News Corporation (NWSA) Earnings Call Transcript & Summary

Good day 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 Foxtel Group Strategy Day. If you're tuning in from Asia, the United States or even here in Australia, this vision needs no introduction. As I stand on the shore of Sydney Harbor in [ Caravelle ], I'd like to recognize that this is the land of the [ Cammeraygal ] people. The Foxtel 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 [ farther ] side Island of people as we pay our respect 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 streaming 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 kick things off, 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 Thomson.

Thank you, Hannah, and welcome to what will surely be an engaging and lightning 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 an -- a profound change in the company's fortune. The Foxtel was a one product, pay TV 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 Delany have transformed the business, creating Australia's most dynamic screening company. The narrative of the Foxtel Group and the prospects for 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 a distinctly upward trajectory. The business is virgin. As of June 30, 2021, paying Foxtel 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 fourth quarter, when segment revenue surged 33%, driven by the rapid expansion of streaming products and due in part to all suspicious currency fluctuations. The surge in streaming is successfully repurposing and monetizing existing rights. And the signs of success were particularly evident in the fourth quarter 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 both Kayo and BINGE. They are well power content. They're cutting-edge technology and their empathetic interfaces. We have decidedly debunked the myth that only a small proportion of this growing 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's 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 Penn, the Chief Executive Officer of Telstra.

Thank you, Robert, and thank you for your continued partnership. And thank you also to everyone who has made the time to join this briefing today. After a significant transformation over the last 3 years, Foxtel today is incredibly well positioned for the future. Its positioning and its performance, in fact, validates our strategy at Telstra to continue to connect our support of Foxtel as a long-term investor and partner following the restructure of our investment in 2018. Since Foxtel and Fox Sports were brought together in 2018, the business has completely transformed itself to become a technology-led streaming company. And today's Foxtel is not the company that you think you know. Since 2018, it has achieved significant growth in screening. And as you heard from Robert, Kayo and BINGE have recorded exceptional subscriber growth. The team have also worked hard to stabilize and to strengthen the Foxtel 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 a streaming future. There's also been a significant workforce transformation at Foxtel as part of rightsizing the company's cost base. The proof point to there is the most recent financial results, where subscriber numbers grew strongly, revenues stabilized and the business put in a very positive cash flow performance. Telstra and Foxtel have had a long and very rewarding partnership. We are one of Foxtel's biggest channels to market and Foxtel's content and services are incredibly important to our customers and help us differentiate ad telecommunication 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 Kayo and BINGE; Les Wigan, our Head of Technology; Hilary Perchard, the Head of Foxtel Retail; Amanda Laing, 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 we're much more than that. We have single genres 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 million total subscribers. We've added 1 million 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, where as 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 Fox Sports. 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 products, we've built a platform that's scalable, delivers cost efficiency and is capable of being used across all Foxtel Group products. We are now the disruptor of the Australian media industry with Kayo, BINGE and our new Foxtel IQ. But you might notice on this chart, there's a new product, another disruptor. I'll let Julian Ogrin to tell you more about that. Our additional subscriber reach is delivering revenue growth in 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: first, to grow through streaming; second, to strengthen Foxtel; and third, to win with world-class content and technology. Let me take you through it in a bit more detail. First, we'll cover growth with streaming. We are now at 2.1 million screen 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 BINGE. This has resulted in a material shift in our revenue profile. Our streaming revenue has more than doubled to AUD360 million in the last 2 years. We are confident there's more growth to come in streaming. Consumer habits have changed, the shift to digital and transform 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 '25. And the number of SVOD services per 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 to that a little later. This growth of Kayo and BINGE has materially shifted our revenue next to, 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 product, 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 AUD50 per month. That's more than our entry 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 years. The third pillar of our strategy has 2 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 reach we're delivering through our new product ecosystem. We are able to deliver the right content on the right product for the right subscriber. There's no better illustration of this from 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, cricket and super cars. We're investing in local growth sports, including netball and local basketball. And we have the best of international sports like F-1 and The Masters, U.S. sports through ESPN and European sports through beIN. The second part of Pillar 3 is technology. We've become a tech led company, whether it's through single journal streaming services, our new plug-and-play iQ, agTech that serves targeted ads to our subscribers and the new CRM and market that enables our data-led subscriber strategy, and it's all built on a very scalable core. Les Wigan will talk to you about this. So bringing it all together, the Foxtel Group has 3-year ambitions. They are: first, to reach 5 million plus subscribers. Second, to hit AUD3 billion 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 [ firb] 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. [Presentation]

