The Israeli media market is heading for a shake-up, with a new internet TV offering in the works and a new all-news website.
In the first, TheMarker has learned that television broadcaster Keshet is moving toward a deal to take a 50% stake in the telecommunications provider Xfone 018 and form a joint venture to offer multichannel TV over the internet. RGE, whose properties include the Channel 13, Sport 5 and Children’s channels, will supply content.
Keshet and Xfone signed a memorandum of understanding this week outlining the planned deal, sources told TheMarker. A final agreement is expected to follow within three months after the completion of due diligence.
No money will change hands in the equity portion of the deal. In exchange for allocating 50% of its shares, Xfone will get free advertising on Channel 12 as well as content for the internet TV venture at no cost. The transactions are to be valued at a combined 150 million shekels ($43 million).
However, the tie-up is almost certain to cause ripples throughout Israel’s media and telecommunications industries.
Keshet is a content powerhouse already; if RGE joins the venture as planned, its offerings will be even more attractive.
The new venture plans to employ an unusual business model, in which subscribers can pay for only the programming they view. The target market is cost-sensitive users, which will put it into head-to-head competition with Cellcom Israel and Partner Communications.
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The two are Israel’s biggest cellular providers, but amid the cutthroat competition in the mobile market the two have invested heavily in internet TV as part of a drive to diversify revenue. It has been an expensive undertaking, requiring massive investment in equipment as well as content.
Now, Cellcom and Partner face the prospect of a big new competitor in exactly the same price-sensitive segment of the market the Keshet-Xfone joint venture is targeting.
In addition, the tie-up presents a new competitor in the telephony market, where not only Cellcom and Partner are players but so are Hot and Bezeq.
Hezi Bezalel has built Xfone into a gritty competitor in mobile and internet. He received a 4G license in 2015 and three years later launched the we4g cellular brand. It enrolled 25,000 subscribers for we4g, but cellular industry sources say Xfone has lost momentum due to the capital spending costs involved and stiff competition that has kept phone rates low.
The tie-up with Keshet will give Xfone lots of free TV advertising as well as powerful new shareholder. Keshet itself is controlled by David and Drorit Wertheim, one of Israel’s wealthiest families, as well as Yitzhak Tshuva, a businessman who controls the Delek Group.
Meanwhile, Channel 12 News, which is controlled by Keshet, unveiled plans on Wednesday to launch a news website to take on the market leader, Yedioth Ahronoth’s Ynet. Called N12, the new site will feature Channel 12 broadcast journalists, whose celebrity it hopes will give it an edge over Ynet.
N12 will be Israel’s first news website to be launched in more than a decade. The last major content site of any kind launched in Israel was Mako in 2008, which is owned by Keshet and will manage the business side of N12. Since then, a number of big sites have disappeared from the scene, including NRG, which was once the website for the Maariv daily and Nana 10, which had been run by the former Channel 10 television.
Mako is Israel’s third-largest content site, with approximately 50 million visits per month. It offerings include Channel 12 News, which will be spun off onto the separate N12 platform, in expectation that two sites will draw more visitors than one.
Keshet and Yedioth Ahronoth have been bitter rivals, going back at least to 2008 when Mako was launched. Yedioth Ahronoth publisher Arnon Mozes was usually the one on the offensive.
Mozes allegedly used his journalists to pursue his business interests, as he reportedly did in the so-called Case 2000, in which both he and Prime Minister Benjamin Netanyahu were charged with breach of trust. Yedioth didn’t publish interviews with the stars of Keshet TV shows and for a while even its TV critics didn’t review its shows. The newspaper published an expose asserting that Keshet’s “Big Brother” reality show dispensed psychiatric drugs to contestants.
In the past two years, the war has wound down, and Yediot now publishes articles on Keshet celebrities and programs. The launch of N12, sources said, is likely to rekindle the fighting.
Israel’s No. 2 site, Walla, which is owned by Bezeq and has been ensnared in Case 4000, is downsizing and cutting staff. Bezeq has sought to sell the business for 60 million shekels, and Reshet was interested, but negotiations never led to a deal.
In all events, the economics of a new news website are not at all clear. Most digital advertising revenue goes to global tech companies Google and Facebook, and advertising rates have fallen. N12 will emphasize video content that gives it more opportunities to place ads.
On the other hand, the costs will be low for Keshet. Although it is hiring writers and other staff and building a studio, it already produces most of the content N12 will need: Mako will still include news content, while N12 will incorporate Maco content, for example in sports and entertainment. Mako will manage the business side of things, keeping overall costs low.