Israel on the bubble

By Omri Marcus 06-09-2017

Don’t let the success of Fauda, Homeland, The Final Four and The Green House fool you, the Israeli television industry is about to suffer a devastating crisis. An unevenly regulated market, coupled with a plethora of new technologies, is pushing it into great uncertainty.

“We’re witnessing a 20-year peak in demand for TV advertisements,” an Israeli advertising executive told Haaretz newspaper recently. “It’s crazy.”

Reports of television’s death, it seems, have been greatly exaggerated. This year, after a period in which digital platforms appeared to be stealing the limelight, dovetailing with similar trends in Europe and North America, TV advertising recovered slightly. At the same time, Israeli productions, such as Fauda and Homeland, have become international blockbusters. The country’s TV, it seems, has never had it so good.

What’s more, this small and centralised market is undergoing far-reaching changes that are likely to culminate in the coming months. New players have undermined the overwhelming market share held by cable (Hot) and satellite (Yes) providers. Chief among them are the mobile network operators. For a multi-channel package, they charge less than a quarter of the amount asked by their established competitors.

In addition, in April, a newly inaugurated Israel Broadcasting Authority was launched and Channel 2, the country’s leading commercial channel (with a 16.1% share in 2016), will be split into two in November.

What could this propagation of platforms, coupled with the rise in advertising, mean for the TV industry, other than great prosperity?

Don’t be fooled by the success of Israeli formats such as Homeland

Well, a lot. The inchoate competition has already afflicted the net revenues of the multi-channel providers, which have been impelled to offer more for less. Piracy – an Israeli predilection – has also bitten off a chunk of their business model and is likely to undermine it even more, as this uncertainty is likely to seep into the larger commercial channels in the wake of their impending reform.

This, on the face of it, is the free market economy at its finest: competition drives prices down and the consumer wins. What’s more, it’s been done before, when a similar reform in cellular communications at the beginning of this decade more than halved prices. There, too, providers have been offering better service for lower prices – more for less.

In television, however, more for less will soon turn into less for less. New players and new platforms are clamoring for a slice of a cake that will remain unchanged in size, because multi-channel penetration in Israel is already among the highest in the world. There is no uncharted territory that sits idly, waiting to be tapped into.

Hence, the proportion of the budget that the platforms make available to production is about to spiral downwards. In real terms, the investment per hour of content will become consideranly smaller. Many of the established players will be unable to meet new market demands – that is, offer the same amount of content for less – and just won’t make the cut. They will be delivered a devastating blow by Netflix, Amazon and the likes.

What’s more, unlike the established licence holders, the new platforms are not contractually bound to invest 8% of their revenue in ‘original’ (ie Israeli) productions, since the current regulations do not apply to their predominantly web-based infrastructure.

This year to July, the TV industry has suffered a net loss of NIS11.6m (US$3.2m) out of total revenues of NIS320m, while the new platforms boast a mere 177,000 paying subscribers – only a fraction of the current multi-channel market.

Israel, a hub of innovation, has endowed the international TV industry with ground-breaking formats and rich content. However, with its financial sustainability in trouble, these accomplishments will soon be a thing of the past.