They say keep your friends close, but your enemies closer and that is exactly what Foxtel have done, by allowing Netflix to be streamed via their platform. Whilst this alliance provides some obvious and instant benefits to the consumers, it raises some interesting questions around Foxtel’s advertising model and whether it can be sustained.
Statistically speaking, Roy Morgan released some data earlier in the week around subscription numbers. They stated that overall 13.4 million Australians subscribe to either Foxtel or Netflix – 8.4 million exclusively have Netflix, 2 million exclusively have Foxtel and 3 million people have access to both.
But the problem is, when looking at the numbers, the focus is always on “How Many”. How many subscribers does Foxtel have and how many does Netflix have. Sure, from a subscription revenue point of view, how many is important, but from an advertising point of view, the important factor for Foxtel should be “How Much” – how much time are consumers viewing the product via non-streaming means. At the end of the day, “How Much” controls the advertising revenue side of things.
In my opinion, this alliance will see new subscribers for Foxtel but given the vast number of options and ease of churning, it will result in the average viewer consuming less on the traditional Foxtel platform. Now this is not a bad thing if there is balance between the two – it would actually be great for Foxtel to expand their reach base. But if the rate of decline of “How Much” is higher than that of the increase of “How Many” then that could be a problem for Foxtel. That being said, advertising only accounts for around 10% of Foxtel’s total revenue, so if they get a healthy uplift in subscribers, it should easily offset the advertising side of things.
Think of it like this, if you were organising a party (no gifts) – would you prefer 500 people attend your party for an average of 15 minutes or would you prefer 50 of them stay the full 6 hours? Whilst the idea of having 500 people at your party is awesome, from a ‘Quality Time’ point of view having 50 loyal people dancing the Nutbush at midnight and slamming down tequila shots at 2 in the morning would be much more fulfilling.
In reality the balance is somewhere in between there and that is what Foxtel will need to obtain as it’s all fine to have viewers fragmented to Kayo and Foxtel Now and now even Netflix, but less viewer minutes within the non-streaming platform means less advertising space which means less advertising/ers.
Of course, for Netflix the “How Much” is irrelevant given the current no advertising platform – so I believe they stand to benefit the most from this alliance especially when looking at the Roy Morgan data which suggests the potential pool of Foxtel subscribers who don’t have Netflix (2 million people) is substantial and given the low price point, I would imagine the bulk of these Foxtel subscribers will join Netflix at either an extra cost or more likely by dropping to a lower Foxtel package?
But overall the consumer is the real winner, for a number of years they have been in control of their entertainment destiny, this just now provides a new convenient platform for them.
But for Foxtel, with over 200k Kayo subscribers and growing and over 500k Foxtel Now subscribers, this move will further fragment the Foxtel brand and whilst maintaining and potentially growing a healthy subscriber base, it will surely diminish the number of people consuming on the traditional platform and in turn have a major effect on advertising.
Going back to the party analogy, it would be like having multiple rooms at your party with a specialist DJs, but having the chocolate fondue fountain in the main room – what good is investing in that glorious chocolate if people just want to ‘bust a move’ with the cool kids in the other rooms.
But as I stated earlier it will all come down to the rate of people coming in vs the rate of people consuming less, …….but stat’s for another time.
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