Thank you to Gill, 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 Ogrin, the CEO of Kayo and BINGE. Julian is going to step through how we are growing through streaming. Julian?

Thanks, Patrick. What I'd like to do today is unpack how we -- you start-up thinking to create a scalable streaming growth engine for the Foxtel 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 reaching over 50 sports. We launched Kayo in November 2018, our third 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 sport with low latency and the ability to serve very high numbers of concurrent viewers. It served us incredibly well. We had strong subscriber growth influence, reaching 1.1 million total subscribers at the end of June. The secret source is our product offering. Over 50 Australian and international sports, including all of the big ones, AFL, NRL, cricket, supercars, Formula One, Golf and through ESPN, the NBA and NFL. The depth of our year-round calendar allows casual fans and fanatics to be deeply engaged with the product. To reduce 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. It means subscribers are familiar with the product features, hero Carousel, tiles and mall, and they love it. While Kayo is available on phone, tablet, computer and TV, 68% of viewing is on the big screen. It's not a companion app. It's their main product. Importantly, it's opened up the Foxtel Group's portfolio and the quality of Fox Sports production to a whole new sector of Australians, allowing us to fully monetize our 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 packaged up highlights within 15 minutes of the final whistle. These drive significant next day viewership, particularly of sports that arm in our [ fun ] 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 product. Multiple streams allow for parallel accounts and streaming. Kayo Freebies launched in February, is both a subscriber funnel and a strategy to keep all subscribers engaged. It's also allowed us to offer our sports 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 paper view boxing and UFC. We've also refined Kayo's sales strategy with low-cost per acquisition marketing and promotional partners that help us drive brand awareness and acquisition, with a massive base of current & Poor's users, we can continue to drive low CPAs as we effectively target Poor's fans and reactivate them at virtually no cost. With 1.1 million total subscribers at June 30, 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 life cycle, as we find many subscribers don't cancel, they pause and they reactivate. Having had 3 years of experience, we're confident of the 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. Kayo subscribers don't just watch one or 2 sports, 62% watch 3 or more, and 23% watch more than 8 sports. That's an important differentiator that makes us premium and sees our subscribers stick with us year-around compared to the single sports streaming offerings. Finally, Kayo's marketing really embodies that engagement. Our most recent campaign is Sport Lives here. Moving into the summer, we have refreshed it to feature cricket lives here as we go to a strong season, including the Cricket World Cup and the Ashes. Turning to BINGE. We launched this product in May last year as the home of over 10,000 hours of drama, lifestyle and movies. It's been a heck of a ride. BINGE was built on the same scalable tech stack as Kayo, so we were able to take advantage of all the learnings from Kayo, 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 going -- 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 BINGE 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 prefer to watch the different types of [ sports ]. Think of mom and dad watching it on the TV and the daughter streaming on her laptop. The BINGE sales strategy is content led. We featured [ Kent Paul ] mass market heads with our out-of-home and big space marketing, supported by performance driven audience targeted campaigns, again, using strong promotional partners. Like Kayo, we use performance-based marketing and review CTAs daily and adjust accordingly. That's led to BINGE growth that's been like a freight train. We don't get [ tailored ] seasonality. Acquisition is driven by consistent release of temple 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, but 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 the content from a variety of studio partners, including our own group originals. This behavior plays out in the data. 56% of BINGE 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 genres for 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 use 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 Kayo and BINGE, allowing us to go-to-market quickly and efficiently. I don't 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 also apply and use. Personalization, split screen, minis or as we call them, in Flash flashpoints. 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 political business, U.S. or U.K. views, 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. [Presentation]

