Hispanic TV: Drama on Set

The scene was set for some real telenovela-style melodrama. Passion, power struggles, betrayal, high-stakes finances—it was all there. This past winter, after four years of bitter legal wrangling, New York-based television network Univision Communications and its top program supplier, Grupo Televisa, were finally going head-to-head in a Los Angeles federal court. Mexican media giant Televisa wanted out of its 25-year commitment to provide Univision with the enormously popular prime-time soap operas that made the network a powerhouse with Hispanics in the U.S., far outpacing competitors like NBC Universal’s Telemundo and TV Azteca’s Azteca America. Televisa argued that the exclusive licensing deal—intended to last through 2017—should be tossed aside because Univision had breached its contract and owed it more than $122 million in unpaid royalties.If Televisa won the case (and along with it, the right to shop its shows elsewhere), it would do nothing short of change the face of this country’s Spanish-language TV. Univision, the dominant player in the U.S. market with about 75 percent of the Spanish-speaking audience, would be left with a gaping hole in its schedule, not to mention a loss of programming that brings in $750 million in annual advertising revenue. Since forging the partnership in the early 1990s, both companies have made billions of dollars from the highly addictive programming. Out of Univision’s four weeknight prime-time hours, no fewer than three are produced by Televisa.But, as with any good soap, there was a twist and plenty of subtext. After three weeks of testimony, the two companies pulled an all-nighter and hashed out a surprise settlement that broke on Jan. 22. In short, the pipeline that had supplied Univision with massive hits like Al Diablo con los Guapos and La Fea Mas Bella would remain open. The agreement keeping it open was worth more than $610 million to Televisa.Univision agreed to increase the license fees it pays Televisa, plus shell out $25 million in disputed royalties. The network would also give Televisa $65 million worth of free ad time annually for the deal’s duration.The timing was as melodramatic as the programming. News of the settlement broke only moments before Televisa chairman Emilio Azcarraga Jean, the billionaire son of Televisa’s founder, was scheduled to take the stand. Industry watchers were caught totally off guard. Later, however, most said the agreement looked to be a good deal for both sides.From the pact, Univision can now expect stability and a selling point with its investors. “Univision has built its strength and dominance on the back of Televisa programming,” said Rick Marroquin, evp, managing director of Interpublic Group’s Mediabrands. “They did what was necessary to keep their stranglehold on the market. That programming is their bread and butter.”Univision does produce some of its own shows, including well-watched local and national newscasts, in addition to Sabado Gigante, the over-the-top, three-hour variety/game show that’s the undisputed Energizer Bunny of Spanish-language TV. Gigante delivers, on average, 2.5 million Latino viewers. But Univision still snags more than 40 percent of its yearly revenue from its sexy, escapist novelas.Which means keeping Televisa’s content in the mix was a smart move. Or, as Marroquin put it, the relationship between Univision and Televisa “might be a really bad marriage, but they couldn’t afford to get divorced.” (Televisa could have shopped its programming elsewhere, but U.S. choices are a bit slim. Telemundo draws lower ratings, and is committed to parent NBC Universal; and Azteca has had affiliate and distribution problems.)The settlement also means that Televisa, a publicly owned company looking to grow its stature in the U.S., will continue to have its programming on the most-watched Spanish-language network. “This is good-good for everyone,” Azcarraga Jean told the L.A. Times shortly after the settlement was announced in late January. Adds Alan Albarran, director of the Center for Spanish Language Media at the University of North Texas, “In this economic environment, it was a windfall for Televisa. Now the big question is: What happens in the future? 