Shots fired: Foxtel's CEO Richard Freudenstein has said in a speech today that multi-billion dollar streaming giant Netflix and its associated competitors are no better than the crappy Blockbuster video store down at the local shops, while also outlining just how much it would cost for consumers to access to content that the pay TV provider maintains a monopoly over.
In a speech to the Australia Israel Chamber of Commerce, Foxtel's Freudenstein outlined how the company plans to compete in a market crowded with streaming video on demand (SVOD) services. The CEO boasted about Foxtel's access to exclusive content, and challenged the assertion that just because Netflix was in Australia that the incumbent pay TV provider had to lay down and die.
Freudenstein defended the higher cost of Foxtel per month, arguing that it was necessary to secure better content deals with partners like HBO. He added that Netflix isn't the killer of Foxtel, instead its a supplementary service. That's when the Blockbuster burn came in (emphasis added):
Foxtel is a premium service, which naturally costs a bit more, whereas Netflix and Presto are add-ons either to free to air for people who don’t watch much TV or to subscription TV. Don’t forget that most Netflix users in the US still have a cable service.
While Netflix produces a growing number of its own good quality shows, which it can afford based on its scale in the US, it will never be able to acquire the range of first run content that Foxtel can. It’s a simple matter of economics. At $15 per month, there is a limited amount of programming that any SVOD service can buy.
Think about it, even if the speculation is correct about SVOD numbers in Australia and even if all those customers were paying, the total revenue for all SVOD services would be only around $150 million per year. That doesn’t provide much for programming investment compared to Foxtel’s (or free to air) programming budgets.
In my view the best analogy for SVOD services is they are the digital video store. People who used to supplement free to air viewing by renting the occasional DVD are now doing so by using an SVOD service.
This is borne out by the fact that in the US and UK SVOD and pay-per-view revenues have grown in direct proportion to the decline in DVD revenues, while subscription players have continued to grow.
Freudenstein added that Foxtel's range of content means it will have things Netflix and other SVOD providers can't match, including sport and first-run content from HBO like Game Of Thrones, Silicon Valley and True Detective.
In fact, the Foxtel CEO went on to do some maths about how much it would cost to buy the content Foxtel has an exclusive over:
One of our challenges is to communicate the value that Foxtel, as a premium television service, delivers. This is yet another area of myth making, some of it pushed mischievously by organisations such as Choice. They argue that the way we bundle and price our service disadvantages consumers.
In fact one of the great benefits of Foxtel is that it aggregates in one cost effective offering a whole lot of content that a viewer would have to pay more for if bought any other way.
For an average customer who takes only the drama tier, it would cost $660 per year to get all of Foxtel’s dramas in HD, plus on demand viewing via Anytime.
We only had to add up the cost on iTunes of purchasing eight full series of programs like Game of Thrones, True Blood, Call the Midwife and Dexter to exceed that cost.
The subscription model remains the most cost effective way for most TV viewers to buy their programmes, which is why services like Netflix and Spotify also offer bundled subscriptions.
Freudenstein's logic is that a customer paying $45 per month gets access to over $600 worth of content if it were to be purchased on iTunes, for example.
In Freudenstein's ideal future, the nation will have both a Foxtel subscription and a supplementary Netflix subscription, and that's the way it will stay.
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