![Video streaming services such as Netflix are seen by some as heralding not only the demise of free-to-air television but a also catastrophe for Foxtel.](/web/20150329071038im_/http://www.theage.com.au/content/dam/images/1/m/6/v/t/2/image.related.articleLeadwide.620x349.1m8zlo.png/1427488083097.jpg)
Video streaming services such as Netflix are seen by some as heralding not only the demise of free-to-air television but a also catastrophe for Foxtel. Photo: Bloomberg
It's a ritual that's been followed around the country for decades in countless households – gathering around the altar in the corner of the lounge room at the appointed hour and watching our favourite show on the box. But with the high profile entry of three video on demand streaming services into Australia in the past few months, highlighted by US giant Netflix this week, the game has changed for traditional broadcasters.
It's seen by some as heralding not only the demise of free-to-air television but a catastrophe for pay television operator Foxtel.
With the possible exception of live sports events, nobody watches the same show at the same time any more.
Internode founder Simon Hackett.
At a conference this week, ABC managing director Mark Scott acknowledged that audience habits are shifting to a world of content on-demand and we will one day look back on scheduled television in "bewilderment".
"I sometimes say if you want a sense of television in the future just look at a three-year-old with an iPad seeking Peppa Pig," Scott told the Rewind/Fast Forward conference in Sydney on Wednesday.
"There's no sense of, 'oh, look at the time, I've missed the 4 o'clock streaming of Peppa Pig'. There's just that sense of 'I want Peppa Pig and I want it now' and the expectation is that technology will work seamlessly to deliver me that Peppa Pig experience".
Speaking at the same industry conference this week NBN Co board member and Internode founder Simon Hackett predicted the far more unpalatable – "that commercial television, as it currently exists, has five years left."
"[By] 2020, there won't be much left of broadcast television," Hackett said.
"This stuff is going to eat at our kids. They're not going to sit there and wait for 8pm to watch something with ads around it."
Hackett said he believed streaming was already becoming the new method of broadcasting.
"With the possible exception of live sports events, nobody watches the same show at the same time any more," Mr Hackett said.
It comes as no surprise that Netflix boss Reed Hastings also makes dire predictions about the status quo of Australia's broadcast market and understands the pushback from the incumbents.
"It's partially because we say things like 'free-to-air will go away in 10 to 20 years' so I think we get our own comeuppance when we make long-term procrastinations about that." Hastings has thrown down a gauntlet to local broadcasters, warning them the $US26bn ($33bn) internet gorilla is targeting 2.3m Australian subscribers.
That is a big call and not everyone will agree and certainly not the management guardians of the free-to-air networks.
But the entry of Netflix into the Australian market has also exposed perhaps its harshest critic – Rupert Murdoch. His right hand man and the chief executive of News Corp, Robert Thomson, is responsible for the fortunes of Foxtel which is in the direct line of commercial fire from the likes of Netflix.
Thomson recently described Netflix Australia's subscription video on demand service as "slightly warmed-up leftovers".
The question media investors and consumers are now grappling with is whether 2015 will deliver for established free-to-air and subscription television the "print moment" that newspapers and magazines experienced almost 10 years ago – the point when advertisers moved to online, decimated the classified rivers of gold and tore up the newspaper business model.
In a matter of recent months, three well-funded subscription video-on-demand services have invaded the Australian broadcast market.
And it's probably no co-incidence that over the past 18 months two of the three free-to-air networks have downwardly revised the value of their television licences by a combined $1.2 billion – a trend that some media experts predict is not yet over. When Seven cut the value of its TV licence assets by $960 million last year it noted this was a reflection of future growth rates given subdued advertising conditions. Some might regard the network chiefs as flat earthers given that all hold the view that the reports of the death of free-to-air TV have been greatly exaggerated. But advertisers and political parties alike are still captive to the networks' ability to deliver mass audience – albeit in numbers not as great as they were even five years ago.
"I don't believe it will greatly disrupt the free-to-air television business. I still maintain that the more fragmented the audience becomes, the more powerful and more valuable free-to-air television becomes because it becomes the only media where you can amass a huge audience and deliver a message very powerfully to that mass audience simultaneously," says Seven boss Tim Worner.
