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Univision Speaks Barrys Lingo: $1.1B

Already the leader, Hispanic network acquires Diller's 13 TV stations and plans to form a second Spanish-language net

By Steve McClellan -- Broadcasting & Cable, 12/10/2000 7:00:00 PM

Three years ago, Barry Diller came up with a plan to convert his rag tag bunch of barely visible UHF TV stations from hawkers of zirconium jewelry into "portals" of local news and information, sports and entertainment-most of which was to be locally produced.

Last week, saying he had been "overly ambitious," Diller abandoned broadcasting altogether, selling his still barely visible 13-station TV group to Univision, which plans its second Spanish-language broadcast network.

While Univision has led the market for more than a decade, the competition to reach the nation's 32.4 million Hispanics (with $440 billion in spending power) is heating up. Hispanic TV advertising is expected to grow 15% a year or more for the foreseeable future.

Indeed, if Univision does proceed with the launch, as company officials told analysts last week that it would, there could be as many as six U.S. Spanish-language networks up and running by 2002. Five of them would be over-the-air; the sixth, Galavision, is a Univision-owned cable network.

Univision's lagging competitor, Telemundo, declined comment last week. But sources said the network would continue to look for other station buying opportunities. It recently signed a letter of intent to buy a second station in Los Angeles.

Then there's Azteca America, a venture of Pappas Telecasting and TV Azteca of Mexico set to debut next year. Last week, Harry Pappas, the network's CEO, said Univision's USA deal didn't affect the network's plans. "We're moving forward," said Pappas. Azteca America still has holes in its distribution, including New York and Chicago, although, Pappas says, there are still opportunities in both markets.

Earlier this year, the publicly traded Fort Worth-based Hispanic Television Network launched a service that currently covers one-third of U.S. Hispanic TV households. Its mission, says company CEO Marco Comacho, is to specifically serve the Mexican-American audience, which comprises the biggest chunk of the U.S. Hispanic universe. Comacho says he hopes to get HTVN up to 70% coverage of Hispanic homes by sometime next year. Just last week, HTVN completed a deal with Mexican broadcaster MVS Television to jointly produce and distribute programs.

But if this is the continuation of a Hispanic dynasty, it's also a less-glorious page for Barry Diller's empire building plans.

In 2000, Diller's USA Broadcasting group will rack up approximately $62 million in operating losses, according to Wall Street analysts. "We still believe in localism," Diller said. "But to build stations from a standing start in a world of duopoly and consolidation became an impossibly difficult task."

Credit Diller with realizing a good investment opportunity when he sees it-he bought the station group (then called Silver King Broadcasting) in 1995 for $215 million. He sold it last week to Univision for $1.1 billion. In addition, Univision is assuming $100 million in programming liabilities, most of which is for rights to sports teams, including the Miami Heat and teams in Dallas and Boston, as well as some syndication programming.

On top of that, Univision agreed to split any windfall it derives (after the first $100 million) for the ch. 60-69 UHF spectrum auction that the FCC is planning for next year. Eight of USA's 13 broadcast outlets are located on those channels.

Diller had called his abandoned concept Cityvision, which in many respects was based on a concept that has worked fabulously well for City TV, a Canadian programmer. The Miami station, WAMI-TV was the first to be converted, back in 1998, and was to be the model for the rest of the group, which was to have rolled out the Cityvision format over a four to five year period.

But by 1999, WAMI was generating 1's and hash marks in the ratings and was known most for a bizarre pair of disembodied lips that read news headlines than for any particular shows it created. It also made headlines with a tasteless print ad promoting a nightly talk show host, Neil Rodgers, who happened to be gay, liberal and somewhat controversial. The print ad featured a drawing of a supposed Ku Klux Klan member saying, "Git yur torches, Neil's a comin." The station later apologized for the ad, after viewers and advertisers expressed outrage.

It was pretty clear by then that Cityvision wasn't going to work. Last year, when USA converted its next two stations, in Dallas and Boston, they embraced more traditional independent strategies combining sports and off-network programs. It didn't spend a lot on syndication. The Boston outlet was running Barney Miller and other vintage fare.

With the USA Broadcasting acquisition, Univision lays in place the distribution for a second network virtually over night. The USA Stations cover 60% of the nation's Hispanic households. The deal also gives Univision duopolies in 7 of the top 8 Hispanic markets (see chart).

But programming the second channel won't be the slam dunk that programming Univision 1 has been, through a program licensing deal with Mexico's Televisa that goes to 2017.

For one thing, Univision would have to negotiate for the right to program a second broadcast channel with Televisa programming, Univision chief financial officer Andrew Hobson told analysts last week. Univision would also need Televisa's permission to shift or repurpose Galavision programming onto any new channel, Hobson said.

And beyond that, the relationship between Televisa and Univision isn't as warm and fuzzy as it once was. Their deal was first put in place by Univision head Jerrold Perenchio and Televisa founder Emilio Azcarrago Milmo, who died in 1997. His son, Emilio Azcarrago Jean now runs the company and is said not to have as warm a relationship with Perenchio as his father did.

The two sides have been in litigation over a plan by Televisa to bring at least one of its Mexican networks into the U.S. via satellite. Univision took its partner to court over the issue, contending that its license with Televisa gives its exclusive U.S. distribution rights.

USAvision/Here's what the combined Univision/USA group looks like. Duopolies are highlighted in red:

* Univision would also acquire WHSE-TV's satellite station, WHSI-TV Smithtown, N.Y

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