The content wars are officially in full swing. These wars are over what you watch on TV. Perhaps even more important is how this content is delivered to you. While this kind of media battle isn’t new to Australia, the scale of it is at an unprecedented level.
This battle has been a couple of decades in the making. It all really started back in October 1995. News Corp [ASX:NWS] and Telstra [ASX:TLS] set up a joint venture to start a new cable TV company, Foxtel.
In the 21 years since, Foxtel has come to dominate the Aussie pay TV landscape. For those 21 years Foxtel has acted like a monopoly. Sure Optus has a pay TV service, but seriously, who has Optus TV?
You can put the dominance of Foxtel down to one key factor. Well probably two key factors. The first is the obvious tie up with the News Corp conglomeration. This has provided Foxtel with ‘on tap’ access to major US broadcasting content, thanks to Rupert Murdoch and his global empire.
The other key advantage Foxtel has had is sport. Foxtel has always had the financial resources to spend up big when it comes to Aussie and International sport. This alone has brought thousands of subscribers to the company. Having access to every AFL game, the NBA, English Premier League, NFL, and global motorsport are all major drawcards for Foxtel.
I know for a fact a number of friends and family that solely have Foxtel for access to sport. They can’t get this access on free to air TV. The only way they can watch the range of sports they want is to get Foxtel.
This has given Foxtel the dominant position in the Aussie market they’ve enjoyed now for over two decades. But times change. And things are changing for Foxtel.
Achieving 57% success in 5% of time
One of the biggest disruptions to the media giant has been the entrance of Netflix to the market. Netflix made an impressive debut only last year. It’s now estimated the US streaming giant has around 1.6 million Aussie subscribers. Foxtel on the other hand has around 2.8 million — including subscribers to their own streaming service, Presto.
1.6 million in a year is impressive compared to 2.8 million in two decades. That’s 57% of Foxtel’s subscriber numbers, in just 5% of the same time. Impressive doesn’t even begin to cut it.
What most people will quickly come to realise is that Netflix Australia content isn’t that great. In fact, in many countries outside the US, Netflix content isn’t all that great.
I know here in the UK it’s not that great. As such I have subscriptions to Netflix, Sky (UK’s version of Foxtel) and Amazon Prime.
The US is a different ball game though. And eventually, as Netflix becomes more powerful and cashed up, they will acquire more content across all countries they operate in. They’re still growing and transitioning from disruptor to global media conglomerate.
When their transition is over they will rival the might of Murdoch’s global empire.
Eventually Netflix in the US, UK and Australia will have the same content at the same time for the same price. They will be everything to everyone, all at once.
Let’s not forget that Netflix already operates in over 170 countries, with over 70 million subscribers. Foxtel operates just in Australia. That’s it.
I’ve gone on record before saying that traditional media companies like Foxtel are in for a tough time. It might be Netflix competing with them now, but tomorrow it will be Netflix and Amazon. Or some other new kind of streaming network.
This increase in competition is well overdue. It’s shaking up the market. And shaking up the owners of Foxtel. Telstra is looking to potentially offload their stake in Foxtel.
For now the only thing keeping Foxtel’s neck in front is sport. But that stranglehold is dwindling. They’ve already lost the EPL, as Kris Sayce explained in last week’s Port Phillip Insider:
‘Optus won a bit of a coup last year when it outbid Foxtel for the rights to English Premier League games. Most had considered that Foxtel had locked that deal up for life.
‘Not so. Now Optus will show EPL games. And if the only reason for having Foxtel was for the EPL coverage, many subscribers will no doubt reconsider the value of that subscription.
The writing is on the wall for Foxtel, and that’s exactly why Telstra wants out. They’re selling off, and the talk is Foxtel might look to float. If that happens and Foxtel floats in 2016, it’s an IPO you’ll want to steer clear of.
Intercepting advanced signals
The ‘holy grail’ of cable TV is live sport. But it’s only a matter of time before the ‘unthinkable’ happens. Streaming services getting into live sport. There are advance signals now that tell me this is going to happen.
Take for instance last year, when Netflix concurrently released Beasts of No Nation across all its streaming services and in cinemas. This tells me that Netflix were testing the waters for globally accessible content — at once.
Furthermore a comment last year by Netflix head of content, Ted Sarandos, highlighted the potential for on-demand sports.
‘I will never say never, but I would say that where we sit today I don’t think the on-demandness to sports is enough of an addition to the value proposition to change. I think the leagues have tremendous leverage in those deals, so it’s not like we’re going to get in and de-leverage the leagues… Not to say that it wouldn’t someday down the road someday make sense.’
‘…someday make sense.’ That’s the key phrase. The one thing holding back streaming companies from on-demand sports is the bargaining power of sports leagues. In other words if the price is right, Netflix, Amazon are in amongst it.
This is bad news for Aussie TV companies. Bad news for free to air TV. Bad news for incumbent pay TV services. But good news for streaming companies. However and this is key. These advanced signals from Netflix and other streaming companies mean something else…
Streaming companies need bandwidth to stream successfully. To have ‘buffer-free’ content delivery, you need high speed internet. In Australia there are a handful of ASX listed, small-cap companies that help to deliver the high speed bandwidth needed. These companies are the ones who really stand to benefit as Netflix and Amazon enter and expand in the Aussie market.
By using these advanced scout signals from Netflix, you can see the direction of content on Aussie TV months out. Well before the mainstream catch on to the real trend.
Investors that can see these advanced scout signals and invest in companies before the mainstream does stand to profit handsomely. I’ve put together a special report on how to intercept these advanced scout signals and find small-cap stocks before the mainstream. To understand how, simply click the link here.
And for companies like Foxtel that can’t see the writing on the wall — tough times lay ahead.