Foxtel CEO Richard Freudenstein says the Pay TV provider has the assets and strength to compete with disruptors, such as new streaming services.
Addressing the Australia Israel Chamber of Commerce, he said Foxtel offers a premium service to its customers.
“I’m not here today to denigrate the new subscription video on demand services, but simply to point out that they offer a different sort of product,” he said.
“Foxtel is a premium service, which naturally costs a bit more, whereas Netflix and Presto are add-ons either to free to air for people who don’t watch much TV or to subscription TV. Don’t forget that most Netflix users in the US still have a cable service.”
He rejected reportage that the landscape was as simple as Netflix wins, Foxtel loses. His comments follow recent Australian research suggesting subscribers were trialling services to complement their Pay TV packages.
Freudenstein reiterated Foxtel’s commitment to local content, including Wentworth, The Kettering Incident and A Place to Call Home, plus fast-tracking.
“Wherever possible we show international programs as soon as we can after their broadcast in their home market. Increasingly, that means at the same time as in the US or UK.
“This year Game of Thrones went to air at the same time as it was broadcast on the east coast of the United States: Foxtel subscribers saw it before viewers in California.
“Our next blockbuster, Fear the Walking Dead, will also be fast-tracked.”
However, in the past the company has acknowledged holding off new titles in order to mount marketing campaigns.
He also acknowledged, “there is room for incumbent and new entrants alike to grow. SVOD services are growing the overall number of people paying for television at the same time as Foxtel has had its biggest subscriber growth year in at least five years.”
Foxtel is a 50% owner of streaming service, Presto.
Here is is the full speech:
A book just published by McKinsey called No Ordinary Disruption identifies four key factors that are radically reshaping the world:
· urbanisation in the developing world;
· changes to demographics – most noticeably aging;
· increasing connection through trade, and the movement of capital, people and information; and
· relevantly for my speech today, the massive acceleration in the development and rate of adoption of technology.
The authors provide evidence of the rate of technological change with a few startling statistics.
For example, it took 505 years to go from the printing press to the computer printer but only a further 31 years to develop the 3D printer.
Radio achieved its first 50 million users in 38 years, for TV it was 13 years, for the iPod four, just three years for the internet, one for Facebook and only nine months for Twitter.
That change is also having some curious results. I read on the internet recently that Uber, the world’s largest taxi company has no vehicles, Facebook the world’s most popular media owner creates no content, Alibaba, the world’s most valuable retailer has no inventory and Airbnb, the world’s largest accommodation provider owns no real estate.
Given that I read this online, it may not be exactly correct, but it is illustrative of the change that digital technology and the internet of things is bringing to consumers and business.
While change is happening virtually everywhere, it’s also true that change and disruption are affecting different sectors in a variety of ways.
Too often the discourse about disruption fails to consider the ability of the disrupted to respond to the disruption by taking it on directly or taking what is so attractive to consumers in the disruptive model and offering the same, or something better.
Much of the disruption is due to new entrants using new technology such as sophisticated apps that facilitate sharing of information between users, taking advantage of GPS technology or creating new and highly sophisticated ways to analyse and use data.
These changes are driven by enablers, which serve consumers’ need for convenience, relevance or other useful attributes. And they are driven by insights, often breathtakingly simple with the benefit of hindsight, into customers’ needs, wants and desires.
Which leads to the conclusion that to become (or remain) a successful business in the digital age you still require a clear focus on customers and what is important to them:
· first, have a great product that people want, and is easy and convenient to use;
· second, make your product good value for money; and
· third, continually innovate to ensure your product, business model and technology remain relevant.
The last of those requires an entrepreneurial culture within the company where clarity of vision, risk taking, willingness to change and teamwork are highly valued.
Foxtel has been successful because we focus relentlessly on these three criteria. Foxtel is 20 years old this year. At launch we were seen as the ultimate disruptor, bringing an explosion of choice to a world dominated by five rigidly programmed free to air channels.
