Today from Sydney, my name is Hannah Hollis. I'm a journalist at Fox Sports, and it is my pleasure to welcome you all to the Fox Tel Group Strategy Day. If you're tuning in from Asia, United States or even here in Australia, this vision needs no introduction. As I stand on the shore of Sydney Harbour in Kirribilli, I'd like to recognize that this is the land of the Cammeraygal people. The Box Hill Group recognizes the traditional owners and custodians of the land from wherever you are tuning in from right around the country.
We also recognize the continuing connection to the land, to the waterways and to the community, and we recognize Aboriginal and Torres Strait Islander people as we pay our respects to their elders past, present and emerging. Over the next 90 minutes, we're going to share with you an in-depth look at today's strengthening led Foxtel Group. For the fund managers and analysts that are joining us, we have set aside time for you at the end to ask your questions. You'll be able to submit those using the chat function on the right of your screen. To keep things up, we'll begin by hearing from the Foxtel Group's 2 shareholders, News Corp and Telstra.
It is my pleasure to now introduce to you News Corp's Chief Executive, Robert Thompson.
Thank you, Hannah, and welcome to what will surely be an engaging and enlightening event. This is the first time we have held a strategy day for the Foxtel Group since the coalescing of Foxtel and Fox Sports Australia in April 2018. That moment was the beginning of a pronounced and profound change in the company's fortune. Foxtel Hold was a one product KTV and sports production company. It was more limited in reach and in ambition.
Over the past 3 years, our team led by Siobhan McKenna and Patrick Delaney have transformed the business, ready to spray as most dynamic screening company. The narrative of the Bauxite Group and the prospects in the company have been transformed. Our emphasis on growth through streaming through improved compelling interfaces and on securing long term valuable sports and entertainment rights has put the Company on distinctly upward trajectory. The business is urgent. As of June 30, 2021, paying for subscribers were 40% higher year over year.
Fiscal year revenue rose by 10% and EBITDA growth was 11% in U. S. Dollars for the subscription video services segment. There was a tangible acceleration in growth in the 4th quarter when segment revenue surged 33%, driven by the rapid expansion of streaming products and due in part to auscious currency fluctuations. The surge in streaming is successfully refocusing and monetizing existing rights and the signs of success are particularly evident
in the Q4 of our fiscal year 2021
when the number of total paying streaming subscribers was 155% higher than at the same time last year. As you can see, we are proud of the exponential evolution of Kao and Binge. They're well far funded, they're cutting edge technology and they're empathetic interfaces. We have decidedly debunked the myth that only a small proportion of the Australian population will pay for programming. And we now have a large and fast growing audience combined with the potential for significant price elasticity for those streaming products.
So the time has come to articulate the Foxtel Group story and to make clear of the value and the potential of the company. There is a new narrative at Foxtel. It is a story of rejuvenation, of resurgence and of renaissance. Now let me pass the platform to our partner, Andy Ken, the Chief Executive Officer of Telstra.
Thank you, Robert, and thank you for your continued partnership. Thank you also to everyone who has made the time to join this briefing today. After a significant transformation over the last 3 years, Oxtel today is incredibly well positioned for the future. Its positioning and its performance in fact elevates our strategy at Telstra to continue to connect our support to Foxtel as a long term investor and partner following the restructure of our investment in 2018. Since Foxconn and Foxconn were brought together in 2018, the business has completely transformed itself to become a technology led streaming company.
And today's Foxconn is not the company that you think you know. Since 2018, it's achieved significant growth in streaming. And as you heard from Robert, Tayo and Finge have recorded exceptional subscriber growth. The team have also worked hard to stabilize and to strengthen the Boxcel set top box business by focusing on managing revenues and repositioning it as a premium service. And with the launch of IQ5, that service will also be built around the streaming future.
There's also been a significant workforce transformation at Box Hill as part of rightsizing the company's cost base. The proof points are there in the most recent financial results where subscriber numbers grew strongly, revenue stabilized and the business put in a very positive cash flow performance. Telstra and Foxwell have had a long and very rewarding partnership. We are one of Fox Bell's biggest channels to market, and Fox Bell's content and services are incredibly important to our customers and help us differentiate our telecommunications services. So we're excited about Foxtel's future and our continued partnership.
And I believe the time is right now to give you a deeper insight into the future of the company that we see. And I want to join Robert in commending Patrick and the whole of the team at Foxtel on a job very well done in turning around the business. So let me now pass over to Patrick, Foxtel Group's CEO, to start today's presentation. Thank you.
Thanks, Robert and Andy, and welcome. Today, Foxtel's management team is pleased to tell you about our transformation journey and our growth strategy. You're going to hear from Julian Ogrin, the CEO of Kay On Dinge Les Wigan, our Head of Technology Hilary Purchard, the Head of Foxtel Retail Amanda Lang, our Head of Content and Stuart Hutton, our CFO. Our Foxtel customers know and love us, and we've been around for 20 years. But now, they're much more than that.
We have single genre streaming services, including Kayo and Binge. We're Australia's biggest sports producer, FOX Sports, and we have an ever growing ad sales business with Foxtel Media. Today, we are the Foxtel Group, a consumer focused IP led business with rapidly transforming cost base. The Foxtel Group now has 4,000,000 total subscribers. We've added 1,000,000 of those in the past 12 months.
Our streaming products are driving this growth. On this chart on the left hand side, you'll see that in 2016, 8% of subscribers came from streaming, whereas you can see on the right hand side, over 50% now come from streaming. Launching new streaming products has allowed us to target customers we previously couldn't reach through cable or satellite or people that maybe couldn't afford Foxtel. Somewhat uniquely, Foxtel has this opportunity because of low penetration rates compared to other places like the U. S.
And U. K. Where we see 50% or higher. Now nearly half of Australian households with subscription television have a Foxtel Group product. To deliver our world class product, we build a platform that's scalable, delivers cost efficiency and is capable of being used across all Coxtel Group products.
We are now the disruptor of the Australian media industry with Kayo, Ginge and our new Coxtel IQ. As you might notice on this chart, there's a new product, another disruptor. I'll leave Julian Ogren to tell you more about that. Our additional subscriber reach is delivering revenue growth and ad sales as well, and our tech stack is allowing us to serve targeted digital ads. So there's more to growth to come from that.
As a media business, of course, we sell content, and we are the long term partner of choice for local and international suppliers, whether it's sport, entertainment, lifestyle or news. All of this momentum was delivered with a clear 3 pillar strategy: 1st, to grow through streaming 2nd, to strengthen top sell and 3rd, to win with world class content and technology. Let me take you through it in a bit more detail. 1st, we cover growth through streaming. We are now at 2,100,000 streaming subscribers and continuing to grow.
This gives us a new platform to showcase and to monetize our content. We started with Foxtel Go and now and we've rapidly accelerated with Kayo and Bensch. This has resulted in a material shift in our revenue profile. Our streaming revenue has more than doubled to $360,000,000 in the last 2 years. We are confident there's more growth to come in streaming.
Consumer habits have changed. The shift to digital has transformed the way in which we all watch TV. Right now, 3 quarters of Australian homes have an SVOD service. Independent research indicates this is going to grow to 85% by the end of FY 'twenty five. And the number of this product services for the household will grow as well.
