Welcome to Unmade, mostly written on Friday afternoon in sodden Sydney.

Happy Sock Monkey Day.

I’ve struggled more than I usually do to write this first line of today’s piece. There’s so much happening and so much complexity, that it’s hard to find a way into a topic which is as fascinating and fast moving as any I’ve written about in the 20 years I’ve been covering the media industry. I’m talking about the transforming television landscape. There’s been no point where things have moved as fast as they are right now. Consumer behaviour, deal making and investment patterns are all in flux.

It says a lot that the least unexpected development in television this week was the milestone moment of the axing of Neighbours after 37 years.

If you’d asked me three months ago, I’d have told you the thing that was most interesting was the coming new Australian battleground of FAST channels. (FAST, by the way, is the acronym concocted from Free Ad-Supported Television, championed by Paramount Global boss Bob Bakish when he talks about the company’s Pluto TV service, which primarily offers streaming content in sit-back channels rather than on-demand content.)

Two months ago, it was the news that the major local players are cooperating to create a marketplace under the auspices of OzTam to try to ensure that their BVOD (broadcast video on demand) advertising dollars don’t leak to the tech players in the way that programmatic publishing dollars were siphoned by Google.

A month ago it was was the change in sentiment from investors around the cost of content to win the SVOD (subscription video on demand) wars. Suddenly the stock prices of Netflix and Paramount Global crashed after they both shared their investment plans. The same thing happened to ITV in the UK just yesterday when it made a similar announcement.

And if you’d asked me even two days ago, I’d have said my preoccupation for the week was the penny dropping that News Corp and Telstra probably won’t be able to get their ASX float of Foxtel away.

Then on Wednesday night the SMH broke the news that Telstra is trying to switch horses and take a majority stake in Fetch, which aggregates content from almost all the major streaming players.

So you’ll understand my difficulty in choosing where to begin. It’s also all interconnected.

Let’s start with Foxtel. Management never formally announced that it was looking to float on the ASX, but it sent all the signals, including a strategy day for investors nearly six months ago.

Two-thirds owned by News Corp and one-third by Telstra, Foxtel was reluctant to cannibalise its broadcast subscription business, so slow to fully commit to the streaming model. The half-hearted Presto joint venture with Seven West Media, a technical and marketing failure, was the result.

However, Australian media companies have a habit of getting their act together just in time. The launch of the Kayo sports streaming service and Binge entertainment service looks a lot like that in practice. Technically sound and professionally marketed, they have found their niches in a way that Presto did not. (The Flash news service not so much, but you can’t blame them for trying.)

But the company was in a couple of different races if it wanted to do an IPO. First was the question of whether it could acquire streaming subscribers as fast as it is losing broadcast subscribers. Which is made harder by the fact that each lost premium subscriber to the old Foxtel service was paying more than each streaming customer.

Then there’s the question of debt. Just over two years ago, Foxtel’s two owners kicked in something like $1.6bn as a loan to keep it afloat. Most of the money came from News Corp, and that was on top of previous loans. The total debt is about $2bn.

That creates a couple of problems. The major one is that, based on Foxtel Group’s profits and prospects, it’s hard to see the logic of why investors would want to buy into an ASX float.

Looking at the data for the 2021 half year, released a few weeks back within News Corp’s numbers, Foxtel was flat on $200m profit. Even if that’s repeated in this half to deliver a full year profit of around $400m, that may not create a high enough valuation to create a float. Assuming Foxtel is valued at four to six times earnings, that would value the company at between $1.6bn and $2.4bn - excluding the debt.

Interest payments alone would eat into the ability to pay dividends, even if profitability doesn’t sink. Would you buy shares in company with falling subscriber numbers?

And there are further key moments imminent which would create headwinds for Foxtel.

The US takeover of Warner Media by Discovery will be voted on by shareholders this coming Friday. The deal would then most likely close next month.

