Australian Pay-TV: Softer Sub Growth

Profit generation at leading pay-TV operators Foxtel and Austar remain robust but subscriber growth has slowed considerably, which is causing a big headache.

Operating profit at leading regional operator Austar grew 2% Y/Y to A$117 mil. while revenues climbed 7% to A$675 mil. However, net additions crawled to 2,500 in Q4 (versus a target of 10-11,000). Full year net additions came in at 21,400 (versus 51,500 last year), taking the company’s total base to 742,000.

Full year net additions are the lowest Austar has reported over the past five years. No single reason has been isolated though there has been much management commentary on the impact of Freeview, natural disasters, interest rates and rising petrol prices amidst a worsening economy, especially in 9M 2009.

Encouragingly, churn remains impressive at only 1.25% per month in Q4 while ARPU continues to grow at 4% pa, boosted by the growth of HD and PVR. The company recently also launched retail sales through Harvey Norman franchisees, which may help boost customer growth in the near term along with the improving economy.

Foxtel slowdown
Subscriber growth at market leader Foxtel softened because of limited marketing during an aggressive Freeview ramp-up and continued erosion in wholesale users.

The wholesale base however contributes very little to Foxtel’s top-line and is likely to further decline as SingTel Optus has stopped actively selling Foxtel product. The main concern will be on direct Foxtel customers, which have been growing significantly over the past three years. In 2H 2009, net direct adds crawled to 2,000/month, versus a historical trend level of 10,000/month.

More encouragingly, the growth of Foxtel’s next generation services remain good, driving 5% ARPU growth with 55% of its subs now taking PVR and 13% opting for HDTV.