Why Foxtel is Doomed

I am a Foxtel subscriber and every day I get that little bit closer to turning off my $100 per month payment. Not because it is too expensive, but because the value equation is getting worse, at a time when alternatives are becoming more attractive. Sure, their penetration in Australia might be growing, but we are on the precipice of disruptive change to Television, in a way that Foxtel must respond to if they want to survive. And their response needs to be before the impending disruption, or just like the music industry, they’ll be wondering what happened.

I’ll give a summary of the why, and then revert to the what they should do.

Why Foxtel is doomed

The primary reason is that their system is antiquated. The model they employ, is the same as the cable television model which emerged from the US in the late 1970’s. Yes it still exists, but it’s days are numbered. it has already happened to newspapers, it has happened to music, and TV is next. The belief that they can demand that consumers subscribe to content in a world of infinite content is foolish. The world is moving quickly from a pay to play – subscription model, to a ‘free and on demand’ model. The fact that Foxtel has access 35% of homes is irrelevant.  The real competition of Foxtel isn’t Free to Air TV, it’s the alternative web enabled screens in the home; laptops, desk tops, ipads, kindles and connected TV’s. Web enabled TV has already penetrated 17% of homes in Australia. With the dropping cost of screen & web technology, the future for Foxtel is bleak.

Foxtel is reducing what we get for the same price:

Only two years ago our $100 per month gave us the gold package. Every channel, 2 free new release movies per month, the IQ recording device and approx 30 on demand shows / movies. Without notice the same amount of money gave us ‘less’ incrementally. First they removed the 2 free movies – without notice. Then they slowly started reducing the number of on demand shows. As I write this it is down to a paltry 7 shows as of today. While everyone else is giving us more, Foxtel are giving less. Anyone would think Moore’s law works in the opposite direction the way they operate.

They don’t get on demand:

The great innovation on the web and entertainment deliver is on demand. Foxtel, still choose to schedule nearly everything that is available, save for a few movies and TV shows they are promoting (the 7 mentioned above). They expect us to work to their schedule. The world doesn’t world like that anymore. They need to wake up to this before most of their customers wake up to the fact that their are far cheaper and better alternatives available than Foxtel. (Including watching all USA TV on demand on Hulu via a proxy spinner.)

They don’t provide access content for purchase without subscription:

In their wisdom Foxtel has added a ‘movie library’ which is ‘on demand’. I thought – ‘Finally they are starting to get it.’ So when I attempted to watch an ‘old movie’ I was informed I had to; subscribe to get access. I thought I went into a time warp back to 1983 or something. It is not as though the movie was going to be free. I was happy to pay for it. But they also wanted me to pay for the right to have access. How stupid are these people, given that the tubes are already connected to me TV? Surely giving everyone access could and would increase revenue via people like me sitting down to watch an old movie. They have the system upside down. They have turned off their revenue tap. This is where they should be taking a lesson from iTunes. You can download whatever you like on demand for a rental fee. I’m really flummoxed by this. I think it is currently the worst media strategy in Australia by any company.

The NBN will hurt their business:

The imminent National Broad Band Network in Australia (NBN) is very bad news for Foxtel. It is basically putting the power of HD web live stream in every home. All that needs to happen is an on demand web enabled competitor to arrive and any one with half a clue will turn off their Foxtel. Not to mention the fact that Youtube HD will become a seriously viable TV option. (If you haven’t lately, you should check out the Youtube Movies, Youtube live Concerts and Documentary’s section – it’s growing daily as are brand content channels – no prizes for guessing their strategy is to win the screen in every lounge room).

Apple Television in coming:

It was reported that Steve Jobs last great disruption was coming to Television with the Apple TV. Not the Current Apple TV box, but  fully fledged in home Television screen connected to the web with levels of wizardry we can only imagine. One thing we don’t have to imagine is the depth of content that will be available from it’s existing iTunes store. All on demand, up to date and without subscription fees. When this comes – and it will, I am certain TV will never be the same again…. and Foxtel will be very model T Ford.