2017 is not that far away.”No, it isn’t. And though eight years is a comfortable enough margin, it’s close enough to prompt industry watchers to raise key questions, among them: Will this power couple stay together after the long-term deal expires? Most say it’s highly unlikely. But an even bigger issue looms in the more immediate future. While the fight over traditional media has been resolved, the two companies are still grappling over digital rights.The same federal judge who presided over the previous case will decide which party controls Televisa-produced shows for distribution on the Internet, mobile and other new-media platforms. Univision claims that, under the original programming deal inked in 1992, it controls the U.S. rights. Not surprisingly, Televisa disagrees, claiming it should have the rights because digital media simply didn’t exist back when the papers were signed.The issue is especially contentious because the rights are potentially lucrative. “Content is king, and how this issue gets resolved is extremely important,” said Julio Rumbaut of Rumbaut & Co., a Miami-based media consultancy. “There’s an unstoppable wave of audience shift to new media.” (Only last week, comScore released data showing Hispanics online swelled to 20 million unique users, growing over the past year at a rate that’s nearly 50 percent faster than the general population’s growth.)Piracy is already a problem. According to a recent study by online video analytics firm Tube Mogul, Univision’s telenovelas have snagged nearly 600 million views on YouTube. More than half of those views were clips of the Televisa-produced Cuidado con el Angel.But media watchers say there’s a good chance that this matter, too, will be settled in the back room—and possibly as early as this week. U.S. District Court Judge Philip Gutierrez is scheduled to begin hearing the case on April 21. Bishop Cheen, a senior analyst with Wachovia Capital Markets, wagers that some sort of rights-sharing would be the most logical. “We’re in a world now that’s distribution-rich and content-poor, and Televisa is a giant content machine,” he said. “Maybe a joint venture would make sense.”Whether or not things go Univision’s way, the network could use some good news. The net is groaning beneath a $10 billion debt load from a highly leveraged buyout in 2007, when Saban Capital Group bought Univision with the help of some other private-equity firms for $13.7 billion. But those were still the boom times. (Televisa didn’t participate in the buyout and sold its 11 percent stake in the company after an aborted bid to buy it.)A hefty $500 million payment on that debt will be due in 2011, even as the company’s estimated value has drastically dropped. Univision recently reported a fourth-quarter ’08 net loss of almost $2 billion, citing hardships like a breach-of-contract settlement and, of course, the recession.In fairness to Univision, it’s a difficult time for media companies in general. Just as it has in the mainstream, the recession has hit Spanish-language media. Television advertising has slowed, even though conservative estimates say there are as many as 50 million Spanish speakers in the U.S. and marketers have already acknowledged the importance of targeting this fast-growing demographic. Univision and Telemundo executives have been aggressively courting advertisers, opting for market-by-market, face-to-face meetings instead of the elaborate dog-and-pony upfront presentations traditionally held in the spring in New York.“Unfortunately, any ad sales discussion starts with what a client spent last year and goes from there,” said Jim McNamara, chairman of premium movie channel, Cinelatino, and former CEO of Telemundo. “If you didn’t get your fair share last year—and most Spanish-language networks didn’t—it’s like being behind the eight ball.”Univision has an advantage because of its ratings (viewing is up 4 percent this year, while the Big Five networks are down a collective 3 percent) and also because of its well-honed image. “For the Hispanic market, Univision is more than a TV network, it’s a brand,” McNamara said. “It has a very special relationship with its viewers and the community. It’s as strong as Coca-Cola or McDonald’s.”Ad spending on Spanish-language TV was slightly better than flat for the first three quarters of ’08, which is a far cry from the days, not long ago, when the networks showed double-digit increases. Advertisers spent $1.6 billion during last year’s upfront, but that number could drop this year given the ongoing troubles in the auto, retail and financial services industries, analysts say.Yet, advertisers’ recognition of the value of the Spanish-language consumer means that there are still significant funds to go around. As Marroquin put it: “Advertisers know that they can’t ignore 16 percent of the population. We’ve evolved beyond a place where the question is: Do we need to market to this consumer?” Of course, which network and what programs they choose for that marketing are a different matter altogether.

Convergent TV

Hispanic TV: Drama on Set

T.L. Stanley

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T.L. Stanley