Foxtel is becoming a content monopolist


opinion/analysis by Renai LeMay
4 February 2014
Image: Game of Thrones promotional shot

The decline in power of Australia’s free to air television networks and the failure of IPTV players to enter or grow substantially in the local market have left pay TV giant Foxtel with an incredibly strong position in the nation’s content landscape. As some industry executives have feared for years, the company is now on the verge of becoming a content monopolist.

When then-Optus chief executive Paul O’Sullivan stood up on stage to give the keynote address at the 2011 CeBIT conference in Sydney, he had a stark message to pass on to Australia’s technology sector: Be worried about content. Be very, very worried.

At the time, O’Sullivan said he applauded the way that then-Communications Minister Stephen Conroy was reforming the telecommunications sector; especially the Labor Senator’s vision for the operational separation of Telstra and setting up the National Broadband Network Company as a wholesale-only concern.

However, O’Sullivan said, beyond telecommunications, it was time for “a far more rigorous debate in Australia about how we ensure there is a level playing field in competition for applications and content”. The Optus CEO said there was “a real threat” that Australia would allow “those with deep pockets” to tie up content and applications to create new walled gardens, fuelling new content monopolies which would restrict the flow of information and entertainment.

At the time, the allegation looked spurious. Despite the fact that the context was the looming, $1.9 billion merger of Foxtel and fellow pay TV operator Austar — which O’Sullivan wanted the Australian Competition and Consumer Commission to closely control — it seemed like content distribution in Australia had a bright future.

At that stage, competitive bidding for popular TV series imported from overseas still created a thriving local market for international shows to be made available locally. Then too, new pure-digital players such as FetchTV and Quickflix were just starting to achieve a degree of local traction with their IPTV streaming services, and it even looked as though global players like Netflix and Hulu would inevitably enter Australia.

Two and a half years later, O’Sullivan’s comments are looking astonishingly prescient.

Much hullabaloo has been made this week about Foxtel’s move to block the distribution of celebrated US television series Game of Thrones through any other Australian mechanism other than its own subscription TV service — and at a premium monthly price. However, the truth is that this example is just the tip of the iceberg.

The slow demise of Australia’s competitive marketplace for content imported from overseas can be traced back to several key factors.

The first of these is the decline of the traditional free to air television networks. In the past — a past which was only a handful of years ago — local TV giants Seven, Nine and Ten were always right alongside Foxtel, with plenty of cash in their pocket, at the appropriate point in the buying cycle where giant US and European production houses such as HBO, AMC and others discussed per-country distribution rights.

At that stage, Foxtel was mainly known by the content-addicted, first world, middle class Australian population as a home for exclusive sports rights, and as a place where a continuous stream of top-rated movies could be watched. Many of the big shows were available exclusively on Foxtel, it’s true; but the free to air TV networks had their own share.

But now things have changed. One need only spend five minutes browsing Foxtel’s upcoming show roster for 2014 (see here also) to become aware that the pay TV giant has snaffled virtually every new show of any note; and that Australia’s free to air TV networks have lost out almost completely.

Shows coming to Foxtel in 2014 include Game of Thrones, Mad Men, the Netflix production of House of Cards, Orange is the New Black, Boardwalk Empire, Sons of Anarchy, The Walking Dead, the Newsroom, True Detectives, the Crazy Ones, Pretty Little Liars, the Australian version of America’s Next Top Model and many more. And that’s just the new stuff and doesn’t include sport, movies or any of the dozens upon dozens of lower-profile shows and channels Foxtel offers.

In comparison, because they haven’t been able to pick up these mega-hits — or perhaps also because of the tie-in advertising opportunities — Australia’s free to air TV stations are tonight broadcasting reality TV shows such as My Kitchen Rules, the Block or (in the case of Ten), local cricket, backed up by perennial (and cheap) favourites such as Muriel’s Wedding, Home and Away, the Big Bang Theory, Everybody Loves Raymond, Neighbours and so on.

In terms of content, especially for the big-spending 20-40 year old category, it’s not even a competition. Everybody I know is watching Game of Thrones. Most people I know are watching Sons of Anarchy. Everyone loves Mad Men. I don’t know a lot of people who are dying for the next episode of Home and Away to come out, nor watching it in prime time. After all, why would you? Summer Bay’s been in operation continuously since 1987.

The reasons behind this stark dichotomy are pretty clear: It’s all about money.

