Foxtel could be Telstra Corporation Ltd's next Sensis

Is Foxtel in structural decline? With the demise of Presto it certainly seems like it

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Telstra Corporation Ltd (ASX: TLS) sold a 70% stake in its Sensis business to private equity for $454 million back in 2014.

The Sensis business was best known for the White and Yellow Pages – virtual dinosaurs in today's digital world. However, analysts had valued the business as worth as much as $3 billion at the time, and as much as $12 billion in 2005.

Pay-TV provider Foxtel could be Telstra's next Sensis. Despite being valued in the billions currently, Foxtel faces structural decline thanks to the rise of subscription video on demand (SVOD) services like Netflix, and the move to IP streaming of television.

The company has agreed to buy out its partner, Seven West Media Ltd (ASX: SWM), from its SVOD service Presto – which has struggled to gain traction and attract subscribers. Presto will then be shut down by January 2017 and integrated into Foxtel Play, making it the second business to succumb to the Netflix-effect, following the demise of Quickflix Ltd (ASX: QFX). Quickflix collapsed in April this year as we reported here.

Presto had lagged far behind Netflix and local offering Stan in terms of subscribers since Netflix arrived in Australia in March 2015.

netflix-stan-presto-june-2016
Source: Roy Morgan Research

 

Stan – a joint venture between Nine Entertainment Co Holdings Ltd (ASX: NEC) and Fairfax Media Limited (ASX: FXJ) – could well be the next casualty, given the company is also struggling to retain paying subscribers.

Getting back to Foxtel, the company has also been forced to lower the price of its SVOD offering – Foxtel Play – to prices between $10 and $15 a month, from the current entry point of $25 a month. That price is comparable to what Stan and Netflix charge per month for their various offerings.

But if Foxtel Play customers want Sport or Movies, they'll have to fork out an extra $25 and $20 respectively per month. It could also see more full-service Foxtel customers – currently paying $50 a month now for the basic plus Sports package – switch to Foxtel Play with sports for roughly $35 a month.

Foolish takeaway

Foxtel is likely to see its earnings before interest, tax (EBIT) margins of around 17% hammered over the next few years as more subscribers switch to lower-cost offerings, the company is forced to lower its prices and some customers switch off completely. That's bad news for Telstra – and its 50% partner in Foxtel, News Corp (ASX: NWS). No wonder the telco tried to get News Corp to spin off Foxtel earlier this year.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »