Foxtel had a rough 2016 dropping around 100,000 subscribers, seeing revenues weaken and profits fall – and copped a $US227 million write down at December 31 by News Corp. And that year to forget was symptomatic of the global pay TV industry where revenues fell for the first time since 2010 and are forecast to keep falling until 2022.
And Foxtel’s former stablemate at News, Sky TV in New Zealand tried to find its own solution with a proposed $NZ3.4 billion merger with Vodafone NZ.
The Kiwi competition regulator, the Commerce Commission knocked that on its head and the two companies on Monday revealed that had abandoned plans to merge and had called off a legal appeal to try and circumvent the regulator’s decision.
Now Sky is left to go it alone in an increasingly hostile media world for single purpose companies with legacy business models, such as Pay TV. While Sky is a big satellite operator, its market is small and saturated and it is stuck in a rut, as Foxtel is with no chance to build up broadband/internet and content making businesses.bSky shares fell 15% in Australia yesterday and are down around 25% in the past year.
Blame the rising pressures of technology, weak household income in developed markets, cord cutting by younger consumers, new technologies such as streaming video, social media and a predicted rapid growth in satellite pay TV (DirecTV and Dish in the US and Sky in Europe, as well as services in India and China).
In fact satellite pay TV is forecast to be generating more revenues by around 2020 than conventional cable TV services.
London-based Digital TV Research says in its just released July newsletter (https://www.digitaltvresearch.com/ugc/press/204.pdf) that after nearly 10 years of solid growth, global pay TV revenues are slowing and approaching a tipping point with the peak expected in 2017. In 2016, Pay TV revenues fell by just 0.9% — (or $US1.77 billion — to $US202 billion from 2015. That’s a big pot of money, but to give it some perspective, it is less than the annual revenues of Apple ($US235 billion in 2016) and Exxon, ($US226 billion last year).
The projections will make it hard to justify a stockmarket solution to Telstra’s desire to sell down its 50% stake in Foxtel in Australia (which resurfaced in the last week with comments from a Telstra executive about the company wanting to cut its stake in Foxtel), and make it hard for News Corp to buy control of Foxtel that it wants to do (after snaffling Ten Network from its administrators if the media ownership laws change).
The revenue projections in this report tell us that investing in Foxtel, as a standalone Pay TV business (with no real mobile, broadband or telephone offerings, unlike its rivals in the UK, such as Sky and the US, Comcast), won’t interest too many people in the markets. It’s time has passed, as Sky NZ is finding as it tries to find a way to consumate its planned marriage with Vodafone NZ.
Digital TV Research says much of the fall came in the US where, although it still dominates pay TV revenues worldwide with a 49.5% share, revenues fell 1.6% to $US106.81 billion in 2016 from $US108.58 billion in the year before.
Including the drop in the US, revenues sank in nine countries as a result of subscribers buying smaller, cheaper and alternative pay TV packages (which is what Foxtel in Australia is doing, at a cost to average revenue per user).
Asia-Pacific countries — the second-biggest region in terms of share — saw revenues rise 5% to $US34.38 billion in 2016 from 2015. Latin America grew 4% in 2016 over the year before to $US18.44 billion. Revenues in Western European countries remained virtually flat — with $US28.75 billion in 2016 versus $US28.63 billion in 2015.
Digital said that Since 2010, worldwide pay TV revenues from 138 countries have climbed 19% ($US32 billion) with half of that gain coming from four countries: US, $US7 billion; China, $US4 billion; Brazil, $US3 billion; and India, $US2 billion. The firm warns that after peaking this year at $US202 billion global Pay TV revenues are forecast to ease to $US200 billion by 2022.
Simon Murray, Principal Analyst at Digital TV Research, said: “Revenues will more than double for 13 countries between 2016 and 2022. India will add the most revenues by some distance, with China also recording impressive gains. Asia will account for seven of the top 10 gainers.”
According to the firm global analog cable revenues will fall by $US8.77 billion between 2016 and 2022. However, digital cable TV revenues will also fall – by $US3.14 billion.
Digital TV Research says this will be due mainly to subscribers converting from standalone status to bundles (phone, mobile, streaming, broadband data deals), which provide higher overall revenues for operators but lower TV ones. IPTV revenues will climb by $US2.34 billion.
Satellite TV will add more than any other platform – $US6.66 billion – to reach $US89 billion. Satellite TV revenues will overtake total cable TV revenues in 2020, having passed digital cable a year earlier.