Connected TV is rapidly encroaching on Foxtel:

Foxtel is all about being connected to narrow cast content. Now that all TV’s sold are web enabled, we have access to everything we could imagine – Free. It’s a pretty compelling price point. The really important thing we must remember is that the price of technology is dropping. A connected Plasma 42″ TV is now as little as $500 to buy. With the user interface improving rapidly and many US streaming players arriving shortly (Hulu, Netflix, Startup XYZ) there is no space for the ‘monopoly like’ behaviour or pricing. For Newscorp it is newspapers all over again.

Users must pay for unwanted (unwatched) content:

The idea of having to buy packages is archaic. The idea of ‘Packages’ is a supply centric mantra from a time when the factory called the shots – much like travel agents did in the 1980′. But we now live in a user decides, mashup, self design commercial society. The idea that we can’t pay for the exact channels we choose (with volume discounts of course) is not design for users, just the owners. people don’t watch sport. They watch football, or boxing or surfing. people have specific needs, not generic ones. BBC viewers are different to Fox news viewers, so why treat them them same and ‘bundle them up? ‘ It’s an old method which is quite simply broken.

They’ve thrown their opportunity to be ‘platform oriented':

Foxtel had their chance to own the distribution point of content on demand in Australian homes, and they let it go. They have tubes going into 35% of homes and every Foxtel discussion I have with anyone these days is around how poor the value equation is, and how they are poised to seek alternatives which they know are emerging. Their old world mentality is much like th music industry who were in love with their system, and not their customers. And this will be their downfall.

What Foxtel must do to survive:

Everything above and more.

But I honestly think it is too late. They may still exist, only via exclusive content like global sports properties. They’ve missed their chance and I have no doubt that disruptive internet technology will do to them the same thing it has done to many industry stalwarts. The most interesting fact is that, although I’m calling their game as over, the opportunity for startups in the space is still alive and kicking, which is ironic. It comes down to one basic fact, that companies who feed off legacy infrastructure almost always lose.

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54 comments

  1. David Jenyns · November 7, 2011

    Cable companies are dead.

    David Jenyns (via twitter @davidjenyns)

  2. Robert M Barnes · November 7, 2011

    Amen!

    Robert (via twitter @robertmbarnes)

  3. neerav bhatt · November 7, 2011

    “Why Foxtel is doomed” … diminishing value and archaic package based subscription model. Have you had a look at Quickflix recently? they just launched $15/month flat fee streaming tv/movies…

    Neerav Bhatt

  4. WA professionals · November 7, 2011

    Good write up Steve – i didnt know about most of those things and will be considering my sub when it comes up again.

  5. Kat n Nat · November 7, 2011

    Couldn’t agree more.

    Kat.

  6. Brad Paton · November 7, 2011

    Two words while they will survive and prosper: Live Sport.

    Brad (via twitter @brad_paton)

    • Steve Sammartino · November 7, 2011

      It is certainly their largest and possible last Point of difference. I wonder if it will be enough. Especially when all TV is web connected and it becomes very easy to ‘hijack content from other screen feeds’ using easy to install web technology. Personally, I don’t think it is enough to keep people connected with big monthly fees for those few events. Especially when something like AFL has all ‘the good games’ on free to air television, and other events are far too sporadic to justify the cash outlay.

      Steve.

      • Will · November 7, 2011

        I think its only a matter of time before we start to see the likes of the ARU, AFL & NRL start developing their own media platform – rather than selling their rights to third parties that cash in on it.

        Granted it does provide a significant cash-flow injection for the respective codes (keeping them buoyant – to an extent) but I don’t think a new model is too far off. The demise of Foxtel, rise in consumer power/choice through the internet and selective programming – will only accelerate this process.

    • John Shaw · November 7, 2011

      Yeah I have to agree with Brad there Steve, I feel the same as you, I sometimes feel like cancelling my subscription, but I’m a Golf Nut, and it’s the only place I can watch Golf, even the PGA haven’t clicked on to the fact that most golfers would be willing to pay for live golf via the net. Same with all the other sports you can’t get on free to air. Great article anyway.

    • John Doe · November 7, 2011

      You can watch any live sport event on the globe, whenever you want through sites like Myp2p even all of foxtel’s “exclusive” australian content like NRL and A-league matches. Live sport will not save them.

  7. Paul Evans · November 7, 2011

    Great post.

