Israel Sets Down New Regulations for Pay TV


Tel Aviv, Israel-

Israel's government late last month unveiled new regulations that could shape the development of this country' s pay TV industry in the coming years.

The rules, issued by Israel Cable and Satellite Television Council (CSTVC) chairwoman Dorit Inbar, cover tiered lineups and programming exclusivity, two issues that have caused heated debate in the pay TV industry here.

Cable operators Golden Lines Ltd., Tevel Israel International Communications Ltd. and Matav Cable Systems Media Ltd. currently have a monopoly on Israel' s pay TV industry. Tiering and exclusivity have become major points of contention as direct-to-home startup YES-DBS Satellite Services aims to break into the market.

But despite issuing several concrete proposals, the CSTVC failed to resolve some issues, namely the fees that cable operators must pay to renew their licenses in 2002.

In a victory for cable, the CSTVC reduced the period in which YES has the exclusive right to tier its lineup to nine months from an originally planned 18 to 24 months. Matav, the smallest and most vulnerable of the MSOs, will also be permitted to tier its lineup during YES' exclusive period should it lose at least 37,000 or so of its subscribers to the DTH upstart.

Tiering would enable the pay TV operators to offer less-expensive packages that could help them win new subscribers and retain current ones.

YES was granted the exclusive period to help its entry into the market. Company spokesman Benni Cohen said YES was "not happy with the committee' s tough decision [on tiering]. The board of directors has instructed management to examine the details and see what we have to do to comply. They will report back next week."

But insiders from the cable companies and YES expect the DTH service to live with the CSTVC' s rulings and start operations in July.

To compensate for the reduction of its exclusive tiering period, YES was granted its key demand: Cable operators must sell it programming from their jointly owned channels, apart from in-house-produced shows on The Family Channel and The Movie Channel.

YES will pay carriage fees for the channels based on its subscriber count, though the minimum fee will assume the platform has 150,000 subscribers.

At the same time, Israel's MSOs may not strike exclusive carriage deals with foreign programmers without CSTVC approval.

"The must-sell" policy is the big issue. I think now YES will launch on time or a month later," said Nessuah Zannex Securities analyst Avshalom Shemei. "I wouldn' t have said that two or three months ago."

Most in the industry expect the platform to launch in July; if it doesn't, its operating license expires July 20.

Programming has long been a roadblock to YES, which had postponed its commercial-launch date as the deep-pocketed cable operators acquired exclusive rights to channels from international programmers. YES, which has refused to launch without a must-sell policy in place, had planned to carry many of those channels, among them Hallmark Entertainment Network and BBC Prime.

"Technologically, we are ready to broadcast now," a YES source said. "The problem has been content."

The package deal also benefits both sides by allowing the cable companies' jointly owned production arm, Israel Cable Programming (IPC), to continue to produce its proprietary channels. The government had threatened to disband IPC, claiming the cable companies were operating a cartel.

And in an effort to preserve Hebrew-language production, the CSTVC' s Inbar said cable operators must spend at least $25 million a year on local programming over the next two years. YES, meanwhile, will have to invest $7.5 million in local production in its first year of service and $10 million in its second year.

Though the CSTVC set down a number of new conditions, it did not decide on how much cable operators will have to pay to renew their licenses in 2002. Israel' s finance ministry has demanded that the MSOs fork over a total of $1.5 billion. While the cable operators have refrained from commenting on the new conditions, some in the industry believe they' ll only agree to them if they can renew their licenses free of charge.

Communications Ministry spokeswoman Tami Sheinkman shrugged off the possibility of free licenses.

"Of course they don' t want to pay a license fee, so of course they claim there' s a connection. But there isn' t," she said. "Only Eliezer Fishman, the major Tevel stakeholder, is against the decision. The others agree."

Fishman could not be reached for comment.