How low can Telstra and Foxtel go?

Telstra to most Telco industry observers seems desperate to gain entry to the world of streaming media. But their long held partnership with Foxtel appears to be holding them back.

When recently announced by Telstra, their desire to sell its 50 percent ownership in Foxtel, it was predicted to raise $4.5 billion for the Telco. But since that announcement, the markets have thrown a bucket of cold water on the predicted sale amount. Investment bank Credit Suisse was quoted as saying, that according to their research, the figure would be closer to $2.45 billion. This amount is more probably closer to the truth, which only further reflects the grim reality of which Foxtel is operating in.

It’s hard for Foxtel to retain the market share it once had, back in its glory days of television, pre IoT. Foxtel is up against some big competitors such as Netflix, a company which has gained 2.7 million viewers in only a year. Increasing competition from companies such as Stan, Fetch and Netflix, continue to chip away at Foxtel’s market share.

Foxtel operating in a competitive market

Foxtel is no longer a growth company, as competitors force the company to slash it’s monthly subscription fees. By being forced to cut its subscription prices, Foxtel is reducing its annual profit margins. Telstra is only too painfully aware of the changing landscape when it comes to digital streaming media.

Its ownership of Foxtel is now seriously hurting it’s ability to compete with the number of new providers. Not only this, but Foxtel is making it difficult for Telstra to be a part of the raft of new opportunities.

“It’s more economic now to deliver content over the top of the existing network but Foxtel likes people to deliver content in ways that involve Foxtel.” – Foad Fadaghi, managing director of telco research group Telsyte.

An “over the top model” is the method in which a network carrier is used as a simple piggyback. The service provider in this scenario Netflix, does not need to own or maintain their own cable network. Under the Telstra and Foxtel deal, it is Telstra’s responsibility to maintain their network infrastructure.

When Telstra sells their stake in Foxtel, the revenue raised could be used to launch their own in-house streaming service. This makes sense from a Telco perspective, as Telstra already own the infrastructure required to do so. It would also allow the national carrier to compete directly with Netflix and Stan, on a more equal footing.

Telstra has in recent months already started down the path of becoming a streaming service provider. Through it’s ownership of the broadcasting rights to the AFL and NRL over its mobile network.

“The distinction between mobile and computer rights are increasingly blurred” – Foad Fadaghi, managing director of telco research group Telsyte.

With fierce competition in the ever growing Aussie marketplace, it’s becoming increasingly attractive for Telstra to ditch their ownership in Foxtel. In doing so, Telstra will be in a strong position to enter the market and offer a boutique suite of streaming services. This is a business model much similar to that of Optus, which is already leading the way. With Optus recently signing the rights to broadcast the English Premier League, Telstra is lagging behind the pack.

Foxtel searching for EPL replacements

As recently reported Optus has secured the exclusive EPL broadcasting rights in Australia.

  • Optus has paid $50 million for the English Premier League distribution rights.
  • The Telco will retain the broadcasting rights for 3 seasons.
  • Broadcasts of the EPL are set to be shown on ITV operator Fetch TV.

At the same time, Foxtel has moved to find replacement sports content, just weeks before it is set to loose the rights. It has struck a deal with BeIn Sports, belonging to Qatar based broadcaster, Al Jazeera. The partnership with BeIn Sports will see Foxtel adding three new HD channels, for free, to their existing sports packages.

The deal also includes a tasty selection of football rights including the Champions League and the European Championships. With May 15 set as the launch data for the new Foxtel channels, the Pay TV provider will no doubt use the chance for heavy cross promotion. The partnership between Foxtel and BeIn Sports, will also see the Qatar based broadcaster increasing their global content distribution network. A network which the company currently uses to distribute and monetise through advertising dollars, rather than through subscription fees.

OVO Mobile and Australian Sport Content

As Telstra continues to play catch up with rival Optus, smaller MVNOs such as OVO Mobile are also making life difficult for the national carrier. OVO Mobile, an Australian based MVNO, powered by the Optus 4G Plus network, exclusively offers Australian Drag Racing, Gymnastics and streamed audio content.

Content includes live track side commentary, live in car stats, a range of historic races and exclusive behind the scenes content. For fans of the Australian Drag Racing, and car racing in general, streaming content on demand is a big deal.

“This is the first of a number of content partnerships that OVO Mobile will announce in the coming months, including another exciting content deal which we plan to shortly announce that will reach millions of customers.” – Matt Jones, CEO, OVO Mobile.

In Conclusion

Telstra is being held back by their ownership in Foxtel, which continues to loose both revenue and market share. The operating environment in which Foxtel currently finds itself in, continues to become more competitive. As alternative service providers such as Netflix continue to roll out competitive sporting offers.

MVNOs such as OVO Mobile, are launching their own exclusive partnerships. This will only set to increase Foxtel and Telstra’s woes. The days in which Telcos could just rely on network service, to generate revenue, are well and truly over.

To survive in today’s competitive climate, Telcos will need to continue to value add and provide subscribers with innovative content.

 

Neil Aitken

Having worked in 3 countries for 4 telcos on both voice and data products, Neil is in a position to give you the inside track. Get beyond the marketing messages to the best plan for you.