Will Cable and Satellite TV Soon Be Outdated?

Local Internet service is already fast enough to bring on the next content revolution - multi-channel Web-based television. This year, the HOT and Yes duopoly will most likely find itself facing a new threat, one that develops among niche audiences at first - most likely starting with Russian speakers.

TheMarker has learned that in the first quarter of the year, a Russian TV company called Kartina.tv is planning to begin targeting Israeli consumers.

Kartina, whose customer base includes Russian-speakers outside Russia, will not reach Israeli viewers via their satellite dishes or cable networks, but rather via the Internet connections of consumers' televisions, by means of a special converter.

Kartina has the rights to broadcast 65 channels, including the Russian-language MTV and FTV, sports channels and children's networks. Now Kartina is planning to enter the Israeli market, where it has about a million potential customers. The service will cost 15 euros a month, about NIS 80 - cheaper than a subscription to HOT or Yes, whose monthly subscription prices start at NIS 200. Purchasing the converter will cost 120 euros.

Even before the company has made its official debut, it already has about 600 customers in Israel. Russian-speakers are considered a major market for HOT and Yes, since none of the free channels - 1, 2 and 10 - have Russian-language content.

Kartina is the first element of the content revolution that awaits Israeli television in 2010. Internet video broadcasts will go from being a technology lover's hobby to an option for the average viewer.

There are several factors that have made this possible: First is the TV-via-Internet technology, which is now coming of age; second is the local increase in bandwidth; third is DTT (digital terrestrial television), which gives viewers access to new channels for the one-time cost of a converter, and entered the local market in August.

Companies like Kartina are likely to offer consumers a converter that will give access both to Israel's free channels, as well as to each broadcaster's Internet-based channels.

Many companies in the Israeli market, including Bezeq, Smile, Netvision, Cellcom, Partner (Orange) and content producers, are interested in the field of Internet broadcasting, and are looking into the technology involved.

They are testing converters in laboratories, and are at different stages of testing. One Israeli company that already has entered the field of Internet broadcasting is GooMe, whose CEO Danny Peled says the satellite and cable companies' future is grim.

"For them, the future is scary. The success of these services in Israel is dependent on bandwidth and the spread of DTT, which is not making the progress it should. The moment these problems are solved, many communication companies in the Israeli market will jump on the bandwagon and start offering these kinds of content services, as soon as 2010," he says.

The technology underlying Kartina - servers, hardware and software - was developed by an Israeli company, PeerTV. CEO Ronnie Jaegermann declines to discuss his customers' plans, but is willing to discuss the trend as a whole.

"As opposed to regular multi-channel television, an entry token to Internet television is very cheap. A content provider in the Internet age does not need physical infrastructure or huge investments, and can provide competitive services for a relatively low investment in servers and converter distribution," he says.

"We've defined our field of operation as 'narrowcasting' - broadcasting for a narrow audience, such as immigrants. We have 13 customers preparing to launch, and another five that are already live."

PeerTV was founded in 2007. It now has 23 employees, and has raised a total of $4 million in several rounds of financing. The company is about to finish its latest financing round, in which it will have raised $3 million from London-based institutional investors. "We finished 2009 with $3.5 million in turnover, and we're expecting to triple that in 2010, since we have many orders in the works," he says.

Content owners also want to get straight to consumers' living rooms, without having to pass through the niche channels offered by HOT, Yes or a video-on-demand service. "I have a content catalog with more than 10,000 titles, including original Israeli content and lots of classics," says Oded Horowitz, CEO of Orlando Films. "I can distribute my content and profit without passing through the crazy supply chain that exists today," he says. "We'll enable Israeli creators to broadcast their movies, and split the profits from every viewing."

A newly-launched initiative in the United States targeting Israeli expatriates, called CTV International, is also based on Internet-TV technology. CEO Meni Dvir says, "Israelis in the United States used to access Israeli content via illegal Web sites or via the Israeli channel broadcast by satellite, which was pretty thin in terms of content. We offer them channels 2 and 10, the Sports Channel and more, for between $30 and $50. It takes less than three seconds to flip between channels, and we have services that even HOT and Yes don't offer - for instance, the user can view programs that were aired a week ago," he says.

The Israeli company ORCA Interactive, which was acquired by France Telecom, built the technological platform that CTV uses. "Nowadays it's possible to offer over the open network services that were reserved for Internet protocol television players," says Sefy Ariely, ORCA's VP-marketing and sales. "This is a paradigm shift that redefines the term 'television operator.'"