Is Foxtel's price slash enough to keep it in the picture?

With falling prices, more online video and broadband bundling on the way, Foxtel is hoping you'll come for the cheaper content and stay for the Triple-Play.

Not so long ago it was tempting to write off Foxtel as yet another old-world media dinosaur totally oblivious to the extinction event that was bearing down on it. You would have laughed at the thought of watching Foxtel online without a home subscription, or the possibility of the pay TV giant slashing the cost of its basic plan. Times are changing, and Foxtel is changing with them.

Foxtel's $49 asking price for even basic cable has certainly been one of the key barriers to the pay TV giant getting a foothold in more than 30 percent of Australian homes. That $49 per month for the basic Entertainment package quickly gets up around the $100 mark if you want to watch live AFL matches and Game of Thrones in high-definition.

Now Foxtel is slashing that basic Entertainment package to $25 per month as of November, as the pay TV incumbent transforms itself in preparation for the online subscription video onslaught. It's also cutting $5 per month off almost all its premium packages. The notable exception is sport, which remains at $25 per month to help cover the expensive rights deals it has struck with the major sporting codes.

Read the fine print

Often such a significant price cut comes with a hidden catch. For example when Foxtel halved the price of its Presto subscription movie service to $9.99 per month it quietly axed the streaming simulcasts of its various movie channels. But the Foxtel revamp actually brings extra channels and high-def offerings. There doesn't appear to be any major gotchas, except for a rejig of the drama options.

Previously Showcase, the home of HBO content like Game of Thrones and True Detective, was only available in the $25 Premium Movies and Drama package. Under the new deal this package has been split into a $20 Drama package and a $20 Movies package. Unfortunately Foxtel no longer knocks off a few dollars if you subscribe to more than one package on top of the basic Entertainment package.

Another catch is that the FX and SOHO channels have been moved from basic Entertainment into the Drama package – which also gets you Showcase, BBC First, 13th Street and BoxSets.

As a show of good faith, every current Foxtel subscriber will now get access to Showcase. If they subscribe to at least one extra package they'll also gain access to BoxSets – offering premium back catalogue content like The Sopranos.

Strike a blow?

So is the new-look Foxtel enough to win people over? It depends what you're trying to win them over from. If you're talking about free-to-air television then Foxtel looks more attractive than ever. It's hard to see the fledgling FreeviewPlus luring people away from Foxtel, especially if you value exclusive content and high-def picture quality.

While Foxtel's new $25 entry-level pricing will bring in new customers who are dissatisfied with free-to-air, it's likely that many will put the savings towards the $20 Drama package to get back FX and SOHO while gaining the best of HBO and the BBC. This leaves them better off than they would have been under the old Foxtel plans.

It's a different story if you're talking about winning people away from Netflix, or a local alternative like Quickflix or the upcoming StreamCo. Foxtel will never be able to compete with their $10 per month pricing, but what you get in return is very different.

These streaming services will never offer live premium Australian sport. Nor will they offer fast-tracked access to premium dramas like Game of Thrones in their all-you-can-eat subscription libraries. Quickflix offers Game of Thrones as pay-per-view content, but this year you couldn't pay to watch a single episode until Foxtel had finished screening the entire season.

With Foxtel's package price model you're still paying for a lot of content you don't want in order to access the content do you want, but that's the cornerstone of the pay TV business model. The value for money is certainly improving. Keep in mind that if you're paying $10 per month for Netflix or Quickflix you're also paying for content you don't want, it's just less obvious under the all-you-can-eat model.

To make things more interesting, it's possible that Foxtel's home subscription price drop could be a precursor to a Foxtel Play price drop next year. A cheaper online-only service will certainly take the fight to Quickflix along with newcomers Netflix and StreamCo.

Give the people what they want

Realistically, Foxtel's goal isn't to win across every Netflix/Quickflix customer or even lure people away from the BitTorrent channel. If you visualise the spectrum of Australia's viewing audience, you have people who download everything from BitTorrent at one extreme, while at the other end are people who think nothing of handing over more than $100 every month for the Foxtel Platinum package.

It's the people in the middle that Foxtel wants to lure across, gathering up some of those people who might not be completely satisfied with free-to-air broadcasts and catch up, renting the occasional movie and perhaps paying for an all-you-can-eat service like Netflix and Quickflix. Think of them as the swinging voters of entertainment.

A dramatic price drop will certainly help Foxtel win over more of these swinging voters, the difficulty is in keeping them. While subscriber numbers grew 5.6 per cent in the 2014 financial year, the pay TV giant faced customer churn rates of 12.5 per cent.

That's one in eight customers deciding to abandon their Foxtel subscription, presumably because they're no longer convinced that it offers good value for money. The new plans will help retain people in the short term, but it will be offset by greater online competition. Foxtel needs to do more.

The secret weapon

Foxtel's plan to combat churn isn't simply to drop prices. The big plan it to expand its offerings in Q1 2015 to become an internet service provider (ISP) as well as a pay TV provider – setting up the "Triple-Play" which is favoured by Foxtel chief Richard Freudenstein, who oversaw a similar deal as head of BSkyB in the UK.

By combining your broadband, pay TV and home phone on the one bill, and likely throwing in a discount with a long-term contract, Foxtel can improve its value for money proposition while also making it less attractive for customers to churn. The icing on the cake would be unmetered access to Foxtel online content such as Play, Go and the catch up content streaming to the iQ2 and upcoming iQ3 which will place more of an emphasis on streaming content.

Luring in customers with the Triple-Play, Foxtel leaves itself less vulnerable to churn as the value for money proposition fluctuates compared to its online rivals. Locking customers on the new plans into a 12-month contract also buys Foxtel some breathing space to get its Triple-Play offerings into place. It allows time for NBN Co to finalise its deal with Telstra for access to its infrastructure, including the HFC cable network on which Foxtel relies.

The current deal between Foxtel and Telstra forbids Foxtel becoming an ISP unless it uses Telstra as its wholesale provider. Obviously a new deal is in order if ownership of Telstra's physical network changes hands and it's no longer a wholesale broadband provider. The fact that Foxtel is putting its cards on the table indicates that it's confident that a deal between Telstra and NBN Co isn't far away.

Times are changing for both Australian telcos and content providers. If Foxtel can put together all the pieces of the Triple-Play, dealing with NBN Co rather than Telstra, then it might have the killer combination to keep online rivals at bay.

Foxtel is part-owned by News Corporation, publisher of Business Spectator.

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