The Foxtel Group is strongly positioned to capture the growth of streaming. The range of products and price points in our ecosystem is built to suit a broad range of subscribers from premium aggregation with the Foxtel product to distinct single genre streaming services like Kayo and Binge. The shift to digital also brings cost advantages to the Foxtel Group. Stuart will talk about a little later. This growth of Kayo and Vinge has materially shifted our revenue mix too, particularly over the past 12 months.
While streaming revenue has grown, our focus on customer lifetime value in the Foxtel Residential business has slowed its decline. This is particularly evident in Q4 where streaming revenue effectively backfilled lost Foxtel revenue. This brings me to Pillar 2, strengthening Foxtel. Our loyal high value subscribers enjoy the Foxtel products and they're willing to pay a bit more to have the convenience of everything in one place. This is reflected in rising ARPUs over the past 4 quarters.
On the left hand side of this chart, you can see that 89% of our subscribers pay more than $50 per month. That's more than our income package. On the right hand side, you can see the loyalty of the base. Nearly 90% of subscribers have been with us for more than 3 years and nearly 60% for over 8. The 3rd pillar of our strategy has key parts, great content and the best technology.
Let's have a look at content first. Our diverse range of long standing content partners value the rich we're delivering through our new product ecosystem. We're able to deliver the right content on the right product for the right subscriber. There's no better illustration of this than the sports landscape where we are the local partner of choice for Australian and international sport. We have partnerships with Australia's most popular sports, the AFL, NRL, Kinship and Supercars.
We're investing in local growth sports, including netball and local basketball. And we have the best of international sports like F1 and the Masters, U. S. Sports through ESPN and European sports in BN. The second part of Pillar 3 is technology.
We've become a tech led company, whether it's through single genre streaming services and new plug and play IQ, AgTech that serves targeted ads to our subscribers and the new CRM and MarTech that enables our data led subscriber strategy. And it's all built on a very scalable core. As Wigan will talk to you about this. So bringing it all together, the Foxtel Group has 3 year ambitions. They are: 1st, to reach 5,000,000 plus subscribers second, to hit $3,000,000,000 of revenue with continued opportunity for margin expansion and third, to achieve a 4% CapEx to revenue ratio, which will continue our strong cash performance momentum.
Our ambitions will be achieved by adhering to the strategy I've articulated today and leveraging what we've built. To grow through streaming, we've got plenty of upside in existing products and we'll launch more. To continue to strengthen Foxtel, we'll be offering existing customers even more value while using technology to reduce cost to serve. And we will broaden and deepen our content relationships and continue to transform costs through technology. Speaking of content, let's hear from some of our long standing sports partners.
Well, the Fosto Group and the AFL have been decades long partners. It's a true partnership. It's not just the tenure that's important. It's we actually partnered in the growth of the game. The Foxtel Group's push into streaming and into color shows around that game, a couple of areas where they have gone above and beyond the contract to tell a story about that game and particularly the result of the growth in that game.
It's a great partnership
that Fosterville brings with us.
The media landscape has changed dramatically over the last few years. And only the ones that are proactive and innovative will survive. And Otsuka is one of those groups.
And there it is, right before, 2022.
Our partnership since 2018 we've just seen it grow and expand. They've been instrumental in growing the breadth of the audience, our diversity of our audience. I can genuinely say that Foxtel are a strategic growth partner of cricket.
We are post signing the SNMP Melbourne game tomorrow. Well, when COVID hit, it was a pretty dramatic situation for all
of us. And thanks to Delaney and the Foxtel group have been incredible. They had their own challenges, and we had our moments. But I think we both we've had open conversations about what would work for both of us. The Foxtel Group were integral to us restarting.
Without their support, without their backing, we would never have done it. It was a risk to make that work because that's what they are. They're risk factors. And in business, if you don't take risk, you don't succeed. It's all about innovation.
I'll give you one example. Last year, we unfortunately could have no crowds. Now just little things make so much difference. The Foxtel group and the expertise they have, they reduced the camera angles so
you could only see the field. So you couldn't see the empty
engine. Now other organizations didn't do that, and it had no atmosphere. And then to bring in a cloud noise,
you wouldn't have known that
we're in a pandemic. They look at doing things better at all times. They try to stay ahead of the game at all times.
And if they don't do that,
we wouldn't be sitting here today. They're so passionate and so proud about getting
the band closer to the accident, whether that's the flying fox, rover.
There's just so many innovations that are actually bringing the people closer to the action. But what's more than that? It unites us. It makes us friends. It causes us
to have arguments, debates. Without it, when we went without it,
we didn't realize how good it was.
Okay. We're calling and its partnership with the cocktail group has been a key thing for so many Australians to get through this. To rely on their teams, their tribes coming out produced beautifully and buying into the narrative this season has given people something to distract themselves in the weekends and meantime the last couple of years on weeknights. And I think it's been a core stabilizing force for so many
shows. Thank you to Gil, Peter and Nick. It's great to
hear such positive feedback from our sports partners. Well, now we're going to go a little deeper into each element of the strategy, and I'd like to introduce Julian Obrun, CEO of Kayo and Binge. Julian is going to step through how we are growing through straining. Julian? Thanks, Patrick.
What I'd like to do today is unpack how we use start up thinking to create a scalable streaming growth engine for the CoorsTail Group. So far, we've built 3 products in 3 years, and they're delivering rapid growth in subscribers and revenue. The first of these products was Kayo. For those who aren't familiar with Kayo, it's a live and on demand streaming service featuring over 50 sports. We launched K.
O. In November 2018, our first single genre streaming business. It started growing by word-of-mouth. Today, it's the most popular sports streaming product in the country. Let me start by saying not all streaming services are built equal.
Our technology platform was built specifically for live sports with low latency and the ability to serve very high numbers of concurrent viewers. It served us incredibly well. We've had strong subscriber growth since launch, reaching 1,100,000 total subscribers at the end of June. A secret sauce is our product offering. Over 50 Australian and international sports, including all of the big ones, ASL, NRL, Cricket, Supercars, Formula 1, Golf and through ESPN, the NBA and NFL.
The depth of our year end calendar allows casual fans and fanatics to be deeply engaged with the product. We've reduced the seasonal churn and we've created opportunities for unique sports partnerships by bringing select games in front of the paywall. The Kayo product itself is unlike anything available in Australia. We've designed user experience to reflect the best features of streaming services across all categories. That means subscribers are familiar with the product features, hero carousel, tiles and more, and they love it.
While Kayo is available on phone, tablet, computer and TV, 68 percent of viewing is on the big screen. It's not a companion app, it's their main product. And broadly, it's opened up the Foxconn Group's 4th portfolio and the quality of Foxconn's production to all new sector of Australians, allowing us to fully monetize their investment in sports. Whereas subscribers may be familiar with how to operate the product, what stands out are Kayo's unique features. Multi screen, up to 4 different sports at once, key moments, Kayo Minis, where we package up highlights within 15 minutes of the final whistle.
These drive significant next day viewership, particularly of sports that aren't in our home zone. These have been such successful innovations, we're using them in other streaming products and other parts of the business. Kayo pricing and packaging recognizes the way our subscribers consume our products. Multiple streams allow for parallel accounts and streaming. KF Breeze launched in February in both a subscriber funnel and a strategy to keep all subscribers engaged.
This also allowed us to offer our support partners such as Netball Australia, a new platform with Australia's high Internet penetration providing accessibility that's on par with free to air television. We have other growth options. For example, there's been growth in our pay per view, boxing and UFC. We've also refined Kayo's sales strategy with local pre acquisition marketing and promotional partners to help us drive brand awareness and acquisition. With a massive base of current and paused users, we can continue to drive low CPAs as we effectively target paused plans and reactivate them at virtually no cost.
