New policy opens Israeli television. (Territories).

The new year brought a new policy to Israeli television that has both cracked it wide open for new competition, and shaken it up economically. The Open Sky Policy has mandated free competition under fair and equal conditions for all carriers and content providers, ending a history of limited broadcast offerings.

Until the early 90s the Israeli television industry; referred to by some as sheltered, consisted of only two broadcasters: the Israel Broadcast Authority; a government-controlled and managed channel, and the only available channel until 1990; and Channel 2, Israel's first ad-based channel, which operated through three licensees: Keshet, Reshet and Teldad. Then in 1991, Israel's five initial cable operators merged to form three cable companies, Matav, Tevel and Golden Channels. Each of these companies was allocated an exclusive geographical market segment to cover.

Now the Open Sky Policy has opened the flood gates and the competition has rushed in. The new direct-to-home (DTH) digital platform YES already offers a multitude of channels, prompting cable companies to broaden their programming offerings. Since Open Sky provides for fairness in competition, authorities demanded that cable companies convert to digital if they wanted to expand their channel packages.

In addition to the increase of digital cable and DTH channels, more terrestrial channels have entered the market. Channel 10, Israel's second ad-based channel was launched this year, and five new ad-based niche channels (all terrestrial), including a news channel, Russian and Arabic language channels, a music channel, and an Israeli heritage channel, are soon to launch.

While viewers may be getting a wider range of choices, Israel's TV industry's hopes for larger revenues and profits have not yet materialized. This could be due in large part to a flooding of the market, which is a drastic change from the economic monopolies held by the original broadcasters. IBA benefited from television tax funds, which currently generate $100 million annually. Channel 2 had the advantage of its advertising revenues. And the cable companies capitalized on their regional exclusivity.

Recent statistics reveal that in a market of over 1.55 million TV households (not including Arab or religious households), more than 90 percent are subscriber based, with 300,000 DTH subscribers and 1.15 million cable subscribers.

This flood has also resulted in extensive budget cuts. "The long-awaited competition turned out to be less beneficial than we expected," said Joe Levin, vice president of international operations of United Studios, Israel's largest production company; Cable companies suffered from the high cost of converting from analog to digital. DTH became overwhelmed with the start-up costs of expensive satellite infrastructures. Channel 2 and Channel 10 suffered a hit to ad revenues when coverage of the terrorist attacks ate up designated air time, and ad value decreased as viewers switched to the newer niche channels. On top of all of this, the growing competition forced a significant increase in licensing fees.

Companies like United Studios are thinking outside the box -- and outside the Israeli borders -- in response to these economic difficulties. "Israel has such a small TV market compared to other countries, and until recently; most Israeli companies felt comfortable enough basing their operations on revenues generated solely by the local market," explained Levin. "But the only way to maintain a high level of quality program production is to be open to business with foreign television and production companies." He added that United Studios has already implemented a new global strategy, which includes seeking international formats and foreign platform channels.

"Formats enable production companies to produce local programs at lower costs," said Levin. "Not only can success be verified from studying a format's success in other territories, but extensive research and development costs are eliminated." Until recently; only a few small Israeli production companies dealt in formats. In the past, these companies would option the rights, search for a broadcaster to air the show and then proceed with production. Today the process is reversed, to the advantage of the distributors. Bigger studios like United Studios have preset production commitments with channels, and in order to overcome the challenge of budget reductions, they approach format distributors and finalize deals directly.

United Studios is focusing on three format genres: trivia-oriented game shows, reality television, and late-night formats that target the young adult demographic. United recently licensed formats from Action Time and MTV and is in negotiations with other companies. As the sole Israeli company exhibiting at a dedicated stand at this year's MIP-TV, United Studios will be focusing its business on formats.

The company is also looking for foreign platform channels that fir the tastes of the Israeli audience. "We want co-production projects to which we can contribute both financially and creatively," said Levin. United Studios currently has ongoing projects with News Corp., PBS and National Geographic.