War of Egos Brought Israel's Channel 10 TV to Brink of Collapse

The logjam may have been broken with the agreement of Ronald Lauder to sell his stake in the channel to the Gimel Yafit advertising firm.

Whether it was another installment of the reality show “Survivor” or a cabinet crisis breathlessly reported on the evening news, the on-screen dramas on Channel 10 have often paled with what has been going on behind the scenes at Israel’s second commercial television broadcaster: A battle of wills between two billionaire shareholders -- Ronald Lauder and Arnon Milchan -- that threatened to force the channel off the air.

That is, until Sunday when Lauder agreed to sell his stake to the Gimel Yafit advertising firm, subject to regulatory approvals.

Heir to his parents’ cosmetics empire and president of the World Jewish Congress, Lauder has injected more than NIS 500 million over the past decade as a partner in the venture -- NIS 130 million of that in the past year after he agreed to put in more money in exchange for the government’s agreeing to stretch out the timeframe in which Channel 10 must pay license fees.

Cash calls of the size and scale required by Channel 10 never mattered much to a man like Lauder who is worth $3.7 billion, according to Forbes Magazine. Sources say it was a matter of personal honor, not financial returns. But Lauder had been fed up with the repeated requests for more money when the station’s financial results are not showing any improvement. Furthermore, each extra dollar he put into Channel 10 was a reminder of the ugly confrontation between him and the third-largest investor in the station, the Israeli-American Hollywood film producer Arnon Milchan.

Milchan, who has invested some $50 million in Channel 10, realized that he stood no chance of ever earning his money back, but in recent months Milchan, to his distress, had to pay another $6 million in the venture to buy out the stake in Channel 10 controlled by the global media magnate Rupert Murdoch. Milchan claimed that all of shareholders in the station should have joined in buying out Murdoch rather than Milchan alone. But Lauder has refused to provide any money that would end up in Milchan’s pocket rather than in the business itself.

Lauder sees his Channel 10’s role as a public contribution, not as a business. At a Tel Aviv news conference last year, when he declared his faith in Channel 10 and vowed to provide more funding, the lectern was adorned with the logo of the World Jewish Congress. The message that this conveyed was that Lauder was not at the news conference as a businessman but rather in his capacity as a public figure. As president of the World Jewish Congress, Lauder could not be the one to close such a media outlet in Israel and send its 600 employees packing.

When Milchan invested in Channel 10 in 2005, he made it clear up front that he wasn’t doing so as a business proposition either but rather out of Zionist commitment. Still, he hoped that the broadcaster would break even within four years and garner a 40% share of the television market. It didn’t happen. Milchan put more and more money into the business, but ultimately decided that enough was enough. His representative on the Channel 10 board of directors hasn’t participated in board meetings in recent years.

It was in this context that Channel 10 executives travelled to New York over the weekend to meet with Lauder and a potential new investor in the station. The delegation included Lauder’s two representatives in Israel, Avi Bashnikov and Michal Grayevsky, along with Channel 10 CEO Rafi Ginat and the CEO of Channel 10’s news operations, Golan Yochpaz.

Among those who had been rumored to be eying the Lauder stake were Aviv Giladi, who owns the media holding group RGE, as well as Ukrainian-born Jewish businessman Len Blavatnik and the Recanati family.

Milchan is worth $4 billion and could easily continue funding Channel 10, but against the backdrop of the no-holds-barred ego wars, he was not ready to give in. His representatives alleged to the regulatory authorities that Lauder controls the station in violation of the law that requires a TV broadcaster to be controlled by an Israeli citizen. The law requires that Israelis collectively hold a majority of the shares in the station, which the sale to Gimel Yafit would ensure.

Milchan had been withholding his signature on an application to extend the station’s license, which is due to expire after next year. Sunday’s deal, if it goes through, would enable the other shareholders to apply for an extension without Milchan’s signature.

Milchan’s associates told TheMarker that the problem started when Lauder came to Los Angeles eight years ago and gave a presentation in which he showed how the broadcaster would turn a profit. Lauder asked Milchan for $10 million and promised that if Channel 10 was not profitable, Lauder would personally make good on the investment.

Milchan, they claim, has repeatedly asked Lauder to make good on that commitment, but to no avail. The two have not met for four years. Lauder’s associates as well as senior executives at Channel 10 are furious with Milchan, who they say never got such a commitment from Lauder. “The claims are not worthy of a response,” says one Lauder associate.

Balashnikov resigned recently as Channel 10’s chairman, and the post was given back to shareholder Joseph Maiman, in the hope that it would undermine Milchan’s contention that Lauder, in fact, controls the Channel 10. But Balashnikov and Grayesfsky still make the major decisions and have been the ones ensuring that Channel 10 remains on the air. They even holed themselves up at the Finance Ministry until the government came to an agreement on the station’s debt. They led the legislative battles on behalf of Channel 10 and have seen to it that monthly injections of funds arrive to stave off collapse.

They were also behind the surprise appointment of Rafi Ginat, a well-known television personality and former editor of the Yedioth Aharonoth daily, as the station’s CEO. Balashnikov’s resignation as chairman of the station’s board was allegedly simply a move to improve the station’s position vis-à-vis regulatory authorities so they could bring the major Israeli shareholder, Maiman, back into the picture. Maiman was seen as the responsible adult who would try to resolve the spat between Lauder and Milchan.

Critics say Ginat was the wrong choice for CEO. Despite his successful on-air career, he has no track record of putting together a winning broadcast schedule, certainly not at a place like Channel 10, which has chalked up a series of ratings disappointments that have resulted in major losses. The station can take some comfort in a recent boost in ratings for its news operation, but the real test will come in December, when the broadcast schedule Giant designed is slated to be launched. It will feature reality and entertainment shows in an effort to go head-to-head with the country’s leading commercial broadcaster, Channel 2. Channel 10’s hope is to capture 35% of all TV advertising revenues, up from 27% now. A failure could prove fatal to the station.

The sale of the Lauder shares hinges on regulatory approvals. If they fail to come, or to come on time, the closure of Channel 10 would be a serious blow to competition in the industry, both in terms of television production and advertising. For the country’s commercial broadcasting regulatory agency, the Second Television and Radio Authority, it would be a disaster. As a result, officials at the authority had been trying to do what they can to keep it on the air, which included transferring all or some of Lauder’s shares to an Israeli. That would pave the way for a license extension request by a group of Israelis with a majority stake in the station.

Eyal Toueg