With 1,100,000 total subscribers at 30 June, we are now well established, but we believe there is still plenty of room for growth. There's an opportunity for further penetration as fans seek out the quality of Fox Sports production and commentary, and we ride the streaming wave as consumers increasingly choose SVOD services. As you'd expect, we do see some seasonality with Kayo, given the popularity of winter sports in Australia. This becomes a matter of how you manage the customer lifecycle. As we find many subscribers go cancel, they pause and they reactivate.
Having had 3 years of experience, we're confident of a big summer of cricket ahead with the Ashes, just as we saw with last year's India tour, along with the NBL and the rest of our sports calendar. The bottom line is, as Kayo continues to grow, we've seen strong revenue growth in 2021 financial year, up 87% on 2020. Turning to subscriber engagement, they really do take advantage of the 50 plus sports we offer. Kia subscribers don't just watch 1 or 2 sports, 62% watch 3 or more and 23% watch more than 8 sports. That's an important differentiator.
It makes us premium and sees our subscribers stick with us year round compared to the single sports streaming offerings. Finally, KAZE marketing really embodies that engagement. Our most recent campaign is Sport Lids Here. Moving into the summer, we have refreshed it to feature Cricket Lids Here as we go into a strong season including the Cricket World Cup and the Ashes.
Turning to Binge, we launched
this product in May last year at the home of over 10000 hours of drama, lifestyle and movies. It's been a heck of a ride.
Binge was built on
the same scalable tech stack as Tayo, so we were able to take advantage of all the learnings from Tayo, including how we use data to engage subscribers. The reaction has been incredible. We have already reached nearly 830,000 subscribers at the end of June, and we're continuing to grow, bringing new subscribers and new revenue to the Foxtel Group. The product itself brings that same best in class familiarity of an entertainment streaming service. And we're continuing to evolve our personalization and recommendation engine as well as a pipeline of product innovation.
The Bidge product suite is also designed around account viewing. It's available on a variety of devices and caters to the way subscribers want to view it, whether it's on a TV, laptop, tablet or mobile. We find that within an account, subscribers can further watch a different types of screens. Think of mom and dad watching it on the TV and the daughter streaming on her laptop. The spin's sales strategy is content led.
We featured tentpole mass market hits with our out of home and big splash marketing supported by performance driven audience targeted campaigns, again using strong promotional partners. Like Kayo, we use performance based marketing and review CCAs daily and adjust accordingly. That's led to binge growth that's been like our touch tone. We don't get Kayo's seasonality. Acquisition is driven by consistent release of Penpole shows with a deep library that appeals to a wide range of subscribers.
Importantly, subscriber growth also translates into consistent revenue growth, which is now over 4x higher than
the launch quarter. An important behavior we
see with subscribers is they come for the new releases, they stay for the library. When we market tentpole shows like Vigil or The Undoing, we see rapid subscriber acquisition. What we are then seeing is high retention rates due to the depth of content from a variety of studio partners, including our own group originals. This behavior plays out in the data. 56% of VIN subscribers watch 3 or more series in a month and 24% watch more than 8.
Finally, the launch of Flash, our next streaming business is just around the corner. It's a demonstration that we can keep creating single genre streaming products. By doing this, we can reach more and more Australians as streaming services become today's go to source of high quality entertainment and information. Flash is the first of its kind. It's a news aggregation service live and on demand.
It will feature a breadth of global and local partners offering subscribers a genuine diversity of opinion and perspective and allowing them to dive deep into the news. Importantly, Flash is built on the same streaming platform as Payone Binge, allowing us to go to market quickly and efficiently. I want to reveal everything about this product today, but you might be interested to know that the insights we have about the way viewers consume, sport or subscribe to news, personalization, split screen, minis or as we call them in flash, flash points. Finally, I want to emphasize that this product is all about diverse sources, whether you want Australian or international news. Whether your politics are progressive, in the center or conservative, whether your interest is in politics or business, U.
S. Or UK news, Flash brings it all together. It's an exciting product that will open up another new growth opportunity for us and it launches in the next few weeks. Before I pass you to Les Wigan, our Chief Technology and Operations Officer, let's have a quick look at Flash.
The significance at this moment cannot be underestimated.
The targets of Beirut are in ruins today.
We don't know where the virus
Thanks, Jiren. You just heard about the growth our streaming products are creating. This doesn't happen without a technology strategy that is based on global best practice until it's scalable and can support our subscriber growth at a low cost. It's the foundation of everything we do. It underpins our growth and our ability to innovate and will drive the next stage of our transformation.
Let me start by saying our technology strategy is based on our long term vision. In 2018, we started by thinking about where we wanted to end. We've built a greenfield streaming focused technology stack to support all of our new OTT products. We've got Kayo on this stage in 2018, while we've entered 2020, Kayo TVs early this year and Flash until launch in the coming weeks. And soon, our FOXDEL OCC products, FOXDEL NOW and Hoe, will be also migrated to this technology stack.
The stack has 3 important features. It's scalable, it's reliable and it puts the customer at the center. 1st, scalability. Our strategy was always to have 1 streaming platform that supports model products in a growing subscriber base. What this means in a practical sense is that as we continue to innovate the platform, the innovation is applied to all products on that platform.
We expect this will deliver significant efficiencies. We've also architected this technology stack to be highly scalable in a cost effective way across monitoring capability, AI and cloud based operations, which is important in a fast growing subscriber base. This has taken us from our 1st day of customers back in 2018 to peak this year, where we've had around 55,000 customers sign up in a single day. Then there's reliability. The technology stack can support a high volume subscribers and content with a proven record of performance.
To bring this to life, here are a couple of interesting stats. For Tayo, we've had as many as 37 live concurrent sports being streamed at a single time. We specifically support over 300 live events over the course of the week and we've had a peak of 4 20 live events in a given week. All of this is sub 10 seconds latency. I know this isn't a tech audience and our technologists like to stay humble, but this is a performance that's right off air globally.
We've also optimized the platform for redundancy, including a multi CBN approach. Our aim is best in class reliability so that our customers are able to stream their entertainment without any disruptions. And lastly, customer centricity. The technology stack is built with a customer at the center of everything we do, which is critical for two reasons. First, for our customers, we experience a simple and digital refocus.
This takes for easy sign up and quick self-service. 94% of our Kayo and Binge customers are able to self manage sign up and help without needing to contact us. 2nd, the business side, we have a single view of the customer across all products that verify when a customer signs up. This drives our advertising reach and our capabilities across the Focal Group. We have a strong track record of leveraging these world class streaming technologies back over the past 3 or 4 years.
However, there is more to do. Over the next 2 years, we are investing in 4 strategic technology projects to unlock the next wave of transformation and efficiency for the Foxtel Group. As there's no plan, each of these projects are already underway. Let me step you through each one of them. 1st, we are converting our streaming and technology stack in operations.
This project will enhance the Foxtel Now eGo products by using technology stack that I spoke about earlier. The benefits are significant. A single technology stack reduces duplication and overhead. More importantly, our Foxtel streaming customers will get to world class streaming platform we have spent the last few years developing for Teo, Jinjin Flash. This project also extends to our IP enabled platform boxes, our new IQ5s, the latest Jira IQ4s, which are a sort of software upgrade to be fully IP enabled.
