With pay-TV penetration stubbornly low in Australia at about 30% of homes, IPTV provider Fetch TV is trying a different pitch to win over those that see no reason to pay: improving the free TV experience.

“Our focus is on making free-to-air television better; it’s not about selling a pay-TV product,” CEO Scott Lorson tells Media Business Asia. “That leads us to a different price point and a different proposition.”

Fetch’s new set-top box, part of the basic offer, incorporates DVR functionality with 1 terabyte of disc space and the ability to record two channels simultaneously. Paired with access to digital free-to-air signals, the box replicates a full-blown on-demand viewing experience, Lorson argues.

Supplementary channel bundles, priced between A$4.95 and A$29.95 (US$4.60 and US$27.90) a month, as well as VOD and pay-per-view services, are offered as paid extras. These will be augmented later this year by a retail service that allows customers to purchase and download content.

“The product that is in the market right now, and the way it is being marketed, is unrecognizable to what was there even six months ago,” Lorson says. 

Fetch, which packages content and services that internet service providers (ISPs) can sell to their subscribers (including selected channels from Discovery, Disney, Fox, NBCU and Viacom), had struggled to add subscribers since first launching in 2010. 

However, tighter coordination between Fetch and its main partners Optus and iiNet, Australia’s second and third largest ISPs, had helped lift subs to 100,000 by the end of last year, Lorson reports. 

Now he wants to see that number double within two years, driving momentum with an upgraded service offering and an A$9 million (US$8.4 million) marketing campaign. 

'A LEGITIMATE COUNTERWEIGHT'

Growth for Fetch, which is 45% owned by Astro, has come thus far by aligning with telecom firms that are keen to differentiate themselves ahead of Australia’s national subsidized broadband and telephony network. 

At the same time, smaller telcos face continued competition with the market leader, Telstra, which also offers movie rentals and inexpensive channel packs via its T-Box service, while owning a 50% stake in Foxtel, Australia’s dominant pay-TV provider. 

Foxtel, which supplies around 95% of Australia’s pay-TV households with a premium service, plans to offer a triple-play bundle of telephone, broadband and pay-TV later this year.

“We saw a distinct opportunity to develop a coalition of all of the other major ISPs, to leverage their combined scale and create a legitimate counterweight and competitor,” Lorson says.

In addition to its first major marketing effort, Fetch will also begin selling set-top-boxes directly to consumers for the first time this year, working through electronics retailers as well as its partner ISPs. 

This means Fetch can start attracting subs from other ISPs, including those from Telstra.

LIFTING MARGINS

With telco deals in place and more under negotiation, Lorson expects to break even by 2015. However, persuading people to upgrade to more paid services is essential to lift margins for both Fetch and its partners, he adds.

Wholesale contracts with ISPs account for half of Fetch’s margins, with the other made up of rental transactions and pack subscriptions. 

Fetch is willing to take a low margin on additional services to achieve scale and boost returns for Fetch’s telco partners, Lorson says.

Competition for content rights and consumer wallets is also increasing from online services.

These include retail and rental services such as Google Play and Apple’s iTunes, which have both recently launched in Australia, as well as streaming options provided by the likes of Quickflix, a local iteration of US OTT giant Netflix, and new launches from Foxtel.

“The plan is to consolidate our position as the clear number two platform play in Australia, expand our product partnership with Astro and launch in a few additional countries, including New Zealand,” Lorson summarizes. “The business has been built for scale.”