    Paul (via twitter @linchpinsau)

  8. stevehopkins (@stevehopkins) · November 7, 2011

    I recently bought an AppleTV and haven’t looked back. As well as obviously purchasing all my movies (and on demand TV shows) from iTunes I’ve also found my use of YouTube and Vimeo has increased. Just last night I tuned into a number of the awesome documentary’s on Vimeo…They also have MLB and NHL games shown live.

    I’m not sure Foxtel will die, though. They have a significant lock on the pay television industry in Australia (they are, in fact, the industry) but certainly after having access to the internet through my TV I wouldn’t subscribe.

    • Steve Sammartino · November 7, 2011

      Steve H – you being a leading edge consumer – is what happens eventually in the mainstream. Sure they might not die, But I don’t think the future is bright for them. yes, power laws will mean that another dominant player might emerge, but I doubt that dominance will reside with Foxtel.

      Steve. S.

  9. Leon Sammartino · November 7, 2011

    Steve, Again you have gone for the ‘Sky is falling down the world is coming to an end’ conclusion. A lot of what you say is conrrect – Foxtel’s role (and that of television in general) will be reduced, but they are by no means doomed.

    The first reason is what Brad said – Live Sport, and in particular live (not available anywhere else) AFL and NRL. This is the reason why that peneration figure will rise from 35% to 40% within the next 12 months. And yes I’m willing to put money on that. Oh and if you are paying $100 a month for Foxtel you are getting ripped off, call them and tell them you are going to cancel, they will counter-offer and you’ll get it a lot cheaper.

    The second reason (and the FTA guys have worked this out too) is that they will rely less and less on American content (which as you mention can be downloaded quicker and cheaper, assuming of course we are all happy to break the law) What you will see more of is programs like Project Runway Australia, Australia’s Next Top model, Australian Grand Designs more and more news content, More local dramas like Killing Time. TV stations are not a stupid as you seem to think they are. They understand (just as you do) that the most important thing is content and that’s why they are producing more and more of it.

    Perhaps you need to start looking at the world as shades of grey/gray, this may come as a shock but there is room for multiple media options for people. The Ipod didn’t kill radio (it hurt it but it didn’t kill it) the Video didn’t kill Cinema, and there will always be a place for the mass delivery of content at a scheduled time (which is what television is) becuase 1> Many many people still want to be told what to watch, becuase television is a relaxing medium, they don’t want to search to find programs. 2> Advertisers still want to reach as many people as possible at a specified time and therefore they will keep piling in advertising money, which in turn funds that content.

    Of course reasoned discussion doesn’t make for good blog posts now does it? And thats the problem with user generated content – where is the quality control?

    • Steve Sammartino · November 7, 2011

      You know I love your replies the most. And I do appreciate you really adding another view to the discussion.

      one thing though…. I could also argue that there is no quality control on mass media content….

      Steve.

      • Wealie · November 7, 2011

        Anti-siphoning will ensure that pay-tv will never extend much beyond 35% of homes. It basically means, that unlike the UK, where if you wanted to watch any English Premier League game you have to pay Sky for the right. Pay TV in Aust will never get exclusive rights to the AFL or NRL. They get a few games but never the whole competition nor the finals so why bother?

        Pay-tv’s penetration has stagnated at circa 33-35% for as long as I can remember. Big numbers used to be thrown around looking at the penetration of pay-tv in the UK, US and Italy but they don’t translate to Australia for a number of reasons.

        Foxtel is at the end of the line. It can’t raise prices because the content doesn’t justify it. It can’t spend up significantly on content because the return on investment would fall short. Ask yourself what content Foxtel provides that you cannot possibly get anywhere else cheaper or even free.

        Also have a look at your viewing habits. How many Foxtel channels do you watch regularly? 5? 8? Maybe 12? Wow, $1,200 per year is a lot to spend to watch just 12 channels out of the 110 on offer. Gives you a clear indication of the quality on offer and perhaps how little time you actually spend watching TV these days.

        The only option available to Foxtel is to merge with Austar. This will have the effect of underpinning the profitability a while longer as they capitalise on the syndergies like buying power. It is at best simply delaying the inevitable…

        Now, back to see if I have time to watch The Gruen Planet on ABC iView on my iPad before Pirates of The Carribean finishes downloading.