2nd, we are growing our audience and our targeted advertising capability. Growth in subscribers to our digital products also plays the growth in our advertising audience reach. When you overlay the fact that we have validated subscriber information and profiles and we know what our customers are watching on our platforms, This allows us to be more targeted in how we digitally deliver ads. We're already seeing we deliver high ROI for advertising partners, all done in a brand safe premium video environment. 3rd, we're digitizing SoftSelf's profit management and marketing systems.
This investment is focused on replacing our legacy customer and marketing systems that underpin the SoftBank products. Again, we are leveraging the capability we already bought for our OTT products. We expect to see significant benefits from this project in our customer servicing, engagement marketing and retention areas, both from a customer perspective with more cost service and from a business perspective with lower cost to serve. And finally, we're in the process of merging and modernizing our broadcast infrastructure. An aggregator and creator of content, there's quite a bit of technology that sits behind the scenes to organize and distribute content to its phones, connected TVs and touch boxes.
This project is merging our existing OTT infrastructure and broadcast infrastructure leveraging cloud based solutions. Clearly, this delivers operational efficiency. It also improves the resilience of our operations, which is critical, particularly with a large growing subscriber base. So in closing, let me leave you with 3 key messages about technology at the Foxtel Group. First, we have built a highly scalable, reliable, customer centric streaming technology stack.
It's the future backbone of all IP delivery across the group. 2nd, we are well on our way to modernizing existing platforms and systems that support our core wholesale products. We expect this to deliver significant financial efficiencies and improve customer experience. And finally, we have a team that has a proven track record of delivering. I'm confident we will continue to do so across large projects and existing roadmaps that we have underway today.
Before I hand over to Hilary to charge to talk about Foxtel, I'd like to leave you with a look at the latest symbol of how we deliver outstanding technology projects, newly launched iQ5. This new set top box is IP led, plug and play, delivers 4 ks sports and entertainment streaming, all at a lower cost than our previous export boxes. It's fundamental to our strategy of migrating to customers with cable and supporting digital advertising growth. Let's take a look.
Thank you, Leb. Over the past 2 years, we have been focusing the footprint business on our highest quality customers. Our strategy is to allow our more price sensitive customers to move to streaming where they are better served by our single genre streamers with their associated lower cost to serve. As a result, we now have a core base of 1,600,000 premium customers where the majority are high revenue, high value and long tenure. Our plan now is to continue to provide those customers with a premium, high quality, differentiated experience and will leverage the latest streaming technology to generate enhanced application experience at a lower cost to serve.
In an increasingly disaggregated TV ecosystem with many SVOD services, premium aggregation is a high quality experience that is desirable for consumers. By giving our customers differentiated premium aggregation experience, we believe we can maximize lifetime values and continue to deliver strong and growing ARPUs. So let's turn to the IQ5. IQ is the key enabler. This new product, launched in industry products on the 7th September, is the perfect symbol of our future.
It combines the best for streaming with everything our customers love about Foxtel in a new lower cost product. Thanks to the IQ5 and the leading edge tech stack, we are unlocking an industry first viewing experience, all while simplifying and streamlining our business. Simply put, it's a better experience at a lower cost. By redesigning our top box from the bottom up, we've been able to deliver a cleaner, sleeker, more appealing product with a much lower cost to manufacture. And because it's IP enabled, it's plug and play, there is no need to properly install, no need for satellites and it frees us from cable.
Our customers can be up and viewing in minutes. IQ5 removes the need for truck rolls, scheduling installations and waiting for technicians to show up. Great for our customers and great for costs. Even people that could never get satellite can now get the premium cocktail aggregation experience. The thousands of customers who are unable to install satellites from 1 table, specifically many of those in apartment complexes, are now able to experience a rich cocktail viewing experience.
And a simple plug and play box means greater sales and service efficiency. With its 2 part design, you can now even flip a hard drive without flipping the whole box. Most importantly, however, the iQ5 paves the way for a future of streaming agitation, one that isn't tethered to a limited choice of viewing but is instead one that creates an aggregated ecosystem of cocktail TV, twinned with SVOD apps in a single, simple integrated user interface. All your viewing options in one place, easy and all leveraging our single streaming back end. Now let's turn to that premium viewing experience.
Our customers already get our huge lineup of channels and streaming bot library. With our new streaming ready boxes, customers are now adding apps from Netflix, Amazon, Vivo, Golf TV to name a few, and that's just the start. What we have found in talking to our customers is that there is a real customer need for aggregation. Streaming has opened up a whole new copier of new apps that have come at a consumer cost. It's hard to search, choose shows and find something to watch.
By bringing those apps together all in one place, we make it easier, easier to choose, easier to search and easier to view. But that's not all. Over the next few months, we will continuously updating our user experience to bring sophisticated discovery and universal search and we'll have voice search enabled for the majority of our customers. Finally, Pottel is the home of premium 4 ks UHD across sports and movies, all enabled by our IQ platform. Customers will be able to dive straight from their favorite Netflix show to the evening speech in UHD and on to an incredible drama on Popsell.
Everything that every decision we make is about customers in mind. Now let's turn to the impact on our business performance and, specifically, to how we optimize customer lifetime value. Over the past 14 months, we have seen some increases in hotel churn. However, the cautious decision, we removed deep offers from lower ARPU customers. With KO and Binge now successfully launched and operational, we've been able to let many of our lowest revenue customers transition from top sales premium product to our single genre streaming services.
Here, they can receive a lower priced and critically lower cost to serve experience. This leverages our portfolio approach to give all customers the best experience whilst also delivering optimal financial outcomes. Turning to our higher value customers, those paying more than $50 a month, we believe that our ongoing focus on a premium experience will continue to see even lower churn. Hocktail now has a core base of 1,600,000 customers where the majority are high revenue, high value and long tenure. Customers have grown up with hotel.
We recognize and value these customers and will continue to deliver them a premium experience. Our IQ platform enables us to deliver a robust software enhancements with no additional hardware costs. Like our regular new app launches, for example. Only last month, we launched the Vivo music service with many more to come. As a result, ARPU is now rising.
And whilst revenue is declining, much of that lost revenue is from lower ARPU customers and is largely recaptured in our single genre screening services. Finally, we should turn to our commercial business. This is a long standing business with a loyal customer base spread across many diversified sectors. Clearly, the licensed venues and accommodation sector was and excludes impacted by COVID. Our teams responded proactively to our customers' needs.
And as a result, from restrictions lift, we expect to see revenues rapidly bounce back to pre pandemic levels. Our focus is on building long term contractual relationships and investing in our customers' future. Based on what we understand that the government roadmaps out of restrictions, we anticipate the commercial business will return to a positive trajectory later this year. So thank you. And now let me hand over to Amanda Lang, our Chief Commercial and Content Officer.
Thank you, Hilary. This year, Foxtel proudly reached a milestone, having delivered premium content to Australians for 25 years. I'm sure many of us remember that original marketing campaign featuring Bart Simpson declaring, I want my FOX sell. But as you've heard, today's FOXO Group is very different. Of course, we still have all of those series we've long known and loved.
The great content strategy is based on constant renewal. We see that in our groundbreaking Australian productions, diverse and contemporary lifestyle content, a pipeline of daring new premium dramas and now the endless choice we provide to integrated 3rd party apps. But I want to today share with you how our history and reputation of delivering results have established us as the Australian partner of choice for studios, producers and sports. I also want to provide some insights on how the group wide approach to content is helping us bring more entertainment and more sports to more viewers than at any time in our history. First, I mentioned our groundbreaking dramas.
