Taking Stock / Pretending It's a Crisis

Meltdown. Horror. Towering debts to the banks, losses, restructuring and recovery plans. Cut, slash, hew some more. Regulator intervention. The country is stark raving mad. The regulator is an idiot. Cut! Slash, burn - where the devil is the regulator?

To be sure, if there's an uncontested axiom in Israel's business community, it's that the multichannel television industry, cable and satellite alike, is in terrible shape.

But is it? Ask John Malone or the Roberts family of the U.S. Ask the big managers and players in the European and American cable scene. They will give you a strange look and suggest you get into your time machine and come back home from 2002.

Israel's cable and satellite sector sank into crisis in 2001, in a mirror image of events worldwide. An irrational exuberance fueled by the Internet bubble had encouraged massive investments in 1999 and 2000 in companies, equipment and content, at stratospheric prices. The result was the collapse of most of the world's cable companies.

Over here, Tevel, Golden Channels, Matav and the Yes satellite TV company have remained quivering on the floor, bleeding into an NIS 5 billion pool of debt.

Tevel had been the biggest of the bunch. It was reduced to bankruptcy. Its shares today are held mostly by the banks and creditors, mainly Leumi.

The industry is in such shabby shape that to date, nobody has declared any serious interest in buying the banks' shares in Tevel, for which a tender will be published next week.

Look who's back

But do take note of the identity of one company angling to buy Tevel itself, as Haaretz revealed on Monday - UnitedGlobalCom, or UGC, which used to be known as UPC.

Ah, cable industry veterans remember UPC, a bubble-era provider of broadband communications and entertainment in Europe, and its overbearing leader, Mark Schneider. They remember how UPC, which had owned 50 percent of Tevel, reached a market cap of $30 billion, only to crash and burn, diving to zero in the space of two years.

How is it that UPC, the most egregious failure in the European cable scene, is suddenly a candidate to buy Tevel? Isn't the local cable industry on its knees, crushed under the weight of a world of debt?

The answer is that what's holding back Israel's cable industry is egos, and Japanese-style banking methods that involve mainly endless foot-dragging and obliviousness to reality.

Now, what saved the global cable industry and turned its meltdown into a distant memory is acknowledgment of reality.

Like many of its media and communications peers abroad, UPC underwent a rapid process of recognizing the change in circumstance, restructuring, change of ownership and business models, and embarkation onto a new path.

Most of UPC's debt had been to bondholders, to which it could offer an overnight haircut. In other words, it forcibly reduced its debt to manageable levels.

Having shed its humps, with a recovering market, UPC began to race ahead, to take opportunities by storm; and to take advantage of the astonishing opportunities that Internet protocol offered the cable companies.

Back in Israel, the bankers and cable shareholders were still too busy casting blame on one another to do anything productive.

The bankers and cable shareholders have been waiting for three years for prices of cable companies (which are measured in terms of value per subscriber) to return to their 2000 levels, which were around $2,000 per subscriber.

But while they twiddle their thumbs, disgusted customers are abandoning the cable companies. As their debts mushroom and their subscriber base shrinks, their cost per subscriber has climbed to an all-time height of $2,500 and counting, double the real value of the business.

Who forced Saban to buy?

Putting aside the historic debt on their backs, the cable business is, in fact, a superb one. It has hundreds of thousands of subscribers paying by standing order and great potential in the Internet age. In fact, the entire "crisis" in the industry is a fiction.

The same is true of the satellite sector. The papers tell of Yes' tremendous debts, but most of that is owed to shareholders, and thus not much different from shareholders equity. Again, it turns out that the satellite business is a wonderful place to be.

That legend of crisis also applies to commercial television. There, too, the players whimper about crisis and losses. But nobody asks whether anybody forced Haim Saban, Arnon Milchan, Yossi Maiman or Ron Lauder to invest in Channel 10 or Channel 2. All are relatively new to the screen business. All went in with eyes wide open. Saban even told his people to submit an insanely high bid of NIS 170 million to assure his triumph.

If the crisis was for real, we wouldn't be seeing multimillionaires stampede to the Channel 2 tender. We wouldn't see billionaires lining up to invest in Channel 10.

They all have good reasons to invest in television, though they know their chances of financial returns are remote. First, they jump into the water; then, they start to complain that it's cold and that the industry is sick and bleeding.

In general, when a giant company - say a supermarket chain or cable company - fails, it is no reason to jump up screaming that competition has ruined the industry. A modern economy is based not only on successes and profits, but on failures too.