The ongoing legal tussle between Grupo Televisa and Univision Communications Inc. inspires as many interpretations among media observers as one of Rorshach's inkblots. After all, neither company enjoys a reputation for transparency, nor issues the constant stream of public statements that characterizes many other large media concerns.
But there is no question that Televisa intends to aggressively expand into the U.S. Hispanic market.
“The mandate is to dominate but dominate profitably. We want to be as aggressive as possible and make money along the way,” says David Taggart, general manager and group publisher for Televisa's U.S. publishing arm. “Everything we are doing is very strategic. There is nothing accidental about it.” Taggart is referring explicitly to the publishing side, but the same is true of the company's other operations in the States.
Televisa has engaged in a large number of product and platform launches in the U.S. during the last year through acquisitions, joint ventures and the growth of existing businesses.
In a number of cases, this has placed the Mexican media conglomerate in direct competition with Univision — an awkward situation, as Televisa owns 10.9% of Univision's shares, and because both companies' networks operate under the shadow of a 25-year program-licensing agreement that expires in 2017, which has provided Univision with a large share of its content.
Among Televisa's recent moves is the establishment of a 50/50 joint venture with EMI Group plc to sell music in the U.S. Hispanic and Latin American markets. EMI is looking to tap into Televisa's longstanding success at turning soap-opera stars such as Thalía into popular recording artists. The latest example is Televisa's transformation of actors on its teen telenovela Rebelde into members of the pop group RBD.
Ironically, U.S. sales of the RBD album have been driven, in part, by Univision's airing of Rebelde. And Televisa's EMI deal comes four years after Televisa sold Univision its Fonovisa record label.
Univision has engaged in some offensive moves of its own. It recently launched a division that will compete against Televisa Home Entertainment in the nascent Hispanic DVD market.
The competitive fencing matches suggest that lawsuits the two companies have filed in recent months over the PLA reflect much deeper tensions.
Clearly, the programming agreement hinders Televisa from seeking out new TV opportunities here. on its own, as it reportedly considered doing earlier this decade when the company developed the concept for TuTV, the cluster of five satellite-delivered music and movie channels.
According to analysts, Televisa thought better of the scheme, and ultimately partnered with Univision on the venture. Univision and Televisa now share a 50/50 joint interest in TuTV, which launched in 2003.
Televisa CEO and controlling shareholder Emilio Azcarraga Jean has publicly expressed interest in buying outright the network built by his father.
It is an option he cannot pursue unless he follows the road already traveled by Rupert Murdoch and becomes a U.S. citizen in order to comply with foreign-ownership restrictions imposed on all broadcasting outlets in the U.S. Those rules ultimately forced Televisa to sell its holdings in the U.S. TV station group Spanish International Communications Corp., including its Spanish International Network.
That defeat, in 1986, was a bitter turn of events for Azcarraga's father, Emilio Azcarraga Milmo, who ruled the Televisa empire at that time. With a great deal of satisfaction, Televisa later invested in Univision, a reincarnation of SIN.
Azcarraga Jean is now spending much of his time in the States, and his close associate and Televisa executive vice president Alfonso de Angoitia has publicly stated Azcarraga Jean's interest in becoming a U.S. citizen. Such an achievement would lay the groundwork for a future Univision deal or the acquisition of other broadcast entities, either solo or in partnership with other media companies that have expressed interest in expanding into the Hispanic media business — such as Viacom Inc.
The U.S. citizenship could also clear the way for Azcarraga to capitalize on Televisa's radio industry experience in Mexico and make a play in that medium as well. Televisa, in partnership with Spain's Grupo Prisa, already owns 17 radio stations in Mexico that reach almost half of the country's population. The stations help promote the live entertainment organized by Ocesa Entretenimiento, 40% owned by Televisa.
Televisa has a U.S. joint venture with the live-entertainment division of Clear Channel Communications, the largest radio station group in the country. It formed a company with Clear Channel Entertainment called Vivelo that promotes concerts and sporting events for the Hispanic market. Among the most popular events are exhibition matches by Televisa-owned Mexican soccer team Club América.
Clear Channel and EMI aren't Televisa's only overseas partners, by a long stretch. Editorial Televisa began publishing a Spanish-language sports magazine this summer under license from ESPN. The magazine, ESPN Deportes, has a monthly print run of 55,000 copies. Rick Alessandri, the senior vice president and general manager of ESPN Enterprises, makes clear that Televisa's aggressiveness helped win it the deal. “From the early going, [they] fought hard to bring [us] to the table.”
Taggart makes clear Televisa is on a mission: “We know exactly what niches we want to go after and how and we want to be the first mover. Televisa is looking at all facets of Hispanic media — magazines [or] anything [else] that we can legitimately operate in.”
Televisa has an enormous range of content on offer for the Hispanic market. “Good Spanish-language content is applicable in Mexico as well as U.S. A lot of the content works; some doesn't” says Taggart.
