What downturn?

This year's economic downturn has hurt the TV business across the board from the biggest TV networks to TV stations and cable system operators. And a number of companies in those sectors have downgraded their projected financial performance in recent weeks.

But for Spanish-language TV, the downturn has been a little less damaging, although it has turned what executives had hoped would be a stellar year into something less than that.

Still the numbers show double-digit revenue growth for Hispanic TV. According to Competitive Media Reporting, Telemundo and Univision, the two networks that account for most of the ad dollars in the sector, generated a combined 12% revenue gain for the first half of 2001 reaching almost $885 million.

The CMR data show that Telemundo had the bigger gains, both on a percentage basis and in total dollars (but from a much smaller base), with a 30% gain to $252.6 million. Univision posted a 6% gain to almost $632 million, which in the current ad environment is still seen as respectable.

Analysts remain bullish about the outlook for Spanish-language media. "The long-term prospects are as promising as they have ever been," says Lee Westerfield, broadcasting analyst, UBS Warburg. "The underlying issue is population growth (up 58% between 1990 and 2000) and consumer-spending growth and a very well defined consumer group." The short-term tremors in the economy this year and next, says Westerfield, are "quite separate from the long-term underlying demography advantage."

The current environment is tough on everyone in the TV business, but less so on Spanish-language broadcasters, Westerfield says. "Hispanic is faring better than the broader market but isn't growing as rapidly as in the recent past."

For this year's upfront, Telemundo sold between $200 million and $225 million in advertising, a gain of between 15% and 20%, says Telemundo Communications Group President and CEO Jim McNamara. McNamara says he's cautiously optimistic that his network can sustain double-digit growth levels for the foreseeable future, despite the shaky economy.

"I believe that the fundamentals of our market are such that we can continue to grow our audiences in small chunks," he says. "And I believe that the audience is going to be recognized by the advertisers. So I do believe that we will be able to keep it growing." (See more on McNamara in The Fifth Estater, page 47.)

Univision has not yet reported its upfront results. To date, the guidance from the company to Wall Street is that this year's upfront will surpass the $501 million it sold last year. The company says it will release upfront specifics during its next conference call with analysts later this month. Last week, according to sources familiar with the situation, Univision will report a single-digit percentage gain in upfront sales. Both Telemundo and Univision were said to be wrapping up some sales last week.

Whatever the short-term financial results may be, Univision remains bullish about the long-term prospects for the sector—so much so that it is proceeding with plans to launch Telefutura, a second full-time broadcast network starting Jan. 14, 2002. That's the day after the Home Shopping Network carriage agreements expire for the USA Stations that Univision bought earlier this year for $1.3 billion.

Why a second network? Mario Rodriguez, president, entertainment, Univision Networks, says that last year's census numbers "were a real eye-opener. The numbers for the Hispanic population were much greater than anybody ever expected. We knew there'd be growth but not to the degree that the census showed. We felt that a country with more than 35 million Hispanic consumers definitely could be served by more than two broadcast networks."

Those population gains translate to huge increases in the Hispanic-household-universe estimates for many Nielsen TV markets. Over the past year, Hispanic TV homes in the Dallas-Fort Worth market grew a whopping 49% (114,810 households) and pushed the market up two positions in Nielsen's Hispanic TV market rankings to No. 6.

Houston also climbed two spots, to No. 4, adding almost 79,000 Hispanic TV homes for an 8% increase. In Phoenix, the Hispanic universe grew 30% and in Denver it grew 33%. In Atlanta, the Hispanic universe more than doubled with the addition of almost 59,000 homes.

Univision's new network will be distributed to at least 80% of the U.S. Hispanic-TV universe at launch, says Rodriguez. The new network is being scheduled to counter-program co-owned Univision and Telemundo, both of which air wall-to-wall novelas during prime time.

Univision has revealed exclusively to BROADCASTING & CABLE the premiere lineup of Telefutura programs (with the understanding that some fine-tuning will probably occur between now and launch).

Prime time is movie time on Telefutura. The daypart will consist almost entirely of first-run double-feature movies scheduled for 7 p.m. and 9 p.m. each night. The one exception: Friday nights at 9 p.m., when boxing will air.