  10. Mildlycurious · November 7, 2011

    Not sure whether the initial glow of so many channel choices has distorted my memory, but as time has gone on, Foxtel is now feeling like “…so many channels, nothing to watch…”

  11. April Neylan · November 7, 2011

    Great article Steve! And a quality rebuttle by Leon :)

  12. Trevor Young · November 7, 2011

    Nice piece bloke! Especially like the call-out: “I think it is currently the worst media strategy in Australia by any company “!

    Trevor Young.

  13. Bruce · November 7, 2011

    Foxtel are a pack of money grabbing basta##s.
    My latest experience with them goes like this:

    I had a platinum package for my main lounge and an extra service for my games room…which I hardly used so asked them to remove that service.
    I asked on several occasions when requesting cancelling the games room service, that they would not disconnect my main package service, and was assured that that would not happen…they knew what they were doing etc..

    So…..an hour later they disconnect both services….nothing!
    I call back, irate, to be told that they were sorry, but would fix it…some time later, as they were busy (why are they always busy fixing things and so quick to help when they take money from you??), I find that they have reconnected the games room serv ice and not the platinum package.

    More phone calls, cut off twice, and they assure me that this time they will reconnect my main package and again disconnect the games room.

    More time…and they fixed the platinum service, only for me to find out that every single recorded program i had stored was now missing, and irretrievable.

    I cancelled my platinum package in protest…they simply didnt care..and I now have a limited package.

    Moreover, my telephone account just came and to my amazement, I have been charged two connection fees of $100 each for the above fiasco!

    More telephone calls…..one to Mumbai or somewhere where the operator hardly spoke an understandable english (they do this on purpose I am sure to exasperate complainers), put on hold while Telstra go thru all the security checks….then put thru to a Foxtel operator who went thru the exact same security checks….put me on hold and promptly cut me off.

    Another call repeating the entire process and I receieved a credit that will come through on my next account.
    WOW, these people are efficient.
    If I ran my business like them I would be out of business…just shows what service you get from a monopoly.

    The quicker an alternative is available to computer illiterate people like me, the better.I do not possess the ability to use online services for programming, so bring on the change!

    We were told when we signed up, that there would be no ads on Foxtel..HAHAHAHAHA!..How stupid were we to believe that?
    They are now as bad, if not worse that commercial channels when you include the interminable promos and self glorifying garbage they throw at us.

    These people have proven that they cannot be trusted with a manopoly of service, as have the banks, fuel companies etc. etc..and it is a pity our government hasnt got the guts to pull their plug….give them 60 days to get their house in order…or lose the privelege they possess….Monopolies in Australia are a privelege and should not be a right….either deliver serv ice or have it taken off them…

    GRRRRR..my grizzle for the day!

  14. mareelouise (@mareelouise) · November 7, 2011

    Some good points in there.
    I too am astonished by the lack of on demand services.
    I would add to your list the expanded range of free digital channels- there is some great content (including plenty of stuff for kids) on the secondary channels. With a decent set up, you can always have enough content to keep a normal family going.
    I think the only reason I still have Foxtel is a combination of inertia and whatever that psychological phenomenon is that makes us fearful of ordering entree size pasta. Most nights, we end up watching ABC or SBS anyway.
    As mildlycurious pointed out, Foxtel is really just a whole bunch of channels wiht nothing much on.
    I must get around to cancelling…

  15. Pingback: The Foxtel hack « Start Up Blog
  16. chris · November 7, 2011

    Looking forward to the day when I can stop paying foxtels over priced invoices.

    • Steve Sammartino · November 7, 2011

      That day is coming very quickly…. Yay tech hacking!

      Steve.

  17. warm2 · November 7, 2011

    Great reading.
    I still miss OVATION channel – the replacement STVDIO is a long way back second best.
    … and what happened to the visually stimulating FTV channel??

    Tony

  18. Ann Urch · November 7, 2011

    We have subscribed to Foxtell for yrs. Have you ever tried making a complaint? Don’t bother. We tried to complaining about the dreadful programming of Jeopardy to be told that Foxtel have nothing to do with programming and to contact the channel direct!! Bizarre but true

  19. Brisbanite · November 7, 2011

    After having the third botched Foxtel install and being bounced around by technicians and customer service reps who don’t care or don’t have the power to do anything, we are waaaaay over the crap that is Foxtel.

