News Corp is reviewing the future of its 65%-owned Foxtel, including a possible separate stock exchange listing.
Foxtel has been rapidly adding subscribers since switching to a streaming strategy rather than cable.
Total subscribers hit 3.9 million, up 18% in the September quarter compared to the same three months last year. This includes 2.2 million total streaming subscribers, up 68%, thanks to Kayo and Binge.
Revenue grew 3% in the September quarter to US$510 million. News Corp reported Subscription Video Services EBITDA (Earnings Before Interest, Taxes, Depreciation) up 46% to US$114 million.
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.
Many analysts have suggested Foxtel could be listed separately on the ASX, thus fully realising the value of the business.
CEO Robert Thomson, announcing September quarter results, talked about Foxtel's appeal and “renaissance”.
“We are now obviously in a position to be even more ambitious for Foxtel and are always seeking to maximise its undoubted potential,” he says.
Thomson told analysts the company is examining the “potential permutations” following the “success of the Foxtel streaming” strategy
He wouldn’t provide details, saying “it's inappropriate at this moment” to discuss specifics of the review.
“But clearly, we and our partners at Telstra recognised that the prospects of Foxtel have changed fundamentally and that we have a streaming success story,” he says.
He says the team led by CEO Patrick Delany will surely drive further success.
“Think about how the narrative has changed over the past two years," he told the analysts.
“We had been asked …. whether we would need to put more money into the company. And let's examine what happened. We took a majority stake because we believed more clarity, more responsibility, more decisiveness was necessary. We've used our media platforms to complement and promote the quality of Foxtel.
“Our team made some tough decisions to rationalise, made some smart decisions on streaming and systems and here we are today. So, whatever we do we will not be naive.”
Brain Han, director of equity research at Morningstar, says the narrative has changed on Foxtel.
“It is gradually transforming from a capital-hungry, set-top-box dependent legacy pay-TV operator with declining earnings, to a capital-light, digital-centric subscription video on demand, SVOD, player,” he wrote in a note to clients.
“However, it remains to be seen how much of the current momentum is COVID-19-induced consumer affinity towards SVOD.
“Furthermore, the SVOD industry in Australia is still in the midst of significant flux, with new entrants still vying for space and competitive equilibrium is unlikely to be reached for some time.
“By fiscal 2024, we forecast subscription video services revenue of USD 2.2 billion (in line with management’s AUD 3 billion target) and USD 343 million in EBITDA on an EBITDA margin of 15.5% (versus 17.3% in fiscal 2021), as the COVID-19-inspired bump fades.”
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