Porter tires of dream of a merger with Foxtel
Thursday, 29 July 2010
AUSTAR boss John Porter jokes that after 15 years he has given up waiting for the regional pay-TV group to merge with Foxtel.
Porter agrees there is still "so much compelling industrial logic" to create a truly national pay-TV operator with more than 2.3 million subscribers, but concedes that in the past six months he has begun thinking "it may never happen".
So why the change of heart?
Porter says he has grown tired of worrying about a transaction that has been the subject of endless speculation for the best part of a decade.
He also acknowledges that Telstra, which owns 50 per cent of Foxtel, has shown no appetite for the deal despite the best efforts of its other shareholders, News Limited and Consolidated Media Holdings.
"It all comes down to Telstra," he says.
"I'm sure the other half of the partnership would pursue it tomorrow if they weren't hamstrung by Telstra."
The conjecture about Austar's future is part of what Porter describes as the "soap opera" of Australian media. Porter happily admits Austar has "tried to fly under the radar".
Yet his position as one of Australian media's longest-serving chief executives makes him an interesting judge of an industry that has "always been too small a pond for the players".
Speaking to The Australian, Porter, who fronts Austar's interim results today, talks about the challenges for pay-TV, the national broadband network and the anti-siphoning rules governing sports broadcasting.
He also has a blunt retort for those who that suggest US cable billionaire John Malone, whose Liberty Global Media owns 54 per cent of Austar, is pulling the strings.
"There are companies where the dominant shareholder has a lot less than Liberty and that shareholder is a lot more disruptive," he says.
"Kerry Stokes and Rupert Murdoch spring to mind."
The market is tipping Austar will report operating earnings of about $62 million for the first six months of this year, up 4 per cent on the previous first half.
Pay-TV remains a profitable business and Austar has secured shareholder approval for $400m worth of capital management initiatives.
However, these are also complicated times, given increased competition from free-to-air digital channels and a tough consumer environment.
Subscription growth has slowed, meaning pay-TV penetration rates have hovered above the 30 per cent mark for some time.
Austar and Foxtel have been forced to squeeze more revenue from existing customers by offering new products such as updated set-top boxes.
Minneapolis-born Porter, who began working for US cable companies in the early 1980s, acknowledges that "we need a bigger tent for pay-TV" in Australia.
He argues the industry must change the way it does business by offering cheaper and more flexible packages.
"We've essentially been selling the same way for as long as I've been in the industry: big, fat basic package, maybe a couple of general entertainment tiers sitting above it, but then sports and movies," he says. "Customers are saying they don't want to pay for stuff they don't use."
The federal government's proposed national broadband network is viewed as an opportunity.
Porter "seriously questions" whether the NBN will increase regional competition, but he hopes Communications Minister Stephen Conroy turns out to be right.
That would bring Austar closer to a triple-play model (pay-TV, broadband and voice) common in the Europe and the US.
Austar also owns large chunks of regional wireless spectrum and Porter is keen to roll out a regional wireless network where the NBN's fibre is not commercially viable.
"If we are going to replace the wholesale bottleneck of Telstra with the wholesale benign dictatorship of the NBN then that can do nothing but improve our situation," he says.
Of course, Porter has complicated relationship with the national telco. He admits Liberty would put its hand up "in a heartbeat" in the unlikely event Telstra sold its Foxtel stake. But he also acknowledges that ConsMedia and News Ltd (publisher of The Australian) might provide stiff competition.
"Foxtel is to some extent a product of its shareholders . . . if they weren't 50 per cent owned by Telstra, they'd be in the broadband business," he says.
"They are a bit of a camel -- a horse put together by committee. "
In many ways Austar has come full circle. It was pursuit of the triple-play model that contributed to the company's near-death experience in 2002.
Having boasted a share price of almost $10 at the peak of the tech boom, Austar's balance sheet began to buckle under the weight of a complicated strategy and plenty of debt. The company finally sorted out its capital structure problems in December 2002, when private equity group Champ bought in at 15.5c a share.
David Jones, a Champ executive director, soon "formed the view that John and his team were outstanding media and pay-TV specialists that were distracted".
