Internet Competition Walloping Israel's Cable, Satellite TV Providers

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Observers at a launch event for Partner TV in 2017.
Observers at a launch event for Partner TV in 2017. Credit: Ofer Vaknin

It wasn’t too long ago that Israel’s television-broadcast market was in the hands of just two players – Hot, controlled by French entrepreneur Patrick Drahi’s telecoms company Altice, which broadcasts over cable, and Yes, controlled by Bezeq and which broadcasts by satellite.

The average Israeli may think nothing has changed. Hot and Yes have deluged television by advertising the advantages of their premium services over cheaper internet TV.

Hot has recruited the stars of its popular “Shababnikim” series to tout its service, as well as Real Madrid supremo Cristiano Ronaldo, who’s extolling the live broadcasts Hot will be offering of the World Cup versus the delayed programming over the internet. Yes, meanwhile, is employing the child star Amelie Ben-Simon, who chides her uncle for watching internet TV over Yes’ clearly superior offerings.

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The reality, however, is very different. Hot and Yes are losing subscribers for their premium services at a rapid pace while fighting a rearguard action. Even with internet TV offerings of their own, which they have reluctantly lost, the two are seeing their businesses’ revenues shrink.

How rapidly they are shrinking is hard to tell, because neither company breaks apart its premium service from its internet service. But the headline numbers look discouraging.

In the first quarter of this year, Hot reported a net decline of 8,000 subscribers, which works out to an annual loss of 32,000 at a time when Hot’s subscriber total was 781,000. At Yes, the first-quarter drop was 7,000, or 28,000 annualized, leaving it with 580,000 subscribers.

Market sources estimate that Hot and Yes combined have lost between 40,000 and 50,000 internet TV subscribers – a figure confirmed from Google Play downloads.

Hot launched its Next TV service in March 2017 and Yes its last October, suggesting that all the growth has been coming from the two services while premium TV is in sharp decline, even though Yes, for instance, has offered a low-cost premium service for just 199 shekels (about $55) a month, which includes features like VOD (video on demand).

The growth of internet TV is significant for Hot and Yes as neither company has aggressively marketed their internet TV offerings. They only advertise them to non-subscribers and to premium subscribers who are threatening to leave. Both offer their internet TV at a monthly charge of  29 shekels.

The price-cutting for premium and the low charge for internet TV are cutting into the bottom line. For years, both succeeded in keeping the decline in average revenue per user, or ARPU, a key industry metric, to a moderate level. But in the first quarter, ARPU for both of them dropped 5% to 214 shekels for Yes and 219 shekels for Hot.

At that rate, ARPU could be down by more than 20% by the end of 2018.

The decline in revenues poses a threat to one of Hot and Yes’ competitive assets, namely their exclusive offerings, like the popular “Shababnikim” and “Fauda” TV series and their live sports broadcasts.

The winners of the TV race are mainly the cellular companies Cellcom Israel and Partner Communications. While their core mobile-telephony service is being squeezed by competition, internet TV has emerged as a growth area.

Cellcom TV is the leader. It was launched three years ago and at the end of this year’s first quarter counted 184,000 subscribers, an increase of 14,000 over the previous three months. Partner is a relatively late-comer that launched only last year but had 64,000 subscribers, an quarterly increase of 21,000.

Other players are in the market, too. Netflix and Amazon Prime between them have tens of thousands of subscribers and tiny Triple C another few thousand.