Over the last 20 years we continued to disrupt by:
· being the first to introduce digital technology and high definition television;
· revolutionising the way sport and news is covered;
· introducing the iQ box, a recording technology everyone now takes for granted; and
· allowing viewers to watch on demand by connecting their iQ to the internet and watch Foxtel anywhere through Foxtel Go.
I could go on and on.
But the perception amongst some, particularly those shy, retiring types on social media, is that Foxtel’s model is out of date and will not succeed in this new world.
I’m here to tell you, we are already succeeding and will continue to do so because we will continue to evolve our business model, launch new products to meet our customers’ changing needs and not be afraid to take risks to be successful.
Let’s briefly look at the criteria I mentioned above in the context of the Foxtel business.
Firstly, our product.
At the heart of any media business is content.
While technology can change the way people consume content, and help drive down the cost of creating it (although I’ve seen little evidence of that in our drama budgets), there is, as yet, no substitute for the human imagination behind a great film or TV drama or the athleticism behind an inspiring sporting performance.
While there is an enormous amount of video content available, relatively few people have the true creative genius required to make great television.
It doesn’t matter how good your technology or how ingenious your business model, if you don’t have great content you’ll struggle.
The average Australian household watches 38 hours of television each week, that’s why it’s so powerful if you can offer a wide range of fresh and exciting programming.
By that measure there really is no comparison between Foxtel and any of its competitors.
Let me spell it out for you in some detail, because there has been a lot of myth making on this subject when the reality is very stark.
I’m not here today to denigrate the new subscription video on demand services, but simply to point out that they offer a different sort of product.
Foxtel is a premium service, which naturally costs a bit more, whereas Netflix and Presto are add-ons either to free to air for people who don’t watch much TV or to subscription TV. Don’t forget that most Netflix users in the US still have a cable service.
While Netflix produces a growing number of its own good quality shows, which it can afford based on its scale in the US, it will never be able to acquire the range of first run content that Foxtel can. It’s a simple matter of economics. At $15 per month, there is a limited amount of programming that any SVOD service can buy.
Think about it, even if the speculation is correct about SVOD numbers in Australia and even if all those customers were paying, the total revenue for all SVOD services would be only around $150 million per year. That doesn’t provide much for programming investment compared to Foxtel’s (or free to air) programming budgets.
In my view the best analogy for SVOD services is they are the digital video store. People who used to supplement free to air viewing by renting the occasional DVD are now doing so by using an SVOD service.
This is borne out by the fact that in the US and UK SVOD and pay-per-view revenues have grown in direct proportion to the decline in DVD revenues, while subscription players have continued to grow.
So let me be clear about where this dramatic difference in content lies.
First, without Foxtel, sports fans would miss out on the sport they love. Not only is the range amazing, on Foxtel it’s all available in high definition and has no ad breaks to interrupt the action.
· every match live of every round and finals series, of the AFL now through to 2022.
· every game live of the 2015 Rugby World Cup;
· every practice, qualifying session and race live of the V8s and F1;
· comprehensive coverage of the NRL; and
· huge amounts of international sport, including every overseas golf and tennis major.
Our sports coverage is comprehensive and it is rich. It is beautifully produced with innovative use of technology. Major codes are covered by a range of popular magazine programs that we produce and which satisfy the needs of even the most die-hard fans.
Secondly, no one carries as many new and exclusive TV shows from the US & UK.
For example, in addition to our exclusive deal with HBO, the vast bulk of dramas produced by such powerhouses as Showtime, AMC and the BBC will appear first on Foxtel.
In 2015, Foxtel will show four times more hours of the latest premium dramas and 50 times more general first run programming than all of the SVOD services put together.
Wherever possible we show international programs as soon as we can after their broadcast in their home market. Increasingly, that means at the same time as in the US or UK.
This year Game of Thrones went to air at the same time as it was broadcast on the east coast of the United States: Foxtel subscribers saw it before viewers in California.
