Foxtel: The End Is Nigh. Here's Why

Entertainment streaming services like Stan and Netflix offer access to a wide range of content cheaply and at the viewers’ preferred time. So where does this leave traditional Pay TV models like Foxtel? Whatever strategy is employs, its road into the future is going to be treacherous — and costly.

Most media businesses offer a bundled set of products. When you buy the newspaper, or watch free-to-air TV, this is obvious. You pay a fee to buy a newspaper, or the offerings of a channel, some of which you want and some you don’t, but it all comes together in a package. You can pick and choose some content by switching TV channels or subscribing to more than one newspaper, but your choice is quite limited.

Pay TV offers a slightly broader bundle. You subscribe to a package from Foxtel and you get access to more channels, and hence can choose between a wider range of content, but it is still a bundled offering. You pay through a subscription rather than by watching advertisements, which makes the business model slightly different, but you are still offered a bundle.

This whole business model is now under challenge; for newspapers, TV channels and for pay TV. The share prices of media companies are in decline, and in the US in sharp decline.

The challenge so far has been gradual as technology has allowed consumers progressively more control. Technology has worked to undercut the pre bundled business models: videos allowed people alternatives as to how to be entertained in their homes, time-shifting gave them greater control over when they watched programs, and the web gave them news whenever they wanted.

Netflix and similar businesses now have pushed the envelope further. They offer access to a wide range of content cheaply and at the viewers’ preferred time. This is part of a broad movement – web based services are undermining the business models of all the product bundlers, from newspapers onwards.

Increasingly we are able to pick and choose the content we want to watch, the time we want to watch it and to pay just for what we want. Music has gone the furthest down that path.

Where does it all end? It seems likely that a range of offerings will survive. Some completely bundled products like newspapers will survive at one end, and some smorgasbord offerings like Netflix and Spotify will be at the other. In between they will probably be a range of partly bundled services of the sort Foxtel offers. Just as restaurants exist which offer a diversity of product mixes so entertainment is likely to finish up in the same place.

Businesses will adapt, some will fail. To survive they have to find a mix of price, product offering, and availability which is viable.

Pay TV to pay the highest price

Sitting in the middle, pay TV however looks particularly vulnerable. It took market share from free-to-air TV because it offered a wider range of advertising-free content, but it’s not clear how big the market is now that it is challenged by offerings which offer still more choice.

Free-to-air seems most likely to encroach onto the territory of pay TV. A recent Monash Business Policy Forum paper argues free-to-air providers need to separate their control of the spectrum from their provision of content, selling space on the spectrum to a wider range of content providers – a little like a department store allowing product manufacturers space on their shop floors. With digitisation the spectrum operators have the ability to offer a much wider range of content than they currently do.

As free-to air expands, pay TV’s only real option seems to be to cut price and expand options available to customers. Some of this is underway and more is likely. It is a costly strategy.

Content providers should be winners. As prices fall and choice widens, there will be a more intense struggle for content which attracts eyeballs. Some will be political and some economic. There will be political pressure to broaden the anti-siphoning rules which require some premium sporting events to be available on free-to-air, allowing them to charge premium advertising rates for major events.

And other content which is attractive will command higher prices; good for providers like the AFL or FFA. It also means that programs will have to stand on their own merits, and command a commensurate price. The whole business of cross-subsidies from one program to another will be minimised. Higher prices for content will squeeze the profitability of media companies even further as their programming costs rise while their revenue is under challenge.

Such unbundling of media is good for the consumer. Rather than being forced to watch the standard (and parallel) programming of the free-to-air channels, we now are more able to watch what we want when we want it.

There will be considerable pressure for media laws to change. The current rules are based around media technologies which are well out of date. We failed to make the necessary changes when we digitised the system but economic forces will now ensure it happens.

Rodney Maddock is Vice Chancellor's Fellow at Victoria University and Adjunct Professor of Economics at Monash University.

This article was originally published on The Conversation.


Comments

    Why anyone would get Foxtel is beyond me.

      If your a huge sport fan i can understand, thats about it, stan netflix and the rest of the streaming services seem to be a better option

      At the moment, sports is what is keeping it alive. Solely sports. However, streaming services becoming more and more popular means that this is becoming a major piece of competition. Football is likely to be optioned out to streaming services as well. With 9 securing the Rugby til 2022, that's a major blow to Foxtel (even though they're owned by Murdoch anyhow) who was at one point trying to secure the rights. Foxtel will die, streaming will take its place, it's justs a matter of time.

