Netflix battle dents Foxtel profits
August 13, 2015
By Colin Mann
Moves by Australian pay-TV operator Foxtel to combat the threat of rival OTT service Netflix by cutting its prices to pre-empt its launch in March 2015 have boosted sales and subscriber numbers, but also dented its profits and average revenues per user.
Foxtel reported a record 2.8 million subscribers in the year ended June, but full-year profits fell 8 per cent as a result of the price reduction and launch of its own streaming service Presto and other broadband initiatives.
It has emerged that Foxtel’s growth figure of 230,000 subscribers includes those who have taken a Presto package, although this was not disclosed in its results statement, with a Foxtel spokesman admitting that although a majority of growth came in cable and satellite subscriptions, the figures include growth in IP products including Presto.
“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.”
“At the same time churn declined by 1.6 percentage points to 10.9 per cent the lowest recorded since at least 2000. This is a reflection on the quality of programming available to Foxtel customers across all genres, combined with the additional value given to existing customers during the period and the range of price points now available. On average customers now remain with Foxtel for nine years, an extraordinary period for a discretionary entertainment product,” suggested Freudenstein.
“The growth in subscribers resulted in an increase in revenue, although this was partially offset by the impact of a soft advertising market. Subscriber revenues were up 2.4 per cent – lower than subscriber growth, which is to be expected as we launched in November and therefore most of that increase came in the second half of the year,” he advised.
“Additional activity driven by the new pricing model, plus initiatives such as iQ3, Presto and triple play and investments in new sports such as Formula 1 and V8 Super Cars, saw EBITDA decline in line with our expectations,” he said.
According to Freudenstein, ARPU held up very well since the price reduction, with broadcasting ARPU down by only 2 per cent to $93 (€62). “This decline was anticipated as part of the pricing changes. It is important to note that the vast majority of new customers took up one or more tiers in addition to the $25 Entertainment pack,” he explained.
“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 concluded.