No series says groundbreaking like our iconic FOXEL original Wentworth, which has just finished an epic 9 season run, watched by millions of fans in 90 countries around the world. I'm thrilled to have one of Wentworth's stars, Leah Purcell, with us today. Leah plays Rita Connors on Wentworth, and she's also one of the talented writers for our upcoming pop star original, The 12. Leah, thanks for joining us today.
My pleasure.
Great Work has been such an incredible success story for the Foxconn Group and also for Australian television in general. Quite remarkable really that an Australian series has resonated with audiences all across the world. What does that say about Australia's creative talent? That we're amazing and we can rub shoulders with the global industry. But for me personally, I think what's really reached that broad audience is the fact that it's women.
It's women's stories. It's an ensemble cast of majority women in those lead roles. The stories that that are around women, they're they're hard hitting, but there's also that emotional pull in those characters. I think the caliber of actors that we have in that show is outstanding. Every day, we're trying to top one another and there's so much support within that group of women.
And I think that comes through through our performances and through the telling of the stories in Wentworth. And it's not only just us on screen. There was a lot of female presence in the crew and also in the writing department, in the production department. And this was all before the Me Too movement. So, you know, Foxtel and Wentworth were ahead of the time and you've got to all pause them for that.
I was going to ask why are Foxtel dramas so successful, do you think? What is different about them? Look, I think, they're refreshing ideas or they're ideas that they like network, I guess, for example, did exist prior. But taking it to the next level, the discovery in the story, diving deep and finding truth in characters that everyone around the world can relate to. And I think that's why and also having the the the support in the writing stages of the project because you need the nurture, the writing, the story, the heart that comes that comes from that that makes a good drama.
I think that's what it does. You can you can tell that cocktails are behind the creative team. It's not the end product and it starts on the embryonic stage. And how important is it, do you think, for our First Nations people to have representation both on and off the screen? So it's extremely important for the original storytellers.
And I think, when you can have indigenous people at the helm of those stories being told or in the creative team and being a part of that is vitally important for once again getting to the emotional truth and the truth behind those characters and rich drama. So it's really important that indigenous people are there to tell our stories from the Truecall place. We're really excited to appreciate you joining us. Thank you so much, Leah. Thank you.
I said earlier, we're the established partner of choice for international studios and distribution partners. This position is based on strong, long lasting relationships through which we continue to build secure and wide ranging content supply deals. These relationships have only deepened over time with our partners supplying us more content because they see the value to their business of relationships with the Foxtel Group. What has changed though is that we can now bring this content to more viewers than ever before through Foxtel and Binge for TV shows, Foxtel and Kayo for sports and now Foxel and Flash for news. By buying content once and using it to deliver an incredible all in one place experience for Foxel and using it for our single genre streaming platforms, we have fundamentally changed the economics of the Foxel Group's business.
An easy way to think about this is that we have 1 kitchen serving many restaurants. This approach is underpinned by sophisticated prioritization and marketing process that allows our brands to remain distinctive, reach more Australians than ever before and fully monetize the incredible range of content that we buy. We want to make sure that a show that's loved by a Foxtel audience on a linear channel or on demand can also find a brand new audience on Binge, allowing us to extract full value from our investments. For Foxtel customers, we complement our content offering with local and global streaming apps to support the brand's all in one place promise. Thanks to these relationships with our diverse range of studio partners, we continue to have an exciting pipeline of new and returning titles.
We're also supplementing this with a rich stream of content and channels We targeted carefully chosen original productions, which can also build audiences and drive revenue across both Black Cell and Binge. 1st, international shows and movies. We'll shortly see the return of the critically acclaimed drama Succession for its 3rd season, along with other returning hits such as Fear the Walking Dead, the and Just Like That, Sex and the City reboot, Lost It Girl and Raised by Wolves to name but a few. And we'll also be bringing to screens the period drama, Northwater, starring Colin Farrell and The Premise, an anthology series from The Office star, BJ Novak. And then in 2022, almost in a category all its own, we'll see the return of the game of Thrones behemoth, the debut of the prequel series House of the Dragon.
Finally, I'd like to highlight our much loved local and twisted original, Selling Houses Australia, Love Well Listed and the Great Australian Ink Off. We also have, of course, fresh new original drama series hitting our screens in the coming months. These include our next original drama, Love Me, starring Australia's very own Hugo Weaving. This will be a 6 part series about modern love as experienced by 3 generations of the 1 Australian family. This show has an incredible cast.
And I'm very pleased to have Hugo Weaving and the amazing Heather Mitchell join us from the set of Love Me in Melbourne. Good morning to you both. Hugo, you don't have a lot of television these days. So why now? Why Love Me?
Well, it's funny. No, I don't do lots of TV, but I once upon a time did quite a few miniseries with Kennedy Miller way back when, and Heather just happened to be in the first piece of TV I did actually. But I just love the story really. It's a very simple universal story about it's a contemporary story about family and grief and love. And it's got a lovely sense of humor.
It just feels very real. The characters feel true and made the car more and very human.
Thanks, Hugo. And for you, Heather?
I just think the
story line is stunning in its exploration of love and grief as 2 of the concepts. What's so amazing is that love and grief is so often very unexpected and often overwhelming. So I feel like this storyline not only deals with it in many unexpected ways, but also it's very cross generational and multigenerational. So it's I feel like one of the great things that resonate for me is that it gives you a great insight into a generation that you may not be part of.
Amazing. Exactly right. And when you look at the industry today, could you have imagined how our viewing habits have changed so dramatically?
No.
Not at all.
I mean, I think they have changed massively, and they're still changing. There's been a huge, huge shift in the way in which we view this. And I think it's exciting that people can access whatever they want, whenever they want, on whatever platform they want. And so those are all the obvious pluses.
Before I leave you both, can I ask your views on the local industry and the importance for companies like Upsell to tell Australian stories? One of the
great things by having all these platforms, having answers is Australian stories, which
are will always be developing
and will always be reflecting what's happening in the present, that the access to universal, worldwide access of that, not only the stories but also the talents of the people who are creating these stories get seen. So I mean, I think that and it becomes more of a norm for Libertighter people to absorb these diverse cultural stories?
John, I think we're going through a difficult phase at the moment in Australia. As long as we can keep on prioritizing our own culture, then we're fine. But it's very easy to jettison who we are. This is actually the only thing we've got. And I think everything's got to come to the States.
Everything's got to be sort of mid Atlantic. But actually, the great benefit we have is that we live in this particular country with this particular climate and particular animals and people and jokes and language. And that's the thing we need to be celebrating, and those are the stories that we need to tell. And that's what we've always tried to do. I mean, unfortunately, I work overseas, but always try to come back here.
And this is the place I'm interested and these are the stories I'm interested in telling. So I think we need to keep on prioritizing our own culture, everyone in our industry.
I completely agree with you. Thanks so much for your time, Heather and Hugo. And in case you're wondering, Love Me will air later this year. Alongside great TV and movies, for millions of Australians, the Foxtel Group means sport. We are home to the largest and most diverse range of iconic and popular sports and our subscribers can watch on Foxtel or stream on Kayo.