Both Nine and Seven have laid off their bets to some extent by taking equity in SVOD services, but Nine boss, David Gyngell, sings loudest that if free-to-air services deliver the programming that people like the audience will follow. "We welcome the challenge. It's horses for courses, and we back ourselves," Gyngell says.
"Of course SVOD represents a new challenge in the wider industry" says Gyngell, "and we self-evidently not only recognise that but embrace it with our joint venture with Fairfax through STAN . But free to air television is very good at what it does and you'll consistently see Nine and its counterparts playing to our considerable strengths. In the delivery of more and better News services than ever before , massive and expanding coverage of topline sport , then extensive drama and infotainment – the key to which is as always is local content at its best ."
Gyngell says there's a place for new players and streaming, "of course, but it's very early days. And nor does it come as a matter of right. Like FTA did, streaming will have to compete in a crowded space and earn its place."
Ten Network boss Hamish McLennan says "everyone loves to talk about the demise of free-to-air. But on a historical basis there is nothing to suggest it will destroy us. While the market will become more competitive I would suggest that other subscription models will be put under more pressure."
McLennan is not alone in the view that as Australia's monopoly pay TV incumbent, Foxtel is far more vulnerable that the free-to-air networks.
Of the three subscription video on demand (SVOD) services that have invaded the market, the established and hugely successful US monster Netflix has received most attention. But its entry was preceded by a matter of weeks by STAN – a joint venture between Fairfax and Nine, and Presto which is the love child of Seven Network and Foxtel.
For the networks and Foxtel, getting a slice of the new subscription-based broadcasters is a commercially defensive move that will clearly involve cannibalising their existing services to some extent. For the new independents like Netflix it's an opportunity to move into new revenue territory.
For Australian viewers it represents greater choice.
So it is that the traditional participants and the interlopers are marking their existing and potential territory.
It's game on and the stakes are high. Billions of dollars are invested in the Australian free to air networks by people that are expecting to receive a return.
Having said that it is certainly not the first nor perhaps the largest issue that the free-to-air networks have faced. The advent of subscription television in the 1990s by Foxtel and Optus – which elicited many doomsday predictions for free-to-air operators – failed to meaningfully flatten the trajectory of free-to-air's commercial growth in the10 years following pay TV's launch.
It is several years since broadband internet arrived in Australia and threw up a serious challenge to broadcasting status quo – enabling the pirating of local and in particular offshore programs whose release through traditional Australian television channels had been curtailed by the free-to-air networks.
As a nation it made us the biggest perpetrators of online programming theft in the world. (It is also estimated that Netflix already had 200,000 illegal but paying Australian subscribers). While it didn't significantly move the dial on the commercial performance of our free-to-air networks on a year to year basis, it has been a structural sleeper.
Official statistics on advertising revenue across commercial television maps a pattern of limited growth since 2006. While the industry has seen cyclical spikes and troughs, advertising revenue has not fallen off a cliff. Nevertheless it has not experienced the top line revenue growth that would be considered acceptable across most industries. For example in the period of July to December 2006 commercial network revenue stood at $1.87 billion. in the comparable period in 2014 the revenue figure was around $2 billion. Inflation adjusted, it hasn't improved much and in the most recent half to December the networks' sales were soft and forecast to experience much the same for the 2015 financial year.
But free-to-air supporters would suggest that this performance is not shabby given the fragmentation of audiences which has resulted in a fall in the number of viewers watching free-to-air.
Working in favour of the free-to-air networks is Australia's peculiar history of consuming television free of charge. The penetration of pay television has been stuck at around 30 per cent for years and the introduction of the pay streaming services is more likely to hit Foxtel – a direct and more expensive competitor.
And it is no surprise that Murdoch delivered a right jab to Communications Minister Malcolm Turnbull a few weeks back when the minister suggested changing media ownership rules but made no concessions to Foxtel's request to soften anti-siphoning rules that deliver tier one sport to free to air networks.
So if there is a tipping point in the fortunes of traditional free and pay television, history may record that 2015 was that year.