News Corp's Australian Netflix challenger shuts up shop

October 4, 2016 12:23 AM EDT

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By Byron Kaye

SYDNEY (Reuters) - An Australian internet streaming company part-owned by News Corp said on Tuesday it will cease operations less than three years after launching, a sign that local start-ups are struggling against larger U.S. rival Netflix Inc.

After opening for business in March 2014, the same month Netflix arrived in Australia, Presto will end its service on Jan. 31, 2017, its co-owners Foxtel, half-owned by News Corp, and free-to-air broadcaster Seven West Media Ltd said in a statement.

The statement didn't give a reason for shutting down the company, but it did say Seven sold its half share of the company to Foxtel, and that Foxtel made the decision to close it.

The decision amounts to the biggest casualty to date in what has become a three-way battle for control of the fast-growing Streaming Video On Demand (SVOD) market in Australia.

Nearly 1.9 million Australians, or a sixth of the adult population, had paid subscriptions to Netflix, compared to 332,000 people with paid subscriptions to No. 2 provider Stan and 142,000 with paid subscriptions to Presto, Roy Morgan Research said in June.

"The Australian SVOD market was always going to be consolidated," said Brian Han, a media analyst at Morningstar.

"The likes of Netflix have opened our eyes to how much we were paying for a packaged channel, 90 percent of which we don't even watch, (and) forced the hand of Foxtel," Han added, referring to Foxtel's halving of its subscription fees in 2014, a few months after Netflix launched.

Presto also halved its subscription fees soon after Netflix started in Australia.

A spokeswoman for Stan was not immediately available for comment, while spokespeople for its joint venture owners, newspaper publisher Fairfax Media Ltd and Seven free-to-air rival Nine Entertainment Co Holdings Ltd, were also not immediately available for comment.

Seven, which does not break out its earnings for Presto, said in August that its "Other Business and New Ventures" unit generated a loss of A$5.6 million ($4.3 million) in the 2016 financial year, compared to a pre-tax profit of A$3.5 million the previous year.

"Losses from early stage investments reflect new businesses such as Presto and our portfolio of digital investments," Seven said then, adding that "these businesses are all investing heavily for growth which will limit their contribution to the group in the near term".

The Foxtel-Seven statement said Presto customers would be changed over to Foxtel.

(Reporting by Byron Kaye; Editing by Michael Perry)

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