When I say popular, these sports are massive. ASL, NRL, Cricket, Supercars, Formula 1, Golf and from next year, the Super Netball. Through ESPN, we have the NBA and Australia's National Basketball League and of course, the NFL and through our partner, BM Sports, European Football and the Tennis with the WTA Tour. Like our TV and Movie Studio partnerships, the Foxtel Group's relationships with both Australian and international sporting codes are long standing based on assured dedication to delivering the world's best sports to our subscribers. There are also several sports like Netball who have returned to the Foxtel Group after hiatus on free to air.
And that's happened because we've again proven to be a great partner. We've shown that we are dedicated to championing their sport, their teams, their athletes through world class live sports production as well as analysis and opinion on our award winning magazine and panel shows. Those partnerships provide sports with the potential to be seen by a huge audience, thanks to the Fixel Group's large base of sports subscribers. And not only are our sports partners joining us and sticking with us, we're also growing and improving those relationships over time with better production terms, better rights and more access to cars. For example, we recently announced the renewal of our multiyear deal with the MotoGP and World Superbikes, and saw us secure a significant uplift in exclusive rights to the Foxtel Group.
These strong and diverse sports partnerships were able to deliver a full calendar of sports year round. No one else in Australia offers the breadth and depth of the Foxtel Group Sports coverage. And this page doesn't even show us everything. As part of our overall sports content strategy, we've gone deeper with select major codes. You can see there is no gap there between NRL, AFL, motorsports and golf.
We've also been very deliberate and data driven in how we've put together our sports portfolio. These are the sports that we believe drive viewership, loyalty and subscriber growth. They deliver the right return and the right offering that our subscribers love. Let me now hand you back to Patrick to introduce the final section of the presentation.
Thanks, Amanda. A fantastic presentation of a very rich story. I know we've got a lot of people that have joined us today, but one of our shareholders' most important goals has been to share our strategy with the investment community. Ultimately, the strategy has to be about delivering outcomes for customers and shareholders and in turn our investors. So let's finish the formal part of the presentation with our Chief Financial Officer, Stuart Hutton.
He will take us through how the execution of our strategy is translating into financial performance.
Thanks, Patrick, and good morning to everyone. I joined the Foxtel Group in August this year. By way of background, I've been a Senior Financial Executive for the past 15 years at Global Australian Public Companies, including Orica and Amcor. Most recently, I was the CFO of Aurora for 7 years, which was demerge from Amcor in December 2013. The Foxtel Bridge is certainly a step change from banking bottles in cans.
I see the company as an exciting opportunity and I'm looking forward to continuing to build the business based on the strategy that's been outlined today. Before I get into the detail, please note all numbers provided are in Australian dollars and prepared on U. S. Generally accepted accounting principles rather than IFRS principles. There are reconciliations for certain non GAAP measures into EBITDA based on IFRS principles, which are used by Australian companies.
These are in the appendix for the presentation. You'll find the presentation on our website. So now, on to the presentation. The business delivered a strong financial performance in FY 'twenty one and this is despite the impact of COVID, generating sales revenue of approximately AUD 2,800,000,000 This was a result of leveraging our portfolio of world class content and the continuing implementation of our 3 strategic pillars: driving growth through streaming, strengthening Foxtel Retail by offering more value to existing customers and reducing cost to serve and winning with world class content and technology. EBITDA is in line with FY 'twenty of approximately 460,000,000 dollars The Fosterville Group is the largest Australian media company based on revenue.
The results of the past year have been strong and the business is well positioned for growth in the future. So let me set you through more detail on the drivers of revenue. With the launch and rapid growth of streaming products driving subscription revenue, this additional reach also provides opportunities for advertising revenue growth, which in mind is helping route revenues to stabilize. The Foxtail retail business has steadied, but is still slowly declining.
It's a credit from
the team, however, that through a number of initiatives around value, content and technology, the pace of decline has slowed. Pleasingly, as we implement the strategy and we leverage the reach of over 4,000,000 subscribers, we have been able to keep developing new revenue streams. In this context, growth in streaming subscribers and digital advertising revenues are key drivers for us, while we work hard at maintaining retail revenues. The aspiration from here is to steadily improve revenues towards $3,000,000,000 in the coming years. But while stabilizing revenues has been very positive, to drive pending growth, the team has been undertaking a strategic cost transformation program.
This slide highlights the success of this transformation with a reduction in costs from the 2019 financial year of approximately 10% to $250,000,000 down from $2,300,000,000 A large portion of these costs came out in FY 'nineteen and FY 'twenty.
We took the decision provided by
the disruption from COVID to reshape the business for the future. The team identified various costs and efficiency levers that were seen as critical to reshape and simplify the business and establish a platform to further deliver growth into the future. These initiatives included rightsizing support functions, including consolidating them where possible, renegotiating content rights focusing on premium sports and entertainment. This included the implementation of a more disciplined approach to assessing the value of content decision making, which continues today, where possible transition to a lower cost operating model. This will take some time to play out as there is a continuing need to support the Foxtel retail business.
Streamlining, automating and digitizing process flows, albeit some reinvestment of these savings was required to support the growth of the streaming platform. Ongoing investment in technology to deliver a lower and sustainable cost base.
As you heard from Les earlier,
this is a multi year journey. In total, the headcount reduction from these programs were approximately 800 roles, which equated to 30% of the total FY 'nineteen headcount. The simple goal is to maintain this improved cost efficiency to continue to look today to simplify and automate the business. We are now a business that manages cost discipline very well and we have introduced a variety of controls and costs for all areas of the business. The culture of the business has been transformed, but every opportunity for cost savings is considered with the aim of being as lean as possible.
With revenue stabilizing and control of costs a continuing focus, EBITDA has remained relatively stable across FY 'twenty and FY 'twenty one at approximately 460,000,000 dollars EBITDA margins are strong at 17%. It is worth noting, there were some costs deferred from FY20 to FY20 1 for normalized crude price, amortization and production costs due to COVID-nineteen postponements. Both years are seen as a fair representation of the underlying earnings. The aspiration from here is, with slow but steady growth in revenues and relentless focus on cost control, this business is still a place for earnings growth. One of the key aspects of our transformation is the progression towards being a low cost digital operator.
The CapEx burden on Foxtel is already reducing and is expected to continue to reduce over time. The cost to onboard a new subscriber, which is illustrated on this slide, is a great example. If you go back, the more traditional method of a satellite installation involves some technicians in a Foxtel truck, installing a satellite on the roof and setting up the relevant set of unit at the customer's site, much of which will get Foxtel's cost. The way forward for on-site hardware such as ZIQ5, which will be rolled out over the next couple of years, if internet based plug and play technology introduces traffic costs significantly. Even more pronounced are the cost advantages of having a new subscriber to a streaming platform.
This has virtually no incremental upfront costs as the technology stack to those platforms has already been built and
the customers own their own preferred streaming device. So in a
capital light subscriber growth model and supporting a fewer operating platforms over time, another feature of our transformation is the expected reduction in capital expenditure. The transition from traditional cable and satellite, which still need to be maintained, the digital technology has lowered our expected future capital requirements. This slide illustrates the journey clearly, with CapEx falling from 14% of revenues in FY 'nineteen to 7% in FY 'twenty one.
As mentioned earlier, our aspiration
is to get this measured down to approximately 4% over the next few years.
Now turning to cash flow.