    Looking forward to the day internet TV is truly opened up to Australians, good bye to the ad riddled Foxtel – once your prices far outweigh the value – which will be punctuated by new competitors – goodbye.

    • rae · November 7, 2011

      Pay tv should not have ads but I am looking online for free streaming totally either the US or Britain that you can do this online

  20. SammyG · November 7, 2011

    As a teenager growing up, i Longed for Foxtel. it was something i wanted SO badly the add free TV, ability to watch a full programme without being interrupted five times by annoying breaks.

    then i got older moved out and had it connected.

    after 12 months of watching the same content re-run for a whole month, every single month. and the constant interruptions during paid content. i felt insulted. it was like i was treated as a fool.

    i was paying them for the privilege of watching advertisements. every 5 minutes i get to watch 3 minutes of the same advertisement i just watched 8 minutes ago. and this service is $100 per month. or $1,200 per year.

    what are they selling.?

    old content that has been around for years, which is recycled every fortnight and changed once a month. and filled with advertising.

    and sport.

    it is a real shame, because they did have a GREAT product once…..

    i would go back to them IF.

    they got rid of ads during programmes, they could advertise before and after shows.
    and they stopped repeating everything, and showed newer content.
    basically if they stopped being a complete Rort.

    • Steve Sammartino · November 7, 2011

      Exactly Sammy, and that is why they are in trouble…
      Steve.

      • Tom · November 7, 2011

        The trouble with complaints about the schedule (in my opinion) is this – yes, everything is repeated ad nauseum. But name a show you want to watch that isn’t showing? With so many channels running 24/7 and being able to record stuff automatically (series link option), I can name almost any television show or movie I feel like and say I’ll watch it in the next month or two. The ads and pricing are serious faults for sure, but you can’t fault the repitition.

  21. Iva · November 7, 2011

    Foxtel has gone overboard with commercials.
    Why should I pay to watch commercials 60% of the time?
    I will disconnect foxtel shortly…

  22. Mark · November 7, 2011

    I hate watching sport… It’s just garbage. It shrinks the brains, its is just for zombies.
    But foxtel has made the miracle of me having to endure sports, like it or not.
    They have 20 or so sport channels, one worse than the other, and if I don’t watch them, then they keep bombarding with this video-vomit through Sky News. Besides of course the commercials, I am paying 100$/month for the privilege of watching this garbage. Sports and commercials, 2 good reasons if you want to disconnect this vomit from your life.

  23. warm2 · November 7, 2011

    I always believed on Commercial TV there were restrictions on how many ads or self ads were allowed in 1 hour. Is there such a limit on foxtel or the second digital channels for the free to air, etc????

  24. Marie · November 7, 2011

    January 1, 2013 and Foxtel, after advertising a great new movie setup, has removed four or five movie channels without notice while telling us it is for the convenience of the viewer. Bollocks.

    • Steve Sammartino · November 7, 2011

      That’s why they are in trouble very very soon. Live sport wont save them….

  25. kim · November 7, 2011

    I got Foxtel long before the IQ & for under $100 a month got all the channels & 2 free movies a month & not an ad in sight. Foxtel is an absolute rip off now & all these improvements they keep making that they say is for customers benefit what a joke. Their latest is,the removal of movie channels,we used to have 16 movie.channels now we have 10,how is this better,there is less choice to watch & of course no reduction in cost. Foxtel is a joke & the biggest rort ever.

  26. Bels · November 7, 2011

    So what are the alternatives? I like to watch wwe raw and smackdown and movies. I’m sick and tired of their reduction in channels and if I want high def channels I have to pay extra, when I am already paying $122 per month. They are taking taking advantage of the lack of competition around. Someone got to stop these pricks.

  27. kiki · November 7, 2011

    if not for the Pommie soaps we would diisconnect tomorrow The adverts are getting as bad if not worse than free to air and when I phoned to compllain they came out with a load of bulldust about having to fill the gaps by the programme makers…duh…the BBC has not ads and the commercial stations in the UK are restricted to a couple of minutes.
    When we purchased our foxtel back in 1997 the proad boast of them was ‘advert free’ what a laugh
    the only redeaming feature is the recording facility and we had to pay extra for that!