        Yep, and this is exactly why the end is NOT nigh for Foxtel. Not in the near future, anyway.

        Netflix themselves have come forward and said that the infrastructure is simply not there at the moment to support live sports streaming country wide.

        The NRL has just signed a huge deal with Foxtel and Nine that will take them to 2022 (I believe the AFL are close to inking a similar deal), at which point streaming services like Netflix may be able to put bids in, as they are predicting that's when the technology may be there to support it. But will they be able to compete with Foxtel and commercial TV in terms of dollar value? That remains to be seen.

        But as long as live sports are a thing, Foxtel isn't going away, unfortunately.

          Pretty much. Football won't be optioned to any streaming service at all until it's a measurable competition to Foxtel. Given 9 secures the rights (Foxtel wanted exclusive rights once, HAH) to all major games and events, good luck with that. Personally, I'm happy 9 got the rights, Sports major events should be free to air for all.

      If you want the latest episodes from your favourite TV shows - legally, then you have only a few options:

      - Foxtel
      - Season Passes/Buy Each Episode - e.g. iTunes/Xbox/Google Play etc.

      Given the number of different shows we watch, it's far cheaper to get Foxtel than using a service like iTunes.

      The alternative is to only have a small selection of new shows and waiting for shows to eventually (maybe) show up on services such as Netflix or buy a discounted hard copy of a season box-set at some point.

      I wish it wasn't so (especially with having to skip through the ads and awful iQ3 box), but for us - Foxtel's the only option.

        Its foxtels monopoly that has secured them licenses on the latests and greatest they die a slow death other content providers will push in with the new content.

        Netflix US has 5 times the content the Aus version has, I suspect its foxtels doing.

    While Foxtel have exclusive live sports there will always be a market.

      This this and this.
      I have no choice but to pay for FOXTEL go for the sports package as I have no other way to have every epl, Aleague game live.

        your kidding right? you don't need foxtel for sport

    I know some people with Foxtel, and their reasons are one or more of the following:
    - Choosing from a big library requires some amount of thought, which doesn't work if you just want to to watch "Junk TV" / casual surf, have stuff running in the background, etc.
    - Internet connection isn't good enough for streaming services
    - Live sports, news, events. While most, if not all, can be found online, people want to be able to access it all by pressing a button or two on their remote.

    As much as Netflix and the others have way better features on paper, it's also a different approach which people find stressful or just incompatible with the more casual/mindless nature of traditional television.

    But, that's obviously in decline.
    -Rhys

    My parents got a broadband bundle from foxtel.

    When they moved house they had no real choice but telstra for their isp, no optus coverage, and even the resellers like dodo couldnt connect it.

    They arent heavy downloaders so instead of the telstra option, which at the time was 95 a month for 250gb (because the S plan with 50gb was terrible value for money), they got the 100gb plan through foxtel which was the same price but gave them basic foxtel channels too.

    Seems to be working out alright for them too

    Perhaps I'm nitpicking but on streaming services you are still effectively paying for content you don't want to watch; just it's not as much of a ripoff as cable tv. You don't get a cheaper rate on a streaming service simply because you only watch from a limited range of genres.

      8 bucks vs up to 100 though... thats a sacrifice I can make each month. A happy meal vs 100...

      You are right to a point. With Netflix you are paying for a library that a decent chunk of you won't even watch, but at least you have the following;

      - Price point (as mentioned above)
      - Consume all you want of things you want to see. Pay TV still has scheduling and while things like Foxtel on Demand are nice, you most certainly end up watching a whole lot of stuff you may not be interested in. I could spend a whole month watching things on Netflix that I want to see without even going near the other stuff.

      As seen recently with the price cuts, hopefully this whole shift will continue giving consumers better value and more options to consume media.

    Advertising free? What? Foxtel has more ads than free to air, and plays them more often to boot.

      actually foxtel doesnt have more adds than free to air tv. it has less ads but most of them are those fucking annoying as hell insurance ads that last upwards of 2mins. the shows also only have 3 ad breaks per half hour show and 5 per hour long shows. to put in perspective Last Week Tonight on the comedy channel only has 2 ad breaks most of the time, and very rarely has 3 ad breaks

      Foxtel has less ads than free to air and by series recording what you want to watch, you can bypass those anyway.

