Never mind papers, real disruption is coming to a television near you

In the eyes of audiences, television is television.

Consumer revenue from increased print cover prices and online subscriptions has grown enough to return newspapers such as this one to profit after digital disruption destroyed their classified ads businesses. Is there a way forward for pay television in the face of disruption by streaming services such as Netflix?

Some scoffed two years ago when I wrote about the path back to profit for papers and argued that there was at least a medium-term ­future for print, where the bulk of the revenue still lies. Yet there are profound product differences between print and digital newspapers and many consumers who like both, many loyal to print and many totally digital.

In the eyes of audiences, TV is TV. The differences between free-to-air, subscription and streaming services are much less profound than the differences between print and online papers. For most consumers, TV ­program providers are interchangeable apart from price differences and depth of program offering.

But FTA and pay have clear comparative advantages over streaming in news and sport, and unique content is the key to success. This partly explains the deal a fortnight ago by Seven and Foxtel to bid $1.2 billion for the rights to broadcast all forms of cricket for six years. Seven West Media will pay $75 million cash a year plus advertising contra to broadcast 43 of 59 Big Bash League matches each year and all Tests. Foxtel will pay about $105m a year to “show every ball of every over” of every Cricket Australia match.

Fox Sports bid high in 2015 for winter codes: about $900m of the total $1.8bn deal with Nine for all eight National Rugby League games each week for six years and $1.3bn of a total $2.5bn deal with Seven for Australian Football League rights for six years.

So, will these sorts of deals save FTA and protect Foxtel?

FTA is losing total audience faster than subscription TV but it has the advantage of being free. It still has the power to create water-cooler conversations with content such as last week’s controversial My Kitchen Rules ­expulsions of Sonya and Hadil.

Sport remains a huge driver of audience numbers. The top 10 highest rating national programs every year include the NRL and AFL grand finals and the three NRL State of Origin matches.

And FTA is still a powerful medium for driving the sales of major advertisers. FTA will be here for a long time but it will continue to bleed audience numbers and the fight for its share of total advertising will keep getting harder.

And subscription pay TV? It will survive profitably largely as is until the mooted initial public offering of the merged Foxtel and Fox Sports in a year or two. But in the medium to longer term it inevitably will become a streaming service without satellite delivery. It already has decided to migrate all cable customers to satellite to save money. It will differentiate itself from FTA TV and streaming ser­vices with ubiquitous quality coverage of live sport and extensive live news, where Sky News is already the best 24-hour service.

Despite predictions of doom at the hands of Netflix or Silicon Valley giants such as Google and Facebook, I think its threats will come from elsewhere. Google and Facebook have faced so much reputational damage in the past year it is impossible to see them as serious contenders for Australian sports rights for several years.

Netflix has a global business proposition that may never extend to news and sport, and certainly not in this country. How would Australian sports rights be worth the money for a global brand?

In the longer term, there are two possible international sports and news rivals for Foxtel: Disney and CBS. Fairfax-Nine joint venture Stan also could end up being a rival for local sport, given the natural synergies between it and its parent companies.

CBS’s wholly owned Ten Network has long sought NRL rights, it used to broadcast some AFL matches, it acquired the Big Bash League under its best recent former chief executive, Hamish McLennan, and it still broadcasts V8 Supercars. Its parent has plans to launch its streaming service, CBS All Access, here one day.

It would have plenty of financial clout to bid for sports rights but CBS was routed in the cricket auction and much of its US content is already sewn up in programming deals with the other frees, Foxtel and other streaming services that will take some years to unwind.

Rupert Murdoch is selling 21st Century Fox’s movie assets and his 39 per cent stake in Sky UK to Disney. US giant Comcast has launched a rival bid to Murdoch’s for the balance of Sky, but whatever happens there, the Murdochs seem to be paring back internationally, eventually to a content company based on news and sport with its own newspapers, FTA TV channels, Fox News in the US and Sky News here.

Part of the failed bid for Ten last year by News Corp co-chairman Lachlan Murdoch and WIN Corp owner Bruce Gordon was a desire to see the Sky News product on Ten’s secondary FTA digital ­channels. That desire remains and News would have to be a strong possibility to buy another FTA channel and Disney an even stronger possibility to bid for a floated Foxtel. As part of its ­planned $US68bn Fox acquisition, it will buy 30 per cent of the US-based Hulu streaming service to add to the 30 per cent it now has.

If it did buy Foxtel, it would maintain its position in local sports rights and news. It also would have National Geographic (73 per cent owned by Fox) and 80 per cent of the international ESPN sports network. It has a killer movie back catalogue and blockbuster franchises, including the Star Wars, Marvel Comics and Pixar series.

Assuming Foxtel does look pretty much as is until any IPO, what will be the impact of the cricket deal? Foxtel has always focused on average revenue per user. Its penetration never got much past 30 per cent of households, compared with 60 per cent in some European countries, but on ARPU it was a world beater.

Here it faces even more fiendish problems than newspaper publishers moving from high-yielding print to lower-yielding digital sales. Many of the older Foxtel subscribers are still paying more than $80 a month. Foxtel Now charges only $10. Netflix starts at $9.99 a month and Stan at $10. But Foxtel Now requires extra spending for consumers wanting more than the basic package, so it ends up both dearer than the disrupters’ offerings and nowhere near as lucrative as traditional subscribers.

The Australian Financial Review last week estimated Foxtel would need 115,000 new customers net of churn to make the deal break even. Insiders say the number is likely to be closer to 200,000 when production costs of up to $30m and falling ARPU are factored in. Remember, Nine lost about $50m a year on its cricket rights and it paid only $80m a year, according to Citi analyst David Kaynes.

Foxtel remains profitable but is under intense digital challenge, facing changing user behaviour and falling subscriber numbers. Its cost base on sport is soaring so new boss Patrick Delany, a man with enormous passion for his job after years leading Fox Sports, has his work cut out.