News Corporation To Put Foxtel On The Right Track Before Launching Foxtel IPO

Global diversified media and information services company, News Corporation (ASX: NWS) currently owns 65% of Foxtel, a leading pay-TV provider in Australia. The remaining 35% is owned by Telstra, Australis’s leading telecommunication company.

Story of Foxtel

Two years back, both Telstra and News Corp, joined hands to combine Foxtel and Fox SPORTS Australia into a new company, to deliver premium sports as well as homegrown, original and international entertainment in a rapidly evolving and competitive marketplace.

Later on 3 April 2018, Telstra and News Corporation merged the previously shared joint venture Foxtel, with Fox Sports Australia, which was owned 100 per cent by News Corporation. As a result of the transaction, Telstra contributed its shares in Telstra Media Pty Ltd in exchange for a 35 per cent interest in NXE Australia Pty Limited, which is the newly formed head entity of the merged group of Foxtel and Fox Sports Australia.

Foxtel IPO Update

News Corp intends to list Foxtel on the stock exchange, but before launching an IPO, it wants to put the Foxtel on the right path.

At the recently held Bank of America Merrill Lynch 2019 Media, Communications & Entertainment Conference, News Corp CFO Susan Panuccio, confirmed about the company’s long term goal of listing Foxtel, but before setting Foxtel for an IPO, News Corp intends to stabilize Foxtel business and grow its OTT (over the top) revenue streams.

Foxtels, which is suffering from declining earnings, is currently focused on improving its OTT services. To improve its OTT services, Foxtel recently launched Kayo sports streaming service, Foxtel Now and other potential new OTT services.

Kayo Performance

• Following its launch in November 2018, Kayo grew over 8 months to reach 382,000 subscribers, of which around 331,000 were paying subscribers as of June 30, 2019;

• Kayo is adding significantly to the total number of sports viewers in Australia prepared to pay for premium content;

• During the fourth quarter of 2019, paying subscribers for the Kayo sports streaming service more than doubled to 331,000;

• As of June 30, 2019, Foxtel’s total closing subscribers were 3.144 million, which was 12% higher than the prior year, primarily due to the launch of Kayo, subscriber growth at Foxtel Now and the inclusion of commercial subscribers of FOX SPORTS Australia beginning in the first quarter of fiscal 2019.

Foxtel Group Borrowings

As of June 30, 2019, News Corp’s borrowings had $1.24 billion of outstanding debt incurred by certain subsidiaries of Foxtel. The Foxtel Debt Group indebtedness includes U.S. private placement senior unsecured notes and drawn amounts under its revolving credit facilities, with maturities ranging from fiscal 2020 to 2025. During fiscal 2019, the Foxtel Debt Group repaid A$300 million facility maturing in April 2019 and also repaid A$200 million facility maturing in May 2019. The repayments of the A$300 million facility maturing in April 2019 and the A$200 million facility maturing in May 2019 were repaid using A$500 million of shareholder loans provided by the Company.

As of June 30, 2019, the Foxtel operating subsidiaries’ total outstanding indebtedness was $1.2 billion, including $281 million due in the fiscal year 2020, with the remainder having various maturities through fiscal 2025.

Foxtel Capital expenditure - For FY19, News Corp reported a capital expenditures of $572 million, of which $302 million related to Foxtel. Foxtel’s total capital expenditures in the fiscal year 2020 are expected to be around 20% lower than fiscal 2019.

Recent Updates by Foxtel

• Foxtel recently announced the most significant overhaul of its entertainment TV channel line-up in a decade with the introduction of four new and exclusive FOX-branded channels and a wholesale repositioning and refresh of its popular Lifestyle franchise;

• Few days back, Foxtel announced that its new channel BBC Earth will launch for the first time in Australia on Foxtel on October 10, 2019;

• Last month, Foxtel announced that Wallabies star Kurtley Beale is joining the Foxtel team as a rugby ambassador with the announcement coming as FOX SPORTS unveiled its broadcast plans for the world’s biggest sporting event this year, Rugby World Cup Japan 2019;

• In the month of August 2019, Foxtel and BBC Studios reached an agreement on a long-term extension of their partnership securing premium British drama, entertainment, documentaries, natural history, children’s programming and news for Foxtel’s broadcast and on demand platforms;

• In the month of July 2019, Foxtel launched The New Foxtel Experience which will provide customers with its iQ3 and iQ4 set top boxes a completely redesigned user experience, bringing together the best of TV and on demand, all in one place.

Foxtel Now

Today, Foxtel delivers around 200 channels which covering sports, general entertainment, movies, documentaries, music, children’s programming as well as news.

• Foxtel offers the leading sports programming content in Australia, with unique rights across key sports and a suite of channels that includes FOX LEAGUE, FOX SPORTS 503, FOX FOOTY, FOX SPORTS 505, FOX SPORTS 506, FOX SPORTS MORE, FOX SPORTS NEWS and its new FOX CRICKET channel;
• Foxtel’s premium entertainment and news content includes television programming from HBO, FOX and NBCUniversal, as well as Foxtel-produced dramas, and 29 channels owned and operated by Foxtel, including general entertainment and movie channels;
• Foxtel’s all channels combined broadcast around 15,000 hours of live sports programming each year, encompassing both live national and international licensed sports events such as National Rugby League, Australian Football League, Cricket Australia, the domestic football league, the Australian Rugby Union and various motorsports programming, as well as other featured original and licensed premium sports content tailored to the Australian market;
• Foxtel’s content is currently distributed to broadcast subscribers using either cable networks accessed through Telstra or Optus’s satellite platform via Foxtel’s set-top boxes, including the iQ4 (satellite only) and iQ3;
• Foxtel is currently planning to migrate all broadcast subscribers to satellite or internet delivery over the next several years;
• Foxtel competes primarily with a variety of other video content providers, such as traditional Free To Air (“FTA”) TV operators in Australia, including the three major commercial FTA networks and two major government-funded FTA broadcasters, and new content providers that deliver video programming over the internet.

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