Thanks, Julian. 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, is built to be scalable and can support a subscriber growth at low cost. It's a foundation of everything we do. It underpins our growth and our ability to innovate, and we'll 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 built a greenfield streaming focused technology stack to support all of our new OTT products. We built Kayo on this stack in 2018, followed by BINGE in 2020, Kayo Freebies early this year and Flash, which we'll launch in the coming weeks. And soon, our Foxtel OTT products, Foxtel Now and Go, 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. First, scalability. Our strategy is always to have one 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 for the fast-growing subscriber base. This has taken us from our first Kayo customers back in 2018 to peak this year, where we've had around 55,000 customers signed up in a single day. Then there's reliability. Our technology stack can support a high-volume subscribers in content with a proven record of performance. To bring this to life, there are a couple of interesting stats. For Kayo, we've had as many as 37 live in current sports being streamed at a single time. We typically support over 300 live events over the course of the week, and we've had a peak of 420 live events in a given week. All of this, it's 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 there globally. We've also optimized the platform for redundancy, including a multi-CDN 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. A technology stack is built with a customer at the center of everything we do, which is critical for 2 reasons: first, for our customers, the experience is simple and digitally focused. This makes for easy sign up and quick cell service. 94% of our Kayo and BINGE customers are able to self-manage sign up and help without needing to contact us. Second, the business side. We have a single view of the customer across all products that's verified when a customer signs up. This drives our advertising reach and our capabilities across the Foxtel Group. We have a strong track record of leveraging these world-class streaming technology stack 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. This isn't a plan, each of these projects are already underway. Let me step you through each one of them. First, we are converging our streaming and technology stack in operations. This project will enhance the Foxtel Now and Go 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 the well class driven platform we have spent the last few years developing for Kayo and BINGE and Flash. This project also extends to our IP enabled set-top boxes, [ annuities ] and late this year, iQ4, which will receive a software upgrade to be fully IP enabled. Second, we are growing our audience and our targeted advertising capability. Growth in subscribers to our digital products also equates to 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 this deliver higher ROI for advertising partners, all done in a brand type, premium video environment. Third, we're digitizing Foxtel's customer management and marketing systems. This investment is focused on replacing our legacy, customer and marketing systems that underpin the Foxtel products. Again, we are leveraging the capability we already built 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's perspective, with more self-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. As both an aggregator and creator of content, there's quite a bit of technology that sits behind the scenes to organize and distribute content to phones, connected TVs and set-top boxes. This project is merging our existing OTT infrastructure and broadcast infrastructure, leveraging cloud-based solutions. Clearly, this delivers operational efficiencies, but 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 a future backbone of all IP delivery across the group. Second, we are well on our way to modernizing existing platforms and systems that support our core Foxtel 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 road maps that we have underway today. Before I hand over to Hilary Perchard to talk about Foxtel, I'd like to leave you with a look at the latest symbol of how we deliver outstanding technology projects, the newly launched iQ5. This new set-top box is IP-led, plug-and-play, delivers 4 case force and entertainment streaming, all at a lower cost than our previous set-top boxes. It's fundamental to our strategy of migrating Foxtel customers off cable and supporting digital advertising growth. Let's take a look. [Video Presentation]

