Foxtel attempts to surf the streaming wave and avoid another wipeout
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Foxtel attempts to surf the streaming wave and avoid another wipeout

Foxtel chief executive Patrick Delany hosted a glittering event at the Fox Studios complex in Sydney last week to launch the pay TV giant's new '4K' service.

After some brief introductory remarks from the man with the toughest job in Australian media, the surfing film director Tim Bonython and big wave rider Ryan Hipwood were invited on stage to extol the virtues of the new broadcast technology, which will offer pictures with resolutions about four times as clear as high definition TV.

Foxtel's new 4K channel will show a sampling of Ultra HD content at launch.

Foxtel's new 4K channel will show a sampling of Ultra HD content at launch.

While they spoke, a crystal clear, slow motion video of a surfer successfully riding a monster wave played on a large screen behind them. As the surfer raised both hands in excitement (and no doubt relief) at getting through the pipe unscathed, in the background a markedly different picture unfolded: a cameraman filming it all was completely wiped out.

The video drew audible gasps (and some laughs) from a large crowd that included AFL chief executive Gillon McLachlan, Rugby Australia boss Raelene Castle, Football Australia CEO David Gallop and various sports stars and TV personalities.

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But it felt like a fitting illustration of the challenge that lies ahead for Delany at Foxtel.

Despite the well liked executive's upbeat demeanour last week - the pay TV giant still appears to be struggling. Results lodged by its 65 per cent controlling shareholder News Corp earlier this month certainly suggest so.

Last financial year Foxtel's subscribers remained flat at 2.8 million (having gone backwards the year earlier). And earnings from the business were, as Morgan Stanley put it, "sharply lower".

During the year, Foxtel integrated Fox Sports, making direct comparisons more complicated. But on a like for like basis, revenue was flat, and earnings before interest, tax, depreciation and amortisation fell by 22 per cent, or $US150 million ($205 million), Morgan Stanley calculated.

And it looks like things are going to get worse before they get better.

News Corp said it would increase capital expenditures at Foxtel by at least $US50 million this financial year, putting even more pressure on earnings.

This "substantial cost increase" as Morgan Stanley described it, triggered an 11 per cent fall in News Corp shares in the US - the worst single day decline for the stock in at least five years.

It remains to be seen whether 4K moves the dial for Foxtel. The company seems to be using it as a churn reduction tool - a way to hang on to its most valuable subscribers. It will be offered free to users on premium packages.

Foxtel CEO Patrick Delany (right) at the cricket rights announcement.

Foxtel CEO Patrick Delany (right) at the cricket rights announcement. Credit:AAP

Yet it's the cheaper end of the market that Foxtel has always struggled with. And Delany has an even more important product launch coming up in the next few months that could finally address that.

News Corp CEO Robert Thomson confirmed on the company's quarterly earnings call what we and others have reported:  Foxtel will launch a "streaming service later this year to give more Australians easier access to premium sports."

Delany has spearheaded the new service (as part of a secret internal effort codenamed Project Martian). It's expected to make Foxtel's premium sport available to Australians at much cheaper price points than have previously been possible (around the $20 a month mark, if industry chatter is accurate).

Foxtel's penetration rate among Australian households has languished around the 30 per cent mark for years - which is low by global standards. This is mainly due to price. The new streaming play (the latest in lengthy list of streaming attempts by Foxtel) could provide the breakthrough.

Yet it won't be without risks, including the risk that subscribers on expensive packages might well downgrade to the cheaper online option.

But with drama focused streaming services like Netflix and Stan (part owned by Fairfax Media) clipping at its heels, sport is the best thing Foxtel has going for it.

And Delany (who only got the job in January and isn't to blame for Foxtel's current predicament) has support from both of his shareholders to proceed with his plan.

"I've just returned from Australia, and it's fair to say that with Patrick Delany, you have a new team, a new mood, a new momentum," said Thomson on the call. "There's no doubt...that the Australian audience prepared to pay for programming is far greater than previously presumed."

Andy Penn, the CEO of Telstra (which owns the remaining 35 per cent of Foxtel), who has his own issues at the moment, concurred.

"Obviously, we all face digital disruption to some extent and it's how you respond to that," Penn told this column last week. "And I think Foxtel is on the right path."

It's going to be a while before we know whether that truly is the case - let alone for Foxtel to be in a position to IPO, which is the medium term plan for News and Telstra.

And to know whether Delany will be able to successfully ride the streaming wave, or be hit by a wipeout.

John McDuling writes about business, media and technology. Previously he was a reporter for Quartz in New York, covered telecommunications and markets for the Financial Review, and worked in the finance industry.

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