A key component is Warner Media’s HBO, including its US streaming service HBO Max. If the new owners decide to take HBO global as a streaming service (and why wouldn’t they?), this will have a dramatic impact on Foxtel, which holds the Australian HBO rights.

It’s likely that the HBO management are already prepared to reveal their global strategy once the deal is closed.

Maybe they’ll go on selling content to other overseas markets like Australia, but if not, the existing Foxtel deal expires at the end of next year, and that’s a lot of Binge’s best shows.

On the sport front, Foxtel is also fighting to hold on to its rights to broadcast Disney’s ESPN channels, which will otherwise likely expire at some point next year.

And as a further headwind, Foxtel will need to renew its key AFL and cricket rights.

Cricket Australia, now under new management, must already be doubting the wisdom of letting one day Internationals and T20 go behind the paywall. Sponsors would have asked hard questions about how many people saw the Sri Lanka series last month. I must admit I didn’t even notice it was on.

And even if Foxtel retains all the rights, I wonder whether the sporting codes will ask for parent company guarantees from News Corp and Telstra, just in case Foxtel’s debt takes it into insolvency. If that was the request, would News Corp and Telstra agree to risk even more money?

Which brings me onto Telstra’s latest move.

The SMH’s Zoe Samios, who has a record of reliable reporting on this topic, says that Telstra is finalising plans to acquire a majority stake in subscription video service Fetch.

If a deal with Fetch’s majority owner, Malaysian telco Astro, was done, it would see Telstra switching horses on its video strategy.

The Telstra TV box is a rebadged Roku box, which aggregates streaming services for subscribers.

A switch to Fetch would presumably see Telstra subscribers switched to Fetch boxes, more than doubling its subscriber base.

This all comes as the action switches to aggregation. Fetch was an early player and has grown without investing in its own content. Previously that was a criticism levelled at the company, but with global investment markets now spooked by the amount being pumped into content by the likes of Netflix, Paramount, ITV and even Stan, the merits of the slow-and-steady approach are now easier to see.

The focus now is on aggregation. Viewers have so many options, in subscription streaming services and BVOD. Aggregated convenience is becoming more and more important. The software on connected TVs is one key future battleground. But boxes like Fetch, Telstra TV, Apple TV and the Amazon Firestick are other ways in.

Foxtel has also started to take aggregation seriously but made slow progress. Its IQ box subscribers now have a Netflix button on their remote, and last August the company promised Amazon Prime too, supposedly by the end of 2021, although it did not arrive. Foxtel has also announced it will be the local player for the streaming aggregation device Sky Glass TV when that comes to Australia.

Meanwhile, Fetch has built up relationships with almost all the main free-to-air, telco and streaming players. Telstra is its major missing piece. Notably, the SMH article included comment from Optus (which has its own aggregation play with Subhub) saying a Telstra deal would not disrupt its Fetch relationship.

I’m sure there would be competition issues if Telstra was still an owner of Foxtel. The Australian Competition and Consumer Commission might well have a problem with the fetch investment, unless Telstra sells its stake in Foxtel. Telstra must have a plan for that.

It’s a fascinating time to be watching television.

Wobbly week-end for The Unmade Index

The Unmade Index of Australia’s listed media and marketing companies followed the wider ASX down on Friday as jitters around Russia’s war on Ukraine returned.

Nine was the only stock to improve, while broadcaster Southern Cross Austereo was down by more than 2%.

Time for me to let you go about your Saturday.

My hat is tipped, by the way, to News Corp’s major tabloids, who all did 2am editions last night to mark the shocking passing of Shane Warne.

Unmade will be back on Monday, when Damian Francis and I record an early podcast looking at the key media and marketing news shaping the start of the working week. I’ll then be hopping on QF1 for another stint in the UK.

And a reminder, if you haven’t yet signed up to the paid tier of Unmade, then you won’t get a better price than our current offer to mark Damian’s arrival on the team.

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Have a great weekend.

Toodlepip…

Tim Burrowes

Unmade