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Patrick Delany on why Foxtel’s growth should not come as a surprise to advertisers
After News Corp reported 40% growth in subscribers across Foxtel for the 2021 financial year, Mumbrella's Zanda Wilson spoke with CEO Patrick Delany about the future of Foxtel and its streaming platforms, as well as its premium set-top services.
After years of doomsayers predicting the demise of Foxtel, the future of the business seems assured, after News Corp reported 40% growth in subscribers across Foxtel for the 2021 financial year.
The streaming focus has been an unarguable success, and though numbers of residential Foxtel customers continue a slow decline (down 5.2%), the growth of Kayo and Binge has been substantial.
Foxtel chief executive officer, Patrick Delany, admits that some in the industry will likely be surprised by the subscriber numbers, but if they didn’t expect it, “they should have”.
In terms of revenue growth for Foxtel, News Corp reported that revenue from streaming video on demand (SVOD) services grew by 10%, or US$188 million across the entire group for FY21.
“People have been out of step on the stability of our revenues and the stability of our cost-base,” Delany says. “Now that we’ve got a number of product lines coming in with a bit more diversity of revenues, and those revenues have stabilised.
“Assets that we built 18 months ago are now coming into their own. It means we’ve got sustainable costs as we move to digital.”
Foxtel CEO Patrick Delany
Total numbers across Foxtel’s paid subscriber services grew to 3.891 million, with 2.006 million of those across Kayo, Binge and Foxtel Now.
“Customer growth is very important. Three years ago we were saying that [Foxtel is consumed by] 25% of the country, which has been our story for 25 years,” Delany adds.
“Now we’re in a position where we can say nearly one in two Aussies have a Foxtel Group product, which means that we have real reach that we didn’t have before. From an advertising standpoint, we used to be a premium niche product, and now we are a premium reach product.
“That reach will lead to better advertising revenues.”
Diving into Foxtel’s sports streaming service Kayo, there were 1.054 million paid subscribers as of 31 June, 2021. That represents a significant recovery from 2020 when Kayo experienced an exodus during Australia’s first lot of lockdowns when subscribers fell to just 331,000 last May.
By September 2020, that number had recovered to over 600,000, and it has since shot further forward.
Delany says there are a few strategic reasons driving that growth. Firstly, it’s about “the extraordinary quality of the content and extensive nature of it, to have Australia’s top sports on there and the best of the rest from around the world”.
The growth also reflects a strategic decision, which is “to invest in growth sports”. Evident in today’s announcement that it has secured the rights to every MotoGP practice, qualifying and championship race from 2022 onwards.
“Other sports that might have suited us 20, 15, even 10 years ago might not be what suits us in the future. I’m glad to see that we have invested in netball. I’m really looking forward to next winter. I’m [also] thrilled with the progress of basketball in this country,” Delany adds, noting Australia’s recent bronze medal at Tokyo 2020.
“Basketball is a good example of where we want to invest. Plus being able to have the NBA and NBL. That’s the type of stuff that will keep Foxtel and Kayo growing.”
One of those sports that Delany says “may have suited us” in the past but no longer fits in, is Australian football. Foxtel recently ended its relationship with the A-League and all Australian football after 15 years of broadcasting. The A-League and W-League will be broadcast on new ViacomCBS service Paramount+ which launched this week.
“I think football is one of those sports that has a high concentration of passionate fans but doesn’t necessarily break through to the mainstream of the Australian population,” Delaney suggests.
“From an EPL standpoint, you can get it for free if you’re an Optus customer. It’ll be interesting to see how the Champions League goes on Stan. Paramount+ is not very expensive, so that may go well for it, the passionate niche that is.”
Foxtel launched Kayo’s ‘Sport Lives Here’ branding earlier this year
Foxtel also launched Kayo Freebies earlier this year, with certain matches across a variety of sports made free without paying. Delaney says it’s been a successful strategy, converting customers to begin paying.
“Kayo freebies is a very good funnel. The differential between active subscribers that might be trialing or on an offer, and full paying subscribers, is quite small. So Kayo is one of those services that when people go on they are very delighted.