Champ's executives were able to focus on the balance sheet with chief financial officer Philip Knox and leave Porter to worry about signing up and keeping customers.
Jones describes Porter as "a balanced personality". "Obviously we had our moments and he has been through some harrowing moments, but he is very calm and very considered," he says. Champ sold out in early 2006 at $1.10 a share.
In recent years Porter has been criticised for a long-term incentive package approved by shareholders in 2006 that makes him (and other Austar executives) among the highest paid media managers in the country.
Porter's total remuneration topped $14m over the past three years. Corporate governance advisory group RiskMetrics opposed the deal, which was the subject of a shareholder protest vote at Austar's annual meeting in May.
Porter is unapologetic. He says the package was put in place when the company was cashflow break-even and required Austar to grow operating earning by 20 per cent for consecutive years.
He also points out that Austar has posted shareholder returns of more than 700 per cent since January 2003, while its management team has stayed intact.
"If you look through the prism of 2010 you might have different views, but when the plan was put in place it delivered across the board all the things we needed to do as a company, so I don't have any regrets," he says.
Porter considers himself an "Austar person" these days. He remains close to Malone but says he has "never got a call from someone at Liberty saying have you though of this or that."
According to Porter, Malone is in "the business to make money" for himself and shareholders.
"He's not trying to use Austar to get strategic things done in other regions, for example." It is at this point that Porter cites Rupert Murdoch, chairman and chief executive of News Corp, and Kerry Stokes, executive chairman of Seven, as examples of more activist shareholders.
For his part, Porter says he remains happy at Austar. He quips that his senior executives aren't planning a mutiny despite his long tenure, and he gives every indication that he will be around for a while yet. Unless, of course, the merger with Foxtel comes to pass.
"I'm sure things like the (remuneration) and the fact that I've got an American accent make me seem like I'm an outsider. But I'm not.
"This is very much my business . . . Australia feels like home. I'm not going anywhere.
"I used to think there would be some big event that would happen in the industry and I would be out of a job, but now I'm not so sure."
--
* James Chessell
* From: The Australian
* July 29, 2010 12:00AM
http://www.theaustralian.com.au/business/porter-tires-of-dream-of-a-merger-with-foxtel/story-e6frg8zx-1225898180954?
Porter agrees there is still "so much compelling industrial logic" to create a truly national pay-TV operator with more than 2.3 million subscribers, but concedes that in the past six months he has begun thinking "it may never happen".
So why the change of heart?
Porter says he has grown tired of worrying about a transaction that has been the subject of endless speculation for the best part of a decade.
He also acknowledges that Telstra, which owns 50 per cent of Foxtel, has shown no appetite for the deal despite the best efforts of its other shareholders, News Limited and Consolidated Media Holdings.
"It all comes down to Telstra," he says.
"I'm sure the other half of the partnership would pursue it tomorrow if they weren't hamstrung by Telstra."
The conjecture about Austar's future is part of what Porter describes as the "soap opera" of Australian media. Porter happily admits Austar has "tried to fly under the radar".
Yet his position as one of Australian media's longest-serving chief executives makes him an interesting judge of an industry that has "always been too small a pond for the players".
Speaking to The Australian, Porter, who fronts Austar's interim results today, talks about the challenges for pay-TV, the national broadband network and the anti-siphoning rules governing sports broadcasting.
He also has a blunt retort for those who that suggest US cable billionaire John Malone, whose Liberty Global Media owns 54 per cent of Austar, is pulling the strings.
"There are companies where the dominant shareholder has a lot less than Liberty and that shareholder is a lot more disruptive," he says.
"Kerry Stokes and Rupert Murdoch spring to mind."
The market is tipping Austar will report operating earnings of about $62 million for the first six months of this year, up 4 per cent on the previous first half.
Pay-TV remains a profitable business and Austar has secured shareholder approval for $400m worth of capital management initiatives.
However, these are also complicated times, given increased competition from free-to-air digital channels and a tough consumer environment.
Subscription growth has slowed, meaning pay-TV penetration rates have hovered above the 30 per cent mark for some time.
Austar and Foxtel have been forced to squeeze more revenue from existing customers by offering new products such as updated set-top boxes.
