The battle for Australia's $4 billion annual television advertising revenue is getting hot! Not only are the free-to-air (FTA) networks stepping up their quest for relevance, but new entrants are coming from overseas to take the market by storm.
A Great Place to do Business
Enter Netflix. The global movie streaming company opened its doors in Australia earlier this year and is instantly threatening FTA and Foxtel's hold on the local market. The big question is though, should Seven West Media (ASX: SWM), Ten Network Holdings (ASX: TEN), Nine Entertainment Co Holdings Ltd (ASX: NEC), Telstra Corporation (ASX: TLS) and News Corporation (ASX: NWS) be concerned?
Point of Difference
Much like when buying a property, I believe Netflix's impact on the other major media companies in Australia will depend on their points of difference. Much has been made of the impact of Netflix on Foxtel, which admittedly has a sub-standard movie catalogue in comparison, however I think this is less of a threat.
Foxtel's major competitive advantage is its unique (in Australia) sports package from its sports channels. Foxsports, owned 100% by News Corporation, brings in around US$130 million in earnings, while the group's 50% Foxtel stake brings in US$100 million.
While harder to differentiate, movie and TV show catalogues will also drive a move from FTA and Foxtel to on-demand services, including those by the FTA networks such as Presto and Stan. Netflix has opened in Australia with a smaller catalogue than hoped, largely due to Foxtel's existing arrangements, and for now Foxtel is able to charge a premium for its in-demand shows.
Will Netflix kill Foxtel?
I don't think so. Shareholders in 50/50 partners Telstra Corporation and News Corporation have plenty of other revenue streams and it's unlikely that Foxtel's appeal will materially diminish in sports-hungry Australia, at least over the short term. FTA TV stations on the other hand have a lot to be concerned about.