“We’re seeing a lot of people who maybe previously relied on free to air, convert over to Kayo. Freebies is at the beginning of its cycle, we’re building it up.”
Entertainment streaming service Binge has been another big success story. Just over a year since Binge launched, into a streaming market that was already fiercely competitive, the service already has 733,000 paid subscribers.
Delany says that one of the keys to its growth has been the high-quality content beneath the surface of headline releases.
“That’s the way streaming businesses work, a headline act gets customers in, but you need strong content below that. In the old days we’d call that ‘churn’ but now we call it ‘pausing’ and we are seeing a very low level of pausing,” he says.
“On Binge, there’s a very high level of trial-to-paid conversion. The secret is having a really diverse range of content suppliers and genres.
“It’s the same with the Foxtel business. One thing we’ve learnt is that people who like to pay for content, like to get a really rich experience. So diversity and depth of content is very important on both that and the streaming side of things.”
Foxtel Now, meanwhile, lost subscribers over the financial year, and now has 219,000 paid subscribers (a 32% decrease). Delany insists the service is still part of the game plan for Foxtel, because it makes the service accessible to “Foxtel subscribers who can’t get access to the Foxtel satellite”.
He also reveals that when Foxtel iQ5 rolls out in September, Foxtel and Foxtel Now will “morph into one service,” but wouldn’t be pressed on what that might look like.
Foxtel is also expected to roll out a news streaming service later this year, rumoured to be called News Flash. Delany was tight-lipped about the details of the service, which recently brought on board former news.com.au editor Kate de Brito, but says there is definitely a market for it.
“There’s a lot of speculation about that. If you combine what we have learnt from doing a live genre in streaming like Kayo, and a video on demand non-live through Binge, and what we know from 25 years in the subscription business, I think it’s safe to say there are more single genre streaming businesses or brands that we can launch.
“The speculation is that the next one will be news. News is very similar to sport, which we have a lot of expertise in. We have a diverse group of contributors in news.”
Foxtel is expected to add ‘NewsFlash’ to its SVOD services
Through our chat which mainly focussed on SVOD services, Delany painstakingly emphases that its residential customers are still a big part of the Foxtel business and dismisses any talk about pushing them into streaming services.
“You’ve got to look at everything. You can say you want stable revenue, you can say you want to reduce costs, but at the end of the day, the revenues come from customers. And if the customers and particularly these ones that have been with us for a long time, right from the start have loved content from a diverse number of suppliers.
“We position Foxtel as a premium product, there is no doubt there is a healthy appetite for consuming content via a set-top box. It allows you, with one remote control, to see everything you’d previously see in linear channels.
“It also means you can watch the best of the rest of the world with those integrated services. From a premium aggregator standpoint, we see plenty of life in the Foxtel platform.”
Foxtel recently announced a new partnership with Amazon to integrate Prime Video with Foxtel set-top boxes. Delany says that decision and others come from a place of confidence in their offering.
“[Customers] clearly like to supplement the Foxtel diet with others. So we see no reason why we wouldn’t partner with Netflix and Amazon so our customers get a seamless experience.
“It requires a certain confidence in the quality of what you have in the first place on Foxtel. We certainly think there is a strong demand to pay for as much content as they can get their hands on. So it seems a natural progression, both, both the Netflix and Amazon, notwithstanding that they compare to theirs on a standalone basis.”
Delany reveals that Foxtel First, the loyalty program announced in 2019, hasn’t been killed off.
“It’s definitely just a Foxtel thing,” he says, noting that Foxtel First won’t be extended to streaming customers.
“It was very difficult during COVID when the mainstay of it is to install new set-tops and give rewards through tickets and experiences. All that became very difficult, there was a lot of focus on keeping the core of the business going.
“You will see more activity now, but these lockdowns are causing mayhem and we are looking at how we can tee that up with more virtual experiences rather than just tickets to concerts that we can’t get you to.”
Zanda Wilson was a reporter and podcast producer at Mumbrella, specialising in radio reporting. He left Mumbrella in September 2021.
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