Telstra Media GMD Rick Ellis is pushing a fundamental change through the firm’s content strategy – intent on transforming its digital media and IPTV arm into a profit-and-loss focused business in its own right.
And Ellis is confident that the fading revenues of the Sensis division, which also falls under his broad remit, will be on the road to recovery within two years.
Previously the CEO of Television New Zealand, Ellis was announced late last year as the head of the newly formed Telstra Digital Media, managing Sensis, BigPond, TradingPost, IPTV, Foxtel and other content arrangements; after beginning his term this January, he renamed the division ‘Telstra Media’ to reflect its mix of physical and digital assets. He’s also been serving as acting CEO of the Sensis business since the departure of long time incumbent Bruce Akhurst.
At a media briefing in Sydney, Ellis outlined the transformation he’s realising in the IPTV and digital content section of his portfolio. “We’re changing the model from a telco model, which is largely one where… investment in content is justified on the basis of the pull-through benefits of market share shift and churn reduction, to actually positioning that business as a P&L business in its own right,” he explained. “We’re changing the way that we think about users, market segments, communities, and… what content we’re going to package in which way to meet those market segments. We’re going from a product-centric approach, which is a telco approach, to a media company approach where we’re focused on viewers, users, audience, market segments and maybe what their expectations are.”
That shift will inform Telstra’s approach to content, whether licensed – Ellis noted that the telco’s AFL rights had resulted in 901,000 mobile video streams between March and May, up 800% year-on-year – or generated internally, such as via content production subsidiary Chief Entertainment. It’s the reason why Ellis has recently brought on board Adam Good as the new head of digital content, and will underpin its search for a new head of IPTV following the departure of Ben Kinealy.
The change could also see Telstra further decouple its digital content from its network assets. “The paradigm [within which] we’ve approached this business in the past, which is a telco paradigm, is up for serious review,” he said. “Taking our content assets, where we’re able, beyond a Telstra network connection is certainly something that we’re considering.”
But while Telstra is considering multiple delivery models and already offers Foxtel, for example, through its own T-Box platform, Ellis said that pure over-the-top IPTV players were unlikely to become a serious threat within the broader media industry. “There are a number of commentators who say the over-the-top players are going to kill local pay TV and free-to-air businesses. And I just don’t believe it, and I just don’t see it,” he said. “There were some interesting stats out two weeks ago that showed the OTT video on demand revenues in Europe were less than 1% of the gross revenues from pay and FTA TV… and then I look at a Netflix business, and I apply the same metrics of Netflix to an Australian market with eight million households, and it grosses up to about a A$90 million business. Who cares?”
“OTT is internet, and internet doesn’t deliver you ten or a dozen HD channels just at the flick of a switch when you turn your telly on. And even in an NBN world, the estimated cost of delivering HD linear channels to a television set is going to be like five times [that of] cable, satellite or digital terrestrial. I think OTT players, in the main, add an extension to core video consumption, which tends to be watched during primetime… I don’t think [they’re] going to change that at all.”
FOXTEL LINKS: A similar logic explains why Ellis believes that Telstra’s new media strategy won’t push it too far into competition with Foxtel, of which it is a 50% shareholder.
“I see Foxtel addressing quite a different market to the one that we’re addressing with our IPTV service,” he said. “If you think Foxtel is just a lot of channels delivered at a relatively low household cost over cable or satellite, there are constraints, obviously, in the IP world, whether it’s ADSL2+ or even cable, for that matter.”
“What we’re addressing is a solution for a household that only wants to spend A$20-40 a month as opposed to A$120 a month, to get more stuff than they would over digital free-to-air but not the sheer length and breadth that you get with a Foxtel package. And so, even if you think about Foxtel going to 50% of households, then [in] the other 50%, there’s a big chunk of those looking for something more, but not as much as [Foxtel]. And that’s where we’re targeting… [although] where we can leverage Foxtel content into that space, we will.”
RESUSCITATING SENSIS: Meanwhile, Ellis also expanded on his plans to turn around the fortunes of the troubled Sensis division and “transition from a directories business to Australia’s leading directories and digital marketing service.”
“The company’s strategy around offering a value package which was a combination of print and digital has actually been remarkably successful, and at the same time the company’s continued to invest in its digital-only sales and fulfilment capability. And the uptake in that space has also been very pleasing,” he said. “We go into the next 24-month period [with] a clear line of sight to that transition, a clear line of site in terms of the types of products and services that we need to provide to SMEs in both metro and non-metro territories… and I’m confident that we’re going to see this transition through successfully.”
Ellis expects the ongoing increase in digital revenues to offset the decline in print by 2014, with a return to growth thereafter. He is currently searching for a new head of operations for Sensis, and for a head of digital partnerships and innovation – a role central to his vision for the business. “This whole place that we’re going to now is not a proprietary place; we need to be wherever users are going to look for information about a product that we want to secure,” he said. “To get to those places – just think Google and Facebook for obvious ones – we need to make sure that we have strong relationships with those sorts of organisations, and that the interface between our environment… and their environment as, effectively, the publisher is as seamless as it can possibly be.”
Ellis is also still in the process of recruiting a Sensis MD to replace Akhurst; he expects to make an announcement late this month or early in August.