Foxtel has given market analysts more weight to the theory that its owners -- News Corp 65% and Telstra 35% -- are feeling out the prospects of IPO to unlock the full value of the business.
A strategy briefing, held both in Sydney and in New York, talked up Foxtel’s growth and its ambitious goals via streaming content rather than its traditional cable.
Foxtel sees the future driven by streaming content, currently through Kayo Sports, BINGE and live news aggregation streaming service, Flash, following the recent launch of its iQ5 plug and play IP set top box.
The switch to streaming content from cable plays to a global trend. PwC forecasts streaming video on demand (SVOD) revenues to grow at an annual compound rate of 20.4% through to 2025, becoming a US$81.3 billion industry globally and an estimated $3.3 billion in Australia.
Foxtel's three-year plan includes capturing 5 million plus subscribers, having reached four million in the year to June, one million higher in the past 12 months.
The revenue target is $3 billion, up from $2.8 billion in the 12 months to June this year.
Robert Thomson, News Corp’s CEO, opened the strategy session: “We are now the disruptor of the Australian media industry.”
And Foxtel is now reaching those who previously couldn’t receive or perhaps couldn’t afford Foxtel via cable or satellite.
Thomson, in August releasing News Corps results, added more talk of an IPO for Foxtel when he said: “That sterling performance has clearly given us much optionality as we consider Foxtel’s future, which is certainly bright.”
This was a big change from 2020 when the questions from analysts and the media were about whether or not News was going to inject more capital into Foxtel.
Thomson’s appearance at the latest strategy briefing is significant. He has a record of spruiking News Corp divisions, such as financial news player Dow Jones, which he feels are not properly valued by the market
At the briefing, Foxtel Group CEO Patrick Delaney deflected questions of a possible future stock exchange listing, saying an IPO is a matter for the shareholders.
He told the briefing: “The mission I've been given is to make sure the investment community, the people who invest in our shareholders, understand the value that we have delivered and the transformation journey we are on.”
Brian Han, director at Morningstar, issued a note to clients headed: Foxtel Streams its Growth Dreams.
He says speculation about an IPO is warranted.
“Why else would management so suddenly and publicly be forthcoming about its strategy and long-term ambitions, if not to explore an IPO or at least to gauge interest and feedback about Foxtel’s investment appeal?” Han says.
“The timing is certainly good, with an accommodative equity market presented with a turnaround story, enjoying strong momentum in a structurally attractive SVOD space that is being further boosted by home-imprisoned audiences who can’t get enough of escapist entertainment.”
A key to the future is how Foxtel will manage the slide in the number of high-value legacy pay TV subscribers -- being replaced by cheaper streaming subscribers -- which currently represent 89% of group revenue.
More than half, and growing, of Foxtel’s subscribers are on streaming products.
“As management is at pains to remind the market, the narrative has clearly changed for Foxtel,” says Han.
“Foxtel is betting its future on streaming and demonstrating success in doing so.”
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