  28. Peter · November 7, 2011

    I just cancelled my Foxtel account after 3 years. The guy on the phone asked me why I want to cancel, I basically told him, it wasn’t good value as the shows are repeated and you have to pay to subscribe to another channel. He offered me half price subscription and other channels. I declined his offer as it takes someone to disconnect to get a better offer. If you want a better deal ring up and disconnect.

  29. Terry · November 7, 2011

    We signed up to Foxtel a couple of years ago. The slow erosion of decent programming combined with the incredible blitzkreig of commercials made us decide to not renew our contract. Most of the people I work with have given Foxtel the big A and download what they want to watch instead.

  30. John · November 7, 2011

    I can’t wait till Foxtel dies. We have Foxtel only to watch 5 kids channels. That costs us $70 a month and yet they keep pumping tons of ads in it. So far there is no alternative to Foxtel but I believe that will change soon and if not I’m ready for Internet TV or even a satellite just so I can get rid of Foxtel. We just want it for kids cartoons, not that there is anything else worth watching on Foxtel anyway.

  31. Michael · November 7, 2011

    Agree with the majority of complaints but the biggest rort of the lot is ads. I remember the salesman giving the no ads spiel and I took it hook line and sinker. Id like to actually know when the ads started because I dont remember any “ad” campaign telling us it would. The repeat nature of this medium might be convenient for not missing new content but the lack of new content robs us of the value in any case. Think I’ll be moving to internet TV just to see something different.

  32. Gary McDonald · November 7, 2011

    Telstra owns 50% foxtel does anyone honestly believe they in a hurry to roll out fast internet speeds and shoot themselves in the foot?? I mean 3rd world eastern European countries have faster internet than we do. This all about Murdoch

  33. stuart · November 7, 2011

    is there a genuine hd golf only subscription internet service channel out there anywhere

    • Steve Sammartino · November 7, 2011

      No – but very soon – most sports will have their own channels. Surfing already has it.

  34. Robert · November 7, 2011

    They want an extra 25 dollars on top of the $62 we are paying and all we want to do is watch the NRL on one of the sport channels and not be locked into a plan. What other way do we have, to watch this (sport lemon) or something.

  35. bob · November 7

    If you want evidence of how desperate Murdoch is getting look at the deal Foxtel have made to get first cab, exclusive access to BBC drama content – it is firstly, demographically aimed at older audiences who will accept a lock in subscription, and secondly, is content from a media source Murdoch loathes, publicly funded television. Murdoch suffers the broad delusion that if he could break up and privatise the publicly funded networks like the BBC/ ABC, that produce credible free news media, then the monopoly news media content arrangements that ruled the past century would happily come back and consumers would be forced to pay for online news media via subscription. This is really delusional, a case of attacking a symptom not the cause, as it is really consumer behaviour Murdoch wishes to alter or at least control, but that ship set sail the moment people realised free downloaded content was available.

    All Murdoch’s business models are predicated upon control over the consumer never offering the consumer an innovative product.

    • not happy murdoch! · 16 Days Ago

      totally agree, that’s why Murdoch has to go

  36. Ned · November 7

    I subscribed to Foxtel about 3 years ago. I like Fox Footy in the winter but otherwise its crap. There are way too many commercials and interuptions and way too many repeat shows that are very old. You often find newer versions of the same shows running on free to air tv (with the same volume of commercials). So why do Foxtel think that people will continue to subscribe for crap with at least the same amount of commercials you get on free to air. Like you say, the pay tv space is set for a massive shake up and its looking like Foxtel will end up being the “Kodak” of the pay tv world in that process.

  37. dan · November 7

    very interesting comment which follows precisely what I’ve been saying to our family of tv watchers! anyone who understands proxy servers wouldn’t bother paying for foxtel content
    Dan

    • not happy murdoch! · 16 Days Ago

      do tell ;)

  38. not happy murdoch! · 16 Days Ago

    I say everyone in Australia stop using ANYTHING related to Murdoch! (afterall he is a trator and gone to the USA) Do anything and everything to avoid using any of his products and services. We have. (Especially when they stuffed us about with WWE and now we cant record it anymore) BooHoo Murdoch!

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