Market Insight

Australian free-to-air (FTA) broadcasters turn to online video business as TV advertising growth slows down

September 03, 2014  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit
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Australian free-to-air broadcaster, Nine Entertainment has established an AUD 100 million (EUR 71 million) partnership with Fairfax Media in launching a new subscription video on demand (SVOD) service, StreamCo. The online video platform will be operated independently and is expected to launch in the first half of 2015.

StreamCo’s portfolio will include local and international programs, both Nine’s and other newly-produced originals. The service will be made available to subscribers who pay a fixed fee across platforms including internet television, tablets, desktops and mobile. 

Our analysis

Both Seven and Nine Network reported single digit growth in television revenues in their latest financial report, while IHS forecasts TV ad revenue to grow 2.0% in 2014. This portrays a rather slow outlook for the metropolitan TV advertising market in the upcoming quarter. Advertising accounts for the vast majority of broadcaster revenues and as growth has been sluggish over the last few years, broadcasters are exploring new revenue streams. 

Nine

In July 2014, Nine bought up Home Box Office (HBO)’s stake in Quickflix, a key SVOD player in the Australian online video market alongside with Foxtel’s Presto. Quickflix, reported loss from 2012 to 2014; however, had started to pick up in the first half of 2014 with 123,000 subscribers. The launching of StreamCo indicates Nine’s intention to further exploit its first-mover advantage and to widen its customer base in SVOD service.  It is currently the second most watched network after Seven. Given its influence, combined with Fairfax’s existing audience share (i.e. a customer base of 300,000 covering its newspaper, radio and digital business, notably The Sydney Morning Herald and The Age); IHS predicts consolidated market share of Nine to increase substantially in the next half year.

Seven

Seven has a 41.3% audience share in first half of 2014, according to Free TV - the industry representative of Australian FTA networks. Though it continues to lead the FTA TV market, the broadcaster has acknowledged the potential in online TV (and advertising) where it currently lags. After reporting a 2.5% growth in television advertising in the financial year ended 30 June 2014, the company must diversify its revenue generation. It currently operates online catch-up tv platforms, Plus 7 and Yahoo!7. IHS expects Seven to jump on the bandwagon of SVOD services, either through acquisition or partnership. Being the biggest content exporter among all privately-owned FTA networks in Australia, SVOD is an opportunity to monetize its portfolio locally and/or abroad. Besides having the highest ratings, Seven’s healthy financial position gives the company the opportunity to follow in Nine’s footsteps in online video, but the broadcaster is taking a more restrained approach, choosing to enter with caution. After Nine announced the aforementioned deal, Seven hinted at a possible partnership with Foxtel which had launched SVOD service, Presto in early 2014.

Ten

As opposed to Seven, Ten’s content portfolio is seen to be ageing and thus, inferior in ratings. One of Ten’s strategies has been to target the younger demographic. Its online platform Ten Play was launched in September 2013 and has received positive response. It continued to recognize the importance of digital offerings when it partnered with Twitter Amplify to publish real-time video content (and advertisements) through Twitter feeds. However, IHS does not expect Ten to enter the SVOD market in 2014 as the company is still in the midst of recovering from the AUD 243 million (EUR 174 million) loss in 2013 mainly due to mismanagement. The company reported trimmed loss of AUD 8 million (EUR 6 million) in April 2014.

This is accompanied by Seven’s and Nine’s recent plan to lobby the government for an extra six minutes of advertisements earlier in the same month. Though unlikely, if the concession is approved, Ten’s positioning will be further threatened. Regaining audience share will be decelerated as viewers are expected to be turned off by the lengthy advertisements.   

As a whole, local FTA broadcasters are seen to be striving to diversify their businesses in the softening FTA TV market scene, turning to SVOD services and the online video space. SVOD service in Australia is rather nascent, thus, having more room to grow. Nine predicts that 3 to 4 million Australians would be paying for SVOD service by 2020. If they want to succeed, broadcasters must act quickly to claim market share before the anticipated arrival of Netflix on Australian soil.  

 

Geography
Australia
Research by Market
Media & Advertising
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