Is Netflix on Its Way to Israel, Officially?

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The Israeli fiber-optic cable company IBC is in “initial talks” with American video streaming giant Netflix to bring Netflix content to Israel, people involved in the matter told TheMarker.

IBC is currently working with the Israel Electric Corporation to create a network of fiber-optic cables for home use.

ViaEuropa, a Swedish fiber-optic company that owns 30 percent of IBC and has a relationship with Netflix from its Swedish operations, initiated the connection between the Israeli firm and Netflix.

IBC, which confirmed the details of this report, is currently seeking additional content providers to enrich the content it will be able to offer over its fiber-optic network.

Netflix is the world’s largest provider of streamed video-on-demand. It has a huge library of films and television series that customers can view for a monthly fee of $8 (in America). The programs can be viewed on personal computer, tablet, smartphone or even television, using either a smart TV or an external network appliance like Apple TV.

Founded in 1997 as a film rental company, Netflix went public in 2002. In 2007, it shifted its corporate focus to rentals over the Internet. It finished 2013 with revenues of $4.3 billion (up 20 percent from the previous year), operating profits of $228 million and net profits of $112 million.

In 2010, Netflix expanded beyond the borders of the United States when it started streaming in Canada. It moved into Latin America in 2011, Britain and Ireland in January 2012, Scandinavia in summer 2012 and the Netherlands in September 2013. Today, it has some 33 million customers in the United States and another 11 million in other markets.

It also switched from being strictly a streaming company to being a content provider. Over the last few years, it has produced some very successful series, including “House of Cards” and “Orange is the New Black.” According to one media report, Netflix creates a higher volume of Internet traffic in the United States than any other company.

The company streams its video content over the Internet in HD, and it recently announced that its new productions will be in 4K – meaning they will have a pixel density four times that of HD. Streaming in 4K requires a particularly large bandwidth.

IBC’s technological and business models are both appropriate for Netflix. Fiber optic transmission offers a large bandwidth, and therefore enables very high-resolution content to be streamed. Moreover, in contrast to cable television companies, which offer customers a fixed content package, IBC plans to serve as a neutral vehicle that many different content providers can use, making it convenient for Netflix to cooperate with.

If Netflix does choose to expand its operations to Israel, that will be bad news for cable television company HOT and satellite television company Yes. Both companies currently offer customers large, expensive content packages, whereas Netflix offers a cheap, VOD-only model.

Even today, Netflix has some Israeli subscribers. Though the service is technically blocked to surfers from Israel, the firewall can be bypassed fairly easily with a browser add-on called Hola. Currently, none of its content is translated into Hebrew, but if Netflix does choose to stream in Israel, content translation presumably be part of the deal.

Kevin Spacey in "House of Cards," Netflix's first original series.

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