Subscription Television: TV worth paying for

Kim Williams and David McLeanAustralian subscription television (STV) has experienced considerable growth in terms of penetration and impact on the content production industry. Aravind Balasubramaniam spoke with pay TV executives about the future of their sector in the face of increased competition.

With an increased economic pressure on families and a wider range in free entertainment and information options available to most Australians, the subscription television sector faces an enormous challenge: anticipating future trends and offering new services that people perceive as being worth their hard earned money, and make them feel in control of their experience.
“The average subscriber is now looking for greater flexibility and control over their television viewing experience, which is why STV providers must prioritise services that include full functionality on demand, or downloadable content and web-enabled services,” said the CEO of ACT provider TransACT, Ivan Slavich.
Patrick Delaney, director of product development and sales at Foxtel, adds that company’s priority is to understand what customers want, and providing products and services that meet those needs.
“Technology and regulation should serve customers and come together at the price they want, while also allowing the provider a return on investment,” he said.
A recent report from the Commercial Economic Advisory Service of Australia found that STV advertising revenues reached $359m in the fiscal year 2009/10, and the sector showed a 13 percent growth during the same period, but even with such encouraging numbers, Australia still falls well behind the US (89%), the UK (58%) and even New Zealand (51%), with a 34 percent penetration.
At an average $42 for a basic subscription, potential subscribers need to be persuaded of the benefits of pay TV, an increasingly difficult task considering the growing number of FTA digital channels. It’s no secret that Foxtel CEO Kim Williams – who was unavailable for comment –openly criticised the ABC over the expansion of its content across wider delivery platforms, starting a battle of words with the public broadcaster’s executives. Tension and competition between FTA and STV seems to be on the rise.
According to Austar CEO John Porter, both the multi-channel free-to-air line-up and the emerging online industry have been influenced by the STV model and the services the sector has been offering for years.
“We introduced digital channels and interactive TV a full decade before the FTA sector joined the party, as well as electronic program guides, on-demand viewing, online products, high definition and 3D TV. A lot of the content that is now airing on FTA first appeared on subscription channels years ago, and more interestingly, the advertising structure appears to be changing.
“The FTA broadcasters rely entirely on advertising, and their main channels are losing viewers to the multi-channels at an amazing rate, yet they have somehow managed to convince advertisers that the value proposition remains the same. It will be interesting to see how long this persists,” he explained.
Porter believes the historical strength of the STV industry in the face of its competitors has been the delivery of channels with a well-defined target audience.
“Instead of one general news channel, we have eight; each is specifically designed for a certain target market. Despite the emergence of FTA multi-channels, STV will continue to offer the best multi-channel offering,” he argued. “We’ve seen very minimal change to our overall subscription viewing audience. The main growth of the FTA multi-channels has been from cannibalisation of their primary channels. What has been noticed is that niche genres on the platform have seen an uplift in viewing – lifestyle by 18 percent and documentaries by 10. Viewers know that if they want to watch something
specific, they can choose the time they watch instead of being dictated to them by the FTAs.”


With the proliferation of broadband access and gaming consoles in Australian homes, the STV sector has started expanding its services beyond the traditional set top box model, offering content download options and even new subscription products via gaming consoles. Last year, Foxtel partnered with Microsoft to offer Xbox Live, providing Xbox 360 owners the chance to access a selection of channels and video-on-demand services through the console – which offers a large base of users, with more than one million Xbox 360s sold in Australia. Last year alone, Australians spent more than 106 million hours on Xbox LIVE including gaming and social networking.
“The partnership with Xbox was monumental for us because it allowed viewers the option of not requiring a set-up-box,” explained Foxtel’s executive director of television, Brian Walsh. “It’s a product designed to reach segments of the market that we were having difficulty with, and my feeling is that it will be a consistent and steady growth product,” added Delaney.
The relationship between the STV provider and the IT giant was born from a mutual understanding of the potential of online TV.
“We didn’t choose Microsoft; it was more about both parties choosing each other,” said Delaney. “They are a great partner and the two services complement each other; they see a strong future in TV services being delivered via subscription.”
Both Foxtel and Austar have launched download and on-demand services, and are looking at the potential of tablets and ‘connected’ TV sets.
Delaney says Foxtel’s download to PC product has been very successful, “bearing in mind that we do catch up very well already, with the +2 hour channels and the fact that 70 percent of customers have our IQ PVRs.”
The video-on-demand service via Xbox 360 has also proven a hit with subscribers, and the feature has now been implemented on IQ boxes. In the case of Foxtel, the service is unmetered for Telstra BigPond customers – and a new partnership with the telco will see Telstra customers being able to receive Foxtel channels via their T-Box.
The previously prohibitive costs and download limitations of Australia’s internet connections are slowly becoming a thing of the past, allowing all of these new offerings to flourish.
“The huge demand for downloading in the entertainment marketplace will increasingly drive lower charges for downloads,” added Delaney.


