Making TV Great For U.S. Hispanics

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When his family first emigrated from Cuba to New York City in the 1950s, Dan Domenech, senior vice president of National Urban Marketing at McGraw-Hill, remembers that the Spanish language was practically nonexistent on American television. “We had to wait for Ricky Ricardo to get mad at Lucy and lapse into Spanish on the I Love Lucy show,” he recalls.

Today the Spanish language can be found all over the media landscape. “There are now four broadcast networks, over 75 [cable and satellite] networks, 450 radio stations, about 2,350 magazines and over 1,500 newspapers [targeting the Hispanic community,]” Domenech notes. “By 2007, U.S. Hispanics will have $1 trillion in buying power.”

To address the opportunities and challenges that this growth is creating, Domenech and 250 other top television and media executives convened in New York City December 6-8 for the second annual Hispanic Television Summit. The event was organized by Multichannel News and sister publication B&C.

During a keynote luncheon address on December 7, Leland Westerfield, managing director of investment bankers Harris Nesbitt, covered many of the factors that are driving investor interest in Hispanic television.

50% INCREASE

While English-language broadcasters have been losing viewers for years, Westerfield noted that the number of Hispanic viewers ages 18 to 49 watching Spanish-language broadcast programming has increased by 50% since the 2000-2001 season.

Advertising on Hispanic networks has grown rapidly also, fueled by a combination of new viewers and an established audience that wasn’t being served by traditional media. Westerfield estimated that total ad spending for 2005 “will be sluggish,” growing only 4.6%. But Hispanic advertising will grow by 9.6% — more than double the overall market.

Not surprisingly, the rapid growth in viewers and advertisers has also translated into some hefty profits. Westerfield noted that Hispanic broadcast TV networks and station groups tend to be two-and-a-half times more profitable than the national English-language broadcasters, and their stocks “trade at a 60-to-70% premium over their English-language counterparts,” he said.

20 MORE YEARS

“The growth [in the Hispanic television sector] won’t slow for two decades,” he concluded. “From an investor’s standpoint, we hold this industry in the highest regard.”

But the rapid growth in Hispanic television, coupled with some dramatic changes in the demographics of the Hispanic community are also creating some daunting demands.

Speaking at the Summit, Rosa Alonso, director of international and multicultural marketing at AT&T Wireless, stressed that rapidly evolving technologies, convergent media and fundamental changes in the demographics of the Hispanic community create enormous marketing and competitive challenges for many companies.

“We’re all getting into each other’s business,” Alonso said, as evidenced by such developments as cable programmers like ESPN moving into the wireless space, and phone companies like SBC launching bundled video, data and phone services. Both examples underscore the increased competition for Hispanic customers, she said.

To better compete against satellite distributors, senior executives from four MSOs – Charter Communications, Comcast Cable Communications, Cox Communications and Time Warner Cable — said that they have all introduced new low-cost Hispanic tiers.

Mauro Panzera, senior director of multicultural marketing at Comcast Cable, noted that the systems operator rolled out a lower-cost Cable Latino tier in May 2003 because charging Hispanic customers “$60 or $70” to get the Spanish-language programming in digital tiers was simply not competitive.

Bob Watson, vice president of programming and new business development at Time Warner Cable, New York, also said operators need to do a much better job of promoting their offerings. In New York, for example, company surveys found that within the Hispanic community, consumer awareness of the satellite packages was 20 points higher than awareness of the cable offering.

Watson also highlighted the importance of programming. “The vast majority of new Hispanic subs are not buying the sub-$30 Hispanic package,” he said. “They are buying the full digital package,” which costs slightly over $50, because it offers much more programming.

Cesar Cruz, director of multicultural marketing at Cox Communications, stressed the importance of high quality programming. He noted that Cox’s new Hispanic programming package has increased Hispanic subscribers by 50% since its September launch in San Diego.

But he added that much work remains to be done. “The programming quality has improved in the last year, [but the programming] for U.S. Hispanics is still below the quality of what you see in Latin America,” Cruz said. “I’d like to see that change in the next 18 months.”

To improve its programming, Comcast has signed deals with over 40 channels that local systems can use to customize their packages, and it has moved aggressively to roll out a free VOD offering of over 100 hours of Spanish-language programming, Panzera reported.

