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The Sydney Morning Herald

Packer makes a $150m splash into pay television

Date: 30/10/1998
Words: 347
          Publication: Sydney Morning Herald
Section: News And Features
Page: 1
After dipping his toe in the waters of pay TV for almost six years, Mr Kerry Packer yesterday made a $150 million commitment to the industry by buying a 25 per cent stake in cable operator Foxtel.

The deal revives Mr Packer's pay TV alliance with Mr Rupert Murdoch and Telstra - tagged from their initials the PMT consortium - formed in April 1993.

It missed out on picking up satellite licences auctioned by the Federal Government and dissolved in 1994.

Yesterday's deal puts three of Australia's most powerful companies back together running what has become the dominant pay TV operator. Foxtel has about 350,000 subscribers, well ahead of its arch rival Optus, on about 200,000.

Telstra continued its alliance with Mr Murdoch's listed company News Corporation by forming Foxtel, which began a pay TV service via Telstra's cable in March 1995. In the meantime the Packer family's listed company, Publishing and Broadcasting Ltd, adopted an opportunistic strategy of striking a series of deals that delivered the right but not the obligation to participate in the industry. Mr Packer was sceptical about how much money could ever be made from pay TV, and concerned about protecting PBL's profitable Nine network free-to-air business.

PBL is the only major media company to have been involved in all three mainstream pay TV operators, Australis Media (which collapsed earlier this year), Optus Vision and Foxtel.

The company's approach was summed up in 1996 by PBL's chairman, Mr James Packer, when the company helped co-ordinate one of many rescue packages for the struggling Australis.

"Today's investment is consistent with PBL's existing policy on pay television of committing manageable amounts of capital in return for modest initial equity interests coupled with options to increase our position substantially in the future."

The 1996 Australis rescue delivered PBL the leverage for yesterday's deal. In return for investing $70 million, PBL received first rights over Australis' key asset, Hollywood programming.

The programming was so valuable that in late 1994 Foxtel agreed to pay Australis $4.5 billion over 25 years for access to it. Last year, with the collapse of Australis imminent, News Corp struck a deal with PBL to unwind the programming rights.

Yesterday's sale is the payoff.

PBL will buy half of News Corp's stake in Foxtel, leaving Telstra with 50 per cent of the pay TV company.

The companies expect to complete the deal within 10 business days, for a price of between $150 million and $160 million.

That leaves PBL with a substantial position for a relatively modest outlay. The pay TV industry as a whole is thought to have lost more than $4 billion since 1993.

PBL has avoided the enormous upfront investments - the billions of dollars that Telstra, Optus and Australis invested in cable and satellite networks. It has also missed out on the considerable start-up losses other players have incurred.

Foxtel lost $166 million in the year to June 1998. In the prospectus for its forthcoming float, Optus says its broadband cable operation, which includes its pay tv business, lost $218 million in the 1998 financial year.

PAGE: 25: More reports.

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