The price is right at Foxtel

CEO Richard Freudenstein on subs, broadband, sports, iQ3, Presto, news and more

By James Manning

The November 2014 change to Foxtel’s pricing strategy has increased its number of subscribers significantly. The change only slightly lowered the amount each customer is spending with Foxtel, but it faced heftier fees across the past 12 months for content and also suffered soft ad revenue. That didn’t stop Foxtel though from continuing to be the most profitable broadcasting business in Australia.

“The Foxtel teams’ pricing and packaging strategy has really worked,” said Foxtel chief executive Richard Freudenstein during an interview with Mediaweek after the release of its full year results via its owners Telstra and News Corp last week.

For our cable and satellite numbers it was the biggest growth we have had in many years. Growing subscribers by 9% is a fantastic result and we are very pleased, but at the same time our revenue has grown as well. We seem to have the balance right with new customers coming in taking a variety of tiers from us, not just the $25 offer. The $25 level has got people to think about Foxtel again and to make the phones ring. New subscribers are coming in at a variety of price points above that.

“Our strategy was not just dropping the price, but giving our customers a whole lot more content, BoxSets and other channels, if they remained on their existing packages and the vast majority of our customers have remained on their existing packages. We are pleased that our ARPU [average revenue per user] has declined as we expected but it has not dropped off a cliff.

With regard to further changes to pricing, Freudenstein noted the market for subscription TV content is very competitive and they will continue to review it. “We believe there is great value at every price point. In the IP world [online delivered content] we will continue to look at pricing as well. There are all sorts of opportunities for Foxtel Play as more devices are rolled out. There is a different cost basis for Foxtel Play in terms of acquisition costs.

As to imminent changes, he noted: “We have just had a radical change and there are no plans for more radical change because what we have done is working.”

As to the triple play strategy, the platform boss explained Foxtel had soft launched its broadband service. “One of the key differentiators in broadband is the customer experience and we want to make sure we get the customer experience exactly right. This is a completely new business for us and a complicated business and we wanted to make sure we get all the operational side of that business exactly right, we make sure that all our systems are working and that our interfaces back to Telstra wholesale are working. We are getting ready for a much more aggressive push into broadband. There was a lot of change in the business in the past year and we needed to do this in a measured way.”

Freudenstein said Foxtel will be offering a double or a triple play, with the third element telephony, with subscribers being able to add their fixed phone line to the package.

With Stan and Netflix both pushing hard for new subscribers, and seemingly succeeding, there’s been no word from the Presto partners yet about their initial subscriber numbers. “Again we want to make sure we get everything right with Presto and our partnership with Seven. We have everything right now with a great content lineup. In terms of the quality of the content on Presto, it is better than either of the other services. We now have the quality of the content where we want it to be and we are ready to push much harder with partners like Telstra to make sure they continue to sell it as is happening with the [other SVOD] players.

“Netflix has got off to a very strong start, we are pretty confident that Presto will be very competitive in that market. We are confident the market for people willing to pay for television is growing. Foxtel will continue to grow well in the overall market.”

Foxtel has no details yet about a new Presto management team. “We are pleased with the management team which is a separate team and their mission is to drive the Presto business as hard as possible.” As to a question about changing their strategy, Freudenstein said: “Any business that says they are not continually tweaking their strategy is probably doing something wrong. We do and we are continuing to evolve Presto. We are starting to see some really good numbers come through.”

But the Foxtel chief was not about the reveal them to our readers. “We don’t need to break them out.”

Foxtel noted last week the soft advertising market, but Freudenstein explained the MCN deal with Network Ten could lift their ad revenues in the current year. “One of the great things about the MCN/Ten deal is it brings real competition to the advertising market and it creates a player that is about the same size as Seven or Nine in terms of revenue which gives us a much better position to appeal to advertisers.

“I’m very optimistic that the MCN/Ten deal, plus our subscriber growth, will lead to advertising growth. It takes a while for OzTAM to catch up with our subscriber growth in terms of the viewing panel. In terms of our viewing share OzTAM can be as much as six months behind in terms of rebalancing the panel. If we continue this rapid subscriber growth it will give advertisers even more reasons to spend more money with us.

[blockquote style=”1″]Foxtel by numbers:
2.8m Foxtel subscribers (+230,000 or 9%)

$93 Average revenue per user (ARPU)

$3.15b Foxtel 2015 total revenue (+1.9%)[/blockquote]

>> iQ3 challenge

Freudenstein: “There were a few thousand boxes in the beginning that went out with incorrect software that was meant to be updated by installers but it didn’t happen. We are just in the process of doing a second software upgrade and there seem to be very few complaints from those who have had the second software upgrade. Generally people are loving the box. There are a lot of boxes out there now and not many complaints. It is a complex box, but it is a much better viewing experience and people are tending to really enjoy it.”

>> Can iQ4 be an app?

“Over time delivering the Foxtel service to a set top box through cable and satellite is going to remain very, very important to us. Delivering over IP to devices and storage in the cloud is a growing part of our business. Foxtel Play will continue to evolve to meet that demand.”

>> Fox Sports NRL deal

Freudenstein agreed with News Corp CEO Robert Thomson’s comment last week that is was only half time in the NRL rights negotiations. He wouldn’t comment further if Fox Sports could still get an attractive subscriber offer from what games were still available.

>> Foxtel Channel Refresh

Upfront time is getting closer which often means a Foxtel channel refresh. Freudenstein wouldn’t confirm there would be a channel refresh. “But what I will say is what we want to do is continue to invest more and more in content and we have announced we are investing more in Australian content. We will continue to make sure the content we are providing to customers is as good as possible. We will continue to review that and invest in content that makes a difference to its customers.”

>> >> Sky News Aussie ownership

We were not expecting an answer from the Foxtel boss about the ownership of Sky News Australia. But it seemed like a question that should be asked given the speculation about News Corp Australia making an offer for the channel. “Sky News is a great service and news is an important part of our business.” Freudenstein did say Foxtel wanted a strong Australian news offering for the future regardless of what happens to the ownership of that channel.

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