Our next blockbuster, Fear the Walking Dead, will also be fast-tracked.
Thirdly, Foxtel creates award-winning Australian TV, showcasing the best of Australian creativity.
Recent examples of drama have included Logie award-winning The Devil’s Playground and Wentworth and the BBC production Banished.
Coming soon will be the complex psychological thriller The Kettering Incident, and in September A Place to Call Home, an example where Foxtel saved a much-loved show that no longer had a place on free to air television. It’s also an innovative collaboration between Foxtel and Network Seven, which is producing the show for us.
And going into production next week in Canberra is Secret City, a political thriller starring Jackie Weaver, Anna Torv and Dan Wyllie.
We create a raft of other highly successful programs in genres such as comedy, factual, and lifestyle, such as Open Slather, The Real Housewives of Melbourne, Coast Australia, River Cottage Australia and many, many more.
As has been mentioned, I recently announced plans to double the amount that Foxtel invests in local content.
Australian audiences love to watch Australian stories and hear Australian voices; and our investment adds to the cultural heritage of our country and creates jobs for thousands of Australians.
We are also ensuring that our great content is available to our customers whenever and however they want it. While many people love to watch linear channels, increasingly the ideal viewer experience is about control, flexibility and mobility.
The recently launched iQ3 is a truly revolutionary box with amazing functionality, and more to come as the platform evolves.
The key to the power of iQ3 is that it seamlessly integrates the broadcast stream with IP delivered content.
So for example, when you turn on the TV and a show you want to watch has already started you can hit “start over” and the box will change from broadcast to an IP stream and start at the beginning of the program.
Foxtel Go is another great innovation. We led the way globally with its precursor, the London Olympics app, which was described by the IOC as the best such product in the world.
Go meets consumers’ increasing desire to be able to watch what they want when and where they want it.
We will continue to develop both Go and iQ3. For example, in a future iteration of iQ3 you will be able to begin a program on you television set, pause it and resume watching on a mobile device via Foxtel Go when you leave the house.
As I’ve said, the product is only one part of a successful business. Just as critical is to make it available at a price perceived as value for money. This is why we radically changed our pricing model last November and why we launched exciting new IP products like Foxtel Play and Presto.
Our recent results show that the combination of our great content and our new products and price points is working extremely well.
At the same time that competition in the market was heating up, Foxtel added nearly 230,000 new customers last year. That represents an 8.6% growth in our customer base, the highest rate of increase in many years.
Foxtel is now in over 2.8 million households and is used by over 7 million people per month.
To take the bold step of halving the entry price of our product was not without risk. However, our research clearly showed that consumers wanted Foxtel, but many felt the entry price was too expensive.
So, at the risk of cannibalising our existing customer base, we took a very bold step and I’m delighted to say (not least because it means I’m still here to tell the tale) it paid off.
That cannibalisation did not occur because we also gave all of our existing customers new content at no extra cost. The number of customers who have elected to move from the old pricing to the new has been relatively modest.
As a result our average revenue per user declined only 2% in the last financial year.
Naturally, as more customers sign up at the new pricing, ARPU may decline a little more. However, the vast majority of our new customers are taking one or more tiers and the volume of new customers will generate revenue that will more than make up for the lower average ARPU.
Just as significantly, our rate of churn is the lowest it has been in the company’s history, standing at 10.9% down from 12.5% in the prior year. This churn level is world class and shows that our existing customers are not leaving Foxtel for other providers.
This is all the more remarkable given that at the end of the 2011-12 financial year churn was 16.2%.
Our strong subscriber growth was achieved at the same time as the business was extremely busy introducing new products and services including iQ3, broadband, and Presto.
This is where the culture of Foxtel is vital to our success. It’s an entrepreneurial culture where change is embraced and staff work together to focus on great outcomes for the customer.
