In recent news Telstra has reported losses, by holding onto the faltering subscription media service Foxtel. Tough times lay ahead for the Telco as they battle to regain lost ground. Read on in the following article to learn more.
- Telstra has been caught sleeping at the helm, when it comes to their investment in Foxtel.
- Netflix and other streaming providers are disrupting the Australian Pay television industry.
- The Telco has been left in a position of what was once a good idea a year ago, is a nightmare today.
Why has Telstra missed the boat?
Telstra likes to brand itself as a technology company, rather than that of a Telco. But why would a Telco call itself a technology company and not a Telco, when in fact it is a telecommunications company? The simple, albeit strange reasoning for this, is that Telstra doesn’t want to be known as nothing more than just dumb pipes.
Dumb pipes being the phrase often thrown about in the industry, referring to a company which does nothing other than sell access to it’s network. But when it comes to Telstra and their past technology business decisions, it’s clear to see they have missed the boat. Telstra should of seen the future changes coming to the market with Netflix, when it comes to new media providers.
Unfortunately it looks like they were caught out and are now stuck with shares in a dinosaur company. It now faces the decision of when to sell the majority of their Foxtel shares. No doubt a hard choice, as Netflix continues to dominate the market when it comes to streaming media.
Telstra stuck between a rock and a hard place
The position that Telstra now finds themselves in, is not that dissimilar of that back in 2006. Back when Sol Trujillo decided to not sell the Telstra directories business. Not realising that Google would soon make the directories business defunct, resulting in a major face palm moment. Back to current times and we see that history is repeating its self again.
Netflix is now the go to provider for streaming media, while becoming a real threat to the future viability of Pay TV. Industry experts are commenting that Telstra should of seen this coming. To most in the industry, the rise of Netflix in the US, was already evident several years ago. At least five years ago, Telstra should of sold their investment in Foxtel.
This would have been a smart and ahead of the curve business decision, instead of where they are today. Instead Telstra were busy investing further in media as a part of their overall growth strategy. Though to be fair and give credit where due, Telstra at least avoided investing in old media, Nine and Fairfax.
Netflix disrupting the Pay TV industry
The problem is that Telstra just didn’t see Pay TV as traditional media. Telstra mistakenly believed that Pay television would continue for a few more years as a solid performer. It wasn’t until Netflix was launched locally here in Australia last year, did Telstra realise their mistake. At the same time as Netflix arrived, similar providers Stan and Presto began offering their services too.
Foxtel is now in a loosing position, where they no longer control market share. Subscribers are voting with their feet and choosing live streaming content on demand. With competition so fierce, Foxtel has been forced to slash subscription fees, resulting in plunging revenues. In the half year to December 2015, Telstra’s dividend from Foxtel dropped 26 percent to $37 million.
This is directly in comparison to the $50 million in reported earnings, in the same time period the previous year. Industry analysts are predicting that once Telstra realised it was too late, they chose to play Russian roulette. By taking a wait and see approach, Telstra has decided to see how Netflix performs locally, before making their decision.
Telstra stranded in a vulnerable position
This has left Telstra in the vulnerable position, of what once seemed like a good idea a year ago, does not today. It’s fair to say that Telstra’s overall media strategy has been somewhat of a confusing mess. The launch of Telstra TV and the shutting of their Tbox service, further highlights their confusing strategy.
But, even though Telstra has waiting until now, does not mean it has totally missed the boat. It does mean though that it will be more painful to offload their investment in Foxtel now. This is in comparison to if they decided to do it 12 months ago.
Selling a monopoly Telco is much easier than selling a business, with increasing competition and falling profits. In fairness to Telstra ,Netflix has experienced amazing growth since launching in Australia. This has caught many industry experts by surprise, with Netflix ranking top of the Pay-TV providers list.
Netflix has estimated to have signed up more than 1 million Aussie subscribers to their service. Once Telstra sells off the remainder of their Foxtel investment, the Telco still faces the problem of where to invest next.
Telstra’s challenge to grow and expand their revenue in a competitive industry has become increasingly clear. With short sighted vision and not paying attention to what was happening in the market, they are left to play catch up.
Netflix is disrupting the Pay TV industry, much in the same way that MVNOs are changing the Telco industry. The pressing dilemma for Telstra now becomes, where to invest to replace the lost earnings from their Pay TV failure.
MVNOs such as OVO Mobile are offering exclusive extras for their subscribers, with the Australian Drag Racing, Australian Gymnastics and other type of high energy sports action.
Telstra is facing tough competition and needs to value add services to remain competitive in the market. Telstra is now at the point they are simply too large to increase their earnings in any way other than by acquisitions. While the carrier refuses to become nothing more than dumb pipes, if this doesn’t get back on course it could very well end up happening.