Wednesday, 19 August 2015 14:47

Netflix no threat to Foxtel business model says CEO Featured

Richard Freudenstein, CEO Foxtel Richard Freudenstein, CEO Foxtel

The boss of Foxtel has dismissed what he described as a myth surrounding competition to the cable service from SVOD providers like Netflix. At an address to the Australia Israel Chamber of Commerce today, Foxtel CEO, Richard Freudenstein, claimed that Netflix will never be able to compete with Foxtel in the content stakes.

While Freudenstein’s speech started out pointedly talking about market disruptors such as Uber and AirBnB, he claimed that cheap SVOD services like Netflix and Presto are not analogous disruptor to expensive cable TV providers like Foxtel.

“Foxtel is a premium service, which naturally costs a bit more, whereas Netflix and Presto are add-ons either to free to air for people who don’t watch much TV or to subscription TV. Don’t forget that most Netflix users in the US still have a cable service,” Freudenstein said.

According to Freudenstein, TV is still all about content and Netflix will never be able to match it with Foxtel on that score.

“At the heart of any media business is content. It doesn’t matter how good your technology or how ingenious your business model, if you don’t have great content you’ll struggle,” he said.

“By that measure there really is no comparison between Foxtel and any of its competitors. Let me spell it out for you in some detail, because there has been a lot of myth making on this subject when the reality is very stark.

“I’m not here today to denigrate the new subscription video on demand services, but simply to point out that they offer a different sort of product.”

While acknowledging that Netflix is starting to produce its own quality programs in the US, Freudenstein claimed that its low cost model will prevent it from threatening Foxtel’s turf in Australia.

“While Netflix produces a growing number of its own good quality shows, which it can afford based on its scale in the US, it will never be able to acquire the range of first run content that Foxtel can. It’s a simple matter of economics. At $15 per month, there is a limited amount of programming that any SVOD service can buy.  

“Think about it, even if the speculation is correct about SVOD numbers in Australia and even if all those customers were paying, the total revenue for all SVOD services would be only around $150 million per year. That doesn’t provide much for programming investment compared to Foxtel’s (or free to air) programming budgets.”

According to Freudenstein, Netflix could better be compared to a video store than to Foxtel

“In my view the best analogy for SVOD services is they are the digital video store. People who used to supplement free to air viewing by renting the occasional DVD are now doing so by using an SVOD service,” he said.

“This is borne out by the fact that in the US and UK SVOD and pay-per-view revenues have grown in direct proportion to the decline in DVD revenues, while subscription players have continued to grow.”

Finally, Freudenstein talked about exclusive first run deals with the likes of HBO and issued the coup de grace by playing the sports card, where Foxtel undoubtedly holds most of the aces.

“Our sports coverage is comprehensive and it is rich. It is beautifully produced with innovative use of technology. Major codes are covered by a range of popular magazine programs that we produce and which satisfy the needs of even the most die-hard fans.”

Freudenstein emphasised that Foxtel churn at 10.9% was lower than the previous year’s 12.5% and finished by saying once again that SVOD services and Foxtel were destined to coexist.

However, Freudenstein only briefly touched on the subject of affordability and did not mention the subject of VPNs.


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