RETAIL might be suffering but the pay TV operator Foxtel has managed to coax enough out of consumers' pockets to help it post a 15 per cent rise in earnings to $551 million - despite flat subscriber numbers overall.
The increase came largely through the company doing a better job of keeping the customers it already has and making more money from them, as it faces a difficult time to win new customers given competition from Freeview, online entertainment and weak consumer sentiment.
In the year to June, it booked $2.1 billion in revenue, up 6 per cent, but the number of subscribers was flat thanks to a drop in those who subscribe via the telecommunications company Optus.
Foxtel said the numbers of those who subscribed directly through its service rose by 2.5 per cent, but the total number of its subscribers - 1.65 million - was only marginally up, by 20,000, on last year.
The rise in revenue and 26 per cent jump in pre-tax profit to $200 million came largely because the money made from each subscriber - the average revenue per user, or ARPU - rose as more people elected to pay more to take up the iQ recorder, set-top box and high-definition services.
Three-quarters of subscribers now have the iQ, with ARPU now at $95 a month, while the rate at which it loses subscribers - known as churn - fell by 1 percentage point, to 12.5 per cent for the year. The company said it was its best rate in four years.
The chief executive, Kim Williams, said it was much harder to win new customers than keep existing ones. Foxtel did offer "save packages" to keep those intending to drop the service, but he said they represented no more than 1 per cent of the customer base for a limited period.
He said a new AFL deal allowing Foxtel to screen all matches live would contribute to "refreshed growth" in subscribers next year. While he would not reveal its targets, he expected "solid growth in the tens of thousands".
Meanwhile, he remained hopeful the opposition to its bid for the regional pay TV company Austar by the Australian Competition and Consumer Commission would be overcome.
The competition regulator last month expressed a preliminary view that the deal would substantially lessen competition in the pay TV market and the market for buying TV programs. It is also concerned that Foxtel half-owner Telstra would be able to use its shareholding to offer better bundles of phone, mobile and pay TV packages than its competitors such as Optus, which opposes the merger despite having a deal with Foxtel.
Submissions on that view closed yesterday and the ACCC is expected to issue its final determination on September 8. Foxtel disputes that there is a pay TV market in Australia given the competition it faces from free TV, DVDs and online entertainment, and says it does not compete with Austar in any way, including for consumers, except on the Gold Coast.
"I remain confident in the substance of our argument and the veracity of our arguments," Mr Williams said. "We have, as we always do with the commission, treated it with due regard and respect."
Asked what plan B was if the deal was blocked, he said: "Plan A, B and C is to support the transaction."
Frequently Asked Questions about this Article…
What drove Foxtel's earnings increase to $551 million?
Foxtel’s reported 15% rise in earnings to $551 million was mainly driven by higher revenue per customer rather than big subscriber growth. In the year to June it booked $2.1 billion in revenue (up 6%) and boosted ARPU as more customers took iQ recorders, set‑top boxes and HD services.
How did Foxtel’s subscriber numbers change and what does that mean for investors?
Total subscribers were essentially flat at about 1.65 million (only 20,000 higher year‑on‑year). Direct subscriptions rose by 2.5%, but Foxtel lost customers who subscribed via Optus. For investors this suggests growth has come from monetising existing customers rather than big additions of new subscribers.
What is Foxtel’s ARPU and why is it important for shareholders?
Average revenue per user (ARPU) rose to about $95 a month as more customers opted for premium hardware and HD services. Higher ARPU means Foxtel is extracting more value from each subscriber, which helped lift overall revenue and pre‑tax profit despite flat subscriber counts.
Has Foxtel improved customer retention (churn), and how does that affect performance?
Yes. Foxtel’s churn rate fell by one percentage point to 12.5% for the year — its best rate in four years. Lower churn reduces the need to spend heavily to replace lost customers and supports more stable revenue, which is a positive signal for investors.
What impact will Foxtel’s AFL rights deal have on subscriber growth?
Foxtel says a new AFL deal that lets it screen all matches live should help ‘refreshed growth’ in subscribers next year. The company expects ‘solid growth in the tens of thousands’ but did not disclose specific targets, so investors should view this as a potential catalyst rather than a guaranteed jump in subscribers.
How could the proposed Austar takeover affect Foxtel and what are the regulatory risks?
Foxtel is seeking to buy regional pay TV operator Austar, but the ACCC issued a preliminary view that the deal could substantially lessen competition in pay TV and program buying. The ACCC was expected to issue a final determination on September 8. A blocked deal would keep consolidation plans on hold and could affect Foxtel’s regional strategy.
Why is Telstra’s stake in Foxtel a concern for competitors like Optus?
The ACCC was concerned Telstra — a half‑owner of Foxtel — could use its shareholding to offer superior bundles of phone, mobile and pay TV services, potentially disadvantaging competitors such as Optus. Optus opposes the Austar merger partly for this reason.
What should everyday investors watch next for Foxtel?
Investors should monitor ARPU and churn trends, uptake of iQ and premium services, subscriber kinks (especially Optus‑linked subscribers), outcomes of the ACCC decision on the Austar bid, and any subscriber impact from the AFL live‑rights rollout. These factors will influence revenue sustainability and growth prospects.
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