According to its most recent set of financial results, Ten made a staggering loss of $274 million for the year ended 31 August 2013. In fact, its revenues only exceeded its television-related costs by about $55 million. The picture at Nine is complicated due to restructuring and its recent public listing, but if you look at the headline revenue and expense figures from FY2013, they’re little better, with the company’s expenses making up most of its revenue. Based on debt problems, Nine actually almost went bankrupt in late 2012, and was saved at the eleventh hour by a group of investment firms.

Perhaps the only one out of the lot which has appear to be making significant headway recently is Seven (part of Seven West Media), but even those results were not significantly helped by international content buys. The company’s programming was more based around sports such as the Australian Football League and the Australian Open tennis tournament, as well as the same reality tV shows — My Kitchen Rules and The X Factor.

If you look at the macro trends here, what is clear is that running a television station is no longer the guaranteed money spinner it was ten years ago. As time has gone on and advertising options have diversified (especially Internet advertising, which has grown exponentially over the past decade and is set to overtake television advertising this year), television stations have found it harder to find profits. In this context, they’ve turned to formulas which provide a much more attractive return than importing big budget US-style series. They’re pumping out reality TV shows by the dozen, which are cheap to make but tend to give very solid audience numbers, as well as featuring integrated advertising opportunities, as well as sticking with steadfast, reliable sports contracts, which keep viewers glued to the screen for hours.

In this context, a popular, high production value show like Game of Thrones, which would be very costly to licence but which only provides an hour of content a week (perhaps two or three with repeats), is just not going to be very attractive to Australia’s big TV stations.

I’m betting that while Seven, Nine and Ten are definitely always talking to networks like HBO about licensing shows like Game of Thrones in Australia. But I’m also betting that the financial model continually doesn’t make sense; and that they’re continually being outbid massively by Foxtel.

The pay TV giant, by the way, is raking money in left and right. For the year to mid-2013, the company made revenues of $3.1 billion — triple any of the other TV networks, with EBITDA of around $511 million. That’s plenty of pocket change to keep the major networks out of the game when it comes to the big US shows.

So that’s the TV networks. The other side of the picture is the supposedly burgeoning IPTV space.

In the US, online players such as Netflix and Hulu are currently becoming the platform de jour for those escaping the confines of the country’s ubiquitous cable TV networks. However, in Australia, such companies haven’t launched and the IPTV model has still failed to take off, despite passable attempts at platform-building by local players Quickflix and FetchTV. Unlike its US namesake, Quickflix is still almost entirely funded by its popular and well-established DVD rental business, which Netflix is progressively moving away from, and FetchTV has been unable to achieve significant scale, despite its strong partnerships with ISPs such as iiNet and Optus and its excellent re-launched hardware set-top box.

One other potentially significant IPTV player, Apple, has not yet truly emerged into the scene, due partially to its lack of a powerful set-top box that would integrate different forms of content. Most iTunes content is watched on laptops, with a small number on Apple’s micro-set-top box, the Apple TV. Apple does not yet have the scale in Australians’ loungerooms to have much of an impact on this issue.

Ironically, the only IPTV player which has actually succeeded so far in Australia is Telstra, which has sold hundreds of thousands of its flagship T-Box set-top box. The catch is that Telstra part-owns Foxtel. It’s not exactly an independent player.

Now, there is no doubt that players like Quickflix and FetchTV are involved in the same talks to licence hit US shows such as Game of Thrones. Quickflix announced in June last year that it would allow customers to buy such hit shows through its online platform. And FetchTV is also believed to be working on so-called “electronic sell-through” capability for its own set-top boxes.

However, there’s also no doubt that neither company has the financial backing to provide significant competition to Foxtel in purchasing such shows when they broadcast in the US. And, if this week’s announcement by Foxtel is any indication, they may increasingly be locked out of the bidding altogether, as Foxtel tightens its grip on such content and ensures it is exclusively available only through its platform.

The end result of both of these major trends is clear: Foxtel’s grip on television content importation into Australia is becoming increasingly strong. The company has vastly deeper financial pockets than its competitors; deep enough to start locking them out of deals altogether. Australia’s IPTV players cannot afford to compete with Foxtel when it comes to premium content, and the nation’s free to air broadcasters increasingly are focusing on more profitable areas such as reality TV.

This situation isn’t new; in fact, the Australian Competition and Consumer Commission has considered it before. During the Foxtel’s $1.9 billion merger with Austar, the regulator closely examined the potential for the deal to cause competition issues. It ended up placing a number of stipulations on the merger that lightly limited Foxtel’s ability to obtain exclusive rights to content, including TV content. The ACCC action ensured that IPTV players such as Quickflix and FetchTV were not totally shut out of the content market. As ACCC chairman Rod Sims said at the time:

“The proposed undertaking has been offered by FOXTEL to address the harm to competition which is likely to arise as a result of the proposed acquisition. However it is not intended to resolve competition or structural issues that may already exist in the relevant markets and are unrelated to the proposed acquisition.”

