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FULL SPEECH: CEO Peter Tonagh announces revolution for Foxtel

NewsKevin Perry
Peter Tonagh  Image source - News Corp

Peter Tonagh 

Image source - News Corp

FOXTEL’s CEO, Peter Tonagh, has today announced a new approach to pricing and packaging for Foxtel's IP-delivered subscription TV services.

It's a move clearly designed to better position Foxtel for the ongoing fight against a range of new low-cost internet content providers including Netflix.

This was the first significant speech from Tonagh since becoming CEO in March.

 

Here is the full text of his speech from today’s 2016 ASTRA conference.

BILL GATES once famously said: "We always overestimate the change that will occur within the next two years and underestimate the change that will occur in the next ten."

From my experience that’s pretty much right – although in the media today it feels like the second time horizon may be significantly less than ten years.

It’s certainly the approach we use for thinking about the future at Foxtel.

In short, we must continue to fully understand the evolving needs of Australian consumers;

We must continue to deliver the services that they want today while building on the trends for the future;

And we must create the flexibility to rapidly adapt to those trends and business models that we currently can’t foresee.

Core to our response to today's disruptive change is a return to the core DNA of our business, the characteristics on which we have built our past success: a commitment to our customers, a passion for great content, and an obsession with innovation.

Today I want to outline for you the latest evolution of Foxtel's strategy.

A strategy that will allow us to succeed in the short term by delivering our customers the television experience they have come to expect from us.

But a strategy that will also enable us to excel in the longer term by adapting our business to meet and exceed the desires of customers of the future.

The first thing I want to emphasise is that at Foxtel we embrace, and thrive, on competition and change.

When we began 21 years ago, we were the great disruptors of the TV industry and, from that moment, we have been at our best when we are challenging, and being challenged, especially in times of dramatic change.

We are certainly in a time of great change today. In fact, you might say that "there has never been a more exciting time to be a provider of video entertainment".

Viewers have more choice than ever before; and, rightly, they are exercising that choice.

But the competition between Foxtel and the recently arrived SVOD players is more nuanced than many would have you believe.

Sure, we compete in some respects. But our services are fundamentally different in ways that make us quite unique.

The SVOD services do not compete for live and linear viewing. Viewing that represents the vast majority of Australia's current viewing habits. And, of course, live and linear viewing is especially significant in sport and in news.

For the genres in which our products compete more directly, such as drama, our proposition is distinct and, in my view, significantly better in both quality and quantity.

More exciting for me, the emergence of SVOD services creates great opportunity for us.

There has historically been a view that Australians won't pay for content. This was true for news, true for music and, for many Australians, true for television. Not any more.

Now, for the first time, many more Australians have shown they are willing to pay for the right television proposition. That can only be a good thing for Foxtel.

There continues to be a number of misconceptions about the relative strengths and capabilities of various players.

This is by no means a complaint. Clearly it is our job to better communicate the unique strengths of our product. We need to, and we will, work harder at that.

But reading media reports when the SVOD services launched in Australia you could have been forgiven for thinking that on-demand viewing had been introduced to Australian consumers for the very first time.

The truth is that Foxtel was then, and is now, a leader in on-demand content through Foxtel Go, Foxtel Play and Foxtel Anytime.

When it comes to quality and quantity of drama and movies, no one has a better selection than Foxtel.

At Foxtel, we currently offer 99 of last year's top 100 Australian box office movies. Our SVOD competitors, combined, have around 30. What’s more we make available more first-run programs in a month than Netflix shows in a year.

Yes, there is more competition for US drama then ever before, but Foxtel has more, more recent and better quality US dramas than any of our competitors.

More importantly, we have what they do not - an amazing, and growing, slate of award-winning original Australian drama productions.

And we provide our customers with more choices than anyone else as to how they can watch our fantastic content.

Take for example the first episode of Season 6 of Game of Thrones.

420,000 viewers watched at 11am on Monday morning, precisely the same time it went to air in the US.

A further 310,000 watched the prime time screening on showcase that evening.

By the end of the series almost 500,000 additional viewers had watched that episode. Via encore screenings, time-shifted on their iQ, catch-up using Anytime, on a mobile device using Foxtel Go or streamed via IP on Foxtel Play.

This explosion of viewing choices resulted in an average audience of around 1.2 million viewers for every episode across the series.

This was the largest audience for any Foxtel show in our history.

But more than that, Foxtel saw more audience growth between Seasons 5 and 6 than any other country in the world. That’s the power of great content but it's also the power of offering viewers more options.

