News Corp chief executive Robert Thomson has blamed cricket for the shock slump in subscribers for Foxtel’s sports streaming service, Kayo, a little over a year after its launch.
Kayo – identified as the pay television platform’s growth pillar – delivered a disappointing result for Foxtel at News Corp’s financial results on Friday, sliding 32,000 paying subscribers between November 5 and February 5.
“As you know, we are very much in the low sports season in Australia. Cricket, fascinating, sometimes antediluvian as it can be is not as compelling for crowds in Australia as Aussie rules and rugby league,” Mr Thomson said when asked whether Kayo had reached full penetration.
“But cricket has certainly made a positive difference to audience retention, but the winter sports in Australia are about congregation and audience aggregation and we’re on the cusp of that selling season.”
The disappointing result comes off the back of a summer cricket season which included touring teams Pakistan and New Zealand – the second year of Foxtel’s share of Cricket Australia’s $1.18 billion broadcast rights deal.
Foxtel will be hoping for better summers to come with India and England to tour the next two seasons as well as a boost from the upcoming NRL and AFL seasons.
On Friday, News Corp, which owns 65 per cent of Foxtel, revealed Kayo had more than 370,000 paying subscribers as of February 5. This compared with more than 402,000 as of November 5, 2019. However, this was more than the 42,000 paying subscribers it had at the end of December 2018.
The result is likely to compound the pressure on Foxtel, which saw subscriber churn on its traditional broadcast business rise to 16 per cent for the December quarter, from 14.4 per cent in the September quarter. Foxtel’s broadcast and commercial subscriber base sat at 2.268 million as of December 31, down from 2.326 million in the September quarter.
Foxtel Now – a streaming version of Foxtel’s traditional broadcast business – had 334,000 paying subscribers as of December 31, down from 375,000 in the previous quarter. Foxtel Now was expected to come under pressure following the end of Game of Thrones in the middle of the year.
A sluggish Australian economy only exacerbated Foxtel’s financial crunch. Revenue fell $US61 million($90.6 million) in the quarter, or 11 per cent, $US25 million of which was due to currency fluctuations. Adjusted revenue fell 6 per cent to $US526 million. Earnings before interest, tax, depreciation and amortisation fell 17 per cent.
News Corp also revealed Foxtel now has another shareholder loan, but this time from Telstra, which owns 35 per cent of Foxtel. In February, Telstra extended Foxtel a $170 million loan in order for Foxtel to pay Telstra the fees it pays for using its cables to deliver pay TV to consumers. The Telstra facility has been locked in at a 7.75 per cent interest rate.
“[Foxtel are] going through a significant transition and this is an opportunity for us to provide our support,” a Telstra spokesman said.
It comes after a major refinancing of Foxtel’s debt which included News Corp tipping in $900 million worth of facilities, including $700 million of debt in late 2019.
It also locked in a further $900 million of facilities from about a dozen local and international banks, and a $500 million US private debt placement.
While News Corp hasn’t provided information around what interest rate Foxtel is paying on its shareholder or bank loans, it did reveal in August that a $200 million shareholder loan from May had a variable interest rate of 9 per cent.
When the initial $300 million loan News Corp gave Foxtel in April is taken into account, Foxtel in 2018-19 paid News Corp nearly $10 million in interest on those loans.
Overall, News Corp’s profit for the quarter slipped $US10 million compared to the same time last year, to $US85 million.
This story originally appeared in the Australian Financial Review. Read the original story here.
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