Market Insight

Seven Network launches 7flix to protect itself from increasing competition and shifting advertising dollars

March 01, 2016  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit

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Australia’s free-to-air (FTA) Seven Network has introduced a new FTA digital channel, 7flix. Alongside existing channels Seven, 7TWO, 7mate and racing.com., 7flix will also be available for streaming on digital platforms. The general entertainment channel targets young audiences with a lineup of US movies and first-run US series. The new channel will incur little to no cost by showing contents Seven already owns including those from Walt Disney and NBC.

Our analysis

Australia’s FTA TV advertising revenue softened in 2015, decreasing 1.2% from 2014 to AU$2.6billion. An analysis by IHS found that in 2015, Seven’s revenue declined 5.7%, below market level and hence Seven’s market share dropped from 40.9% to 39.0%, only slightly above Nine Network (38.4%).

Meanwhile, Network Ten’s business has gradually gained momentum largely helped by the success of its advertising sales partnership with Foxtel’s advertising sales arm Multi Channel Network (MCN). MCN was appointed sales representative of Ten’s television and digital inventory after Foxtel acquired 15.0% of the then struggling Ten in June 2015

Nine launched lifestyle channel, 9Life in November 2015 amid declining advertising revenue. IHS anticipates the network to deliver increased revenue in 2016, largely driven by the new channel.

As broadcasters are increasingly competing with not just themselves, but also OTT players like Netflix, it is imperative that they diversify their services to follow the increasingly digitally-savvy eyeballs. By exploiting existing video content, Seven hopes to get a piece of the online video revenue pie and offset its dwindling FTA TV advertising income. Similarly, Network Nine now operates 4 FTA digital channels, i.e. Nine, 9Gem, 9Go! and 9Life , in response to the shift of ad dollars from TV to online.

7flix will enter an already crowded Australian online video market. The Australian SVoD market has seen some local players fall prey to Netflix’s entry in March 2015. Movie streaming company, Ezyflix closed its business in August 2015 and Australia-listed streaming company Quickflix lost 8% of its subscribers in the last financial quarter ended 31 December 2015.  Presto which is partially owned by Seven (together with pay TV company, Foxtel), however remains strong. It continues to battle with Netflix and Stan (owned by Nine and Fairfax) for subscription dollars and reported a 210% growth in subscribers in the second half of 2015.  

In view of the current development, IHS forecasts that the TV advertising revenue in Australia will be stagnant in the next 5 years, growing at a CAGR of 0.8%. Conversely, online video advertising revenue will record a CAGR of 13.5% in the same period. Broadcasters must build a compelling video content and distribution platform in order to absorb the fleeing TV ad revenue and prevent it going to other online video companies, in particular Facebook and Google, who are focusing 2016 on expanding their video advertising offering.

Research by Market
Media & Advertising
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