Taking Stock / Yearly Yowl at Rosh Pina

To judge by the drama of the headlines emanating from the annual Israeli television/advertising/Internet industry convention last weekend at Rosh Pina, it should have been rebranded the Caucus of Kvetch.

Call that a festival?

To judge by the drama of the headlines emanating from the annual Israeli television/advertising/Internet industry convention last weekend at Rosh Pina, it should have been rebranded the Caucus of Kvetch.

One after another the sector leaders mounted the dais and lamented. Ilan Shiloach of McCann Erickson, the biggest TV advertising agency of them all, shed the opening tear. He was immediately backed by a chorus of Cassandras, each sob-brother biasing his speech by his own interests, of course.

Their message was sharp and clear: the industry is losing tremendous amounts of money. The companies are bleeding. There are dreadful anomalies in the market. The business models are flawed, and the industry is crying out for massive reform.

What kind of reform? Each of the red-eyed executives had his own suggestion, naturally. One wants to allow advertising on cable and satellite TV. Another wants to seal the advertising market hermetically so he can continue to control it.

One wants to cancel regulation, while somebody else wants to increase it. One calls for the Antitrust Authority to intervene in agency fees, another says prices must drop and a third says they have to rise.

But the underlying assumption was the same: losses. Heavy ones. The losses must be stopped.

Perhaps the executives sobbing at Rosh Pina assume the regulators, the politicians, the policy makers and the commentators don't know the true story behind the industry's losses.

The cable companies

The cable industry is theoretically the most whipped dog of the lot. It's losing hundreds of millions of shekels. But that is, of course, utter nonsense. It is a strong industry with huge potential, a monopoly hooked up by standing orders to bank accounts of more than a million households up and down the land. It controls infrastructure that can supply television, Internet and phone service, too.

The one responsible for the fallen faces at the cable companies are their owners. During the bubble years they made unwise investments costing billions of shekels. If the industry had restructured its debts, like in the U.S., it would be clear just how good the cable business really is.


The Yes chiefs wailed about their losses and pointed an accusatory finger at the cable companies. Yes loves to present itself as the underdog fighting the brutal cable monopoly.

Well, actually, Yes's financial profile is so sorry because its owners chose, for financial reasons, to fund it through shareholders loans instead of share capital. The second reason for its sorry state is that they are set on increasing its market share at the expense of profitability.

Yes's strategy is perfectly legitimate, but the moans are a joke. If the shareholders' loans had been booked as equity, it would be clear that its bank debt per subscriber ratio is even lower than that of the cable companies. If it had not been that aggressive about increasing its market share, it could have turned into a mint.

Channel 2

Keshet and Reshet, the two companies running Channel 2, are not, in fact, losing money. Keshet's profits in 2004 were very high. But their leaders are preparing for a drop in profit by emitting yowls of woe, rising and falling in frequency at a constant rate.

Why the expected drop in profit? Because the shareholders decided to bid astronomical sums to regain their Channel 2 franchise, of NIS 124 million to NIS 171 million.

Financing costs on sums like that will weigh heavily on the companies' profit and loss statements, on their ability to pay dividends to shareholders and on management bonuses.

But did anybody force Keshet and Reshet to offer sums like that? No. Why did they, then? Because their owners thought they could profit nicely even so, or, because they want the power that controlling a TV station brings.

What does one do after winning a tender and assuring one's power? Read on.

Channel 10

You can't claim that it's making money. Unlike the cable companies, Yes and Channel 2, at Channel 10 the losses are structural and operational and have nothing to do with past investments.

But didn't the multi-millionaires who invested in the channel know that when they decided, a few months back, to fork over some more? Didn't they know the terms of the franchise and the size of the advertising market?

They knew. They have seasoned money people who looked at the Excel broadsheets and told them: Gentlemen, you can't make one red cent here.

So why did Ron Lauder, Arnon Milchan, and Yossi Maiman decide to pour another quarter-billion shekels into Channel 10, after having already spent half a billion? For the power, for the soul, for the fun of it, or maybe all three together.

Now that we have the power, now that we're having fun, and now that we've done something for the good of our souls, too, it's time to start yowling. Help! Time out! Stop the game! As though they had not known the rules in advance.

The only people at Rosh Pina on the dais not moaning were the Internet people, which led somebody to remark that the only media company making money at the event was the portal, Walla!

Why is Walla! making money? Because the tremendous investments in it during the bubble days had been in share capital, not in loans (no bankers were prepared to lend a sou to a dot.com). If Walla! had to repay principal and interest on mountains of cash it burned up, until recently, its managers could have joined the chorus of keeners.

Not that it would have helped. In Internet, there are no regulators or Knesset members who can shed a tear in sympathy and open/close/raise/lower/bring in/oust players from the market. In Internet, you have to get up in the morning, take a deep breath and compete.