Australian pay-TV leader Foxtel has secured its beachhead in Australia’s free-to-air advertising market, announcing a joint ad sales deal with Ten Network – the country’s third-placed terrestrial broadcaster – at the start of the week.

The widely anticipated deal promises to be a highly beneficial tie-up for both parties, suggests Foxtel CEO Richard Freudenstein, helping rebalance Australia’s TV ad market, which in recent years was tilting towards Ten’s main rivals, Seven and Nine.

“This is about the core television businesses of Ten and Foxtel,” Freudenstein says, in an interview with Media Business Asia.

“That’s where a lot of money will come, in terms of just improving Ten’s performance on a revenue basis and continuing their audience growth.”

The pact is one chapter in an ongoing diversification push by Foxtel, which has also ventured into the broadband and SVOD markets in a quest for new sources of revenue, while concurrently trying to re-energize subscriber growth around its core pay-TV business.

New subscriber growth has risen 75% since implementing a new pricing and packaging strategy in November last year.

The day after unveiling its deal with Ten, Foxtel also announced it planned to double its spend on local factual, lifestyle and drama programming between now and 2018, in a bid to drive awareness of what the revitalized Foxtel has to offer while shoring up satisfaction among current subscribers.

Audiences at scale

At the same time, sales collaboration with Ten helps Foxtel escape the confines of a ~US$500 million pay-TV ad market that is about seven times smaller than Australia’s US$3.5 billion ad market for free-to-air.

What’s more, pay-TV advertising is projected to grow only slightly faster, at a 2.5% CAGR between 2014-19, compared with a 2.0% rate for free TV, according to analysts from Media Partners Asia.

Access to a bigger marketplace also helps Foxtel’s sales house, Multi Channel Network (MCN) leverage its own investments in advertising technology, enabling Foxtel to compete for ad dollars in Australia’s fast-growing online video market as well as in traditional TV.

Capabilities such as dynamic ad scheduling and programmatic buying on TV are streets ahead of what the free-to-air stations have to offer, Freudenstein says.

“We expect television advertising will continue to grow,” he tells Media Business Asia.

“Realistically, it will be relatively slow, but we think Ten can get a much bigger share,” Freudenstein adds.

“Its share of audience is not reflected in its share of revenue at the moment. We think it will continue to grow its audience but the MCN deal also means it can monetize that audience better.”

MCN is to start selling Ten TV and digital inventory from September.

Under the terms of the deal, the free-to-air broadcaster will still set ratecards and retain control over pricing strategies, while MCN assumes responsibility for sales activities, in return for a performance-related fee.

Pending regulatory approval, Ten also stands to gain a 24.99% stake in MCN, a JV between Foxtel and Fox Sports.

Foxtel meanwhile is also seeking up to 15% in Ten, should the regulators allow it. The pay-TV company has agreed to pay A$0.15 (US$0.12) a share, a 42% discount from the A$0.26 price on the day the deal was announced.

Existing shareholders can also buy the same volume of shares for the same price, enabling Ten to raise up to A$144 million – a handy injection needed to keep Ten’s debt in check while safeguarding the pact with MCN.

“We’re looking good from a pure financial investment but strategically we believe the free-to-air ad market, and particularly Ten, has a lot of growth left in it,” Freudenstein says.

multiple partnerships

The shared interest could signal closer collaboration between the two players, who last October signed off on their first co-production, an Australian version of the fly-on-the-wall Gogglebox format, and have co-operated on bidding for motorsports rights, notably for Formula 1.

Freudenstein says he is keeping his options open.

“We have a three-billion dollar revenue stream in Foxtel, so we’ll always prioritize what’s right for Foxtel,” he says.

“We’d love to work with Ten on more things, but if it makes sense to work with another free-to-air, we’d do that as well.”

The latest agreement also includes a two-year option for Ten to acquire a 10% stake in Presto, an SVOD service Foxtel runs as a 50/50 JV with Ten’s rival Seven West Media.

In the meantime, Ten can also help promote the service as well as contribute programming, delivering similar benefits to the service that Seven provides today.

“There’s nothing new or different in that,” Freudenstein says. “It just makes sense to work closely with partners in a very competitive space.”