Foxtel Profits Slump As Netflix Takes Customers
As expected Foxtel profits have taken a battering falling 8% after the Company was forced to slash prices ahead of the launch of Netflix.
In the year to June 2015 Foxtel only added 230,000 subscribers Vs more than 1,600,000 subscribers for Netflix who only launched in Australia on the 29th of March 2015.
Foxtel’s moves to cut its prices and counter competition from Netflix comes after Foxtel spent two decades price gouging consumers due to their monopoly in the pay TV market.
Chief executive Richard Freudenstein’s decision to almost halve the price of Foxtel’s basic package from $49 to $25 a month in November pushed revenues 1 per cent higher and led to a 9 per cent leap in subscribers over the 2015 financial year.
Customer churn has been cut from 10.9 per cent from 12.5 per cent in the prior year – the lowest since 2000. Analysts believe this is due to consumers moving to cheaper Foxtel sports packages from premium packages that in the past delivered excellent profits for Foxtel.
Netflix has already attracted 1.6 million sign-ups and 900,000 paying users to its $9 to $15 a month service, Citi Research estimates.
“Last year we took the bold step of changing our pricing model to attract more customers,” said Foxtel CEO, Richard Freudenstein. “These results demonstrate that was the right call.”
Mr Freudenstein said the growth of 230,000 in subscribers was driven mainly by take up of traditional cable and satellite products and that “significant growth continued all the way through the financial year”.
But Foxtel is counting the early cost of the investment push, with its world-leading average revenues per user (ARPU) for cable and satellite dropping 2 per cent to $93 per month.
Subscriber revenues were up 2.4 per cent – lower than subscriber growth. Mr Freudenstein said that was “to be expected as we launched in November and therefore most of that increase came in the second half of the year.”
Foxtel’s 50 per cent shareholder, Rupert Murdoch’s News Corporation, reported on Thursday morning that the pay TV giant’s full-year earnings before interest, tax, depreciation and amortisation slid 8 per cent in Australian dollars.
News Corp said its equity earnings from Foxtel fell from US$90 million ($121.8 million) for the year to US$59 million.
Telstra, which owns the other half of Foxtel, said it had received a reduced dividend of $165 million, down from $125 million.
On a conference call with investors this morning, News Corp said it expects Foxtel to return to growth in its operating earnings in fiscal year 2016.
Mr Freudenstein said the decline in ARPU was “anticipated as part of the pricing changes”. He said “the vast majority of new customers” took up one or more tiers – such as sport, drama or movies, in addition to the $25 (basic) entertainment pack.
“This is a great result in an increasingly competitive space. It makes it clear that consumers understand the real benefits that only Foxtel can offer, “he added
Foxtel faces a growing threat from SVOD services, amid evidence that some customers have abandoned Foxtel’s drama and movie packs – some of them in favour of new, cheaper streaming services led by Netflix.
According to News’ accounts, Foxtel’s net income fell 24 per cent to US$232 million from US$304 million as a result of “short-term impacts related to the investment in key initiatives: the new Foxtel pricing and packaging, increased investment in Presto (its own video-streaming service) and the launch of Triple Play (its broadband, cable television and telephony service)”.