Foxtel and free-to-airs play a hard game of footy
ON MEDIA
Mark Day
The Australian
August 24, 2006
THE AFL pay-television rights negotiations between the Seven-Ten consortium and Foxtel have been a poker game running most of this year, and there are a few more hands yet to be played. But the key point is that both players need each other and, in the end, a deal will be done.
Yesterday's announcement of the closure of the Fox Footy Channel may be seen as upping the ante in the wider negotiations, but it was also a cost-trimming exercise for Foxtel. It may have been a nice piece of window-dressing, but the fact is that Foxtel does not need a 24/7 dedicated AFL channel to show three or four live games each week, and fans don't give two hoots about the peripheral bells and whistles as long as they can see their teams in action.
Just as in any poker game, there's a fair bit of bluff going on. The Seven-Ten forces are exhibiting a degree of insouciance as they try to squeeze more money out of Foxtel. On the other side of the table, Foxtel insists it can survive and thrive without footy.
Maybe so, but the truth is that it is in the best interests of all parties to do a deal.
Fox Footy Channel was launched five years ago as part of the $500 million rights deal between the AFL and News Limited. It was conceived as a showcase for the nation's top football code, but it has cost about $50 million a year to produce on top of the $36 million a year Foxtel paid for pay-TV rights to three live games each week.
Bidding for rights for the next five years, from 2007 to 2011, came to a head on Christmas Eve last year when Kerry Packer authorised a $780 million bid on behalf of Publishing and Broadcasting Limited, owner of the Nine Network. He did not live to see Seven exercise its $20 million first and last rights option, which meant Seven and its partner Ten acquired the rights on the same terms as PBL offered.
The deal bound Seven and Ten to show eight games a week live, but they had the right to sell up to four of those games to pay TV. Seven declared it had options other than Foxtel to meet this objective, but it has never spelled them out. There was talk of using US sports channel ESPN, doing a deal with pay TV minnow SelecTV or even offering games to SBS. But it was all talk. None of it made any sense and no carrier other than Foxtel was in a position to allow Seven to meet its obligations to the AFL.
Foxtel, while always saying it would prefer to continue to carry AFL, was adamant this would not be at any price. It still is. As the feisty chief executive Kim Williams observed about Seven-Ten yesterday: "We are not going to let those rogues eat our lunch!"
But in the end there will be a price point at which all parties can be satisfied. No one talks official figures in a negotiation of this sort, but ballpark numbers are being bandied about.
The parties would seem to be about $15million a year apart. Foxtel's first offer was for four live games a week, pitched at about $45 million a year. Seven has knocked that back, wanting $60 million a year.
Seven made an offer to Foxtel for three live games a week, which Foxtel sources said was hobbled by some harsh restrictions that effectively meant Foxtel would be condemned to show the also-ran games each week. Foxtel responded with a three-game proposal with what it considered workable programming options, but offered less than the $36 million it now pays. Seven knocked that back, reasoning that it had paid a 40 per cent increase on the previous rights fee - from $500 million to $780 million - and therefore it should get a 40 per cent increase from Foxtel. On the present $36 million a year arrangement for three games, this would imply a lift to $50 million.
Sources close to Seven's negotiations say Foxtel promised to pay $60 million a year for four games as part of the PBL bid, but Foxtel sources deny that, calling it "a mischievous fabrication".
The four-game proposal remains alive and is the likeliest outcome because that would allow Seven and Ten to assign the AFL's new Sunday twilight match to Foxtel. Under the agreement with the AFL, this game must be put to air live, which would run into both networks' Sunday night news services.
While money will be the final bargaining point, Foxtel wants what it calls "better conditions" in its programming deal.
It believes it gets the rough end of the pineapple because the week's top games are denied to it on the whim of the free-to-air channels. It complains particularly about the so-called flip-flop games, where it produces the game and provides the coverage but sees it play out on free-to-air channels. For instance, if Foxtel covers a West Coast-Fremantle local derby in Perth, it must give the game to Nine or Ten for broadcast in Perth, while it carries the game on the east coast where interest is limited.
During the five years it has had the Fox Footy Channel, subscriptions to Foxtel have risen by about 500,000. While it is true Foxtel could survive without it, there would be a risk nevertheless that growth would slow or stall, or churn would rise.
Foxtel's revenues are now north of $1billion a year and it reported a maiden profit before tax of $4 million last year. This was a $178 million earnings before interest, tax, depreciation and amortisation turnaround on the previous year, built on 10 per cent subscriber growth.
If that growth continues through this financial year, EBITDA is likely to be in the region of $250 million. It has been 11 years of losses and many tears in the making, but the future is looking rosy for Foxtel and you can back it in footy will continue to be a part of it.
http://www.theaustralian.news.com.au/story/0,20867,20230227-36035,00.html