      Foxtel OnDemand catch up is ad-free, so is foxtel go's catch up service.

      It would be against the law for foxtel to have "more ads than free to air"

      The massive amounts of advertising on Foxtel made us move away.

    Sport is the only only reason that I could ever envision for you to have Foxtel. On all other fronts it is fading away into irrelevance. Netflix offers better interface, better content and a better price point. Foxtel will continue to desperately hold onto content like Game of Thrones but people will clue on that you can get a VPN. I got a VPN through www.reviewmyvpn.com pay for Netflix, UFC Fightpass and NBA Leuge Pass, and it's all cheaper that foxtel

      Almost everything I watch on foxtel that is not sport, isn't available on netflix.

      98% of people who have foxtel take up a sports package though, so you're right. It's the only place one can watch AFL & NRL in HD.

      Last edited 12/08/15 3:05 pm

        98% - where is that stat from?

        I can guarantee you that when I worked for Foxtel a few years ago, there was not 98% of customers with sports

        Infact, one of Australia's biggest names in Sports commentary didnt even have sports channels on his Foxtel subscription

    I'd be non too surprised if Foxtel was eventually whittled down to be a mirror image of Sky Sports in the UK. Having multiple channels dedicated to different sports. But at the same time by then you'd have hoped they'd have moved the live sports to a streaming model.

      Have you ever tried watching live sports on the internet?

      The frame rate is nowhere near good enough to support the fast movement of balls & players.

      Go on the AFL website and watch a highlight clip and you'll see what I mean. Or get on youtube and watch a game of the SANFL or NTFL.

        NBA League Pass, NFL Online, NHL Gamecenter, WWE Network (probably more) all work near-flawlessly live.

    It's the only way I can watch the AFL I want to watch here in NSW.

    thats originally what paytv in this country was, just satilite sport services that pubs and clubs had access too

      In fact, initially it was just one satellite horse racing channel that pubs and clubs had access to

    I have foxtel and netflix (US) but they are both different beasts. I'm a moderate sports watcher (NRL, EPL,cycling,Supercars,motoGP) partner and I also watch lifestyle food, comedy, syfy. Most of what we watch doesn't end up on Netflix at all even in the US. Netflix is great as long as your not wanting to watch 'current season' TV shows (Netflix productions excluded) and that's the way its going to be for some time. I'm sure I could ditch fox and find most of what we watch on various platforms/services but it comes down to convenience of firing up the foxtel box either into the epg or recorded shows and its done. Netflix is being accessed via an apple TV and is a similar experience. how do I get stan/presto/quickflix/iplayer etc etc onto my TV within a couple of clicks of the remote or how do I explain all the different services and how to set them up to stream to the TV when I'm not at home for each show that she wants to watch.

    If Foxtel bulked up their web platform with their entire content library and made new content available as it aired, developed a native app for smart TVs/ apple TVs etc that were controllable from a remote while on the couch and not having to go through intermediary devices it would be a win as it would still feel like a traditional TV service and would actually go up against netflix.

    And it is not as if Foxtel were advert free. For the last few years it has had more and more adverts - one of the reasons I stopped using it.

      Could not agree more. I joined Foxtel in the 90s, you know in the good old days when Foxtel did not have advertising, other than promotions of upcoming shows. But boy have things changed, ad after ad. After complaining to them re their advertising, their argument was they are allowed to advertise up to 22 minutes in the hour, yes 30% of the hour you are watching the screen is advertising, probably no different to free to air, but I was paying so I didn't have to watch advertising. They are going down the tubes, I rang to have it disconnected about five times , they just kept offering better deals like half price for the same deal, extra channels, a free IQ box thrown in. They do not want to lose customers . Bottom line the product is poor and overpriced. I now have Netflix and love it.

    Are we going to have the NBN to support it by 2022? (wishful thinking)

    well here it goes
    you get Foxtel your an idiot
    you call football soccer your a bigger idiot or just moron
    you think afl is a great sport your an actual fkwit and should be taken care of
    Telstra is just a money grabbing politician run organisation.
    why support Foxtel its repeats and sports channels are full of garbage afl nrl when you can watch it free online for less than $50/pm...all fox media run corps are getting killed off because everyone hates the americans..look at sky uk

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