Why Foxtel could fail

Foxtel is readying itself for the arrival of American online video heavyweights Netflix and Hulu.

Owen Raszkiewicz

Owen Raszkiewicz is a Motley Fool Contributor. Owen has been a Contributor since 2013, having also spent time as a Fool writer/analyst. He also worked as an Investment Analyst at Zenith Investment Partners, Australia's top research house specialising in managed funds. Owen has appeared on Channel 10's The Project and was invited on the BBC. He holds a Masters of Applied Finance, Masters of Financial Planning, Bachelor of Technology, Advanced Diploma of Financial Services and Diploma of Mortgage Broking Management. In addition, Owen has passed Level 1 of the Chartered Financial Analyst (CFA) Program. He has taken the Banking + Finance Oath (BFO). When he is not writing, Owen is Managing Director of Rask Finance, an Australian financial education company. You can email him: [email protected].

Published September 3, 2013 10:48 am AEST

Foxtel, owned by News Corporation (ASX: NWS) and Telstra (ASX: TLS), has decided it's time to start preparing for the arrival of the overseas powerhouses Netflix and Hulu.

Faster internet services in Australia (such as the NBN) will change the way services are provided by Foxtel. The fact that the company's CEO, Richard Freudenstein, has approached its longtime free-to-air rivals is a sign it needs to change its product. Streaming movie and TV company Netflix has over 37 million members in 40 countries because it offers a wider variety of video, on demand, than traditional television networks.

With internet television, there are no commercials, no commitments, pause capabilities and viewers can watch anywhere at any time on almost any internet-enabled screen – it's no wonder Foxtel is worried.

According to The Financial Review Mr Freudenstein has already approached his counterparts from Seven West Media (ASX: SWM) and Nine Entertainment Co to discuss its video-on-demand network. Despite being bitter rivals in the past, to encourage more Australians to switch to online TV, co-operation will be needed.

In 2012, Netflix realised US$3.61 billion in revenue whilst Hulu generated $695 million in the same period. Informa Telecoms & Media forecasts worldwide revenue will grow from its current $US10.6 billion to $US37.2 billion in 2017.

Revenues are drawn from advertising, transactions (like movie rentals) and subscriptions – similar to Foxtel's current product offering. If the free-to-air networks can make an agreement with Foxtel, it is likely to lower capital expenditure and marketing costs.

Foolish takeaway

The biggest challenge for the media industry is through online threats such as this. If Australian media can successfully encourage viewers to transfer over to an online medium, they will be competitive against foreign rivals. However the biggest winner from the switch could arguably be Telstra, who has both a stake in the service (50%) and provides most of Australia's internet bandwidth.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading

Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.