News Corp's Strategic Move: Selling Foxtel to DAZN for A$3.4 Billion

In a significant shift in the Australian media landscape, News Corporation (News Corp) has agreed to sell its pay TV giant Foxtel to global sports streaming service DAZN in a deal valued at A$3.4 billion. This strategic move aligns with News Corp's long-term goals of maximizing shareholder returns and optimizing its portfolio, as Foxtel faces intense competition and thinning profit margins in the streaming market.

Foxtel, owned 65% by News Corp and 35% by Telstra, has been positively transformed in recent years with services like Kayo and Binge. However, the market has evolved, with younger consumers favoring YouTube, TikTok, and Instagram for entertainment. The Australian market is also becoming increasingly crowded with streaming services, including Netflix, Stan, Disney+, Paramount Plus, and Amazon. Soon, even HBO will launch in Australia, threatening to cut into News Corp's business.

The sale of Foxtel to DAZN allows News Corp to focus on its core businesses, such as newspapers, and reinvest the proceeds to drive growth in those areas. Additionally, it enables News Corp to cash out of a sector distinct from its primary holdings, as noted by Queensland University of Technology professor Amanda Lotz.

The deal is expected to have a significant impact on News Corp's revenue and earnings per share. In the short term, the sale will result in a one-time gain for News Corp, which could boost earnings per share. However, in the long term, the loss of Foxtel's revenue may negatively impact News Corp's overall revenue growth. According to News Corp's FY24 financial results, Foxtel contributed 30% of total subscription revenues in the quarter. Therefore, the sale of Foxtel could lead to a decrease in News Corp's revenue growth rate. However, the company's strong performance in other segments, such as REA Group, may help offset this impact.

The sale of Foxtel to DAZN also significantly reshapes News Corp's competitive position in the Australian media landscape. Foxtel, with its 4.7 million subscribers and strong presence in pay TV and streaming services like Kayo Sports and Binge, was a key player in the market. Its sale allows News Corp to focus on its core businesses while still realizing substantial value from Foxtel's operations. However, the loss of Foxtel may impact News Corp's ability to compete in the streaming and sports broadcasting sectors, as Foxtel held key rights for AFL, NRL, and cricket.

DAZN's acquisition of Foxtel's sports rights could lead to increased availability and potentially lower pricing for Australian consumers. DAZN has a track record of offering affordable, direct-to-consumer pricing. By acquiring Foxtel's sports rights, DAZN can bundle more content, attracting more subscribers and potentially lowering per-user costs. However, this depends on DAZN's strategy for the Australian market.

The acquisition of Foxtel by DAZN will significantly reshape the competitive landscape for sports streaming in Australia. With Foxtel's extensive sports rights, including the NRL, AFL, and cricket, DAZN will become a formidable player in the market. This acquisition could lead to increased competition for existing sports streaming services like Kayo Sports and Stan Sport. DAZN's entry may attract more sports fans, potentially leading to a decline in subscribers for Kayo Sports and Stan Sport. However, these services may also benefit from increased exposure and potential partnerships with DAZN. The acquisition could also lead to a more diverse range of sports content available to Australian viewers, enhancing the overall sports streaming experience.

In conclusion, News Corp's decision to sell Foxtel to DAZN for A$3.4 billion aligns with its long-term strategic goals of maximizing shareholder returns and optimizing its portfolio. The deal is expected to have a significant impact on News Corp's revenue and earnings per share, as well as its competitive position in the Australian media landscape. The acquisition of Foxtel by DAZN will reshape the competitive landscape for sports streaming in Australia, potentially leading to increased availability and lower pricing for consumers. As the Australian media landscape continues to evolve, investors should closely monitor the impact of this strategic move on News Corp and the broader media industry.