Sims added that the ACCC would remain conscious in regard to competition concerns and misuse of market power, and whether there is a need to advocate for regulatory intervention in existing and emerging media markets. However, not everybody believed the Foxtel/Austar merger was a good thing. Crikey’s Glenn Dyer and Bernard Keane wrote at the time:

“The merged company will again underline the reality of that financial cliché — the sum of the parts is larger than the whole. The merged company will be the largest broadcast media group in the country with more than 2.3 million subscribers, more than $1.8 billion in revenues and more than $800 million in earnings before interest, tax, depreciation and amortisation. It will dwarf the faltering profitability of the three FTA networks (Nine, Ten and Seven), plus Fairfax, APN and Southern Cross Austero. Its profit margin will be above 40%, and it will be all thanks to the ACCC …

Foxtel’s undertakings are weak. They last for eight years and are supposed to promote competition in newer areas of IPTV and mobile TV. But they only prevent exclusivity and cover a bunch of moderately popular to almost ignored pay TV channels in this country. A more significant change would be to force Foxtel to offer access to Fox Sports, Fox Footy or even Fox 8, which are the heart of News Ltd’s dominance over pay-TV content in this country.”

If you examine Foxtel’s current content roster — and the dramatic way that it is continually locking up premium content, as we saw this week with the Game of Thrones issue — it seems clear that it was Crikey’s view of the future of paid televisual content — and not the ACCC’s — which is coming to fruition.

And Paul O’Sullivan’s comments back in May 2011 appear to be right on the money.

“We are particularly concerned that the proposed merger of Foxtel and Austar will create a competitive barrier to block open access to content,” O’Sullivan said at the time, stating that the Australian Competition and Consumer Commission must mandate “content-sharing provisions” which would cover news and entertainment content, as well as other forms such as sport and applications. As it stands, the regulator did enact content-sharing provisions of the type that Optus wanted — but it doesn’t appear as though they went anywhere near far enough.

So where does this leave the Australian consumer, who wants timely access to the world’s best content? It leaves them forced to sign up for a pricey Foxtel subscription — via HFC cable, broadband or satellite, probably bundled with Telstra telecommunications services in an expensive total package including mobile and a compulsory fixed telephone line (even if you don’t use it), which will make the individual cost of each component just affordable. How does $200 to $300 per month sound, for all your TV and telecommunications needs? Yeap.

Or, they could do what they are increasingly doing, and what BitTorrent site EZTV this morning encouraged them to do, and abandon Foxtel altogether for the shady world of unauthorised downloads and alleged copyright infringement. It’s looking more and more like channel BitTorrent is going to be shaping the future of Australian content distribution. It’s a bit tragic: Because most Australians would rather pay for a better (and more legal) service. Just not as much as Foxtel wants us to. But then, monopolists typically get to charge whatever they want.

It’s hard to see what the long-term future of this situation will be. For a long time, Australians have been assuming that this style of content problem would eventually be fixed. But right now, all of the players appear to be getting further entrenched in their positions. Foxtel is gaining more power and achieving a monopoly over some forms of content. The IPTV entrants continue to be marginalised, and the free to air players are continually moving further into other forms of content. Piracy is growing. One suspects it will take the radical intervention of new players or technologies to break up this very fixed paradigm.


  1. Abbot and Turnbull are achieving their required outcome, quid quo pro.
    Monopolies, even mini monopolies are highly profitable for the shareholder. Not necessarily healthy for the economy or the Nation, but then they don’t matter

      • It might, here’s a hypothetical: A hamstrung NBN with greater cable coverage delivered by the LNP backed by blanket positive coverage from News delivers a win for Foxtel by inhibiting IP only content players.

        Not exactly a long bow to draw. What’s certainly true is that slowing down fast broadband inhibits the ability of OTT IPTV players to compete with entrenched cable TV players in any market, regardless of the intent of any government. That our new NBN is less able to carry IPTV content can only help Foxtel.

        It’s not content related, but it’s real.

        • NBN was never going to get going under the labor government and won’t under the libs either.

          People think the Gov is some sort of special thing that will some how make the NBN happen in a year, but many contractors and public servants will be stalling to pocket money for as long as they can, And completing projects doesn’t keep the money rolling in.

          Look at it under Labor it rolled out to a few rural places did a handful of trails and managed to what sign up 15,000 people, it’s had it’s own business plan redone 2 times and all construction got stopped for 6 months 1 time, and all contractors/builders have had to be tendered 2 times.