And some of what works in both markets is surprising. For example, El Chavo del 8 (The Kid on 8, a reference to Televisa's channel 8) is enormously popular, even though the show was originally filmed 30 years ago on a dirt-cheap set and with less-than-stellar production values and features a young boy portrayed by a middle-aged man with an absurdly squeaky voice. El Chavo is Televisa Home Entertainment's biggest selling DVD series in the U.S. with 600,000 units sold.
The DVD sales benefit immeasurably from Univision-owned cable network Galavisión, which carries El Chavo. The show typically occupies at least eight slots on Nielsen Media Research's list of the top 10 Spanish-language programs on cable.
But Univision certainly gets marketing benefits from Televisa as well. The Televisa-produced telenovelas that air on Univision help draw visitors to the discussion forums on Univision.com, the most popular Spanish-language Web site in the US.
Knowing a good opportunity when it sees one, Televisa's Mexico-based Internet portal EsMas.com has begun to feed U.S. advertisers with data about its U.S.-based traffic, effectively competing with Univision in the Internet portal business.
But as aggressively as Televisa may be moving in other areas, its ability to fully capitalize on the business that is at the heart and soul of its holdings, television, is clearly stymied by the programming agreement with Univision.
“Televisa [is] chafing at what they are receiving from the US market … Univision's primetime is dominated by Televisa telenovelas, and Televisa is only making $100 million a year [in royalties],” says Philip Remek, senior equity analyst at Miami-based investment bank Guzman & Co. The PLA calls for 15% of net time sales while Remek says a more standard rate for foreign-syndicated programming is on the order of 35% to 40%.
For Univision, and by extension Perenchio, the importance of keeping the PLA firmly in place is strikingly obvious for that reason, as well as others.
Leland Westerfield, a managing director at Harris Nesbitt, estimates Televisa programs generate roughly half of Univision's advertising revenue. “Univision would be a diminished company [and] would be unable to retain its ratings lead without Televisa as its partner,” Westerfield says.
It is not that Univision doesn't have its own talent. Talk show personality Cristina Saralegui, variety showman Don Francisco, as well as news anchor Jorge Ramos and, oddly enough, a sportscaster also named Jorge Ramos — each host popular shows. But, their combined weight in ratings and revenue pales in comparison to the awesome viewing machine that is a Televisa-produced telenovela or a championship match of the Mexican soccer league.
According to Andrew Paxman, co-author of a book, El Tigre, about Azcarraga's father and Televisa, “[No one] else produces hit novelas with the regularity of Televisa”
And nothing else pulls in as many viewers — male and female, teenagers and grandparents — as Televisa's telenovelas, five nights a week. Univision's current primetime schedule features three straight hours from 8 p.m. to 11 p.m. of Televisa telenovelas.
“Try to imagine Univision and [sister network] Telefutura without Televisa's telenovelas and soccer matches,” says a senior executive at a rival television network. “They would go broke.”
On some nights this past season, Univision was the most heavily watched broadcast network in the 18-to-49 demographic. This is due to the success of telenovelas like the recently ended La Madrastra (The Stepmother), which according to Nielsen Media was watched by more than 5 million viewers each night of the program's final full week.
The melodramatic story of the woes and ultimate redemption of a woman falsely accused of murder aired five nights a week for four months and helped make Univision's New York owned-and-operated station, WXTV, the most watched television station — English or Spanish — in the largest market. The show produced similar results in Los Angeles.
'MADRASTRA' PUMPS RATINGS
KMEX, Univision's Los Angeles O&O, has been No. 1 in the market for some time now. Regardless of language, the five most popular programs in the market this summer according to Nielsen were the Monday, Tuesday, Wednesday, Thursday and Friday episodes of La Madrastra. The same was true nationwide among viewers of Spanish-language television.
Remek attributes the success of telenovelas to “the simple story lines and moral fables that transcend language and culture.”
The stories may be simple to follow, but they are not easy to produce. Ana Gabriela Ocejo, an equity analyst at Mexico-based Scotiabank Inverlat, says “Only with difficulty can Univision substitute Televisa's programming. I am sure they can do it, but it will cost them time and money.”
The scope of the challenge is made clear by the experience of Univision's main competitor, NBC Universal-owned Telemundo, which has embarked on a strategy of producing as much of its own programming as possible, including telenovelas. While the Televisa-produced telenovela La Madrastra aired on Univision and averaged Nielsen ratings in the mid-20s, ratings for Telemundos most popular telenovelas typically average around a 5 or 6.
That's despite having hired some of Latin America's most renowned producers and making novelas that are “culturally relevant” to the U.S. Hispanic audience.
It is not that Univision doesn't want to produce its own telenovelas. Rather, when Univision aired the heavily-promoted Te Amaré en Silencio (Loving You in Silence, made by a Perenchio-owned production company) it did poorly enough that it was yanked from primetime. The experiment has not been repeated.