While the business delivered $2.9 billion in revenue last financial year, there is a shrinking window for News Corp to secure what it deems a fair return for Foxtel.

The pay TV business has substantial debt on its books and over half of that $US784 million ($1.2 billion) debt is owed to News Corp. Having repeatedly bailed out Foxtel in the past, as the business adapted to the streaming disruption, News Corp would be keen to secure a sale price that allows it to recoup its ongoing investment.

News Corp is banking on Binge and Kayo to drive Foxtel’s digital transformation, but most of its revenue comes from the traditional set-top division, which boasts 1.2 million customers paying monthly fees that average $90.

The set-top division is, however, a high-margin business with little growth prospects, as its rusted-on user base slowly erodes. Meanwhile, Kayo and Binge have just over 3 million paying customers between them, but deliver lower margins. Subscriber growth for both streamers has started to plateau and both remain highly dependent on content deals.

Kayo subscribers fluctuate on a seasonal basis, peaking during the AFL and NRL seasons, while Binge has not grown significantly in almost two years. It is expected to take a hit when shows such as The Last of Us and House of the Dragon exit with the launch of HBO-owner Warner Bros. Discovery’s service, Max, launches early next year.

Content aggregator Hubbl is also a new player in a saturated market, going against global players like Apple and Amazon. Any prospective buyer of Foxtel would have to carefully weigh up the trajectory of Foxtel’s assets to determine how much they are willing to pay for the business.

The other big asset, and perhaps the most valuable one for any potential buyer, is the suite of sports broadcast and streaming rights, which Thomson last week described as the “cornerstone to Foxtel’s success”.

But looming negotiations for the next NRL rights deal, as rugby league is the biggest sport in both NSW and Queensland, leave the overall value on a knife edge. News Corp has used Foxtel, alongside its newspapers, as a battering ram for political clout in Australia, influencing policy through the power derived from broadcasting Australia’s favourite sports.

Lachlan Murdoch’s presence and the company’s involvement at the NRL’s season opener in Las Vegas this year indicated the value the Murdochs put on these relationships.

The NRL is currently chasing a significant bump up on its current deal, after the AFL secured a mammoth seven-year, $4.5 billion contract in 2022. And NRL rights could be an important consideration when it comes to Foxtel sale.

A new owner at the helm raises the risk of Foxtel either overpaying or losing the NRL rights completely.

So what is a fair price for Foxtel? This year, Macquarie Research valued News Corp’s 65 per cent stake in Foxtel at $US310 million ($475 million), giving the total business a $730 million valuation, including Telstra’s minority stake.

After the successful launch of its two streaming services and stabilising its broadcast division, News Corp has sought an exit for several years, first through a potential public listing and now a formal sale process as a way to recoup the outstanding debt Foxtel owes, which now totals $545 million.

Loading

In 2021, when News Corp was weighing up the initial public offering, The Australian Financial Review suggested Foxtel’s valuation as high as $4 billion and said its turnaround was worthy of an MBA case study. Other valuations were more modest, but it’s unlikely to fetch anywhere near the $US2 billion offered by US cable magnate Leo Hindery in 2020.

Foxtel’s fate is just another piece of the puzzle for News Corp, as the Murdoch succession battle plays out behind closed doors in Nevada. With Lachlan and Rupert Murdoch trying to get their affairs in order, finding a buyer for one of the empire’s most iconic assets will be high on their to-do list.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.