Growing Latino MSOs Drive a Hard Bargain

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When panregional cable networks began launching in Latin
America earlier this decade, one of their biggest complaints was having to deal with
hundreds of small and midsized operators. Widespread consolidation of systems has since
helped to reduce the legwork, but it's also brought about an entirely different

Many Latin American MSOs, emboldened by their size, are
pushing programmers to reduce their license fees. While the reductions vary widely from
deal to deal, MSOs in some cases have requested price cuts of up to 30 percent, or even
flat-out free carriage.

That's unwelcome news for cable networks, because the
number of subscribers in the region is not growing enough to balance the loss of revenue
per subscriber. What's more, the glut in programming supply gives the MSOs the upper
hand at bargaining time: For every network being carried, there are two other suitors
waiting for a spot to be made available.

• In Argentina, cable networks have to deal with three
main players -- Multicanal, CableVisión and Supercanal -- which control about 70 percent
of the country's 5.25 million cable subscribers and which have been known to
negotiate fees downward by an average of 20 percent, according to sources.

• In Chile, even though a merger between MSOs
VTR-Metrópolis and Intercom fell through, cable networks are usually careful to negotiate
the same terms with both. The downward trend started in 1996.

• Brazil's two MSOs, Globo and TVA, often request
to form a partnership with a programmer, sometimes including an exclusivity clause. This
may prove dangerous to the networks in the future, because it would leave competing cable
systems without access to programming and reinforce the major MSOs' grip on the
market. But if a programmer refuses to team up with one of the majors, it may find it
difficult to get carriage.

• In Mexico, Productor y Comercializador de
Televisión (PCTV), the commercial arm of cable-operator trade group Canitec, has been
able to ferret out fees that are convenient to its members, based on the wide carriage
that it may guarantee. The awarding of new MMDS (wireless cable) licenses in several
cities may increase competition, but overbuilding remains a taboo.

In the past, many MSOs, the programming costs of which
account for 25 percent to 35 percent of total expenses, had eased the pressure by
underreporting subscribers. That's more difficult or impossible now, amid increased
accountability -- especially as operators tap outside financiers.

To the basic-cable networks, advertising appears to be the
best way to balance the loss in revenue. Since panregional campaigns remain
underperforming, several programmers are now aiming at local agencies and advertisers in
the major countries in an effort to increase their share of the local ad market.