TV In Mexico: Maintaining the Status Quo is a Failure

By Dom Serafini

Never before in modern times has such a crossfire been recorded between the U.S. and Mexico. Viacom’s Sumner Redstone returned to the U.S. from Mexico declaring the country fertile territory to expand. Similarly, Mexico’s Grupo Televisa’s Emilio Azcaraga Jean will be moving to Miami, Florida and is acquiring U.S. citizenship in order to expand north of the border, considering that Mexicans constitute the majority of Hispanics (Spanish-language residents in the U.S.).

Because of the U.S. citizenship requirement, Televisa can own only a minority stake in Univision, the main Hispanic TV network that also operates radio stations and a second TV network, Tele Futura. Currently Televisa owns 11 percent of Univision, but is not allowed to raise its stake beyond 25 percent. Australian Rupert Murdoch used the strategy in the U.S. in order to acquire local TV stations for his Fox Network. Murdoch is present in Mexico with his SKY satellite platform and now that he acquired DirecTV, which also operates in Mexico, he will have a more important role in the country - especially if the two platforms can become integrated.

Curiously, Emilio Azcarraga Milmo (aka El Tigre, father of Azcarraga Jean), who inherited Televisa from his father at its inception in 1950, was born in 1930 in San Antonio, Texas (he died in Miami, Florida in 1996), and was thus an American citizen. Azcarraga Milmo renounced his U.S. citizenship in order to build Televisa, because the Mexican government would not permit a dual citizen to run local broadcast stations. The Mexican TV market is the fourth largest in the Americas, after the U.S., Brazil and Canada, thus the second largest in Latin America with 21 million TV households (TVHH). Gaining strength from its large U.S.-based Mexican population, it has made the U.S. the fifth largest Spanish-language market in the Americas. Mexican television is, however, a rather closed market, difficult to enter and dominated by two large multimedia groups: Televisa, which practically absorbs 60 perfect of the country’s advertising resources, and TV Azteca, which holds a 33 percent share.

Dealing with this highly competitive duopoly is the only way to enter the market, since it controls the most significant TV outlets, the Internet, cable and satellite services. The competition is so fierce that publications owned or controlled by each group (such as TV guides) would never feature stars from competitive networks. In addition, TV stars are under contract for life with the company providing all necessities, including a pension.

Outside the competition, the executives of each group do not see other challenges. Indeed, technology or audience fragmentation is not what concerns them. “Our biggest challenge is the nation’s economy,” said Alejandro Quintero, corporate vice president of sales and marketing (he’s also one of the Grupo’s executive officers). “We will grow 50 percent above the economy. That is, if the economy grows by 3.3 in 2004 [as estimated by the International Monetary Fund], our growth will be 4.9 percent, excluding non-recurrent political investments of 2003,” he said.

In 2003, Telelvisa’s net sales were U.S. $2.3 billion, with a net income of $350 million. The Grupo reported an 81 percent increase in earnings in the first quarter of this year. Net profits were $43 million, compared to $2.1 million a year earlier. Just the TV division brought in $26 million in sales.

A similar philosophy is found at TV Azteca, the multi media group created in 1993 by businessman Ricardo B. Salinas. “Maintaining our position is like failing,” said Guillermo Alegret, TV Azteca’s channels director general. “Out main challenge is gaining market share,” he added. Compared to 2003, TV Azteca reported a 136 percent growth in earnings for the first quarter, based on record advertising sales of U.S. $12.7 million. “2004 is the best first quarter in the history of TV Azteca,” commented Alegret.

“Television is still the important medium in Mexico. Internet has shown a slight increase and theatrical movies is growing, but the number of TVHH tuned on is still the same as television is the main form of entertainment,” he stated.

Then, what is the key challenge that faces Mexican television? Alberto Ciurana, Televisa’s vice president of programming commented: “I respect competition, but it doesn’t worry me. For us, competition has been good. Before [1993] it was a problem to compete with the government TV stations. Also I don’t worry about technology and channel proliferation. Out main challenge is how to anticipate the taste of the audience, since they tend to be shaped by natural and social events, like the earthquake of ’85. Research helps us in this task.”

Explained TV Azteca’s Alegret: “Penetration of cable and satellite is small [15 percent] usually consumers subscriber [to these services] in order to get better reception of the national networks. In addition, 80 percent of the time is spent watching national channels.”

Finally, Televisa’s Quintero acknowledges a challenge: “Zapping is a risk,” he said, “but we’re developing integrated advertising, and so far 10 percent of our income has come from product placement.” Thus turning potential loss into gain.