The year 2002 marks the implementation of the Open Sky Policy in Israel, a plan meant to ensure the development of a free market for electronic communication services. For the television community, it means free competition under fair and equal conditions for all carriers and content providers. For Israeli viewers, it represents a long-awaited freedom of choice. Naturally, the relatively young and sheltered Israeli television sector has undergone massive changes, and industry players are having to adapt operational strategies to survive in their new market environment.
Until recently, the Israeli market had only three broadcasters. The Israel Broadcast Authority (IBA), the entity controlling and operating Channel 1, was established as a free-to-air, government-funded and managed channel. The IBA was the only available broadcast channel until 1990, when Channel 2 launched. Channel 2 was the first (and only, until this year) free-to-air,
advertising-based channel, and was served by three network licensees: Keshet, Reshet and Telad. These entities shared the platform for years, alternating broadcasts on different days of the week. Israel’s five initial cable operators began offering service in 1991, before undergoing mergers to form the current three cable operators Matav, Tevel and Golden Channels. Each
company was allocated an exclusive geographical market segment to serve.
For many years, these entities were thought of as monopolies, because each benefited from exclusively defined revenue sources. The IBA received Television Tax funds, Channel 2 was the sole advertising-based broadcaster, and the cable companies maximized their regional exclusivity advantage. All were able to establish dominant positions in their sectors. Consequently, content providers and production companies accepted the terms and conditions they set.
With the arrival of the new policy, the market has been flooded with channels. One of the driving forces of this phenomenon was the new dth platform, yes, which began operating in 2000. For the first time, cable companies were pressured to increase the number of channels in their product mix. In order to create a fair playing field, the authorities demanded cable companies convert to digital if they wanted to expand. Digital cable and dth were embraced by Israeli consumers, and subscription rates to these new platforms set record-breaking figures worldwide.
In addition to the increase of digital cable and DTH channels, new terrestrial channels have entered the market. Channel 10, the second free-to-air, advertising-based channel, launched this year and five new advertising-based, niche channels will soon follow. They include a news and informational channel, a Russian language channel, an Israeli and Middle Eastern music channel, an Arabic language channel, and an Israeli heritage channel.
The open market that prodcos and industry unions lobbied for has finally arrived, but to the dismay of many, the expected hike in revenues has not. Although the volume of local production being undertaken has grown significantly, an accompanying drop in budgets means producers are seeing minimal margins, if any.
Reasons for local production budget cuts are an indirect result of various factors: the large, financial losses cable companies suffered from the high costs of conversion to digital, expensive set-top boxes and increased costs of content, the initial losses from costly satellite infrastructures, and market entry expenses in the DTH market sector. Additionally, Channels 2 and 10 lost advertising income due to the economic slowdown, and security issues and terror attacks demanding news coverage overtook designated commercial airtime. Furthermore, the overall advertising exposure value of these two channels decreased as viewers were lost to other channels in the spectrum.
This new reality requires Israeli companies to adapt their strategy for a more competitive market. Until recently, most were comfortable basing operations on revenues generated in the local market, but the changes in the broadcast landscape will mean that Israeli producers will have to follow a global strategy to maintain quality.
Rena Erez is the marketing manager, international department, at the United Studios of Israel