The launch of Netflix which is tipped for Australia in 2012, coupled with a new flat panel TV from Apple, could be Foxtel’ s worse nightmare according to a new Consumer Electronics Association survey done in conjunction with Credit Suisse.
The recent survey shows that consumers in the USA are deserting subscription TV similar to what Foxtel offers for the low cost Netflix service. Also tipped to be a threat to Foxtel is the expansion of Apple’s pay TV service.
The report predicts that over the next 12 months, as much as 10% of U.S. households could cancel their cable or satellite TV, based on the popularity of Netflix and other streaming services similar to what Telstra TV, Fetch TV and Quickflix are now delivering in Australia to TVs and IP enabled devices such as Blu ray players and media centres.
In an effort to boost subscription numbers and revenue Foxtel agreed to pay Austar United Communications $2.8 Billion for their rural subscription TV service.
Speaking at the annual ASTRA Conference in March, Kim Williams the CEO of Foxtel said that the pay TV services was currently experiencing a churn rate of 12.7% and that the only way to attract consumers back to Foxtel was new content including exclusive content, new hardware in the form of a new IP enabled set top box and an improvement in customer service.
He said the current sign up of new customers had been “dreary” over the past 18 months. At the time he made no mention of Foxtel’s high fees which can be as high as $132 a month for some customers.
In comparison Netflix charge as low as $12.95 a month for access to first run movies and TV shows, many of which have not gone to air in Australia.
The CEA report said that if a rumoured Apple HDTV is released, pay-TV subscription losses could be even greater if the company offers a la carte pricing, allowing consumers to individually purchase shows, or entire series or channels, investors said.
An Apple flat panel TV speculated about on SmartHouse recently gained credence this week after a note from UBS technology analyst Maynard Um.
“We expect Apple to enter the TV set market and if it achieves similar success as in the handset and PC markets, we see potential for an incremental $50 billion to $100 billion market value,” said the analyst in the report. “Apple’s ecosystem can bring it differentiation in an otherwise commoditising market. The television set is the one screen where the company is still lacking.”
BusinessWeek said, even before an Apple TV set began getting some chatter, Credit Suisse conducted a survey last September showing a faster-than-expected “cord-cutting” trend, based on the popularity of Netflix and other streaming services. In a note this week, the firm pointed out the recent CEA survey as validation of their earlier analysis.
“Our prior work suggests that a 10% reduction in traditional pay TV subscribers could result in a 10% decline inscription networks revenue, all else being equal,” said Spencer Wang, consumer Internet and entertainment analyst for Credit Suisse.
BusinessWeek went on to say “The first adopters will bite no matter what and for regular folks, Apple needs to demonstrate the value proposition of a la carte pricing (paying by channel or even by season of show),” said Josh Brown, money manager and author of The Reformed Broker blog. “It may take a while or could be instantaneous like iPhone”.
He said either way, Companies like Foxtel “will be quaking” and that Apple’s advantage in entering this market would be its $65 billion in cash.
“Apple could use its cash position to secure a large amount of digital video content from studios, or even purchase its own original content for a service similar to Netflix,” said UBS’s Um, who does not believe the Apple-connected TV set will come until next year. “The service could offer unlimited streaming capabilities of catalogued and premium content to subscribers for a monthly fee.”