Telstra Corporation Ltd (ASX: TLS) is believed to be open to a sale of its 50% stake in Foxtel, according to Fairfax Press.
Foxtel is 50% owned by Telstra and News Corp (ASX: NWS). It is Australia's most profitable media company, generating more profit than the three major free-to-air networks combined.
However, competition is growing in the pay-tv and streaming markets. Discount movie streaming service Netflix is rapidly growing in popularity, but Nine Entertainment Co Holdings Ltd (ASX: NEC), ABC, SBS, Ten Network Holdings Limited (ASX: TEN) and Seven West Media Ltd (ASX: SWM) have each vied to push their services further.
Foxtel has long held a monopoly on the Australian pay-tv market because its rights to popular international productions was unparalleled, especially for sports packages like ESPN and Fox Sports. However, last week SingTel's Optus perhaps showed a sign of things to come by buying the rights to broadcast the English Premier League (EPL) from August 2016 onwards, for $50 million.
Foxtel accounts for just 3% of Telstra's revenue, but Commonwealth Bank of Australia (ASX: CBA) analysts believe Foxtel's equity is worth an impressive $3.6 billion.
Nevertheless, Foxtel plays a very important role in the telco's push into broadband services, with an increasing number of subscribers taking up bundled packages.
Foolish Takeaway
If Telstra is heading towards the exit, investors should pay attention to its rationale for divesting the media company and how it'd play into the company's existing broadband strategy. However, if competition continues to force down profit margins now could prove to be an opportune time to exit the market and focus on its key growth areas like mobile, Asia and eHealth.
