Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ) subsidiaries, Internet portal Walla Communications Ltd. (TASE: WALA) and satellite broadcaster YES, have established a joint website, which will air full-length shows, not mere video clips. The new venture sharpens the question: as the Internet becomes increasingly like television, should television regulations apply to it, or should television regulations be reevaluated?
A few weeks ago, in early July a discussion was held about regulating the Internet, ahead of the Rosh Pina Television and Film Festival in October. These discussions now take on greater importance.
Hot Cable Systems Media Ltd. (TASE: HOT) does not plan a similar Internet venture, except for two channels launched on a joint website with YouTube. HOT CEO David Kaminitz does not think that there is a viable business model that will make a return on the investment in Internet.
However, HOT is not the only competitor that might be affected by the YES-Walla! venture. The main victims could be the commercial broadcasters that the venture put in its sights: Channel 2 franchisees Keshet Broadcasting Ltd. and Reshet Television Ltd., and Channel 10. The venture aims to grab a share of these companies aggregate $300 million revenue. The significance is far greater than an ordinary joint venture between two companies. Since both YES and Walla! are Bezeq subsidiaries, the joint venture turns Bezeq into a broadcaster via the Internet.
The YES-Walla! website can provide 800 hours of free viewing per three months. At an investment of NIS 10 million, the two companies plan to grab a share of television advertising revenue, and teach a serious marketing lesson: Walla CEO Ilan Yeshua says that television advertising is a waste of money, whereas online advertising has no waste whatsoever.
The YES-Walla! website will initially show exclusive YES content for free, even to people who are not YES subscribers. Content will include complete episodes of original and purchased serials, Israeli and foreign movies, programs, and shorts. In the worst-case scenario, the website could become a Sword of Damocles over YES’s head by destroying its main source of revenue - payment by subscribers.
In the second stage, the YES-Walla! website will air hundreds of hours of broadcasts, including original and purchased serials and feature films. At this point, the website will be encrypted, allowing full access only to YES subscribers, with pay-per-view for non-subscribers. For YES, collaboration with Walla! serves two key goals: it tempts HOT subscribers with YES’s exclusive content, so that they will switch to YES; and it gives the satellite broadcaster access to advertising revenue, to which it currently has no access.
Most of the revenue from the YES-Walla! website will come from video advertising. Pay-per-view revenue will be negligible, and will not cover YES’s investment.
The model is straightforward. Advertisements will cover the free viewing, because it will not be possible to skip or fast forward them. Walla! unveiled a number of products at the press conference, which it called the fruits of its development: a 15-second clip shown before a video clip; a layover advertisement that appears on the video clip for ten seconds; an advertisement that sits on a media player; and an advertisement at the end of the video clip.
Yeshua predicts that the joint venture will generate $1.5 million in advertising revenue in its first year. This is a rather ambitious goal, considering that Israel’s Internet video advertising market is expected to have a turnover of $2 million in 2007.
The market is expected to grow however. Internet video advertising is expected to total $3.2 million in 2008 and $25 million in 2011. In addition to video advertising, marketing content is expected to be integrated into original serials during production.
Published by Globes [online], Israel business news - www.globes.co.il - on August 27, 2007
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