With six weeks to go before the major shake-up in Israel’s television industry is due to begin, two of the three players are holding very preliminary talks about a tie-up.
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Udi Angel, who controls Reshet (one of the two Channel 2 franchisees), is talking with RGE, the controlling shareholder of Channel 10, about either merging the two or buying control of Channel 10, a deal that would cost him an estimated 250 million shekels ($66.2 million).
RGE declined to comment on possible talks on Monday, saying, “Naturally, before the breakup of Channel 2, there will be rumors about talks between the three players in the television market in regard to the future of commercial broadcasting — that’s how it should be.”
Reshet and Keshet’s shareholders declined to comment.
The talks come ahead of a November 1 deadline for Reshet and Keshet (the other Channel 2 franchisee) to apply for separate broadcasting licenses that would require them to air programming seven days a week.
The deadline is part of the broadcasting industry shake-up that sees the end of Channel 2 in its current guise and the joint Reshet/Keshet news operations.
The changes are fraught with risk for the three companies, all of whom are convinced that an industry with a net turnover of 1 billion shekels can’t possibly support three independent broadcasters.
Worse still, a report prepared by a committee chaired by Shlomo Filber, the Communications Ministry director general, has recommended lowering barriers to other players to enter the television market in Israel.
As a result, Reshet and Keshet’s shareholders are still hesitant to risk the 300 million shekels they estimate are needed to get their 24/7 television operations, including a news division, up and running.
Both companies are struggling financially, as is Channel 10.
Keshet is investing heavily in its international operations, developing platforms for overseas broadcasters through its Keshet International (KI) division, as well as developing its Mako website and Channel 24 network. In recent years, Keshet’s investors have injected some 100 million shekels into the company.
But the cash infusion has seen disputes between the shareholders, led by the family of the late Moshe “Muzi” Wertheim (with 51%) and Yitzhak Tshuva (20%). The smaller shareholders didn’t contribute cash and are supposed to see their stakes diluted, except that the sides can’t agree on a valuation for the company to base it on.
At Reshet, the situation isn’t much better. CEO Avi Zvi has significantly reduced the broadcaster’s debt, but it was caught up in a financial scandal involving double bidding of ad agencies that forced it to write off 70 million shekels.
As previously reported by TheMarker, the two Channel 2 franchisees held negotiations in recent months about merging. However, the talks collapsed before they could reach any understandings or undertake due diligence.
Industry sources cite several reasons for the failure. One is that the shareholders of the two companies are both loath to dilute or give up their role in the commercial-television market, and both want to keep their international operations. Like Keshet’s KI, Reshet has global ambitions that it is pursuing through a partnership with independent TV production giant Endemol (the creator of “Big Brother”).
With the collapse of the Reshet/Keshet negotiations, Reshet is now exploring its options with Channel 10. However, it was Channel 10’s controlling shareholder, the RGE group, that proposed the talks, industry sources said.
RGE won control of Channel 10 — by far the smallest of the three broadcasters — just over a year ago. It paid a symbolic 10 million shekels for the company, while assuming its debt and agreeing to inject cash into the operation. But since then it has been losing money. The company has been hit by management turmoil as well.
RGE takes the view that, as the smaller broadcaster, Channel 10 is in the worst position to survive a market that’s split three ways. However, it does have assets — among them the fact that it is the only one possessing a 15-year broadcast license, which it received in 2015. Its news and programming divisions are also considered strong.