Thank you, Les. Over the past 2 years, we have been focusing the Foxtel business on our highest quality customers. Our strategy has been to allow 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 1.6 million 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 deliver that enhanced aggregation 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 to consumers. By giving our customers this 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 to industry product on the 7th of September is the perfect symbol of our future. It combines the best of streaming with everything our customers love about Foxtel in a new lower-cost product. Thanks to the iQ5 and its 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 set-top box from the bottom up, we've been able to deliver a cleaner, sleeker, more appealing product at a much lower cost of manufacture. And because it's IP enabled, it's plug-and-play. There is no need for costly installs, no need for satellite, 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 cost. Even people that could never get satellite will now get the premium Foxtel aggregation experience, the thousands of customers who are unable to install satellites or run cables, specifically many of those in apartment contractors are now able to experience the rich Foxtel viewing experience. And a simple plug-and-play box means greater sales and service efficiency, with its 2-part design, we can now even swap a hard drive without swapping the whole box. Most importantly, however, the iQ5 paves the way for a future of streaming aggregation. One that isn't headed to a limited choice of viewing, but is instead one that creates an aggregated ecosystem of Foxtel 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 the premium viewing experience. Our customers already get a huge lineup of channels and streaming VOD library. But 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 cornucopia of new apps, but that has 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, Foxtel is the home of premium 4K 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 sport in UHD and onto an incredible drama on Foxtel. Every decision we make is about customers in mind. So now let's turn to the impact on our business performance and critically to how we optimize customer lifetime value. Over the past 14 months, we have seen some increases in Foxtel churn. But that was a conscious decision, we removed deep offers from lower ARPU customers with Kayo and BINGE now successfully launched and operational, we've been able to let many of our lowest revenue customers transition from Foxtel's premium product to our single genre streaming services. Here, they can receive a lower price 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 AUD50 a month, we believe that our ongoing focus on a premium experience will continue to see even lower churn. Foxtel now has a core base of 1.6 million customers where the majority are high revenue, high-value and long tenure. Customers that have grown up with Foxtel. We recognize and value these customers, and we'll continue to deliver them a premium experience. Our iQ platform enables us to deliver a road map of 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 streaming 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 still is impacted by COVID. Our teams responded proactively to our customers' needs and as a result, when 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 road maps 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 Laing, our Chief Commercial and Content Officer.

Thank you, Hilary. This year, Foxtel proudly reached the milestone, having delivered premium content to Australians for 25 years. I'm sure many of us remember that original marketing campaign, featuring [ vast tense ] in declaring I want my Foxtel. But as you've heard, today's Foxtel Group is very different. Of course, we still have all of those series we've long known and loved, but a great content strategy is based on constant renewal. We see that in our groundbreaking Australian production, our diverse and contemporary lifestyle content, the pipeline of daring new premium dramas and now in the endless choice we provide to integrated third-party apps. What I want to do today is 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 sport to more viewers than as any time in our history. First, I mentioned our groundbreaking dramas. No series says groundbreaking like our iconic Foxtel 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 Stars, Leah Purcell with us today. Leah plays Rita Connors on Wentworth, and she's also one of the talented writers for our upcoming Foxtel original The Twelve. Leah, thanks for joining us today.

It's my pleasure.

Wentworth has been such an incredible success story for the Foxtel 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?

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 story. It's an ensemble cast or majority women in those lead roles. The story that are around women, they're hard getting, but there's also that emotional pool in those characters. I think the caliber of actors that we have in that show is outstanding. Every day where we're trying to top one another and there's so much support within that -- the group of women. And I think that comes through our performances and through the telling of the story in Wentworth. And it's not only just us on screen. There was a lot of female present in the crew and also in the writing department, in the production department, and this was all before the Me Too movement. So Foxtel and Wentworth were ahead of the time. And you've got to applause 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 are refreshing ideas or they are ideas that they like Wentworth, I guess, for example, did exist prior. But taking it to the next level, the discovery and the story, diving deep and finding truth in characters, that is everyone around the world can relate to. And I think that's why -- and also having the support in the writing stages of the project because you need to nurture the writing, the story, the heart that comes from it, that makes a good drama. And I think that's what it does. You can tell that Foxtel are behind their creative team. It's not just the end product, but then it starts at the embryotic stage.

And how important is it, do you think for our first nations people to have representation, both on and off the screen.

It's extremely important when the original story comes. And I think when you can have indigenous people at the helm of those stories being hold 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 that's what makes rich drama. So it's really important that indigenous people are there to fill out stories from the truthful place.

