With the disintegration of free to air television over the last 20 years, we have seen Telstra and 20th Century Fox’s brainchild, Foxtel, rise and perch itself into a position of dominance in the video media landscape. However, with streaming services such as Netflix and Stan ushering in a new age of media consumption, Foxtel finds itself in a position not unlike that which free-to-air television found itself in all those years ago. So, as we find the media landscape in a moment of flux, we must ask: will Foxtel retain its position as a forerunner in its market? Or will it crumble under the might of its new competitors?
Before beginning our examination of Foxtel, we should first discuss the events that established Foxtel’s hegemony over the last 20 years.
Since the genesis of television in Australia was in 1956, free-to-air television had an unadulterated monopoly over Australian household media consumption. However, when 20th Century Fox Media and Telstra agreed to establish a paid coaxial network, this natural monopoly gradually fell away. As seen in the graph below, over the course of just over 10 years, Foxtel grew at an almost exponential rate.
There are two strong reasons for Foxtel’s rapid rise within Australia. First, there were demanding legislative restrictions that gave Foxtel an arguably unfair market advantage. The Broadcasting Services Act includes a content quota requiring free-to-air television licences to annually broadcast a minimum of 55% of locally made content on their primary channel between the viewing hours of 6am and midnight. Second, with the introduction of Foxtel’s record, pause and rewind functions, consumers were given the flexibility to skip commercials and watch content at any time that suited them. In 2012, Australian households watched 97 hours of live broad casting per month and 6.5 hours of recorded television on their payed television service. More recently, in 2017, data shows that live television viewing per month is at 73 hours, while play-back viewing is at 8.5 hours (Oztam Video Viewing Report 2017). This is arguably the more compelling reason as to why Foxtel garnered an ever increasing market share.
While Foxtel still proclaims itself to be ‘Australia’s most innovative and dynamic media company, [one that provides] a premium, streamed and live, sport, movies, drama, news and entertainment experience’, its recent economic performance might suggest otherwise. After Foxtel’s value write down of $US1.4 Billion in 2018’s financial year, there is considerable noise and discontent within the market. This begs the question- can Foxtel remain a profitable and viable media service in the near and far future?
Foxtel’s penetration rate into Australian homes has stagnated at 30% for the past few years, which correlates with the ascension of Subscription Video on Demand (SVOD) services in Australia – most notably Netflix. Consumers have been steadily shifting away from consuming video media exclusively from their televisions. 2011 reports indicate that television’s average watch time was at 96% of total media consumption, with laptops and desktop computers contributing 3%. 2017 data shows a significant shift: average television viewing time became 79.9%, with desktop and laptop viewing increasing to 6.9% (with the addition of smartphones and tablets giving a combined average of 13.2%), all of which favour SVOD’s viz Netflix, Stan, etc. These statistics parallel the below graph, which indicates a rise in overall payed television use of 11.7%, but a decrease of 2.7% in Foxtel users.
There are two phenomena which may explain why Foxtel is slipping from its position of dominance. First, Foxtel faces restrictions in its ability to bid for content. A chief example of this was the Federal Government establishing ‘anti-siphoning rules’ for sporting events, thereby giving free-to-air channels the first chance to bid for the rights to sporting events before subscription networks (although these rules have more recently been relaxed). Second, the sheer cost of Foxtel is a deterrent to consumers – especially when the alternate SVODs are considerably cheaper. As seen in the chart below, the comparative prices of Netflix, Stan and Amazon are substantially lower than that of Foxtel Now.
Following the announcement of HBO, Disney and now Apple entering into the market, it is likely that the video media landscape will fragment further as streaming services keep their intellectual property close to their chests. In an attempt to gain more market share, it is expected that many SVODs will slow down or entirely stop licensing out their premier content to Foxtel. Unfortunately for Foxtel, they rely heavily on their ability to licence quality TV shows and movies, as unlike Disney, Netflix or HBO they lack their own original content. Therefore, as the media market becomes ever more fragmented, Foxtel could see itself falling even further behind new blood.
Ultimately, what remains to be considered is what Foxtel must do to fend off a precarious future. The preferences of a modern consumer favour holding subscriptions to multiple SVOD’s, each enabling the consumption of unique content. In a scenario where Foxtel continues to compete with SVOD’s head on, it will be unlikely to withstand the pressures – its current business structure and capital disallow them from creating content at the rate or quality of its competitors. Therefore, if it were to tread this path, it would inevitably collapse.
A more responsible course of action would be to mitigate its future losses by accepting a declining market share. Already we have seen Foxtel begin to adapt, specifically with its introduction of Kayo Sport to the market – a streaming service which allows you to record and watch over 50 sports live from multiple video media devices. By offering a more specific and tailored product, Foxtel is able to maintain its integrity, in spite of assuming a smaller role. Therefore, while the future of the video media landscape is anything but clear, in this evolving market Foxtel can either watch on and savour its own anticlimax, or downsize and survive.
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
