Austar delivers the good news: whence the bad?

Rose Major

It was a case of getting the good news first in Australia today, with pay-TV provider Austar reporting strong financials despite the economic downturn. The bad news is likely to come later in the season, when free-to-air broadcasters report their figures.

Austar, which offers a pay-TV platform to regional (non-metropolitan) Australia, showed growth in all of its key metrics, “highlighting the reilience of its subscription business model”.

Total TV subscribers increased 6,479 to reach 728,719 at June 30. The company’s PVR product, MyStar, added 16,084 subs to 105,376, 17.3% of residential subs. Churn was again lower, helped by the extra “stickiness” of MyStar, down from 1.52% in the previous quarter to 1.27%. Total ARPU grew 2.6% to A$82.03.

Austar CEO John Porter said: “The company’s strong operational performance exceeded our expectations. Stronger sales momentum in the second half of June delivered growth beyond our guidance of 5,000 for the quarter, and MyStar continues to appeal to current and new customers. Meanwhile, churn not only dropped substantially from the first quarter, but was even lower than the same period in 2008.”

Porter promised a “range of new channels” during the next 6 months, as well as a high definition version of MyStar. The platform will also start offering the full range of local digital channels in each state and area.

EBITDA for the six months to the end of June increased 13% over the same period the previous year to A$115 million. Revenues rose 8% to A$331 million and the company kept a lid on operating expenses, up just 3% to A$71 million. Profit was A$59 million, up 15%. Capex fell 4% as a result of lower subscriber growth offset by higher costs associated with acquiring MyStar subs.

Operating free cash flow was up 41% to A$62 million.

Porter said: “The resilience of our subscription business model has been the cornerstone of Austar’s financial strength. Steady revenue growth combined with a disciplined approached to cost control has delivered double digit EBITDA growth year on year. This year will be no different with the business reaffirming guidance of 10 to 15% growth for EBITDA.

“It is important to note from a financial perspective that Austar’s growth has not come at the expense of profitability or margins. The ongoing success of innovations such as MyStar, combined with increased operating efficiencies at our National Operations Centre has seen strong margin expansion. Austar’s financial growth translates to strong operating cash flow and this has resulted in the business naturally deleveraging at a steady rate.”

Meanwhile, a report from Bank of America Securities-Merrill Lynch said that excluding pay-TV, Australian media sector EBITDA is expected to fall 26% with revenues down 9% for 2009. That is likely to be the bad news to Austar’s good.