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Analysis: Duopoly of pay-television in Israel is on the verge of breakingBusiness analyst Karine Gallula explains to JOL readers how the duopoly of pay-television in Israel is about to break due to the opening of the market. According to Gallula, ever since the development of boxes' offers and the launch of Cellcom TV, the two main Israeli pay-TV companies have been losing customers.
As a market of 2.3 million households, the Israeli pay-tv market is considered a small market in terms of potential subscribers. The fact that the number of customers is de facto limited caps also the number of potential players.
The costs related to operating a pay-TV platform whether through cable or satellite are in any case high as it requires high investments in networks (satellite capacity or cable equipment in every households) as well as in television programs. If satellite TV platforms can reach all households through one satellite broadcasting signal, it still takes time to install cables especially in remote areas. The investments are much higher because the Israeli television granted license to broadcast pay-TV platforms is under the condition that the players will invest a large amount of money in original Israeli programs in Hebrew. But, as the Israeli pay-TV market is potentially small, it jeopardizes the return on investment over a short period.
Currently, the Israeli local pay-TV market is mainly divided between two players: Yes, the satellite TV platform, and HOT, the cable company.
Cable TV service was introduced as early as 1990. Three cable companies, Matav, Tevel and Golden channels, were operating in the country depending on the area. The number of subscribers to the cable offer regularly increased over ten years. However, the expansion of cable services has been slow downed due to several factors. One of them was the costs and the technical difficulties to cover the whole territory. The second main cause was the introduction of competition with the launch of the Yes satellite television platform. The fact that the company was able to broadcast since its launch on the whole territory as well as its competitive prices allowed it to gain market shares rapidly. As a result, the three cable services decided in May 2001 to merge into a unique company. The new company was granted by the State of Israel a 12-year license to operate. The HOT company began offering a single cable offer across the country and providing service to customers in 2003. As of today, the service is broadcasting around 200 channels including HOT original TV channels and the most popular Israeli channels as well as a large variety of channels from around the world.
The Yes satellite TV platform was launched in 1998 but started broadcasting only in 2000. The service was previously known under the name DBS Satellite Services. In the early 2000s, the Yes satellite service suffered from technical and financial issues that prevented the company from increasing rapidly its number of customers. However, as soon as these problems were solved a few months later, the number of subscribers grew steadily. As of 2016, the platform was known to have 635,000 subscribers. The strength of the satellite operator is its offer and its prices as well as a very reactive approach in terms of services.
As of today, the package provides more than 200 channels including local Israeli channels as well as a very large choice of international channels in order to respond to the niche ethnic markets from the aliyot (immigrations of Jews from abroad to Israel). The basic packages start from 110 NIS per month and can go up to 229 NIS with all the sports and cinema channels as well as last generation set top boxes such as YesMax and YesQuattro, which are able to provide advance VOD (Video on Demand) and content recording services. The service has even recently signed a deal with Cisco in order to provide its customers the possibility to record and download a nearly infinite amount of TV programs called Infinite Cloud.
For over 10 years, the Israeli pay-television market remained stable with no main changes. However, the situation has recently evolved and is now more competitive for the two players. Competition came mainly from the Internet. It all began with the introduction of set top boxes that were able to broadcast content including series and movies from streaming and VOD content platforms in the last few years. Main content providers are Netflix, Popcorn and Kodi. Boxes equipped with the content providers’ applications can be bought in stores or on the Internet for a reasonable price, providing an alternative to the regular pay television system. The main advantage is that the customer does not have to pay a subscription every month. Many market observers in Israel agreed that the boxes should not be considered as real competition for the two main TV players. The reasons are that it does not broadcast TV channels and original Israeli content. According to recent studies, most households in Israel are on a regular basis watching an average number of 22 channels. Thus, the content offer from Kodi, Netflix and Popcorn cannot be 100% adapted to the Israeli market except for some niche markets. However, many Israeli households, mainly those of young people, are not willing to pay an average of 200 to 250 NIS per month for television channels. They are then switching to these Internet platforms instead of Yes or HOT.
Real competition appeared in the market with the launch of the Cellcom TV platform in December 2014. The Cellcom TV platform works on a business model that resembles the Kodi boxes rather than historical TV players. It provides VOD and streaming content of mainly series and movies. However, the service provides Israeli original content in Hebrew as well as some Israeli channels including the Aidan Plus service as well as sport channels. Cellcom TV has included in its offer the Sport 5 channels, which broadcast all the premium sport content in the country. The price of Cellcom TV is also very attractive with an all-inclusive package costing 99 NIS, a price that includes the rental of the box. Cellcom has recently announced that sport channels will be provided with the basic package with no additional costs. Consequently, since its launch, Cellcom TV has constantly gained subscribers to reach 87,000 subscribers as of June 2016. The service added 13,000 new subscribers between March and June 2016.
In the meantime, Yes and HOT are struggling to maintain their subscribers base. HOT lost around 30,000 subscribers per year. In 2014, the cable platform had 853,000 subscribers and only 824,000 at the end of 2015. The peak of subscribers was reached in 2008 with 929,000 subscribers. During the last three months, the company estimates its subscriber loss at 3,000 per month. Yes is also losing subscribers on a regular basis with 6,000 less subscribers only in June 2016. More worrying, the average revenue per subscriber is also constantly declining. However, it remains higher for Yes Satellite with monthly revenue of 233 NIS per subscribers compared to a 190 NIS per month for HOT. In any case, the revenue and profits for the two companies are declining as well. In consequence, the HOT CEO complained about the fact that the company is in a very challenging situation. She asked for the Israel Broadcasting Authority to reconsider the conditions of investment into original Israeli programming as Cellcom TV is currently not under the same obligations leading to an unfair situation. She explained that the operating expenses of the company were way too high compared to the return on investment.
The Israel Broadcasting Authority until now did not make any statement concerning the investment conditions of the pay TV platforms in original programs. However, the authority asked for more transparency concerning the price policy of all the platforms in order to protect the customer from an increase of their pay-TV bills. It is common in Israel that subscribing to some services leads to a promotional price for a limited period. After a few months, prices increase and customers find themselves in less advantageous situations. In any case, Israeli customers have expressed their satisfaction about the opening of the market thanks to development of boxes' offers and the launch of Cellcom TV. It has lead to a decrease of prices that customers requested a long time ago.
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