Rupert was already in Australia for Lachlan and Sarah Murdoch’s 20th wedding anniversary. And with many members of the Murdoch family financially flush after a landmark deal to sell 21st Century Fox assets to Disney (Rupert Murdoch walked away with $US4 billion while James and Lachlan received more than $US2 billion each) it’s no surprise all eyes are on their next move.
Rupert recently turned 88. His legacy is such a hot topic now that HBO made a drama on a warring media clan loosely based on the Murdochs, called Succession.
Despite the public focus on News Corp’s mastheads and billionaire dynasty, most industry observers and media executives believe the board members would have been preoccupied with pay-TV platform Foxtel.
And, more specifically, whether its attempt to move into streaming to compete with cheaper entertainment businesses such as US giant Netflix and Australian business Stan (owned by Nine Entertainment, which also owns this masthead) is actually working.
The new strategy kicked off before Fox Sports and Foxtel merged 12 months ago giving News Corp control of the combined business.
Foxtel chief executive Patrick Delany has been busy “disrupting [them]selves” ever since. The biggest example of this, so far, was the launch of sports streaming platform Kayo Sports, which allows subscribers to pay $25 a month – compared to a minimum $54 for Foxtel – for access to a range of sports coverage (Delany calls it “the Netflix of sport”). It is impressive from a technology standpoint and priced low enough to compete with other streaming services.
A recent Macquarie Wealth Management note from analysts said “challenges remain” for News Corp’s mastheads such as The Herald Sun and The Australian while growth at REA is expected to continue.
Foxtel, however, was going through a “transformation”. The big issue is whether the pay-TV company can get enough market share and avoid losing too many of its higher-priced Foxtel subscribers to Kayo.
There are many unknowns when it comes to Foxtel, more-so for Kayo, and those who track media businesses closely don’t agree on what will happen next.
Technology analysis firm Telsyte managing director Foad Fadaghi said there were “good indicators that the future for content delivery is through streaming platforms” but that it wasn’t a “winner takes all” situation as often seen online, with one or two dominant players.
“Embracing that change in customer behaviour with Kayo definitely has the potential to ensure growth in the future,” Fadaghi said.
But, as one media analyst who wished to remain unnamed describes it, Foxtel may be a “Titanic” that has started turning around too late to avoid hitting the iceberg (mainly Netflix) in front of it. An experienced media executive described it as a “world of pain” for the senior management team as they wait to see whether their efforts with Kayo pay off.
There’s also a chance another price hike would have been on the minds of some of the directors. In October, Foxtel prices were increased by up to $3 a month depending on the service. Now, media industry sources are speculating whether a price increase might be on the agenda again to help revenues (a prospect described by a media executive as “hugely concerning for executives concerned about [customer] churn”).
Foxtel is likely to attract some subscriber growth next week with the start of Game Of Thrones‘ eighth season, but analysts expect Kayo and other companies moving into streaming will make growth in the short term difficult. Foxtel had 2.9 million subscribers by the end of December (2.5 million broadcast and commercial, 115,000 on Kayo Sports and the rest on Foxtel Now). Netflix does not report total Australian subscribers but Telsyte last year estimated it had 3.9 million.
There has been plenty of media speculation about an entertainment-focused video streaming platform that Foxtel is tipped to launch, as well as the potential challenges should Disney and other US giants bring their own direct-to-consumer offerings to Australia.
A future rise in content costs is widely expected, with sources saying “big global online players like Google and Apple expected to be bidders for the next round of content and sports rights”.
“Meanwhile, subscribers continue to spin down as people have lower cost options like Stan, Netflix and Amazon … Kayo is the key strategic point, but whether that adds new revenue … is still uncertain,” sources said.
Another issue undoubtedly on the radar of the News Corp board is a $2.5 billion refinance process kicked off over a month ago after engaging Goldman Sachs, CitiGroup and JP Morgan.
Investment banking sources described this as “very hard” for Foxtel to achieve as “there’s [not] a lot of demand, no one’s clawing over themselves for it”.
The question now is whether News Corp’s board has the mettle to give the ship time to turn or not.
As one industry observer said: “Their subscriber growth [on Kayo] is looking strong but that has to be considered next to how Foxtel is performing and how many people are being cannibalised. The true impact is yet to be seen.”
Jennifer Duke is a media and telecommunications journalist for The Sydney Morning Herald and The Age.