Despite this wide array of viewing options, Foxtel continues to be seen by many as a traditional linear broadcaster, with both customers and non-customers alike unaware of the on-demand options that we have on offer to them.

For others, the on-demand service needs more work. One of the most frequent complaints to me from viewers is that, this month, they are no longer able to access Game of Thrones on our on-demand service or that they are unable to download it to their iPads to view on planes or out of home.

We clearly have more work to do both on the service and in changing perceptions. And rest assured, we are working hard on it.

To kick-start that effort I am delighted to announce that we have entered into a new long-term agreement with our partners at HBO. An agreement that will give us even more extensive – and exclusive – access to the great library of HBO content.

We will have five times the number of hours of HBO than we currently have and every series we have will be there in full all of the time. And, in time, available to download to tablets and smart phones.

Foxtel will continue to be the Home of HBO in Australia. In addition to the great HBO shows that are part of the Showcase channel, our customers will be able to catch up and stream their favourite HBO series, anytime, anywhere.

Yes, Game of Thrones anytime, 24 hours a day, 365 days of the year across all devices. Along with the rest of the highly acclaimed HBO library.

In another initiative that highlights our responsiveness to consumer needs I am delighted to announce that we will launch our dedicated Foxtel Kids App in December, just in time for the Christmas holidays.

This app will provide access to a great range of children's content from trusted brands such as Disney, Discovery, BBC and Cartoon Network – all of which will be available both by channel and on-demand.

In a preview to the future of Foxtel Go it will allow kids and their parents to download programs and store them on their tablet or mobile device for up to 31 days.

Now you can take Dora and Peppa Pig with you on long road trips.

By downloading the app and filtering content by their children's ages parents will know that their kids will only have access to age-appropriate programs. They will also be able to set limits on viewing time.

And all at no extra charge to our Kids pack subscribers.

I'm confident the app will be a huge hit with children and parents alike.

But let me step back for a bit and consider audience behaviour today.

There is no doubt that the buzz is all about new modes of delivery and consumption – on-demand viewing, binge consumption, viewing on mobile devices and the like.

This phenomenon is real. And it's exciting. It is underpinned by technology but ultimately it is about putting consumers in control.

But let's not lose sight of the fact that, at least for today, consumers view the vast majority of video content live and linear on a television set in the lounge room of the family home.

That is, via subscription and free to air television as we traditionally think of them.

In fact, according to Oztam and Nielsen around 77% of video is watched live, in home, on a television set and that rises to over 84% if you include catch-up within a seven-day period.

Even on Foxtel Go, 80% of viewing on mobile devices is of live, linear channels.

In the UK, Ofcom reports that the decline of live, linear viewing has been a little steeper but there is some evidence that the rate of growth in on demand viewing has slowed in the last two years.

The trends are real.

But even among 18-to-24-year-olds in Australia, the only age demographic where there is really significant viewing of video on smart phones and tablets, viewing on those devices is still around half of live or catch-up viewing on a television.

And, of course, the mix of viewing varies between genres.

Today, around 98% of sports viewing is watched live on a linear channel. The reason of this is simple – the best way to watch clear, live, high definition, uninterrupted sport now, and long into the future, is via broadcast television.

Just ask an EPL fan.

With drama on the other hand, we are approaching 50% of viewing either time-shifted or on-demand with some shows as high as 65%.

A big driver in the changed patterns in drama is binge-viewing.

We have addressed this need with the successful launch of our Boxsets channel in 2015. The Boxsets channel and its accompanying on-demand services have been hugely popular with our customers.

That's why, from next month, we launch another new channel, appropriately called Binge. We expect it to be equally successful.

Similarly, we have offered pop-up movie channels such as the Harry Potter and Fast and Furious channels earlier this year. That's just one of the reasons that our Movies audience is up 20% year on year.

I am pleased to announce that on September 30 we will launch a phenomenal Star Wars pop-up channel which will carry all seven Star Wars movies in the lead up to the launch of the eighth film.

My conclusion from all this, and to apply the logic of Bill Gates’ maxim:

For many years to come we will continue to do what we have done since day one – deliver high quality, reliable, linear channels with the world's best content and the world's best brands.

But equally we will continue to expand and improve our range of viewing options for all subscribers – on demand, linear, anytime, across all devices.

And we will continue to innovate to anticipate and meet the changing needs of Australian consumers.

Today, Foxtel services are in around 3 million Australian homes and, last year, our cable and satellite subscribers grew by nearly 5% through new sales and very low levels of churn.

That's sound evidence that the current strategy is working.

