January 2012
Volume 32 No. 1

January 2012
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Mexico’s Rich Market Worth Fighting Over

By Bob Jenkins

Mexico is a rich economy, which makes it a good advertising market. Its economy is the second largest in South America and the 13th largest in the world. It is also a market in which television dominates advertising, with 58 percent of all Mexican advertising being claimed by the two commercial broadcast groups: Televisa and TV Azteca. This is compared to, for example, just nine percent taken by radio and eight percent by newspapers.

And Mexico's advertising market is a sizeable one. In their Entertainment and Media Outlook 2011 to 2015, PricewaterhouseCoopers (PwC) gives a provisional figure for total Mexican television advertising in 2010 of U.S.$2.8 billion (up from $2.56 billion in 2009) and predicts that this number will rise annually to hit just under U.S.$4.1 billion by the end of 2015, representing a Compound Annual Growth Rate (CAGR) of 7.7 percent.

Media analyst Screen Digest, meanwhile, put the number of cable homes at the end of 2010 at 5.8 million, and predicted that this will grow to 7.2 million by the end of 2015. Plus, they estimate that satellite subscribers numbered 4.4 million households at the end of 2010, predicting that this number will rise to 11.7 million by the end of 2015.

The figures for revenue generated by Internet access are even more impressive. PwC's provisional figure for 2010 is U.S.$2.7 billion (up from $2.2 in 2009) and this is predicted to have more than doubled by 2015, hitting U.S.$5.7 billion at an eye-popping CAGR of 16.1 percent. In these strained economic times, many would think these figures make Mexico a market worth fighting over — and they'd be right.

The three richest and most powerful media barons in Mexico — the world's richest man, Carlos Slim; Televisa owner Emilio Azcarraga Jean and Ricardo Salinas Pliego, owner of TV Azteca — are engaged in a battle to become not merely Mexico's triple-play operators (TV, Internet and voice), but Mexico's quadplay monopoly holder, which includes mobile telephony.

At the start of the year, Slim was missing the broadcast license, and still is, although his main company, Telmex, does handle marketing and billing for satellite operator Dish Mexico. Azcarraga was missing a mobile operator, and Salinas, who owns a mobile operator, Iusacell, was struggling to get the company's share of the mobile market — 70 percent of which is controlled by Slim's Telmex — to reach a five percent market share, and to deal with debt of just over U.S.$1.5 billion. Iusacell was also involved in a protracted legal wrangle with another Mexican mobile operator, Nextel, over last year's government spectrum auction; however, the two companies agreed to drop this case last month.

Iusacell also took action against Televisa on the same issue, but dropped it earlier last year when it agreed to sell a 50 percent stake of the company to Televisa for a reported U.S.$1.6 billion. Of that amount, U.S.$1.57 billion will be used to clear Iusacell's convertible debt.

The advantages of this deal for Iusacell are clear, and for Televisa the deal offers the Holy Grail of quadplay operator. (Megacable, which controls about half of the Mexican cable market, announced in October that it would offer quadplay by teaming up with the Mexican subsidiary of Spain's Telefonica, but the service will be a Mobile Virtual Network Operator, which means that it will offer mobile services to its customers, but will not own any infrastructure, such as frequency licenses or transmitters). So, superficially, it looks like a good deal all around, but not everyone thinks so. Televisa's shares fell 9.7 percent on the announcement of the deal, and corporate finance house UBS commented, "the key notion behind Televisa's intent to be a telecom player, and especially one in the mobile business, is defensive." It went on, "we see the point, but fail to understand why equity, as opposed to commercial agreements, is a must."     

Meanwhile, Slim, a man used to getting his own way, has started streaming content, including news, sports and cultural programming, prompting TV Azteca to sue his carriers America Movil and Telefonos de Mexico. Matters were brought to a head by the recent streaming of the Pan American Games, of which Telmex was both a sponsor and owner of the Mexican online rights, while TV Azteca owned a portion of the Mexican broadcast rights.

Looking at these developments, all of which have occurred in the past 12 months, it would be easy to think that Mexico is now a dynamic market about to enter a period of significant change, but Eddy Ruiz, EVP and general manager of Miami, Florida-based A+E Ole Networks thinks otherwise. "Television in Mexico," he asserted, "is dominated by Televisa and TV Azteca, and I don't see that changing much — not in our lifetime anyway!"

Explaining his reasoning, Ruiz continued, "Mexico is a broadcast intensive market, and, although cable has been growing considerably in recent years, these two companies are by far and away the dominant force." Even so, there are tangible signs of change in the market, brought about by the growth of cabsat. In just a few years since it entered the market, Dish has grown to around 2.7 million subscribers at the end of 2011 according to Screen Digest, which predicts that number will grow to 4.9 million by the end of 2015. And, as Ruiz points out, cabsat channels such as A+E's are now producing local content.

While Ruiz insists that these locally produced series demonstrate the growth of cabsat, and "set us apart and give subscribers a sense of getting value for their money," he is just as adamant that, "I don't see any major changes happening in the immediate future." He added, "even five or six years down the road, I see the Mexican market as being just like now, only more so."