The result of stable revenues and lower cost base the CapEx burden has been stronger cash flow. This is the key financial outcome of the transformation of the Foxtel Group. As you can see on this slide, our ability to generate cash has improved significantly. And this is expected to be sustained, especially as the CapEx burden reduces. This provides optionality to continue to invest
in both of the business and
in turn surplus cash flows to support others to our shareholders. To this point, the funds have been primarily used to materially reduce external debt levels. So that concludes my commentary. I'll now hand it back to Patrick for some closing remarks before we open up for questions. Thank you.
Thanks, Stuart. Well, today, we've provided an in-depth look at our business,
and I hope you get a sense of the focus that we have as a management team and how we are turning this into performance. To summarize today's presentation, the Foxtel Group has been repositioned for growth. We are a premium capital light IT led company with over 4 Ring total subscribers. We have multiple and growing revenue streams with strategic price flexibility. We have a diverse range of innovative streaming products, which are growing rapidly.
We have strengthened the Foxtel business with a focus on our loyal high value subscribers and we are embracing IP. We have a competitive position with premium sport and entertainment content combined with long term partner relationships. We've transformed digital operations with sustained efficiency and consumer benefits. And importantly, we have high cash flow generation supporting investment in growth and returns. Well, that concludes the formal presentation, and we now have time for questions from the investment community.
You can submit those via the chat function on the right hand side of your screen. Well, I'm delighted to be joined by Ross Greenberg, the Business Editor from Sky News and one of Australia's most respected journalists to facilitate all of your questions. Good morning, Ross. It's morning for us, but I know for a lot of our U. S.
Investors and Europeans, it's certainly not morning.
No, it's certainly not morning. And for them, I'll just say, click on the right hand side of your screen, forget that chat function, send us a question, we'd love to have put it through the team here. Stuart Hutton standing by in our Melbourne studio. Patrick here with me in the Sydney studio. Patrick, I just want to start by asking for that North American audience that's listening, there are some fundamental differences in pay television and in Australia versus the United States.
Part of it comes to the
way in which it's distributed.
Part of it comes to even the power of
Foxtel in terms of its dominant market share. So just to explain
that to Paul, look, I think
the first thing to understand is the penetration rates that pay TV achieved in Australia are nowhere near that of the States or even Europe. And I spoke to that in the presentation. Our penetration was always quite low. There are a lot of questions about whether people are willing to pay for television. We were hamstrung by the cable and the satellite.
Whereas in America, the penetration rate is very, very high. So that gives rise to a great opportunity for us, which you're seeing come out of the streaming because we're able to offer a different service to the 75% or more that couldn't get Cocktail. The second thing is that we really are the only PCV player of scale in Australia. So as opposed to in the States where there are regional PTV players that have markets. The other thing is we own a lot of our own content.
We produce channels. We own the VOD and that's given rise to how we're able to stream. But it also gives rise to our scale. We are a meaningful player in this country, which isn't a big country. We only have 25,000,000 people.
So we're seeing those penetration rates that were previously hamstrung, that opportunity when we're moving into it. The other thing
I should have taken up forever, but the other thing
is that in the States, a provider might have the NDA or they might have American Football. We here have all the sports and all the content. So we're really quite meaningful in terms of scale. The relationships go for 25 years. And the last thing I'd say, Ross, is that because we are the full player and now the streaming player, we're able to work with our content providers to buy their content direct, but also if they want to go over the top, also help them to go over the top.
And I
think there'll be a mixture
of those going forward where we are facilitating them going over the top and we're buying content for both. Okay. So, while questions are coming in, just one
other one, which almost is the elephant in the room in some ways. When this announcement this day of understanding Foxtel was announced, a lot of people would have imagined that this was the announcement of the IPO that Foxtel was going to go public, there was going to be capital raising, the shareholders would sell down. It hasn't happened. It's not what this day is about, obviously. But just explain the shape of Oxtel today versus the last time that there was conversation that had an IPO.
You can always tell when you're talking to a journalist, there's always a trick here. Look, my mandate is not here from the shareholders about an IPO. That's my decision. The reason for this Strategy Day is to explain to investors in the 2 shareholders our strategy and how we have delivered value and that we are now facing a trajectory of growth. I think that's very, very important.
The strategy has been it was put together in 2018. We've stuck to it and we're going to stick to it for the next 3 years. We think it's a great strategy. It's unique for us in Australia to be able to grow through streaming, to strengthen digital, make sure we keep those valuable customers and give them better value, more value. And importantly, that tech stack, it's delivering real value.
We started the plan in 2018 to build it. And I think COVID helped us gain real conviction around it, where we've got those 4 capital projects that are in the middle. And ultimately, it will give rise to what we're calling a single spine where we can not only run all of our streaming products of it, but we'll run top shelf off it. And it means cost down, but it also means better value for subscribers.
Let's go to the questions that are coming in.
The first one is from Craig Huber at Huber Research Partners. He asked just what percentage of households in Australia buy at least one service from Foxtel? And just can you compare that today with what it was 5 years ago? Okay. Well, look, that's
a great question and it shows penetration rate without going into exact percentages because you've got to compare it to what the available houses are and everything. 5 years ago, we would have been around the 20% height. And now as we sit 30 June last financial year, we're nearly 1 in 2 homes. So we're gaining scale and penetration. And the point I'd like to make is that we're not now hampered by cables and satellites.
We're not hampered by affordability. We've got an ecosystem of products that can suit the content we have, the devices and importantly, the customers. And that dual strategy is working well between premium Foxtel and what we're calling the single genre streamers. And as we go forward, we want to reposition Foxtel as a streaming aggregator.
Is it reasonable to have a bigger penetration, bigger your ability to buy the upsell or to be able to target digital advertising to those larger number of people that you've got as your customer base?
Look, the advertising question is a really interesting one. Within the presentation, we showed the up weight of digital advertising. What we're seeing because of that penetration is that we now are a player of reach, which we've not been previously. We've been seen as a boutique advertising play with a niche reach. We've now got scale and reach.
But you're right, the interesting thing about the fix that is that the more IT we go, the more we're able to serve digital ads and addressability. And the way we like to put it is we go from traditional dumb video, right, where it's just video with which you've been really intelligent video where we can back it with digital data, but also serve address addressable ads with scale.
All right. Let's move on. A question here from Lucy Huang at Bank of America. Can you provide some statistics to Tayo and Binge subscribers as well? So, it's interesting.
One of the things we've learned with the streaming services is that it's not actually churn in streaming services. It's very different to a pay TV service where you market and you almost bring a conveyor belt of subscribers along where you top them up to are you going to get it and then you put it in, you spend a lot of capital And once they say I don't want the service, you take the capital equipment out and they're gone. That's real churn. In the screening services, it's not churn it's causing, right, because you don't have to pull any capital equipment out. You've got all of the rich data.
And this is another thing that we are learning. We've got such great tech stack, got a great team that can use the data. So something like Tayo, which is seasonal, we know the subscribers and what they like, in say during the winter season, what the crossovers between all of the slots we have. When it comes to the summer season, there are some customers we know that will pause, which will pause for 3 months until the winter season again. There are others that we know that will cross over so we can send communications.
And it's the same with Ginge. We have rich data, so we know the type of content they like. And it's a matter of pulling those levers. The other thing I'd say is that as we go through the cycles of seasons and of whether it's a season of a show or season of a sport and we go through years in the streaming side, we're learning and we're seeing that people are pausing their subscriptions less and so get to not collect the services. And both of those services are not just that promotable material at the top.
They've got very rich material once you're in 5th.