Our newstrategy will ensure that we are set up to succeed in the new, highly competitive world of digital, IP delivered services, especially as the NBN rolls out.

Let's start with our purpose.

Put simply Foxtel's goal is to "effortlessly connect Australians to all the stories they love".

The "story" element is very obvious. At Foxtel we have always been passionate about content and we always will be.

We recently made a commitment to significantly increase spending on new Australian content across all genres and the fruits of that can already be seen in new dramas like Secret City and The Kettering Incident, joining our current power-houses Wentworth and A Place to Call Home. All have delivered impressive audiences and been greeted with high acclaim.

You may have seen our recent announcement about a new drama feature called Australia Day currently shooting in Queensland and staring Bryan Brown and Matt Le Nevez.

We also have six new Australian drama projects in development – all very diverse and rich – and I'm excited to announce today we have just green-lit production on a major new event series for 2017.

Foxtel, with Fremantle Media Australia, will produce a re-imagining of Joan Lindsay's historic Australian novel, Picnic At Hanging Rock.

It is another bold and ambitious project, another iconic Australian story, and I am sure it will captivate our subscribers when it premieres next year.

We also have a rich array of new and returning lifestyle and entertainment shows from Bake Off to Selling Houses to I Own Australia’s Best Home to Next Top Model to The Housewives - now in stereo!

There are too many to list here.

This year Foxtel will spend over $125 million on local Australian productions. That's nearly seven times more than we spent just four years ago. And that's before taking account of our huge investment in news and sports.

We have an unrivalled sport offering. That's why Fox Sports audiences are up 7% year on year with NRL up double that. Just last Saturday the Sharks v Storm game created a new live audience record for our platform with an average audience of 480,000.

And from now until at least 2022 we have every match of every round of both the AFL and the NRL – live and ad-free during play. And two-thirds of those matches are exclusive to Foxtel.

We have amazing coverage of motor sports, rugby union, golf and so much more.

And, of course by adding three new high definition beIN Sports channels, three English club channels and three English club programming blocks to our existing A-League coverage, we have the best football offering in the country. Delivered reliably on our world-class broadcast channels.

Our investment in Sport means that Australians have access to thousands of hours of sport that otherwise would never have been seen.

The money that we, and Fox Sports, pay to sports rights holders goes to clubs around Australia to help them to excel at the elite level, but also to support grass roots development of young players and to build communities.

The "effortlessly connect" part of our purpose is all about our customers.

On one level the connection is emotional, it's about delivering our customers the content that they are passionate about. I think we pass that test with flying colours.

But if I'm being honest, recently we have not delivered on the "effortlessly" part as well as we aspire to. That’s where a lot of our future focus will be.

We continue to develop our technology and delivery platforms.

We have a huge focus on improving the service experiences for our customers which, frankly, have not been up to scratch.

And we are very focused on being more flexible in the way we make our great content available to consumers.

Let me flesh some of that out for you.

As I've said, millions more Australians are now willingly paying for content – but at the price that is right for them.

To take advantage of this opportunity we need more flexible packages at more attractive entry prices. We need to let consumers experience, for themselves, the great value of a more complete Foxtel service.

To open up that lower end I can reveal that from December, for those customers who wish to bring their own device and their own bandwidth, Foxtel will launch an exciting new pricing model.

For customers connecting with an IP device, such as a connected TV, Foxtel will offer a compelling new packaging line up with price points that compare with those of the SVOD players.

Because we won't have to provide or install a set top box for these IP customers there will be no upfront fees and no need to ask subscribers to sign up to minimum term contracts.

These new packages will create a new level of flexibility with five different entry-level packages to match viewers' interests. There will be two drama and entertainment tiers plus one for each of Lifestyle, Documentaries and Kids.

Each package will combine a strong library of on demand and catch up content with the benefits of the familiar linear channel services that Foxtel is famous for.

Customers will be able to add the Sports and Movies tiers from any of these lower priced entry packages. That means lower cost access to Movies and lower cost access to Sports.

And that also means that IP customers will be able to directly access series like Game of Thrones, through a significantly lower cost entry package.

As I have said, the new packages will initially be available to customers who bring their own device.

However, in time we will also increase customer choice through our new low cost device, known in the industry as a puck.

Work has commenced on the development of Foxtel's own puck device with better search, better recommendation and a more contemporary interface. We will bring this low-cost, premium device to market in 2017.

It is obvious that IP streaming services with their lower cost and contemporary interfaces, are attractive to many consumers. But, as EPL fans will attest, Australia’s broadband infrastructure is simply not suited to delivering the traditional premium quality of our Foxtel iQ offering.

