Why this could be Murdoch’s last chance to sell Foxtel

The Murdoch family should send Christmas cards to the 1.2 million Australians who still pay an average of $90 a month to get Foxtel’s broadcast product (via the set-top box). These customers could be the key to delivering gold to the media mogul and Telstra.

They are the reason why Murdoch’s News Corporation (and Telstra, its junior partner in Foxtel) will be able to sell the business, which also houses the Kayo and Binge streaming services, for any kind of decent price.

Foxtel chief executive Patrick Delany has led the company’s transition into a streaming player.

Foxtel has been a business in slow decline for some time. It would fetch a heftier price tag if the number of customers using its set-top boxes remained stable. But it continues to leak viewers from its cable pipes every year, and any potential buyer would have that baked into its offer price.

At its peak in 2015, three years after acquiring rival Austar, Foxtel had 2.9 million high-paying set-top box subscribers. But the cable business has since been disrupted, or “Netflixed”, by the tsunami of streaming companies that offer cheaper programming on demand.

As a product, Foxtel’s cable business just doesn’t have a lot to offer. The only paying customer I found to vox pop declared that their loyalty to the Foxtel set-top was owed to an addiction to the National Geographic channel and reruns of The Beverly Hillbillies.

News Corp has had to cannibalise Foxtel’s core cable business to introduce streaming services Binge and the sports-focused Kayo. Both have managed to find their feet and sign up subscribers to offset the declining number of cable customers. But subscriber growth for both services has now started to plateau.

Shows like House of the Dragon run on Foxtel’s streaming service, Binge.Credit: HBO/Binge

So, what is Foxtel worth? Just under four years ago, when Foxtel was limbering up for a public listing, figures of $1.2 to $2 billion were being bandied around.

US cable TV veteran Leo Hindery was speculated to have offered $2.6 billion for Foxtel in 2020. That deal was reportedly turned down by the Murdochs, who in hindsight probably missed a valuable opportunity.

The much-anticipated IPO of Foxtel in 2021 offered another path for News Corp to execute a healthy exit. Kayo and Binge were in their infancy but on a rapid growth trajectory, and would have found favour with buyers back when they were keen to get in on the streaming craze.

But the IPO road now seems closed for good, and the streaming industry has evolved into a very different beast in the past couple of years.

The AFL is one of Foxtel’s big-ticket items.Credit: Getty Images

Meanwhile, the billion-dollar content deals that Foxtel signed for sports rights need to be supported by the subscriber revenues, and that’s getting tougher every quarter. Foxtel and Seven West Media will pay $4.5 billion for the AFL, and $1.5 billion for cricket from 2025.

Then there is Foxtel’s debt, which according to News Corp’s most recent annual report sits at about $1.8 billion, inclusive of loans from News Corp and a smaller loan from Telstra. This could potentially wipe out all the equity in Foxtel, in which case the sale price could be a nominal amount.

Foxtel owes News Corp almost $600 million, according to News Corp chief financial officer Susan Panuccio. That credit facility reportedly carries more than 7 per cent interest. Telstra, meanwhile, is reportedly earning 12.14 per cent interest on $96 million.

So having missed the mark in 2020, you would have to figure that this time News Corp won’t be dismissing any interested suitor. And that suitor is reportedly a Los Angeles-based private equity firm, Platinum Equity.

Its interest in Foxtel is itself pretty telling. Platinum Equity is renowned for picking up unloved assets at bargain-basement prices; it prefers companies that are a bit ugly or complicated.

Platinum already has form in Australia. It bought 70 per cent of Telstra’s Sensis business (Yellow and White Pages) 10 years ago. Sensis, like Foxtel, was a once-dominant business that had been disrupted by digital technology. But under Platinum’s ownership, it was somewhat revived and then sold for a handsome profit.

The private equity outfit is presumably looking to repeat the treatment with Foxtel, which is undeniably ready for a makeover.

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