Telstra eyes Foxtel selldown as Peter Tonagh takes charge

Foxtel could be on track to a stockmarket float as the pay-TV operator installs News Corp’s Peter Tonagh as its head.

NRL TV rights deal announcement

Foxtel could be on track to a multi-billion-dollar stockmarket float as the pay-TV operator installs News Corp Australia chief executive Peter Tonagh as its new head.

While there is no guarantee of a deal, joint shareholder Telstra is planning to sell down as much as 60 per cent of its stake in Foxtel — representing 30 per cent of the company — if the telco giant embarks on an initial public offering that would net Telstra about $3.7 billion.

News Corp, publisher of The Australian, is understood to have no plans to sell its 50 per cent stake in Foxtel, which it plans to more closely integrate with its other media assets. The satellite and cable broadcaster is arguably Australia’s largest commercial media operator, with 2.6 million subscribers, annual revenues of $3bn and an enterprise value in excess of $8bn. It is jointly owned by News Corp and Telstra.

Although Telstra yesterday insisted that “Foxtel remains strat­egically important” to the company, the deal drumbeats have grown steadily louder since May, when Andy Penn was appointed to lead the telco.

Telstra has been considering its options, and investment bank UBS has been pushing several ­scenarios. But a transaction is far from certain when the stock­market is so volatile and investor appetite for media stocks is tepid.

The focus on Telstra’s media assets comes just days after Telstra shelved its $1bn mobile phone joint venture in The Philippines.

The departure of Mr Tonagh to Foxtel will see News Corp Australasia executive chairman ­Michael Miller lead the publishing company’s executive team.

A former Foxtel chief operating officer and chief financial officer, Mr Tonagh worked at the company for more than a decade, and has maintained strong ­relationships with key Hollywood studios and production com­panies. He became CEO of News Corp Australia in November last year after 2½ years as COO, ­during which time he shifted the company’s newspapers to a multiplatform strategy, and transitioned the sales team to a new model for the digital era.

Mr Tonagh said he was “immensely proud” of his legacy at the publishing business, and “honoured and excited to be given the opportunity to return to Foxtel”.

He replaces Richard Freudenstein, who will stand down from the company after 4½ years as chief. He will remain on the board of News Corp’s digital real estate listings business REA Group, operator of realestate.com.au.

At the helm of Foxtel, Mr Freudenstein belied concerns about its resilience to withstand disruption in the digital era by delivering strong subscriber growth, and a drop in churn, the rate at which customers opt out. Milestones include the launch of internet-based TV service Foxtel Go, streaming service Presto, the repackaging of Foxtel content to reduce prices and drive record growth, new channels and the renewal of TV sports rights deals including the NRL and AFL.

He also finalised a $2bn takeover of regional pay-TV operator Austar, and more recently oversaw Foxtel’s acquisition of a 13.84 per cent stake in free-to-air TV network Ten. Mr Tonagh is likely to replace Mr Freudenstein on the board of the media company.

At its recent first-half result, Foxtel reported a 5.5 per cent jump in first-half revenue to $1.66bn, driven by 8.1 per cent subscriber growth for the six months to December 31. Churn fell from 11.4 to 10.2 per cent.

Speaking to The Australian, Mr Freudenstein said that while he was “genuinely sad” to leave, he felt ready to “take a break”, and will ponder his next move while on a short career hiatus. “I love the digital space; I’m very excited to be staying involved with News and REA. Other than that I think I will take a break and just think about it,” he said.

Mr Freudenstein said he was most proud of getting shareholder agreement to sharply reduce Foxtel’s pricing and packaging, a risky move that has since paid off by “igniting” subscriber growth even as streaming services enticed subscribers.

“We grew subscribers at a time when not only were we changing our pricing but the marketing was becoming much more competitive because of Netflix. Yet we still grew our subscribers by 8 per cent last year calendar year,” he said.

“I am confident that the business has the financial strength, innovative spirit and depth and breadth of content relationships to meet the challenges of a rapidly changing media landscape.”

News Corp’s global chief executive, Robert Thomson, thanked Mr Freudenstein for his leadership of Foxtel, and contribution to REA. “News Corp is now the world’s largest player in digital real estate and Richard has been integral to our domestic and international growth,” Mr Thomson said. “His leadership and guidance were pivotal in the acquisition of realtor.com in the US and I am delighted he will remain involved in this dynamic part of our business.”

Telstra chief Andy Penn said it was important Foxtel maintained its momentum. “Peter is well positioned to lead Foxtel through the next phase of its evolution and build on Richard’s achievements,” Mr Penn said.