Market Insight

Bezeq to transition its subsidiary satellite pay TV service to OTT

July 08, 2019  | Subscribers Only

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Associate Director, Service Providers & Platforms, IHS Markit

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Israeli incumbent telco Bezeq, plans to transition its subsidiary satellite pay TV service Yes to an Over-The-Top (OTT) online video subscription streaming (OTT), according to a resolution made by the Yes Board of Directors and subsequent notification given to the Tel Aviv Stock Exchange (TASE) in March 2019. The Israeli telco also released a statement for the country’s media, indicating that the move to online streaming will be a gradual, long-term, process - over several years without providing a firm timetable.

Underlying the decision is the entrance of several new local and international OTT players, changes in consumers’ habits and the content value chain and in consumers’ habits as well as the lowering of regulatory barriers to enter the pay TV market. 

Our analysis

Israeli traditional cable pay TV operators Hot and satellite pay TV service Yes, facing challenging times given that their subscribers’ bases continue to shrink. For example, the Hot pay TV has endured seven consecutive years of decline in its subscribers’ base. Further challenges stem the implementation of a stricter regulatory framework which has forced telcos to open up their infrastructure. Separately, the entrance of local OTT subscription services from competing - Israeli telcos Cellcom and Partner ensures the Israeli pay TV market is competitive. This competition has forced Yes and Hot to innovate, in order to  better compete and ultimately stay afloat.

The Hot and Yes pay TV services have dominated the Israeli pay TV market since early 2000s, forming a duopoly that has, over the years, attracted a lot of criticism for driving excessive prices and inadequate customer service. Israeli pay TV customers have been subject to expensive packages with few adequate alternate options. For several years there was little variation in the content and pricing between the Hot and Yes pay TV services. The Israeli government, sensing the dissatisfaction and frustration of the pay TV viewers intervened in 2014 with a plan to address pay TV affordability for the average Israeli family.

The government introduced new legislation, forcing the two operators to launch less expensive alternate pay TV services to their existing basic-tier packages. The alternate services were less expensive than the cost of the introductory packages of a basic Hot and Yes offer but the move did not have the desired result. The two operators deliberately stacked an un-attractive programming line-up including content available via free-to-air TV. As a result, only a few thousand Israelis switched to the alternate services. 

In many markets worldwide traditional pay TV is suffering from cord-cutting i.e. subscribers’ switching from a pay TV to OTT video subscription. First observed in North America, cord-cutting has since spread to other regions including Latin America and Western Europe. As a result, dominant operators have seen the erosion of their pay TV subscribers’ base and been forced to plan and implement contingent business strategies such as launching their own OTT video subscription service; e.g. Sky’s Now TV in the UK.

However, it is premature to blame cord-cutting for the struggle Hot and Yes are enduring in Israel. There is no direct relationship between the growth of OTT and the decline of pay TV in the country. Pay TV subscribers started to erode in 2010 whilst international and local OTT services entered the Israeli market in 2015. The pay TV market lost 152,000 subscribers between 2010 and 2019 compared with the OTT market which acquired 537,000 (net additions) between 2015 and 2019; i.e. the OTT market acquired four times as many subscribers as those leaving pay TV services. A key reason being less expensive OTT services, compared with their pay TV counterparts, are appealing to price-sensitive demographics which have traditionally been outside the reach of pay TV services, in most cases younger people who never subscribed to a pay TV service.

The change in market dynamics within the Israeli video subscription market has pushed Bezeq to implement new strategies such as the transition of its subsidiary Yes from a satellite to online video subscription service. This is a major move for the Israeli telco which alternatively could adopt other strategies requiring much less risk, such as forming partnerships with major international OTT services. Bezeq is the only major player in the Israeli TV and OTT markets that has not signed a deal with Netflix. The global online video giant has signed deals with Bezeq’s competitors Partner and Cellcom- whilst the hybrid set-top box launched by the rival Hot pay TV service (Hot FireBox) has a dedicated Netflix button. 


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