Peter Tonagh: “There’s Been More Change In The Past 12 Months Than In The Last Five Years”

Peter Tonagh: “There’s Been More Change In The Past 12 Months Than In The Last Five Years”

It’s part two of B&T’s one-on-one with Foxtel CEO Peter Tonagh (check out part one here). Media ownership laws, free-to-air’s future, who won’t survive the great disruption, and who wins RuPaul’s Drag Race all discussed here…

You’ve been the boss of a newspaper business and now a TV business, giving you a unique view on media. With all the change going on, how do you see the cards falling over, say, the next five years?
Yes, there’ll be more change for sure. There’s been more change in the past 12 months than there has been in the last five years and that will continue. The interesting thing is that the players that are really prominent – the Googles, the Facebooks – are all companies who don’t produce content and I think at some point there will be a rebalancing of the value of content, but I have no idea how that will play out. Ultimately it’s important as an Australian society that there’s Australian content being produced.

If you were offered a CEO job at any media company, which is the one you wouldn’t take?
I wouldn’t want to be the CEO of Fairfax and I wouldn’t want to be the CEO of Pacific Magazines. Foxtel, I think, is the most exciting CEO role in Australia. But that’s a biased view.

Media ownership laws are back on the agenda. If they ever get passed, how do you see that playing out?
The two media laws that are the in front of Parliament at the moment are the reach laws and the ‘two out of three’ law. The reach rule says that the metro free-to-air networks can buy a regional free-to-air network and I’m not sure that changes much, to be honest. Seven and Prime have a pretty good relationship. Does Seven want to buy Prime? I don’t know. But I don’t think it will change things much. Ten is unlikely to buy WIN. Then you’ve got Nine and Southern Cross Austereo and something may happen there, but I don’t see it being a transformation. The ‘two out of three rule’, we believe that should get through. That would enable more consolidation and that can only be good if there continues to be Australian voices. The risk is if you don’t allow consolidation then local players will disappear and overseas players will dominate and you will lose the Australian voice.

Optus just pinched your English Premier League (EPL) rights. Is that the real threat, big spending competitors taking content? Particularly sports content?
We have every game of the NRL and the AFL live until 2022. So they’re not going anywhere. When they come up for renewal, the issue for us is scale; have we built enough customers where we are able to win those rights again? The Optus experience? I don’t know how good that’s been for Optus but it hasn’t been very good for the customer and you only need to look at people going to the ACCC about the rights not being live and its clear customers aren’t happy.

My understanding is they wanted to do a deal with you guys re: broadcasting games, but Foxtel were the ones who put the kibosh on it?
That’s not true at all. We did try and come to an agreement with those guys, that we would distribute the EPL, they didn’t want to because they only wanted it to be available to Optus customers, and that’s their prerogative. They know a lot about broadcasting sports, they do it at (Optus’ parent) Singtel and they’re experts at broadcasting on broadband. The reality is that live sport is best delivered on broadcast television because broadcast TV is a ‘one-to-many’ proposition. You know you’ll get fantastic presentation to the customer, uninterrupted, and there’s going to be no pixilation and no delays and broadband’s not particularly suited to delivering mass market live sport.

The competition from the SVOD players (Netflix etc) forced you to lower your subs rate to retain and attract subscribers. Surely that’s reduced bottom lines and ultimately content?
In November 2014 we did reduce the entry price and that has had a minor impact on our average revenue per subscriber, but not a lot. We’re not seeing a massive change in what the average customer is paying.

You’ve been ramping up the local drama content. Do viewers watch Foxtel for drama?
Fore sure. Games of Thrones is the single biggest audience that we’ve had on Foxtel ever – a 1.2 million audience. I think there’s a real thirst for drama. You can tell more of a story in a straight movie and that’s happening globally. What we’re not seeing enough of is Australian drama, and we’re putting considerable resources into that. We don’t think people need a huge amount of drama, rather the right drama. Australian stories are really important and you won’t see that on Netflix or any other SVOD services.

Where’s the next great big disruptor coming from? Who, in media, should be nervous?
As Bill Gates’ said, we always overestimate the change that will happen in the next two years and underestimate the change that will happen in the next 10. I think people have overestimated the depth of broadcast television too much. People think broadcast television is going to die, but the reality is 77 per cent of Australians watch broadcast, linear TV in the lounge room on the main screen.

Are the Millennials watching Foxtel?
I don’t think young people watch a lot TV.

Really? That’s all anybody under 30 in the B&T office ever appears to talk about, ha, ha!
If you look at the actual viewing numbers it increases as people get older and have families and it increases again as people retire. The Ys have never been a big chunk of our viewership.

You’re not worried about that?
I’m not saying there’s no need to worry, what I am saying is that there’s no need to overplay the shift in behaviour. They (the Ys) have always behaved that way. If you look at the 18-34 category then they’re the only group that’s moved to watching more (TV on) tablets and smartphones in a significant way, and they still watch more TV on a big screen as they do on a small screen than another television.

How much is it about the actual tech? What’s the next big thing in that space?
More and more people will consume ‘on demand’ content. That ability to start watching a show when you’re on the bus then walk into your home and have it appear on your big screen and start where you finished off and then go into the bedroom and watch the rest on your tablet. That behaviour is going to become really prominent.

We talk about watching everything on our smartphones. But have you done that? I might be showing my age here, but it’s a terrible viewing experience.
Nothing beats watching sport on the big screen. Everyone’s TV is getting bigger and bigger, it’s become a status symbol. But equally we’re watching content on our phones our tablets. That’s the real irony.

It’s been a lean time for the free-to-air players recently – eyeballs and ad dollars are both down. But they’re hardly going to sit by and do nothing. What will their next play be?
Yes, it’s hard for them. I’m on the board of Ten so I know first-hand the challenges. But Ten has done a great job. They’ve got strong franchises and obviously their ad sales go through MCN and they now have more of a consolidated set. And that’s important. Today you need a reason for people to buy your advertising and TV is still a really powerful medium for advertisers and it will be for some time to come. Equally they (the FTAs) need to find ways to get onto multiple screens and that’s a challenge for all of us.

Is the free-to-air business model stuffed? The overheads are massive when compared to something like a SVOD?
Yes, they need to transform their cost structures. From a cost perspective their cost structures are too high. And that’s because they’ve always done things a certain way and, yes, they need to take costs out of the way they do things. They need to get viewers onto the tablet and find better ways to monetise the content. Programmatic trading will ensure they move every single spot on the dial.

Lastly, someone in the B&T office asked me to ask you who wins (the Foxtel programme) RuPaul’s Drag Race? It’s really a trick question to see if you actually watch shows on Foxtel…
Ha, ha! I’d have absolutely no idea.

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