Foxtel-Fox Sports merger drags down News Corp results

News Corp has reported a net loss of $1.1 billion for the quarter, primarily due to the Foxtel-Fox Sports merger.
Written by Corinne Reichert, Contributor

News Corp has primarily attributed its $1.1 billion loss to the merger between pay TV provider Foxtel and sports channel Fox Sports, citing non-cash write-downs of $998 million.

During the quarter to March 31, Foxtel made $587 million in revenue, down by $4 million year on year, with subscribers climbing to 2.8 million as of March 31 thanks to the launch of Foxtel Now.

Net income for Foxtel was $8 million, up from nil in the same period in FY17, due to the absence of last year's losses associated with the closure of subscription video-on-demand (SVOD) provider Presto, though this was offset by "planned increases in sports rights costs", particularly across AFL.

Presto, previously a joint venture between Seven West Media and Foxtel, was fully acquired by the latter in October 2016, with Presto customers moved across to the Foxtel Play streaming service in December. Presto then ceased operations at the end of January 2017.

Foxtel's cable and satellite churn was 15.4 percent during the quarter, while broadcast average revenue per user (ARPU) declined by 1 percent.

Equity losses of $970 million were associated with Foxtel for the quarter, caused by News Corp's share of the pay TV provider's income, its amortisation of $17 million for Foxtel's intangible assets, and a $957 million write-down.

Despite this, News Corp CEO Robert Thomson welcomed Foxtel to the "corporate family", saying that by Q4 its pay TV and digital real estate services businesses will provide more than half of the company's profit.

"We welcome Foxtel to our corporate family. We believe the company is uniquely positioned, given its potential in a rapidly expanding OTT market, with unrivalled sports offerings and premium entertainment and news content," Thomson said.

"[It will] significantly increase recurring subscription-based revenues."

Foxtel's existing $1.7 billion debt will be included in News Corp's balance sheet from Q4 onwards.

The Foxtel-Fox Sports merger was completed in April, with News Corp now owning 65 percent of the entity while Telstra owns 35 percent.

"The combination will allow Foxtel and Fox Sports Australia to leverage their media platforms and content to improve services for consumers and advertisers," News Corp said in its Q3 results report.

"The results of the combined business will be reported within the new subscription video services segment, and it will be considered a separate reporting unit for purposes of the company's annual goodwill impairment review."

The Australian Competition and Consumer Commission (ACCC) had announced its decision not to oppose the merger of Foxtel and Fox Sports in December, finding that it would not substantially lessen competition.

According to ACCC Chair Rod Sims, the ACCC looked into how the merger would affect the sporting content acquisition market, as well as its affect on the content-telco bundling market.

Telstra has since announced attaining the digital broadcast rights of the A-League football tournament out to 2023 through a sub-licensing deal with Fox Sports and Foxtel, with the telco to live stream the games via an app.

Under the deal announced this week, all A-League games will be streamed live on Telstra, as well as some W-League, FFA Cup, Socceroos, and Matildas games, such as home friendlies, early round Asian Cup qualification games, and 2022 FIFA World Cup qualifiers.

Telstra also added Foxtel packages into its post-paid mobile offerings several months ago, offering customers 12 months of free access to content packs from the Foxtel Now streaming service.

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