John Figueroa, director of sales and multicultural marketing for Charter’s western division, noted that VOD will also play a big role in Charter’s Hispanic outreach strategy. To better differentiate its offers from DBS, Charter will also be launching bundles of video and data targeted to Hispanics in the first quarter of 2005.

Others, however, are taking a slower approach to VOD. Watson noted that they are adding some pay Spanish-language VOD but have no immediate plans for free Spanish-language VOD. Charter, Cruz said, believes free VOD could “devalue” Latino product in the eyes of Hispanic customers.

The new Hispanic tiers and VOD offerings are providing programmers a number of new opportunities.

But programmers and advertisers speaking at the Summit also fretted that VOD is unlikely to produce much revenue in the near future and that programmers face a period of brutal competition as they struggle for distribution and advertising revenues.

With over 75 Spanish-language networks now fighting for distribution in the United States, “we’re swimming in a sea of logos trying to stand out,” noted Raoul De Sota, senior vice president of business development at the network Casa Club.

The intense competition for distribution is compounded by the difficulty of gaining advertising revenues. While the Hispanic ad spend is growing much faster than overall advertising, Diane Librizzi, president of ad agency Latino Media Source, complained that advertising budgets for the Hispanic community are still dramatically under-funded. That makes “it very hard for [Hispanic] networks to produce in the U.S.,” and to improve the quality of their programming, she said.

Attracting even those limited budgets is difficult because many of the new networks lack distribution and reliable ratings, several panelists noted. Michael Mohamad, senior vice president of marketing at The History Channel, said, “You need about 30 million subs to deliver the bulk that advertisers want.”

The lack of ratings data for Hispanic networks on digital tiers is also hampering sales efforts, noted Oswald Méndez, director of integrated communications, at The Vidal Partnership, a Hispanic marketing-communications firm. To overcome that problem, he and others suggested that programmers start producing some of their own research.

Some channels are already moving in that direction. Burke Berendes, a partner in programming distributor Condista, noted that the 15 networks it represents are already working together to produce some viewer studies.

The problems facing networks trying to get distribution and sell advertising are prompting widespread concerns about the future of some programmers. “I think we will see a shakeout,” opined Richard Taub, senior vice president of strategy and distribution at the HITN-TV channel. But, he added, “Some new networks are likely to be launched because they serve a need.”

The key to survival, Taub and others argued, is finding the right programming and target audience.

One popular programming area for Hispanics is sports, particularly soccer and boxing. Andy Swift, senior vice president of marketing and communications at Major League Soccer and Soccer United Marketing, noted that soccer programming has proved particularly popular on a number of Hispanic networks.

“With the new demographics, soccer is the sport for a new America,” Swift said.

Michelle Rosen, director of national marketing at HBO Pay Per View, said that her company’s boxing product has done particularly well with the Hispanic audience.

Boxing great Oscar de la Hoya produced over $500 million worth of pay-per-view revenues during his career, for example, and this fall a fight featuring two Mexican boxers brought in $20 million worth of pay-per-view revenues.

As a result of that success, HBO plans to “create programming specifically for Hispanics,” in 2005, Rosen said.

Programmers are also working to target the changing demographics of the Hispanic community — both in Spanish and, to a lesser extent, in English.

Many of the Hispanic networks that launched in recent years target immigrants with programming from their homelands in Latin America. These networks have a built-in advantage because their brands are well known among immigrants from a specific country. And they can provide high-quality programming that was originally created for popular national broadcasters.

But other networks are increasingly working to create programming for Hispanics who are born and raised in the United States.

Rosamaria Caballero, president of programmer Caballero Television, noted that at one point in time, two-thirds of all U.S. Hispanics were foreign-born; now about two-thirds were born in the United States, creating a larger demand for programming that originates here.

Local programming is another growth area. Francisco Montero, director of the Independent Spanish Broadcasters Association and an attorney with Fletcher, Heald & Hildreth, noted that many of the smaller, lower-power Hispanic stations are working to beef up their local programming.

“These stations have a much better chance of getting carriage on a local cable system if they do local programming,” he said.

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