Emilia Clarke in a scene from the final episode of Game of Thrones. Photo / AP
Emilia Clarke in a scene from the final episode of Game of Thrones. Photo / AP
Your correspondent has never watched a single episode of Game of Thrones.
To the likely relief of Rupert Murdoch, there aren't too many of us who haven't been tempted to tune into the hugely popular fantasy drama TV series.
The latest series of the show has been instrumental in drawingnew subscribers to Foxtel, Murdoch's Australian pay TV company.
But it's fair to ask if GoT, which ended last month, will be Foxtel's last hurrah.
The pay TV service doesn't have another blockbuster to ensure it holds onto viewers who joined to watch the show and already its churn rate – the number of viewers who drop the service – is at about 14 per cent a year.
In its glory days there was no alternative to pay TV for viewers who wanted a lot of choice, a range of movie channels, a huge choice of non-stop sport or particular content such as the BBC or non-stop cartoons. Foxtel could charge high prices and use contracts to lock viewers in for a couple of years.
At its peak, Foxtel had operating earnings – before interest, tax, and depreciation and amortisation – of about A$1 billion a year. It's probably about half that now.
Its average revenue per user – a key measure of profitability for a pay TV or phone company – was A$107 (NZ$114) a month. Today it is around A$79 and looks likely to fall further.
With the conclusion of Game of Thrones, Foxtel no longer has a blockbuster queen to rule them all. Photo / AP
Last year, News Corp wrote its value down by about $1 billion, recognising that it's not the profit driver it once was.
Foxtel is being challenged by streaming services such as Stan and Netflix, which charge only A$10 or A$15 a month and don't lock in viewers with contracts. Viewers have taken to the new entrants with enthusiasm, attracted by the lower prices and the fact that they can take on a service for a month or two then drop it after they've watched the shows they wanted to.
Foxtel, by comparison, is still very expensive. Its top-tiered plan costs A$139 a month. Even its cheapest cable channel is A$49 a month and it only contains drama series. Add in the 12-month lock-in contract the packages require and it's not hard to see why Foxtel's lower-cost competitors are making such headway.
The pay TV operator has responded by introducing its own streaming services. From $25 a month, viewers can get a basic Foxtel package (including Game of Thrones) on its Foxtel Now streaming service – half the price of the cheapest cable package.
But the big game changer (and possibly not in Foxtel's favour) is probably Kayo. For A$25 a month, viewers can get access to all of the sports of Foxtel and cancel their subscription at any time.
This is a hugely risky move for Foxtel. Live sport is the one advantage it has over its streaming rivals. Sport accounts for about half of Foxtel's annual A$1.6 billion annual programming costs and has been seen by the company as a key lure to attract and retain viewers.
Was Game of Thrones Foxtel's last hurrah? Photo / AP
But why would anyone sign up to a package if they could just buy streaming sports for a lower price and only while the Rugby World Cup is on or during cricket season?
There is a very real risk that Foxtel will cannibalise its own audience. The pay TV arm had about 2.4 million subscribers in the middle of last year, and about 700,000 subscribers to its streaming services.
The streaming services have actually increased the total number of viewers who watch content via Foxtel, but they are nowhere as profitable.
As Foxtel's profits per viewer decline, it is looking to make savings on ballooning annual cost base of about A$2.6 billion year.
At the same time, it has a punishing schedule of debt repayments over the next 12 months or so. Last month it tried to refinance its entire package of debt in a single A$2.5 billion swoop. It failed and parent company News Corp, owns about two-thirds of the business, had to stump up A$300 million to help it make its short-term debt repayments.
Effecting a strategic overhaul and a financial turnaround isn't easy at the best of times, let alone with that sort of debt and cost burden.
Chief executive Patrick Delaney will have to tread the delicate line between slashing costs and at the same time retaining those programs that keep viewers coming back.
High costs, heavy debt, declining revenue and the desperate need for a new business model – the scenario of internet-enabled challengers putting the future of once profitable businesses in doubt will be depressingly familiar to the Murdoch family, with their long history of newspaper ownership.
But it's unlikely they were expecting their TV business to face the same problems quite so soon.