We really 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 relationship 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 Foxtel and Flash for news. By buying content once and using it to deliver, an incredible all-in-one place experience for hostile and using it for our single genres streaming platforms, we have fundamentally changed the economics of the Foxtel Group's business. An easy way to think about this is that we have one 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 brands 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 production, which should also build audiences and drive revenue across both Foxtel and Binge. First, international shows and movies. We will shortly see the return of the critically acclaimed drama, Succession for its third season, along with other returning hits such as The Walking Dead and Just Like That, City Reboot, Gossip Girl and Raised by Roles to name but a few. And we'll also be bringing to screen superior drama, North Water signed Colin Farrell and the premise and oncology series from the Office star, B.J. Novak. And then in 2022, almost in a category all its own, we'll see the return of the Game of Thrones behemoth with the debut of the prequel series, House of the Dragon. Finally, I'd like to highlight our much loved local unshifted original, [indiscernible]. We also have, of course, fresh new original drama hitting our screens in the coming months. These include our next original drama of 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 one 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 in Melbourne. Good morning to you, both. Hugo, you don't do a lot of television these days. So why now? Why Love Me?

Honey, I don't do lots of TV. But once upon a time, did quite a few miniseries with Kennedy Miller way back when Heather just happened to be in the first piece of TV idea actually. But I just love the story, really. It's a very simple universal story of our contemporary story about family and grief and love. And it's got a lovely sentiment, but it just feels very real. The characters feel through and identifiable and very human.

Thank you, Hugo. And for your Heather?

I just think the storyline is stunning in its exploration of love and grief. That's 2 of the concepts. But what's so amazing is that love and grief is so often very unexpected and often overwhelming. So I feel like the storyline not only deals with it in many unexpected way, but also it's very across generational and multi-generational. So 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 things 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 Foxtel to tell Australian stories.

One of the great things by having all these platforms [indiscernible] Australian stories, which will have always been developing and will always be reflecting what's happening in the present, the access, the universal worldwide access of that, not only the stories, but also the talent of the people who are creating the story get to see. So I mean, I think that it becomes more of a norm for the appetite of people to absorb the diverse cultural stories.

So 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. It's actually the only thing we've got. And I think everything's got to point to the state. Everything's got to be sort of mid-Atlantic. But actually, the great benefit that we have is that we look in this particular country with this particular climate and particular animals and people and jokes and language and so 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, been fortunate to 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. 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, AFL, NRL, Cricket, Supercars, Formula One, 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 be in 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. They're based on a sheer dedication to delivering the world's best sports to our subscribers. There are also several sports like [indiscernible] that have returned to the Foxtel Group after a 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 opinions 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 Foxtel Group's large base sports subscribers. And not only 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 styles. For example, we recently announced the renewal of our multiyear deal with a MotoGP and World Super Bikes, which saw us secure a significant uplift in exclusive rights of the Foxtel Group. With these strong and diverse sports partnerships, we're able to deliver a full calendar of sports year round. No one else in Australia offers the breadth and depth of the Foxtel Group's 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 Cricket, NRL, AFL, motor sports and Golf. We've also been very deliberate and data-driven in how we 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 our 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, their 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 Orora for 7 years, which has demerged from Amcor in December 2013. The Foxtel Group is certainly a step change from making bottles and 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 US Generally Accepted Accounting Principles rather than IFRS principles. There are reconciliations to certain non-GAAP measures and to 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 '21, and this is despite the impact of COVID, generating sales revenue of approximately AUD2.8 billion. This is a result of leveraging our portfolio of world-class content and the continuing implementation of our 3 strategic pillars; driving growth through streaming, strengthening postal retail by offering more value to existing customers and reducing cost to serve and winning with world-class content and technology. EBITDA was in line with FY '20 at approximately AUD460 million. The Foxtel 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 take 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 combined is helping group revenues to stabilize. The Foxtel retail business has bedded, but is still slightly declining. It's a credit to the team, however, that through a number of initiatives around value, content and technology that the pace of decline has slowed. Pleasingly, as we implement the strategy and we leverage the reach of over 4 million 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 Foxtel retail revenues. The aspiration from here is to steadily improve revenues towards AUD3 billion in the coming years. So while stabilizing revenues has been very positive, to drive earnings 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% or AUD250 million, down to AUD2.3 billion. A large portion of these costs came out in FY '19 and FY '20. 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 better 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, transitioning 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 multiyear journey. In total, the headcount reduction from these programs were approximately 800 roles, which equated to 30% of the total FY '19 headcount. The simple goal is to maintain this improved cost efficiency and continue to look for ways 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 on costs for all areas of the business. The culture of the business has been transformed, where every opportunity for cost savings is considered with the aim of being as lean as possible. With revenue stabilizing and control of cost to continuing focus, EBITDA has remained relatively stable across FY '20 and FY '21 at approximately AUD460 million. On EBITDA margins are strong at 17%. It is worth noting that there were some costs deferred from FY '20 to FY '21 for normalized sports rights, amortization and production costs due to COVID-19 postponements. But both years are seen as a fair representation of the underlying Linux. The aspiration from here is with slow but steady growth in revenues and relentless focus on cost control, the business is well placed 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 is building a satellite on the roof and setting up the relevant set-top unit at the customer site, much of which we get Foxtel's cost. The way forward for on-site hardware such as the IQ5, which will be rolled out over the next couple of years is Internet-based plug-and-play technology, which reduces CapEx costs significantly. Even more pronounced are the cost advantages of adding 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 viewing device. So with 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 flowing from 14% of revenues in FY '19.0 to 7% in FY '21. As mentioned earlier, our aspiration is to get this metric down to approximately 4% over the next few years. Now turning to cash flow. The result of stable revenues and a lower cost base and 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 the growth of the business or return surplus cash flows to debt providers and our shareholders. To this point, the funds have been primarily used to materially reduce external debt wins. So that concludes my commentary. I'll now hand 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 IP-led company with over 4 million 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 have 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 our 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 is morning for us, but I know for a lot of our U.S. investors and European is certainly not morning.

