Young Israelis Flock to Digital Media, but the Money Is Still With TV

As with the newspaper industry, advertising is more profitable offline. So Israel’s TV industry is worried.

OI! Studio

Israeli television in 2015 was marked by an interesting paradox: the inverse relationship between revenues and the migration of viewers to new digital media.

Consider the television series “Kfulim” (“False Flag”), broadcast this year on Channel 2 franchisee Keshet. The show doesn’t only tell us about Mossad agents, it tells us about the distorted model in Israel’s television industry.

“False Flag” doesn’t appear on the list of the 10 most watched shows this year, but Keshet proudly notes that if you take Channel 2’s ratings, the video-on-demand numbers and the showing on the Channel 2-linked Mako TV website, “False Flag” was Israel’s most watched show.

Keshet says every “False Flag” episode on Channel 2 was watched by 760,000 viewers on average, but let’s add this to the number of viewers who watched later. This includes an estimated 200,000 viewers per episode on voice on demand (Keshet didn’t provide figures), and 415,000 viewers online. Thus only around half the viewers stemmed from regular broadcasts.

The breakdown by age is clear: 75% of “False Flag” viewers on Channel 2 were 35 and older, while 71% of those who watched online were under 35. Young people are leading the trend to digital media, ending the era of channel surfing. They want their shows when they want them.

So here’s the anomaly: The revenue sources are the other way around. Keshet estimates that 90% to 95% of the revenues from its programs come from Channel 2 broadcasts; after all, it’s hard to make money off the Internet. Prices for Internet advertising are much lower, with the exposure on television much greater.

So it’s no surprise that the television industry is worried. More and more people watch old-style content on new platforms, where the income is minimal.

Still, the figures for 2015 don’t yet show a dramatic migration of viewers from television to the Internet. The average number of households that watch television every evening eased to 60.3%, back to 2010 levels.

The share of broadcast television viewers during prime time has remained stable – about half of prime time viewers watch their shows on Channels 1, 2 and 10. The average viewing time for these channels fell only slightly in 2015 to 153 minutes a day, or just over two and a half hours.

This means advertising revenues haven’t changed much either. “2015 can be characterized in one word: stagnation,” said a senior advertising industry executive.

The threat of Google and Facebook

The price of a rating point hasn’t changed either. The estimates for the television advertising market are still between 1.4 million shekels ($360 million) and 1.5 million shekels (including advertising agency fees).

But stagnation still means less money for the television industry. First, it’s impossible to compare 2015 to the previous year, in which the advertising market was paralyzed for months because of the Gaza war in the summer. Also, the nominal stability in television advertising revenues means income is being eroded over time, and in any case these results contradict the growth forecasts for the advertising market.

Content providers are trying to fight this trend in which the big money that was supposed to remain in Israel is moving to foreign companies, especially Google and Facebook.

The launch of Artimedia, a platform for video advertising on all content websites, helped revive this business a bit in 2015 and may lead to higher advertising prices in the future. Still, broadcasters don’t have great hopes for it yet.

“We can’t compete with YouTube and Facebook,” said a senior executive in the television industry. “They don’t have costs for creating content, and they can allow themselves to make a minimal profit on every cat video. This reduces our prices too and reduces the possibility to profit from new-media content.”

Channel 10 gives it a go

Despite the eulogies for commercial and public television, 2015 was the year the industry actually stabilized after years of regulatory uncertainty. Channel 10 received a new owner, the RGE Group, and a broadcasting license for 15 years.

Keshet and Reshet realized that Channel 10 was now a permanent competitor, and as TheMarker has revealed, lawyers for the two Channel 2 franchisees began preliminary talks to consider a merger.

The big news for 2016 is expected to come from the committee headed by the director general of the Communications Ministry, Shlomo Filber. The committee is supposed to recommend how to deregulate the communications industry, and in doing so possibly make life easier for the existing players.

At the same time, too great a reduction in regulation could bring in competitors whose entry into the industry isn’t for economic reasons alone. The current players could be stung.

The justification for more competition is clear: Channel 2 has an almost 70% market share in terms of viewers, and probably a higher share in terms of revenues. It’s this power that Prime Minister – and Communications Minister – Benjamin Netanyahu wants to dismantle.

Even though Reshet is a fierce competitor against Keshet, Keshet was the leader in 2015 once again, even extending its lead over Channel 10 and Reshet.

Keshet boasted an average of 688,000 prime time viewers every evening, a slight increase from 2014. Reshet and Chanel 10 had 624,000 and 233,000 viewers respectively, about the same showing as in the previous year.

Reality shows still rule

Channel 1, which spent the year amid turbulence at its parent, continues to see its viewer numbers shrink. The station is producing shows that caused a stir, but only averaged 98,000 viewers a night.

Channel 10 kept to its new strategy and broadcast only “quality” programs, not reality shows. As a result, the fact that the broadcaster kept its ratings numbers stable was a surprising accomplishment. Channel 10’s most watched series was “Baby Boom,” but the show slipped in the ratings from the previous year.

The number-one show in the ratings in 2015 was “Hamerotz Lamillion” (“The Race for the Million,” based on the U.S. series “The Amazing Race.” It had 1.08 million viewers per show. “Big Brother” came in next at 1.03 million.

Eight of the top-10-rated series this year were reality shows; yes, for the time being, this genre is irreplaceable. Keshet boasts seven of the top 10, Reshet three – thus all 10 were broadcast by Channel 2.

2015 began with a new spirit at public television’s Channel 1, which is now being run by the government receiver and has a flashy new news anchor Ya’akov Eilon. But the Israel Broadcasting Authority is being liquidated and replaced by a new public broadcasting agency.

Channel 1’s slumping image has not improved, however, and despite the investment in Eilon, the Mabat news show, which has been extended from half an hour to a full hour, still has only 142,000 viewers on average every night.

And a comparison with the ratings from a year earlier is a bit deceiving because in 2014 the news had very high ratings for months because of the Gaza war. As a result, the news programs sagged a bit this year.

Channel 2 news continues to be the news program with the greatest effect on public opinion. It’s averaging 614,000 viewers per evening, almost 60% of all news viewers every day.

Channel 10 invested lots in 2015 in promoting its nightly news show; it hopes a better news show will increase ratings for its prime time lineup. It extended the news show’s length and launched a number of new features and series.

But paramount of course is the ratings, and while Channel 10 caught up a little in 2015, it still has only 300,000 viewers for its news program nightly.