Minneapolis-born Porter, who began working for US cable companies in the early 1980s, acknowledges that "we need a bigger tent for pay-TV" in Australia.
He argues the industry must change the way it does business by offering cheaper and more flexible packages.
"We've essentially been selling the same way for as long as I've been in the industry: big, fat basic package, maybe a couple of general entertainment tiers sitting above it, but then sports and movies," he says. "Customers are saying they don't want to pay for stuff they don't use."
The federal government's proposed national broadband network is viewed as an opportunity.
Porter "seriously questions" whether the NBN will increase regional competition, but he hopes Communications Minister Stephen Conroy turns out to be right.
That would bring Austar closer to a triple-play model (pay-TV, broadband and voice) common in the Europe and the US.
Austar also owns large chunks of regional wireless spectrum and Porter is keen to roll out a regional wireless network where the NBN's fibre is not commercially viable.
"If we are going to replace the wholesale bottleneck of Telstra with the wholesale benign dictatorship of the NBN then that can do nothing but improve our situation," he says.
Of course, Porter has complicated relationship with the national telco. He admits Liberty would put its hand up "in a heartbeat" in the unlikely event Telstra sold its Foxtel stake. But he also acknowledges that ConsMedia and News Ltd (publisher of The Australian) might provide stiff competition.
"Foxtel is to some extent a product of its shareholders . . . if they weren't 50 per cent owned by Telstra, they'd be in the broadband business," he says.
"They are a bit of a camel -- a horse put together by committee. "
In many ways Austar has come full circle. It was pursuit of the triple-play model that contributed to the company's near-death experience in 2002.
Having boasted a share price of almost $10 at the peak of the tech boom, Austar's balance sheet began to buckle under the weight of a complicated strategy and plenty of debt. The company finally sorted out its capital structure problems in December 2002, when private equity group Champ bought in at 15.5c a share.
David Jones, a Champ executive director, soon "formed the view that John and his team were outstanding media and pay-TV specialists that were distracted".
Champ's executives were able to focus on the balance sheet with chief financial officer Philip Knox and leave Porter to worry about signing up and keeping customers.
Jones describes Porter as "a balanced personality". "Obviously we had our moments and he has been through some harrowing moments, but he is very calm and very considered," he says. Champ sold out in early 2006 at $1.10 a share.
In recent years Porter has been criticised for a long-term incentive package approved by shareholders in 2006 that makes him (and other Austar executives) among the highest paid media managers in the country.
Porter's total remuneration topped $14m over the past three years. Corporate governance advisory group RiskMetrics opposed the deal, which was the subject of a shareholder protest vote at Austar's annual meeting in May.
Porter is unapologetic. He says the package was put in place when the company was cashflow break-even and required Austar to grow operating earning by 20 per cent for consecutive years.
He also points out that Austar has posted shareholder returns of more than 700 per cent since January 2003, while its management team has stayed intact.
"If you look through the prism of 2010 you might have different views, but when the plan was put in place it delivered across the board all the things we needed to do as a company, so I don't have any regrets," he says.
Porter considers himself an "Austar person" these days. He remains close to Malone but says he has "never got a call from someone at Liberty saying have you though of this or that."
According to Porter, Malone is in "the business to make money" for himself and shareholders.
"He's not trying to use Austar to get strategic things done in other regions, for example." It is at this point that Porter cites Rupert Murdoch, chairman and chief executive of News Corp, and Kerry Stokes, executive chairman of Seven, as examples of more activist shareholders.
For his part, Porter says he remains happy at Austar. He quips that his senior executives aren't planning a mutiny despite his long tenure, and he gives every indication that he will be around for a while yet. Unless, of course, the merger with Foxtel comes to pass.
"I'm sure things like the (remuneration) and the fact that I've got an American accent make me seem like I'm an outsider. But I'm not.
"This is very much my business . . . Australia feels like home. I'm not going anywhere.
"I used to think there would be some big event that would happen in the industry and I would be out of a job, but now I'm not so sure."
--
* James Chessell
* From: The Australian
* July 29, 2010 12:00AM
http://www.theaustralian.com.au/business/porter-tires-of-dream-of-a-merger-with-foxtel/story-e6frg8zx-1225898180954?