For over one hundred years, pragmatic advice freely handed out to people or organisations in a seemingly doomed situation has been “if you can’t lick ‘em, jine ‘em.”
I suspect that was the logic applied in the latest move just announced by Foxtel.
We should go back just a few steps. In 1995, a venture between News Corporation and Telstra created an organisation that would use a coaxial network to transmit a TV signal to consumers who would pay for this service. On 23 October 1995, the first Foxtel transmission started with a twenty-channel service. Foxtel was not the first pay TV operator in the nation though.
Galaxy began a two-channel broadcast on Australia Day in 1995 but only lasted three years. Optus Vision and Austar also beat Foxtel to the punch but the combined might of Twentieth Century Fox and Telstra soon made Foxtel the dominant player and the acquisition of Austar in 2012 effectively delivered total dominance in the pay TV space.
My initial excitement with pay TV was in relation to advertising. When Foxtel launched, advertising during programs was banned under Australian Government legislation for the first two years. That has now changed, of course, but legislation still prevents a pay TV business from earning more than fifty per cent of their revenue from advertising. Many people are frustrated watching ads on TV so the lure of no advertising was a great attraction initially for pay TV.
Many people would think that Foxtel was in a great place from 2012 onwards – and I agree. Complete dominance of a market with over five million subscribers sounds like a great place for a business to be in. As so often happens, though, complacency is a cruel leveller. When a brand achieves market dominance, they can become complacent and competition ends up coming from a product that is the same but completely different. Think of Nokia, who dominated the mobile phone world, only to have their world turned upside down by the Apple iPhone.
Just when Foxtel could relax and count their dollars rolling in, along came a disruptor. On 24 March 2015, Netflix was introduced in Australia. Within three years, Netflix had grown to nine million users and growth continues as they approach twelve million subscribers today. Meanwhile Foxtel numbers are slipping and the subscriber base is now below five million.
In this situation, what would you do if you were in charge of Foxtel? They provide a different service to Netflix with live sport and current news programming which adds significantly to the cost base which is passed onto consumers but ultimately everyone is competing for consumer eyeballs. Foxtel decided they couldn’t beat Netflix so they may as well join forces. In the biggest move in Australian pay TV services since Foxtel bought Austar, Foxtel now provide all Netflix programming as part of the Foxtel offer. One remote, one service and all channels. Combined with the combination is a relaunch of the entire menu system. No longer do people access ‘channels’ but they access content. Searching for preferred content on one remote across everything that Foxtel and Netflix delivers is an offer that Foxtel management hope will keep you paying your Foxtel subscription. Add more on-demand programs with an ever-growing library and maybe the combination of Netflix into the Foxtel offer will be the move that saves Foxtel – and that is a big statement compared to how the management would have felt about their future in 2012 when they bought Austar.
How quickly the world can change.
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