In a move long reported to be in the wings, Foxtel has made a bid to acquire fellow pay TV operator Austar, in a move which would create a much larger consolidated company which would dominate the subscription entertainment market in Australia.
In a statement released this morning to coincide with Austar’s annual general meeting, Foxtel — a joint venture between Telstra and Consolidated Media Holdings — said if the merger went ahead, it would create a new media titan in Australia, with over 2,500 full-time equivalent employees and anticipated revenues of $2.8 billion.
The company would feature a combined investment in original Australian content of more than $500 million per annum, Foxtel said — and it would also have a number of other positive impacts, such as the faster rollout of new digital products and services and equality between the services available to Australians in regional areas (where Austar specialises) and the cities.
“Australian consumers in regional areas will be able to enjoy access to new digital subscription channels,” the company said, “as well as new flexible packages and pricing through products such as Foxtel on Xbox 360 and Foxtel on [Telstra’s set-top box] T-Box.”
Foxtel chief executive Kim Williams said the two companies wee a complementary fit, and the merger would be “a win-win transaction” which would deliver value to Austar shareholders, synergies and growth opportunities for Foxtel and increased services and choice for all consumers. The acquisition would be funded by a combination of Foxtel bank debt and capital contributions from shareholders.
For its own part, Austar appears to approve of the buyout.
In a presentation to the company’s annual general meeting today, Austar’s management said it believed the acquisiton price of $1.52 per share (Austar’s share price as at the time of publication was $1.37) was “appropriate” for a change of control transaction. The proposed acquisition share price would value Austar north of $1.9 billion.
“We will work with Foxtel over the coming weeks with the intention of entering into a definitive transaction as soon as possible,” the company’s deputy chairman Tim Downing said. “Our board will appoint an independent expert to determine if a definitive transaction is fair and reasonable.”
However, Downing warned the deal was subject to a number of conditions such as the completion of due diligence and the negotiation and execution of the transaction agreements, as well as financing support and final board approvals., and no assurance could be given that it would definitely go through.
The deal will also be subject to scrutiny by regulators such as the Australian Competition and Consumer Commission and the Foreign Investment Review Board.
The news comes as Foxtel and Telstra have been deepening their ties over the past several years, with content from the pay TV operator’s stable making its way both onto Telstra’s T-Box set-top box, as well as the company’s mobile phones on its Next G network. Typically to access the content, customers need to be using Telstra’s network services — although Foxtel has also opened up some content more broadly through its partnership with Microsoft’s X
Image credit: Screenshot of Foxtel promotional video for Cloudstreet
The ACCC will be the big hurdle on this one.
Currently, Foxtel has a pay-tv licence to cover all of the capital cities – (excluding Canberra) – and Western Australia in its entirety. Austar has a pay-tv licence to cover the rest.
If Foxtel suddenly holds a licence to have coverage of 100% of the country, the ownership rules pertaining to news outlets will be an interesting issue.
Through Sky News – (owned jointly by Seven, Nine, and some part of Foxtel) – suddenly they have a news outlet with 100% potential reach. Given the requirement for no single owner controlling more than a certain percentage of the news market in a given area, it’s going to be tricky.
One to watch.
@Michael,
I can’t see it being too big an issue
Austar already carries the same channels as Foxtel, so Austar viewers already receive Sky News (and CNN and BBC News, and ABC 24…). Also, although Sky News and Foxtel have some common share holders there is a separation between the content (Sky News) and the distribution channels (Foxtel/Austar)
Also, it can’t be argued that there will be a decrease in competition because currently you have to use Austar or Foxtel depending on your geographic location – there is no direct competition.
As a Austar (and former Foxtel) subscriber I am in favour of this take over as hopefully I will be able to replace the buggy/slow Mystar HD with an IQ2. An added bonus will be the ability to turn off the woeful background music Austar puts on the EPG :)
Paul
“As a Austar (and former Foxtel) subscriber I am in favour of this take over as hopefully I will be able to replace the buggy/slow Mystar HD with an IQ2.”
Ditto. We used to have an IQ2 and it was pretty good, but after moving out of Brisbane we had to switch to Austar and the Mystar box is a total piece of crap. The interface is slow and unresponsive, it crashes regularly, forgets to record things we’ve scheduled, records things we haven’t scheduled, and struggles with simple things like resuming playback after skipping past the ads. The most annoying thing is the IQ2 actually works just fine with an Austar card in it (I tested it just after we moved) but you’re not allowed to have one.
Not that it matters much to me, I’m going to cancel my subscription when the contract expires next month. There’s enough content on the new FTA channels to keep me occupied; IMO pay TV is only worth it these days if you watch a lot of sport, which I don’t.
I agree with the “Sky News is already on Austar” bit, but I think the main difference that will – (and should) – be looked at is the ownership aspect.
As far as I know, Austar have no financial stake in Australian News Channel (ANC) – the company that operates the Sky News group of channels, but Foxtel does, and they would now be taking money from subscribers in the areas they couldn’t previously operate.
It shouldn’t be an issue – and I hope it won’t be – but it will be an issue they look at closely. Like you, I hope it doesn’t hold up the deal, which will be good for both Foxtel and Austar subscribers.
All channels on the Optus C1/D3 Foxtel bouquet – (which Austar resells) – are currently encrypted twice – once with NDS Videoguard for Foxtel customers, and again with Irdeto2 for Austar customers. This adds a layer of complication that slows changes to the platform as a whole.
While Irdeto2 would have to stay for a while, you’d imagine Foxtel would be keen to rid themselves of the Irdeto2 gear from people’s homes as their earliest convenience.
I also hope it means that channels such as Al Jazeera – (which is on the satellite) – but only available to the Austar customers at the moment, will flow through to Foxtel customers.
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