Bulls vs. Bears, page-20

Hi Jimmy

I would argue that FTA networks lost the monopoly when Blockbuster arrived in every Australian town years ago and that there have always been offshore production companies with enormous budgets. The only difference now is that the movies are online and you can save yourself the trip to the shops.

One of the big differences though, is that due to the subscription model of unlimited downloads, people are watching more movies than before but I believe the subscription model by SVOD companies is unsustainable and consumers will soon be forced to go back to paying for individual movies and shows as before. Take Netflix as an example;

Netflix had revenue in 2014 of 5.5bn and earnings of 266m, two years later 2016, 8.83bn but earnings of only 187m. Debt also increased by 2.5bn over this time. They made most of their initial money at the start before the content providers decided to build their own streaming libraries or charge Netflix ever-increasing prices. Netflix have now realised that to remain competitive and to increase revenue they need to produce their own content. This year they expect to spend over 6bn dollars on content alone. $2bn will come from increased debt as the revenue isn’t enough to cover the costs. Put this together with the competition coming their way ie HBO, Disney, Google, Apple etc along with Stan and Presto consumers are either going have to fork out subscription fees for each SVOD provider or just pay the original content producer to stream the movie of their choice – no real difference to the local video store model.

That aside, Netflix and subscription TV aren’t the ones taking away advertising revenue from FTA networks. The biggest threats that I see are the likes of Google’s You Tube and to a much lesser extent Facebook.

In Australia FTA networks are required under legislation to produce a minimum number of hours of local content ie children’s programs, local news, current affairs, sports etc. Talks are currently underway in Canberra to address the free ride that Google and Facebook are getting on the back of Australian content providers* but eventually (hopefully not too late), a more balanced playing field will eventuate. A relaxation of some of these constraints could lead to major cost savings as well as better content overall.

(*A big part of this was the backlash the government received in trying to pass legislation making Google and Facebook unaccountable for breaches in piracy)

http://www.theaustralian.com.au/new...k/news-story/e6dfba5492a7064b24ad46308332fba7

That said, FTA networks still have the monopoly on major sporting events and local content here in Australia. Also, with advertisement free subscription platforms and advertisement blocking software, advertisers are finding it harder to be seen and build that all important ‘brand awareness’. Maybe in the not too far distant future FTA networks with their monopoly on major sporting events will be one of the only outlets available to them and it won’t come cheap. Australians may be watching less FTA TV but any survey will show that they still have a far greater population reach than the plethora of Internet sites.