Telstra on the TV casting couch to trump its telco peers

What we used to call television is changing before our eyes.

This week, Telstra announced it will shortly introduce a new streaming video set top box. For a number of reasons, this is a very smart move.

Australia’s largest media and telecommunications company has responded quickly to a series of local developments in a way that seems likely to consolidate its market-leading position. It is targeted at the 70% of Australian households that continue to resist signing up to Foxtel’s pay television service.

Some see this as as another nail in pay TV’s coffin, and an indication that Telstra is having an each way bet on the future of television given its 50% stake in Foxtel.

Others say it could benefit the beleaguered commercial free-to-air incumbents and “check Netflix’s encroachment”. The argument here is that the subscription video on demand (SVOD) services of the free-to-airs will be able to leverage Telstra’s customer base - 3 million broadband subscribers, or over 40% of the Australian market - and use Telstra’s well-developed billing and customer service operations to their advantage.

Telstra TV has already claimed one casualty, however. Telstra’s T-Box personal video recorder will cease to be sold, although the company is promising to continue to support its existing 800,000 users.

In September this year, Telstra plans to make the Roku 2 set top box available to subscribers to its Bigpond broadband service. The new platform strengthens Telstra’s greatest competitive advantage - its capacity to offer bundled services combining home phone, mobile, broadband, pay-television and SVOD.

While it is similar in look and feel to the Apple TV box, the Roku 2 is a much more open system. Its US and UK versions boast thousands of apps and many more services than Apple’s equivalent. Its interface is customisable, and it allows users to search for films or content across multiple services simultaneously.

Piracy not required

This may prove to be a major selling point, particularly if all three of the main SVOD services - Netflix, Stan and Presto - are offered on the new Telstra TV box. It may also address one of the industry’s major bugbears: content piracy. After the Copyright Amendment (Online Infringment) Act entered into law in June, commentators argued that making content more easily accessible could do more than blocking infringing websites in preventing piracy.

A recent survey conducted for the federal Department of Communications covering the three months just before Netflix launched in March estimated that roughly a quarter of Australian internet users over the age of 12 had streamed or downloaded content illegally. Of those surveyed who admitted to illegally accessing content, almost 40% said they would stop if content was cheaper.

Almost 40% said they would stop if more legal content was available. And more than 60% said they would sign up to a (legal) movie subscription service if it was priced at $10 or less per month. The SVOD service Stan costs $10 per month, while Netflix is currently $9. It is therefore conceivable that, as in the UK, easier access to content through SVOD services and platforms like Telstra TV, may well lead to a reduction in piracy.

Foxtel and sport in sight

As the Telstra TV announcement indicates, the popularity of new SVOD services is clearly having an impact on free-to-air and pay television companies' business models and strategies. Telstra has a 50% stake in Foxtel, the company that may be most at risk. In June, Foxtel made a bid for 15% of Channel Ten, shortly after the latter’s CEO warned that falling advertising revenues could see free-to-air fold.

Foxtel’s move - widely considered to have been instigated by its other major stakeholder, Rupert Murdoch’s News Corp - will potentially allow Ten’s content to be included on Foxtel and Seven West’s flagging SVOD service, Presto. It could also place the three partners in the box seat to acquire the rights to major sports events, subject to the approval of various regulatory bodies.

And despite Telstra’s protestations that its interests in sports rights are confined to mobile, the Telstra TV box could indeed provide a platform for the company to launch future bids for online rights to major events. It has already been suggested that a “sports pass” will be offered to Telstra TV users that will provide access to Fox Sports channels. On one hand this could boost viewers of Foxtel’s flagship sports channels. On the other, it represents a further unbundling of the pay television service.

More than anything, though, the Telstra TV announcement reaffirms the company’s ambitions to be a major player in service provision, if not in content production. Just a few days ago, shareholders in the second largest Australian Internet Service Provider, iiNet, voted to approve a merger with the third largest ISP, TPG. The merged company will still have a smaller subscriber base than Telstra’s Bigpond, but it is a significant statement of Telstra’s intent that it has so quickly moved to unveil this new offering.

Ben Goldsmith does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.