No, it's certainly not morning. [Operator Instructions] Stuart Hutton standing by in our Melbourne studio, Patrick here with me in the Sydney Studios. Patrick, I just want to start by asking for that North American audience it's listing. 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 explain that to me.

Well, look, I think the first thing to understand is the penetration rates that Pay TV achieved Australia are nowhere near that of the States or even Europe, referred 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 rates are 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 Foxtel. The second thing is that we really are the only Pay TV player of scale in Australia. So as opposed to a mistakes where there are regional Pay TV players that have markets. The other thing is we own a lot of our own content. We produce channels. We own the board, and that's given rise to how we're able to stream, but it also gives rise to our scale. Now we are a meaningful player in this country, which isn't a big country. We only have 25 million people. So we're seeing those penetration rates that were previously hands from that opportunity, we're moving into it. The other thing, I want to take it up forever. But the other thing is that in the States, a provider might have the NBA 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 pay 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 lot of questions are coming in, just one other one, which I think 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 that there was going to be a capital raising, the shareholders would sell down. It hasn't happened. It's not what this day is about, obviously, but just explains the shape of Foxtel today versus the last time that there was conversation about an IPO.

You're talking to a journalist who always has a trick in it. Look, my mandate is not hear from the shareholders about an IPO, that's their decision. The reason for this strategy day is to explain to investors and to shareholders our strategy and how we have delivered value and -- but 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 Foxtel, 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 Foxtel off it. And it means cost down, but it also means better value for subscribers.

All right. Let's go to the questions that are coming. And the first one is from Craig Huber, 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 goes to that 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%, right? And now as we sit 30 June, last financial year, we're nearly 1 in 2 humps. 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 are 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 say, the bigger your penetration, the bigger your ability to either upsell or to be able to target digital advertising to those larger number of people that you've got as your customer base.

