Max Mason 9 /19 AFR
The pressure on Foxtel is unlikely to relent with News Corp tipping in another $200 million of its own cash, taking its total shareholder loans to the pay TV giant to half a billion dollars.
The Australian Financial Review first revealed that Foxtel was struggling to complete a $2.5 billion refinance and would need a $500 million injection of funds, which could be coming from News Corp’s balance sheet, to help negotiate a package with banks.
Foxtel now has $500 million in shareholder loans from News Corp. Bloomberg
On Friday morning, News Corp chief financial officer Susan Panuccio confirmed an additional $200 million shareholder loan to Foxtel, covering a $US142 million ($209 million) credit facility that expired on May 30.
“We issued Foxtel a $200 million shareholder loan in May at a variable interest rate of approximately 9 per cent, as we continue to work with banks on refinancing upcoming maturities,” Ms Panuccio said.
This comes in addition to a $300 million shareholder loan News Corp extended Foxtel in April. Foxtel had an additional $US150 million US private placement debt mature on July 25, which was not mentioned on News Corp’s earnings call on Friday morning.
Foxtel is 65 per cent owned by News Corp. The further 35 per cent is owned by Telstra and the Australian telecommunications giant is not believed to have taken part in shareholder loans to Foxtel.
Foxtel’s new total debt position has not been updated to the market, which is expected overnight. Not including the $500 million News Corp has loaned Foxtel, the pay TV giant had an additional $US1.18 billion in borrowings as of March 31.
Refinance plans
Ms Panuccio has been running a refinance of Foxtel out of News Corp’s New York headquarters. News Corp has been looking to refinance Foxtel’s significant debt and give it additional funds to help with its push into streaming and fight against rivals such as Netflix and Stan, which is owned by Nine, publisher of the
Financial Review.
Foxtel launched its sports streaming service Kayo in November last year, which on Friday reported 331,000 paying subscribers as of June 30. The pay TV provider is also working on a drama and entertainment streaming service - the initiative was formally known internally as Project Jupiter, but that has now moved onto Project Ares.
Kayo, when it was in its development phase, was known as Project Martian. The project names are born out of Foxtel chief executive Patrick Delany's obsession with Ridley Scott's 2015 science fiction blockbuster
The Martian, starring Matt Damon.
"The fundamental principle applies that if we thought that Kayo was successful then we would proceed with the new product. What we are seeing at Kayo is success," News Corp chief executive Robert Thomson said.
The pay TV giant is also trying to reduce its $2.56 billion cost base – $1.6 billion of which is on programming, split 50-50 on sport and non-sport.
News Corp has flagged it will look to reduce spending on ”non-marquee” sport.
On a like-for-like basis, revenue in News Corp’s subscription video services division, which is largely Foxtel, fell 13 per cent in 2018-19 to $US2.2 billion. Earnings before interest, tax, depreciation and amortisation slumped 30 per cent to $US380 million over the financial year, compared with the previous year. News Corp said this was due to lower broadcast subscribers, changes in subscriber packages, an extra $US95 million in sport-related costs with NRL and cricket, and marketing costs related to Kayo.
Kayo's 331,000 paying customers as of June 30 was
up from 209,000 in early May. Foxtel Now, the company’s streaming service that replicates broadcast, had 446,000 paying subscribers, a 32 per cent jump over the 2018-19 financial year.
Foxtel’s broadcast and commercial subscriber base was 2.4 million, unchanged from March 30. Churn, the percentage of customers leaving, was 14.7 per cent in the three months to June 30, up from 12.5 per cent in the same period last year, but down from 17.7 per cent in the March quarter of this year.
Mr Thomson stressed Foxtel churn was not customers spinning down to Kayo, which is $25, much cheaper than broadcast Foxtel.
“At Foxtel, paying subscribers for the Kayo sports streaming service more than doubled between the third and fourth quarters to 331,000, while average churn among sports subscribers to the Foxtel broadcast service actually fell during the same period,” Mr Thomson said.
“Clearly, Kayo is adding significantly to the total number of sports viewers in Australia prepared to pay for premium content.”