          And that was over 3-4 years.

          Under the libs, the business plan was getting redone for the 3rd time, while in that process the whole board quit, the libs have had to replace everyone.

          Scraped the old business plan and scraped what ever was done on the 3rd rewrite, so now there’s a 4th business plan being done up, the roll out has been changed, all the contractors/builders have been scraped and have to be re tendered again, and nothing’s been built for the last 6 to 12 months. because no businesses have been allowed to do any rollout work.

          people were always living in dreamland if they actually thought the NBN was going to be built by the Government.

  2. Great article Renai. I think your conclusion that we will need to be saved by new players is on the money. Netflix, Apple, Google, Hulu & Amazon are my eventual hopes and the only companies with the kind of deep pockets that could even hope to unseat Foxtel. I’m guessing this won’t play out in the short term either and will be very slow moving.

    Also, Foxtel is snapping up Netflix exclusives in Australia which doesn’t give me a great deal of hope for Netflix arriving anytime soon. Although those deals could just be a movie/TV studio distribution deal that has nothing to do with Netflix.

    I’d be interested to know the exact number of Australian subscribers using VPN/proxies to access Netflix, Hulu Plus & Amazon. It’s not a pure matter of cord-cutting for Australians like in the US. There are added hoops to jump through which just shows how much people will go through to cut the Foxtel cord.

    • Cheers, much appreciated!

      I doubt Netflix is coming anytime soon; by all accounts the company is focusing on Europe at the moment:

      No doubt Australia’s poor broadband levels and the already sizable chunk of cash Netflix is making from Foxtel is keeping it out of Australia for a while. I would say we’d probably start to see some interest again in 2015/16 as the Europe expansion is bedded down.

      • The exact quote from Netflix in Variety’s piece on this is “significantly increase our investments in international expansion,
        including substantial expansion in Europe in 2014, and in original

        Semantics that change nothing, or are other markets still in play?

        Plus, Netflix don’t own any of their original shows. 20th TV obviously owns Arrested, but House of Cards is a Media Rights Capital show, Hemlock Grove a Gaumont show, etc, plus the Marvel Studios/Disney shows are coming up.

        So would Netflix be profiting at all from these shows being sold to Foxtel? Could they even be in a position to influence how the shows are sold to territories where Netflix hasn’t set up shop? They would need to be in order to request non-exclusive rights be sold if they wanted to set up in Australia in the near future. A Netflix without House of Cards would be an embarrassment that would surely never happen (which just circles us back to another reason they may not come to Australia any time soon…).

        • Netflix tends to do continents at a time. A few years back it did South America, now it’s doing Europe. I suspect Asia will come eventually and Australia may well be part of that; or else we’ll just be lumped in after Europe. Of course, it may be that Netflix may never come here, deeming the business case negligible.

          Not sure about whether Netflix makes licensing money from House of Cards, for example, but they would have some rights or just say over how it would be licensed, I’m sure. The studios can’t afford to ignore them.

    • Netflix doesn’t have any plans to come to Australia.

      Australia is too small for Netflix to come here and the data restricts netflix anyway.

  3. Yes, let’s complain about content being put behind a paywall but then post said complaint article behind a paywall – if it’s good enough for you, then why can’t HBO which are producing this premium content be able to do so as well?

    • Apologies, but Delimiter 2.0 has always been openly funded through subscriptions. And I’m not specifically complaining about HBO or Foxtel charging for access to their content — that’s fine. The issue here is Foxtel’s monopolistic position, which is locking rivals out of the market. There is a huge and open market for commentary on tech issues — Delimiter 2.0 does not have a monopoly ;)

  4. Hurdles only encourage people to learn & exercise good jumping skills.

    many people are going to pay foxtel, and if there are no fair
    alternatives then we can expect growing resistance with greater
    incentives for consumers to learn growing sophistication in bypassing
    such hurdles. News Corp hacks and steals IP to get what they want and so
    does many consumers… That’s just the news of the world now days. So
    is all this jumping going to be fair? is this going to be ethical? Is
    this going to be profitable? I don’t expect so… and who of us actually
    cares anyway …Lulz!!!!

  5. This is the area where international treaties should be push but it won’t happen as they outside of protecting farming they tend to act in the best interests of big business and not the consumers. Adding consumer protections that prevent market segmentation should be on the agenda and it will improve access to all sorts of products from physical goods to content.

    • I agree that this should be on the agenda for countries like Australia in these big trade talks. The US is constantly trying to lock things up into geographical boundaries so that more and more money can be made. It’s ludicrous, especially when you consider the US is supposed to be about open borders and free trade …

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