 136,000 subscribers and Foxtel Now has lost 9% of subscribers in a year.
The huge contraction in revenue has left Foxtel struggling even more to repay $2.5 billion of debt, which explains why it has shed 270 staff over the past six weeks.
With few barriers to entry and online streaming competition intensifying, Foxtel has been too slow to respond and will struggle to survive in its current form.
