Pay-TV Market Outlook – the growing importance of Pay-lite

Report Overview

Pay-TV Market Outlook – the growing importance of Pay-lite

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Pay-TV Market Outlook – the growing importance of Pay-lite
We forecast Premium Pay-TV to decline at a 4% CAGR to A$2.6b revenue by FY20. This reflects some cord cutting and shaving as dollars migrate to xVOD services. But the impact to Foxtel is mitigated to some extent by its participation in these very markets.
This report provides a deep dive into our Pay-TV forecasts and assesses the outlook for Premium Pay-TV versus Pay-lite services.
Some Premium Pay-TV risk but not terminal
We forecast Premium Pay-TV to decline at a 4% CAGR to FY20 (-5% excluding Advertising revenue). Our forecasts reflect flat subscribers (household growth offsetting cord cutters) but a 4% CAGR decline in ARPU (-5.5% excluding Advertising). Figure 8 illustrates the risks faced to Premium Pay-TV from changes in consumer behaviour in light of xVOD substitutes. But we believe the risks are not terminal. We believe a Premium Pay-TV proposition remains attractive to some customers. Its ability to invest in content (~A$1.5bn pa) is materially ahead of where SVOD operators can get to (ie ~A$400m pa in FY20). This suggests that SVOD will only appeal to certain customer demand (ie movies and drama, not sport and local). Last, we believe Foxtel we be prepared to give up a little price to retain customers, and our forecasts reflect this.
What consumers want
Our forecasts align with what consumers are telling us and what we observe in other countries. Our consumer survey told us that up to 10% of Foxtel subscribers (who are SVOD considerers) would cancel their Foxtel while another 24% would downgrade (cord shave). Anecdotally this aligns with overseas markets (including US, Canada and NZ albeit not the UK). Conversely 65% of consumers today are not considering SVOD.
Digital video market growing, albeit shift to Pay-lite
We forecast the digital video market to grow (1% CAGR) across our forecast horizon. Within this we expect the growth to come from xVOD with these services contributing 31% of the overall digital video market by FY20 (from 7% today). Foxtel is participating in these xVOD markets (increasingly so) and is therefore exposed to this growth albeit these markets are more contested relative to the near monopoly it has enjoyed in its core Premium Pay-TV business. So we shouldn’t just think about the Premium Pay-TV market when thinking about Foxtel.