The millions of households with our Foxtel iQ packages will continue to enjoy the superior quality of service that comes from having a Foxtel set top box and the full Foxtel customer service experience.

Alongside the low-cost devices we will continue to develop and enhance our iQ set top boxes, which will deliver our premium service.

It's no secret that there were some problems with the launch of iQ3.

While most customers have had a positive experience, unfortunately a significant number have not.

Addressing these issues has been a top priority since I started back at Foxtel. I am pleased to report that we have updated the software in the existing fleet of iQ3s.

The new software code, progressively rolled out in the past few weeks and due to finish later this week, has eliminated 41 out of 42 of our priority issues and the boxes are now stable and performing well.

Our next iteration will be to deliver a new version of the iQ3 with the same software and functionality, but significantly more processing power than the current box.

In parallel we have begun work on the next-generation set top box, which I like to refer to, in the parlance of the day, as the iQ6S.

That box will have many innovations and new features that will set it apart from anything else in the market.

I have previously flagged our intention that both the Foxtel puck and the new set top boxes will be open platforms.

We will welcome SVOD, music streaming and free to air catch up services among others onto our devices.

In many ways this is no different to our practice of carrying ABC, SBS, 7, 9 and 10. We don't benefit commercially but it improves the experience of our customers allowing them to effortlessly search, record and view this content.

With powerful search engines and deep linkages to content metadata customers will be able to find whatever content they want and seamlessly move between platforms to enjoy their favourite shows.

The final piece in the puzzle is our triple play offering of television, broadband and telephony.

This bundle enables customers to get great deals on all three services, with the convenience of one bill.

But our customers will also know that Foxtel devices and networks have been designed to optimise both the broadcast and broadband video viewing experiences. Our customers should expect nothing less from an entertainment company focused on delivering high quality entertainment.

I am pleased to announce that next month we will formally launch our service over the NBN and that we have already begun rolling out some great new offers at competitive prices.

For example, Foxtel Platinum customers can now receive unlimited broadband, and standard and national phone calls for only an additional $75 per month, while other Foxtel customers can get the same service for $85 per month.

Offers like this are a great way to acknowledge and reward our most loyal and valued subscription TV customers.

From its beginnings just over 20 years ago Foxtel has developed into an amazing business.

It has become a great success and I am confident that our strategy will guarantee our success into the future.

It's important that we do succeed.

Foxtel is a major contributor to the Australian economy and to the cultural and creative life of our nation.

We employ 2,700 Australians directly and thousands more indirectly.

Sky News plays a vital role in maintaining a healthy democracy.

Fox Sports enables Australians to engage with the sport they love.

The broadcast fees that we and Fox Sports pay help the sporting codes to thrive and develop the talent of the future.

We directly support grass roots sports through the Tim Cahill Academies, through our Fox Footy Clubs Rewards and through the new family and community based Foxtel VIVA7s Rugby Union program.

We provide an outlet for Australia's creative communities and opportunities to develop new skills for the cast and crew of our numerous original programs.

Those programs, in many different ways, explore questions about what it means to be an Australian today.

Foxtel Arts promotes performers, artists, companies and institutions throughout the nation.

We support Actor's Equity, the Writers' and Directors' Guilds, Live Performance Australia and the Australian Film Television and Radio School to recognise great Australian talent and to foster the talent of the future.

We help children and young people through our support for the Murdoch Children’s Research Institute, the Fight Cancer Foundation, the Bell Shakespeare Education Program, the Australian Indigenous Mentoring Experience and Street TV, which allows young homeless people to develop confidence and skills.

We honour Australia's first peoples through our Reconciliation Action Plan and support for a number of Aboriginal and Torres Straight Islander organisations and businesses.

We engage in debates about public policy touching important issues such as piracy and copyright protections that support innovation and investment in the creative industries of the future.

We do all of this because, at Foxtel, we care about Australia's future.

A successful, prosperous, open and creative Australia is good for our business, so we must invest in people and cultural assets to keep our nation strong.

More fundamentally, all of the individuals who go to make up Foxtel care about our present and about the legacy we leave to future generations.

We are thrilled to work with our content partners to bring the best of the world's news, sport and entertainment to Australians: in a globalised world, our customers expect nothing less.

However in such a globalised world it is more important than ever that we are also telling Australian stories, hearing Australian accents, and sharing Australian perspectives.

Yes, our industry has many challenges. But with every challenge is an even greater opportunity.

Our team at Foxtel, together with our amazing industry partners, will embrace these opportunities and ensure that we thrive and grow as a great Australian company supporting a great Australian industry.

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