Well, look, the advertising question is a really interesting one because in 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 have not been previously. We've been seen as a boutique advertising play with a nice reach. We've now got scale and reach. But you're right, the interesting thing about the tech stack is that the more IP we go, the more we are able to serve digital ads and addressability. And the way we like to put it is we go from the traditional dumb video, right, where it's just video with reach into being really intelligent video where we can back it with digital data, that also serve 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 for Kayo 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 quash them up to, are you going to get it and then you put it in, you spend a lot of capital. And once they start, don't want the service, you take the capital equipment out and they're gone. That's real churn. In the streaming services, it's not churn, it's pausing, 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 a great tech stack, got a great team that can use the data. So something like Kayo, which is seasonal. We know the subscribers and what they like, say, during the winter season, what the crossovers between all of the sports we have. When it comes to the summer season, there are some customers we know that will pause us. They'll 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 Binge. 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 a 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 as they get to like the services. And both of those services are not just that promotable material at the top, they've got very rich material [indiscernible].

But is it 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 seasons where you get your big gig 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 or most people are interested in the NBA, they go nationally. In Australia, it's north and south divide. The southern states love Aussie rule, Australian Football League and the northern states love RUB league, right? And so and both and you got to have both. So it's an interesting paradigm.

All right. Let's get another question. Follow-up question here. Can you provide any color around the size of the cost base where Foxtel can continue to extract efficiencies? This one, I think I might get Stuart. We had a chat about that because 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 steady cash flow coming through with not much growth, but this is about a growth strategy using it.

Yes. Well, 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 evident to 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 and there is 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 the 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 to be a benefit for the corporation moving forward. Now whether that's additional revenues, ideally, 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 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 to Friedo Price. And I'd like to ask both of these questions because what do you anticipate doing with your free cash flow and what we use it for. For example, will you pay down debt or you're investing more product, what will you do?

Let me have a go first, and then Patrick can buy all means of that. But I would say, look, our preference from 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 -- and initially, we would just pay down debt is the smartest thing to do or obviously, if the shareholders of 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, setting up shop and competing with you. Now the interesting part about that is a question of content into the future, whether there is enough content, if they withdraw content, what's your experience?

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 have real scale in this country. We pay the 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 Pay TV engine that is paying and now we've got more reach. The interesting thing is we're seeing some of it, clearly, Disney is on its own way. 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'm pretty confident that the relationships and the scale, all the things I talked about that's different between Australia and America and with Europe, all of those things mean that things will play out interestingly here, and Foxtel is really well set up for it.

Let's go to another question from Friedo Price, just how successful have you been converting Live Pass customers to Kayo. This was a pretty important thing because these were relatively cheap increase into streaming services and support, just how big an opportunity is this over the next few quarters?

Yes. Just to explain that for the US investors. Live Pass was a service that our past partner and shareholder had that put live games of AFL 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 one or 2 sports, it is 50 sports full stream. And so in this coming season, we made an offer for the Kayo fully Live Pass customers to come on board at AUD5 for the first 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 that 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 stick, and they're going to be good revenue earners. 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. Hopefully people are getting the impression we use a lot of data and we do. We monitor all of these things. We're seeing the brand affinity, the brand knowledge and importantly, the people that are considering getting it from season to season, very, very strong. We've got some good demand via the Live Pass offer this year. And as we go into our fourth cycle with Kayo, we are very optimistic.

Another question about exclusive content on streaming services and originals and also the content you buy from [indiscernible], will you be offering exclusive content on your streaming services that are not on the Foxtel Pay TV services? Does that mean you'll need to invest more into content into the future. It is about the investment that you've got, the cash that you've got to spend.

That'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 that 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, the great BBC show, ITV Show that we just had digital, which is a [indiscernible], 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 had 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 sort of targets that you have got for this business, what are the -- to really just reinforce the people, just what you're aiming for, what your aspirations are? And just where you expect this business has been through?

Yes. So the first thing is we're going to stick to our strategy, strengthen Foxtel, 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 commissioned one all those sorts of things. We are aiming for 5 million plus subscribers. We are aiming for around AUD3 billion 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 investment community and their questions.

Yes.

So 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 Foxtel 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, strength in Foxtel 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 true 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.