Those movies will come from a host of sources both here and abroad, including most of the top studios in the U.S. So far Telefutura has rights deals with MGM, Warner Bros., Paramount, Columbia and Universal, as well as several top film producers in Mexico, Latin America and Spain.

Rodriguez says the prime time strategy targets men, in contrast to Univision and Telemundo that both air female-skewing novelas.

But novelas do have a part in the schedule during the daytime block when they'll air alongside talk shows. Between 9 a.m. and 6 p.m. women at home are the primary target. He likens the strategy to what Fox did 15 years ago when it launched, and went after younger males that the network believed were being underserved by the three major networks.

Univision believes the new network will expand the total viewing pie for Spanish-language TV in the U.S. and not just take away from other existing Hispanic TV outlets. In addition, Univision's Andrew Hobson told analysts in August that the company believes 50% of the viewing will come from English-language TV sources. Another 25% will come from Telemundo, and the rest will probably come from Univision.

"We feel strongly that a lot of Hispanics may be watching English-language programming simply because they are not too excited about the current Hispanic offerings," Rodriguez says.

Besides boxing, Telefutura will have a couple of key sports franchises, including a Saturday afternoon soccer schedule and a nightly sports news and information show. And next year most of the World Cup games will be repeated on Telefutura after airing live on Univision. And the new network will air eight live World Cup matches.

And what does Telemundo think of this second channel? "It's on our radar screen," says McNamara. "I don't think they're going to get it correct right out of the box—not for any reason other than you seldom get it 100% right, right out of the box. What they've shown me over the years is that they study what's going on, they know how to make moves and they'll probably keep working it."

For now, McNamara says Telemundo doesn't plan to counter with its own second broadcast network. Instead the company is creating duopolies in select markets. "We believe the big opportunity is in local," he explains. "So we bought a second station in Los Angeles and we're already picking away at [Univision] in Los Angeles. And we have a second station here in Miami, which we haven't really developed from the programming standpoint yet. But our plan is to go local here in Miami. Just like we've done in Los Angeles."

Meanwhile Azteca America, the proposed new Spanish-language network from Mexico's TV Azteca and Pappas Telecasting is still alive but significantly delayed from where the partners had originally thought they'd be by now, admits Harry Pappas, chairman of the network and founder of Pappas Telecasting.

Last year, Pappas had hoped the new network would be up and running with about 60% coverage of the Hispanic universe by last June. But major delays in getting the venture's Los Angeles station up and running (largely due to tower issues) caused some lenders to have second thoughts, Pappas explains. The end result was that financing needed to close deals for stations in other markets—notably Dallas, Phoenix and El Paso—dried up. While Pappas was trying to negotiate an extension in Dallas (for KXTX-TV) Telemundo swooped in and bought the station out from under him. The Phoenix and El Paso deals also fell through.

"In essence, all of this has pretty much cost us a year," says Pappas. Now, Azteca America hopes to have distribution in place covering 45% of Hispanic TV homes by second-quarter 2002, growing to 65% by the third quarter of next year, assuming deals get done in New York and Chicago.

"We are delayed, but we're nonetheless going to be getting to our ultimate objectives," Pappas says. Interest in the Hispanic marketplace has only grown since he and Azteca announced their venture about a year ago, he contends.

Not only has Univision decided to go with a second network, but lots of big media companies—AOL Time Warner, Viacom and General Electric among them—have inquired about buying Telemundo. Hispanic Broadcasting Corp. has even made an approach, offering to merge with Telemundo. Sources close to the situation say would-be buyers have to "officially convey" their interest within the next month.

To help ease the financing burden, Pappas says he's gone back to TV Azteca and convinced them to put up part of the money to buy more stations. Under the original venture agreement TV Azteca was primarily the program supplier and that part of the arrangement and the general terms pursuant to that deal remain in place, says Pappas. Details are still being worked out on how much money TV Azteca would contribute to buy stations.

"Are some of these things going to take a little longer to achieve than we had originally envisioned? Yes. Are they ultimately going to be achieved? Also yes."