The expansion of the pay TV industry over the last decade also represents employment opportunities for screen practitioners and content creators. In October 2010, the Australian Subscription Television and Radio Association revealed, for the first time, data about STV investment in local content, with $541.4m spent in production in 2009. The figure was the result of ASTRA’s survey of its
members, in the areas of local production and employment.
“FTA invested almost $1b in that period, but they reach 100 percent of the audience. Considering that we reach a third of the population, the fact that we’ve spent that amount is very significant given,” said ASTRA CEO Petra Buchanan.
The Foxtel/Austar joint venture XYZ Networks produces some of the platform’s most popular content, across The LifeStyle Channels, [V], Music Max, Country Music, the Weather Channel, Arena, Nickelodeon and Discovery Channel – including the local versions of Project Runway, Selling Houses and Australia’s Next Top Model.
Showtime and the Movie Network have commissioned award-winning drama such as Love My Way, Spirited, Tangle, The Jesters and the upcoming adaptation of Tim Winton’s Cloudstreet and the crime series Small Time Gangster.

“STV has been responsible for pushing the envelope with local production, and has revived the production sector dramatically by expanding the opportunities for everyone who is involved in this industry,” said Porter. “We’ve become known for producing intelligent and challenging ‘TV for grownups’ and we are certainly recognised by the wider production community for this.” But as the sector grows, there is one important question: What does the future hold for pay TV, as the big sharks swallow bigger chunks of the market? In 2010 WIN Corporation’s SelecTV ceased broadcast of its English-language services, with both Foxtel and Austar signing a marketing agreement with SelecTV to ensure continuity of service for its subscribers. Its Italian language services went to World Media International, and the Spanish programming to UBI World TV. Last month, the company went into voluntary administration.
The loss of SelecTV creates a market dominated by three players: Foxtel, Austar and Optus Television. This could pose a threat to the existence of smaller competitors such as TransACT, but Ivan Slavich believes otherwise: “We offer full service communication products alongside subscription TV services, so that help us differentiate, but with the National Broadband Network acting as an enabler, we see a bright future for independents”.
UBI World TV was not available for comment.


Beyond the inevitable technological advancements, the future of the STV sector lies in identifying the needs of its customers and adapting to them.
According to Slavich, future major trends in subscription TV include multi-screen broadcasting – enabling consumers to receive content regardless of the device – and OTT (Over-the-Top) services. “OTT services come as an important development in the STV industry, but the cost of the backhaul and bandwidth in Australia could pose problems and limit the success of OTT, at least in the short term.”
According to Porter, what’s clear is that consumers “love content more than ever”, but the ways they’re accessing it are evolving and therefore, adaptation is an essential skill for the sector.
“I look at my family and how they engage with content today; TVs, laptops, iPods, iPads and games consoles all play a role. Offering viewers control over their content is something STV does exceptionally well today, and technology simply helps us to achieve the aim for personalisation more fully for our customers,” said Porter.
At Foxtel, it all comes down to the basics. “We must give viewers what they want, when they want it and now, with IPTV, how they want it. Viewers will continue to embrace this freedom and, programming wise, local and genre-based content will continue to appeal to them,” said Walsh.


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