COMMENT: Has Foxtel peaked, and is the subscription TV company that has operated in a near monopoly environment for 15 years, now facing real competition for the first time?If so, where will their competition come from, will it be a combination of new IPTV players such as Fetch TV, Google or Apple or will it be free to air TV stations, who are now delivering traditional Foxtel content for free to a host of new multichannel HD channels?
According to PriceWaterhouse Coopers the subscription TV industry of which Foxtel has a large chunk will be worth an estimated $3.9 Billion dollars by 2014, with Foxtel tipped to hold around $2B to 2.3 Billion of this market if things go well for them.
The calculations which were done earlier this year just before Telstra launched their T Box BigPond offering, and without any allowance for the likes of Google TV or Apple TV, or a host of other competitors who are moving into the IPTV market in Australia show impressive growth for an industry that has had one dominant and often arrogant subscription TV player.
According to analysts one of the biggest problems for Foxtel is the emergence of new HD TV Channels such as Go, Gem, 7TWO, 7Mate and ABC 1 and 3 from the ABC, which has allowed free to air networks and the ABC to deliver new content streams similar to what Foxtel offer at no cost to consumers.
This coupled with the emergence of pay as you watch IPTV services that are popping up on TVs, Tablet PCs and Smartphones is set to strip both revenue and market share away from Foxtel with the real potential that things could get even worse when the NBN network is rolled out to Australian homes.
For the commercial TV networks, these new HD channels make for easy programming. They buy cheap content from overseas, bundle it into a new channel with a slant to a particular target audience, throw in some local content and hey presto, an instant Foxtel channel that is not going to cost consumers up to $100 a month to get access to.
It’s also allowed the free to air networks to suck additional advertising dollars away from Foxtel at a time when TV advertising is witnessing a rebound.
In August Foxtel reported a 17.5 per cent jump in profits to $477m for the year to 30 June 2010. Revenues rose 10 per cent to just over $2B.
Churn was 13.5 per cent a decrease of 0.4 per cent.
For 15 years, Foxtel who initially promised no advertising on their network, have built their revenue streams selling expensive TV subscriptions to approximately 1.4 Million Australians and unlike Sky TV in the UK, Foxtel has no crown jewel in the form of exclusive rights to premier league soccer.
Now consumers are set to be given an alternate choice on top of the additional free to air channels in the form of new low cost IPTV channels which can be watched across a number of devices. While movies and already to air TV programs are set to make up the bulk of the IPTV content, sport is set to play a major part in the attraction of new IPTV services.
On both free to air TV and at Foxtel the content that attracts the most consumers is sport, however Foxtel has little chance of playing in the main league with Federal Communication Minister Stephen Conroy tipped to retain control of what sporting content will be made available to IPTV networks and Foxtel when a review of the anti-siphoning laws are announced prior to Xmas.
For Foxtel, live Australian sport is set to become a big issue, as 50% shareholder Telstra, and the likes of Fetch TV, chase relationships with the free to air TV networks in an effort to get access to live sport left overs that the free to air networks are unable to put to air because of the sheer volume of sporting content that the AFL and NRL generate every week during the football season.
As new IPTV technology takes hold in Australia and new players enter the market we could well see free to air networks snare big sporting events like AFL and NRL football with surplus content pushed to new HD channels or given to new IPTV players to sell as an individual download.
This year Foxtel has struggled to deliver big sporting events. The Winter Olympics in Canada failed to attract both subscribers and viewers, and the recent Commonwealth Games in India failed to attract an audience for both the Ten Network and Foxtel, who prior to the Commonwealth Games were forced to move away from a subscription model to an open channel model in an effort to attract viewers, yet despite this very few Australians watched the Commonwealth Games on Foxtel.
Attempts by SmartHouse to get clarification of Foxtel numbers for both the Winter Games and the Commonwealth Games have been met by a wall of silence. At one stage communication executives at Foxtel hung up when we complained about their penchant to primarily deal with media organisations who were either partners in Foxtel or had content relationships with Foxtel.
For Foxtel competition is going to come from a variety of quarters.
Earlier this year Fetch TV quietly launched their new IPTV service in direct competition to Foxtel. Partnering with Perth based ISP iiNet and several smaller ISPs, Fetch TV is tipped to partner with Optus in 2011 with a service that will be a mix of movies, sport, and all that the free to air TV networks offer.
Fetch TV subscribers receive a video recorder with a 1TB drive, three TV tuners and internet compatibility. For a monthly fee of $29.95 users receive 20 subscription channels and seven on-demand channels.
To counter this Foxtel is currently in talks with Telstra, a 50% shareholder in Foxtel, to deliver a cheap Foxtel subscription service via the carrier’s new T Box BigPond Movie service that is already clocking record results.
Launched in July in direct competition to Foxtel the service has already attracted over 70,000 users who on average are downloading 3.5 movies a month. Users of the service who only pay $259 for a T Box get access to every free TV station in Australia plus a 24 hour SkyNews service and over 1,500 movies that can be downloaded, broadband unmetered. They also get access to exclusive Telstra sporting content.
The speed at which Australian’s have taken to the Telstra T Box service give credence to PricewaterhouseCoopers’ forecast that in-home digital downloads will grow 117 per cent each year to generate $126 million by 2014.
In another move, aimed at shoring up a position for Foxtel in the content download market, the subscription TV operator has cut a deal with Microsoft using their Xbox Live service. Their objective in forming the relationship with Microsoft was to expand Foxtel’s IPTV offering while signing up new subscribers who, in the past, have not wanted the Foxtel service because of the high cost of a Foxtel subscription.
Whereas the Telstra Box service is unmetered allowing users to download as much content as they want without incurring additional costs, the Foxtel Xbox service is metered, and with the average movie running at around 800 GB, users could face bills up to $100 a movie if they go over their monthly broadband allowance.
Foxtel has also introduced Foxtel Download, but it’s only available to existing Foxtel customers. Such a defensive move is more likely to stop people abandoning Foxtel rather than win new customers, the Age newspaper said recently.
At the end of the day content is set to be king and whoever has the content and access to a fast content delivery network will win the IPTV race.
Also playing a role will be brand trust coupled with different levels of partnerships which in some cases could be movie companies or device vendors.
To date Foxtel has always had a cheap bottom end video player that prevents users from adding additional storage or fast forwarding beyond 30 frames a second. In the future software that easily delivers a good content experience will be critical.
Telstra is already doing this with their T Box service and as TV vendors like Sony, Apple, LG and Samsung move to deliver their own IPTV services, which in some cases could be in partnership with the likes of Google, the software experience is going to play a key role especially if it makes searching and recording easy.
For Foxtel the battle is moving faster than I think they anticipated and while they have over 1.4 million subscribers now, I believe they will struggle to hold onto this audience in the face of some brutal competition.