But it is fair to say that broadly your audience loves football. That's the one thing it loves. Same in the United States, same in the UK. People just love football. Football season is where you get your big
kick up. They do. And look, you raised an interesting point because there's another difference between America and Australia. America, I think most people are interested in the NFL. Most people are interested in the NGO.
They go nationally. In Australia, it's north and south divide. The southern states love Aussie rules, the Australian Football League, and the northern states love rugby league, right? And so and we have both, and you've got to have both. So it's
an interesting paradigm. All right. Let's go
to another question. Lucy, follow-up question here. Can you provide any color around the size of the cost base, which Oxtel can continue to extract efficiencies? This one, I think I might get Stuart. I think
we have a chat about that because, Stuart, this is
one of the important parts about this story. I mean, it's
often been considered to be a bit
of a, in some ways, a utility. In other words, just free cash flow coming through with not much growth. But this is
a better growth strategy, isn't it?
Yes, Ross. Thank you.
It was a very good question.
So, yes, I think the transformation that we've undertaken in the last few years on the cost base is evidence of that. And also, as you've referred to the stabilizing of the revenue line is important in terms of obviously stabilizing that part, but the cost coming out means that obviously, we're looking for and well positioned for earnings growth. I think the question is around is there more opportunity around cost? Well, I think there always is. And what I've been very impressed with since I've joined here is the robustness of processes around that are in place to make sure that costs don't creep back into the business.
So I think, if people want to put more employees on or they want to invest in something, well, there's got a big benefit for the corporation moving forward, whether that's additional revenues, I believe, which drives more earnings or it's cost out to drive more earnings. That's the process that's in place and I've seen requests come that have been rejected because we're not convinced that the case is robust enough. So I think the cultural change that's in place here has been very impressive. So, we're well positioned to make sure we don't get leakage back in. And I think there's also more opportunity, especially as we go forward and we migrate off some of these legacy distribution platforms, there's more opportunity to take further costs out.
Okay. So another follow-up question to that one. This comes from T. Rowe Price. Now I'll ask both of you this question because what do you anticipate doing with your free cash flow and what will you use it for?
For example, will you pay down debt? Will you invest in more product? What will you do?
Let me have a go first and then Patrick can by all means add. But I would say, look, our preference
on this side is we would like
to invest for growth. So whether that's investing in content to drive additional revenues or it's investing in technology to take cost out, that would be our preference. Certainly, the shareholders will be working with them around as we put forward those proposals. But I guess in the absence of all that, we would initially, we would pay down debt is the smartest thing to do or obviously if the shareholders are direct, we will return it to them.
Okay. So Patrick, there's almost a supplementary question here because obviously a lot of the big global players have come to Australia, coming up shop and competing with you. Now the interesting part of how that is a question of content into the future, whether there is enough content if they withdraw content. What's your experience being
so far? Well, I think there's more time to play out on that. But these relationships go back a long way. And as I said earlier, we are we have real scale in this country. We pay studios a lot of money.
And the reason we do that is because we have such a diverse range of needs for content. And we've, of course, got the big K2B engine that's just coming and now we've got more reach. The interesting thing is we're seeing some of it clearly, Disney has gone its own way. Others other players I think will show that there might be a mixture of working with us both on selling us content and with us pushing their direct to consumer. And we're in that unique position where we can do both.
So we'll see how it plays out, but I am pretty confident that the relationships and the scale, all the things I talked about, the difference between Australia and America and indeed with Europe. All of those things mean that things would play out interestingly here and Foxtel is really well set up for it.
All right. Let's go to another question from CERO Price. Just how successful have you been at converting LifePass customers to Kayo, this is a pretty important thing because these were relatively cheap entries into streaming services and sport. So how big an opportunity is this over the next few quarters?
Yes. Just to explain that for the U. S. Investors, LiveCast was a service that our past partner shareholder had that put live games of AFL and NRL to air on mobile phones with stream restrictions. Last year, Telstra decided to actually go full hog with us on Kayo.
So Kayo is not just 1 or 2 sports, it's 50 sports full screen. And so in this coming season, we made an offer for the Kayo for the live cast customers to come on board at $5 for the 1st season. It was taken up well. What we're seeing in those customers is real stickiness. I mean, they're very, very engaged in the 50 sports.
And it means that we are very optimistic when it comes to next season and we'll give them another offer to bring them along the journey of paying the full price that they will seek and they're going to be doing revenue owners. And that's the story of Kayo. I think as these cycles go through, as the years go through, the word-of-mouth on Kayo is very, very good. We hopefully people are getting impression we use a lot of data and we do. We monitor all of those things.
We're seeing the brand affinity, brand knowledge and importantly, the people that are considering getting it from season to season very, very strong. We've got some good demand by the LifePass offer this year and as we go into our full cycle with Kayo with Europe.
Good stuff. Or another question about exclusive
content on streaming services and originals and also the content you buy from Ingrid Chung at Fidelity. Will you be offering exclusive content on your streaming services that are not on Foxtel Pay TV services? Does that mean you'll need to invest more into content in the future? This is about the investments that you've got,
the cash that you've got to spend. It's not the plan. The plan is to continue to invest as a group. That is our strategy. The strategy is to buy content once, create content once and use it many ways in that product ecosystem.
The part of the whole philosophy around Kayo and Binge was what we saw with our local airline, Qantas and Jetstar, the way they have 2 sets of airplanes under different brands, aiming at different segments of the market. This is very similar to that. So Kayo and Binge aim at the 75% we never got. But I think in order to make sure that our Foxtel customers see value and are respected. We put all content out on both services, but we don't necessarily promote it that way.
So, for example, it's a great TV show, a TV show that we've just had digital. It's the murder mystery on a sub, very popular in Australia. It was on both services. We hammered the Foxtel subscribers to make sure they knew it and we went above the line as a binge show. Show.
And that formula works really, really well to make sure there's no consumer confusion and that both sets of subscribers still are getting value.
All right. So that concludes
the questions from the investment community. But just to wrap it up, can I just ask to reiterate those 3 years, some targets that you have bought for this business? What are the to really just reinforce the pieces, just what you're aiming for, what your aspirations are and just where you expect this business to be in 3 years?
Yes. So, the first thing is
we're going to stick to
our strategy, strengthen hotel, grow through streaming and win through world class content and tech. In other words, use that back of house, which goes to that last question. We commission once, all those sorts of things. We are aiming for 5,000,000 plus subscribers. We are aiming for around $3,000,000 of revenue and to widen our margin.
And then I think the last is really important, and that's that 4% CapEx to revenue ratio to maintain the cash flow momentum that we've got and that we really enjoy. It's great to see that. And that's, I think, a real sign of transformation of the business.
Well, Patrick, thank you so much for your candor and, of course, for the investor community and
their questions. Look, thank you very much for joining us on the other side of the planet, from Australia. We hope that the Deep Dive has provided you with an understanding of today's Poxel Group, which is a very, very different business. It's not the Foxtel of 5 years ago and certainly not the Foxtel of 25 years ago. We've got a clear strategy to grow through streaming, say it again, strengthen FOXEL and to win through world class content and technology.
And importantly, I hope you all feel that we are demonstrating that consistent execution of this strategy is delivering growth and value for our customers, which in turn gives value to our 2 shareholders and their investors. And we've articulated those ambitions to continue to grow and to deliver value. If you'd like to go through the materials and the presentation, they're available on the Foxtel Group website. So thank you again for joining us. Thank you, Ross, for your help today and look forward to talking again soon.