Low cost pay-TV float hits a hurdle<br />Mark Day <br />May 25, 2006<br />THE directors of pay television start-up SelecTV will meet today to decide whether to extend the company's $25 million initial public offering, due to close tomorrow. The move has sparked speculation that the float is not being well received by investors, but Select's chief executive Jim Blomfield said he was happy with progress.<br />"We're getting good traction," he told Media. <br /><br />SelecTV's main sales pitch is about providing a low-price subscription service of 36 channels for $29.95 a month. Its prospectus listed May 5 as the date for the opening of its offe, the same day that Pay TV monolith Foxtel announced it would cut its entry price from about $50 a month to $36.95. Foxtel reseller Optus announced a $31.95 starting price the following day. <br /><br />SelecTV has claimed its business case was based on undercutting the big subscription players, Foxtel and Austar, by $25 to $35 a month. In its prospectus it boasted of providing a service for less than $1 a day. <br /><br />Foxtel and Austar are promoting their new starter pack at "about a dollar a day". <br /><br />Pay TV sources believe the SelecTV business case is flawed because it is aimed at low-income earners and does not require long-term contracts. This is likely to lead to serious churn problems, they said. <br /><br />Churn is an industry term to describe customers who sign on but cancel their service after a short period. In the early days of subscription television in Australia, Optus introduced a $19.95 per month option that attracted customers who were merely tasting pay TV services, or could not afford the monthly payments. Churn reached more than 50 per cent. Foxtel and Austar now have churn at about 12 per cent. <br /><br />A Foxtel critic of the SelecTV offer, who declined to be named, said: "Churn is a pay TV business killer, yet I can't find any predictions in their prospectus." <br /><br />Mr Blomfield, a former Foxtel chief executive, told Media he had very modest expectations of take-up of SelecTV services. <br /><br />"We are not offering our service as a starter's pack ripe for upselling," he said. <br /><br />"This is not a volume versus price equation; it is all about satisfaction at a price point. <br /><br />"We have two legs to sell: the foreign channels delivering services in Greek, Italian, Spanish, Vietnamese and German, and the 20-channel English service providing a balanced diet of viewing, including movies, documentaries, news and sport. <br /><br />"It's an affordable top-up to free-to-air television. There are 6.5 million homes without pay TV and we are positioned to appeal to the older end of the audience who are not able to pay $60 a month or more." <br /><br />Mr Blomfield said most interest in the float would come from institutions, rather than mum and dad investors. <br /><br />SelecTV has about 3500 subscribers, up from 2200 announced in the prospectus, which was released on April 27. The float seeks to raise $22million, with provision for a further $3million over-subscription. <br /><br />SelecTV has already spent $20million and wants the fundraising to underwrite its planned two-year marketing campaign to reach its break-even subscriber number of 80,000.