The change at Foxtel over the past two years, in particular, is breathtaking and I want to publicly acknowledge the incredible hard work and dedication of my executive team and thousands of staff through the whole organisation.
If resilience and agility are key attributes to success in a disruptive environment, we have shown that we have the ability to execute multiple major change programs at the same time.
This has been publically recognised with Foxtel recently winning a national “Change Management Programme of the Year” award.
Foxtel broadband is another way of providing value and convenience to our customers while opening up a new line of business in a market where bundles of content and communication services are increasingly prevalent.
It is optimised specifically for video because we know that customers who take the Foxtel triple play bundle will increasingly interact with Foxtel content on line.
The combination of our content investment, broadband, iQ3 and Foxtel Go means that Foxtel is well placed to serve our customers’ growing desire for on demand programming to complement their linear channels.
But we are always evolving our product and business model. For example, while some still portray Foxtel as purely a linear channel provider nothing could be further from the truth.
Our Anytime offering, which can be accessed via a set top box, on Foxtel Play or on Foxtel Go, has thousands of hours of movies and TV shows on demand. Over coming months it will be built out to ensure that a comprehensive range of complete series of loved and admired TV programs is available at no additional cost to customers.
One of our challenges is to communicate the value that Foxtel, as a premium television service, delivers. This is yet another area of myth making, some of it pushed mischievously by organisations such as Choice. They argue that the way we bundle and price our service disadvantages consumers.
In fact one of the great benefits of Foxtel is that it aggregates in one cost effective offering a whole lot of content that a viewer would have to pay more for if bought any other way.
For an average customer who takes only the drama tier, it would cost $660 per year to get all of Foxtel’s dramas in HD, plus on demand viewing via Anytime.
We only had to add up the cost on iTunes of purchasing eight full series of programs like Game of Thrones, True Blood, Call the Midwife and Dexter to exceed that cost.
The subscription model remains the most cost effective way for most TV viewers to buy their programmes, which is why services like Netflix and Spotify also offer bundled subscriptions.
Finally, I should mention Presto Entertainment because one way to challenge disruptors is to take them on at exactly their own game.
Presto, thanks to the program acquiring strength of Foxtel and Seven, has the best and most recent range of content of any of the SVOD services. We will continue to invest in Presto and are very confident that it will be a success story of the new world of media.
So, for people who love sport, who love quality drama, who love Australian programs or who want a width and depth of content across all genres, Foxtel is the answer.
But as I’ve said, that doesn’t mean that there is no room for other services. Many commentators approach the media market as if it were a zero sum game: Netflix wins, Foxtel loses.
But as recent Roy Morgan research points out and as a report just published by Citi argues, that’s simply not the case. There will be significant growth for both Foxtel and SVOD services in the coming years.
I believe that in the future a vast majority of Australian homes will have either Foxtel or an SVOD service and many homes will have both.
It’s a positive for Foxtel that more people have started to pay for television. By subscribing to an SVOD service they will come to see what they are missing out on, in both the range of content available and the convenience of watching where and when they want.
One consequence of this will be that more people will take a look at Foxtel and see a service that has even better and more recent content.
So, let me conclude on how Foxtel sees the future: we have looked hard at the disruption taking place in the media and come to three conclusions.
The first is that we have the assets and the strength to compete with the disruptors: a financially sound business underpinned by excellent exclusive content.
The second is that we must act like disruptors ourselves. We must be agile and responsive to changes in technology and consumer behaviour. With our history of innovation that’s what we’ve always been.
The third is that there is room for incumbent and new entrants alike to grow. SVOD services are growing the overall number of people paying for television at the same time as Foxtel has had its biggest subscriber growth year in at least five years. Further, as the differences between SVOD and Foxtel become clearer, we are confident that more customers will move from SVOD to the premium Foxtel service because of our unique programming.
We’re under no illusions that the world is getting more complex and competitive, but we are excited about our growth opportunities and absolutely determined to continue to succeed.