Foxtel triple-play could trigger pricing war
Foxtel’s decision to package its TV channels with broadband internet and fixed-line telephone services next year will help to boost its penetration of households from 30%.
But the triple-play offering runs the risk of cannibalising the existing customer bases of Foxtel and its 50% shareholder Telstra’s T-Box and BigPond Movies, according to TV industry executives whose opinions IF canvassed after Foxtel confirmed it would bundle its services, starting in late 2014, with pricing and other terms and conditions to be announced.
The triple-play initiative is designed to enable Foxtel to capitalise on the roll-out of the National Broadband Network while signing up new subscribers and lowering the rate of those who cancel their subs each year. The churn rate in the year to June 30 was 14.2% and Foxtel had 2.5 million customers.
Foxtel’s major challenge, say other executives, will be to come up with a pricing structure that is competitive with its ISP competitors. iiNet has just introduced a broadband/home phone package bundled with Fetch TV’s channels for $89.85 per month and Optus has a similar deal for $79.90. The Fetch TV offerings including movies to rent from all major studios, 30 free movies per month, PVR, ABC iview and SBS Catch Up.
By contrast, Foxtel’s average revenue per user (ARPU) is $103.
The Foxtel bundling initiative had been long mooted but the board has just signed off on a wholesale agreement with Telstra. “This is a transformative event for the Foxtel business,” said CEO Richard Freudenstein. “It will enable us to greatly enhance the breadth, quality and value of the services we offer to customers while opening up significant opportunities for growth. International experience demonstrates that triple play and broadband bundles have been hugely popular with consumers and have allowed operators to boost take up of subscription TV services.
“Broadband and telephony will be a tremendous complement to the traditional Foxtel service. These new services will join our continually expanding offering, which includes highly flexible IP products – Foxtel Play, Foxtel Go, and the brand new online and on-demand movie service Presto.
“These new products will draw on Foxtel’s investment in customer service and billing capability, its strong brand and rich content offerings. It is anticipated that they will enable us to acquire new subscribers and reduce churn by increasing choice and broadening the appeal of our offering."
Other executives say churn will be reduced because customers are more loathe to discontinue a service which combines home phone, broadband and pay-TV, as happened in the UK with BSkyB.
“I believe this move will be accretive for Foxtel but the question will be how many new subscribers to the service will be ‘substitutes’ from its existing service and/or that of Telstra’s T-Box service?“ said one industry player.
“If Foxtel insists on attempting to hold or increment their current ARPU, they will only up sell to existing (and affluent) subscribers and overprice themselves for anyone new, versus the competition.”