Univision Stars in Its Own Soap OperaThe Spanish-language broadcaster may be wildly popular, but its debt and legal troubles are making it the reluctant star of its own telenovela 12/07/2008 08:00:00 PM Eastern
Univision CEO Joe Uva (left) might still have to brush up on his Spanish, but that could be the least of his problems.
In the 19 months since taking charge of the Hispanic TV giant, the former ad chief at OMD has had to engage in a much more difficult challenge: managing a media company that hugely dominates the market but is burdened by debt and declining cash flow in an increasingly tough advertising environment.
If that weren't enough, Univision is also engaged in an ugly battle with Mexican broadcaster Grupo Televisa. That company provides Univision with a steady flow of programming, including popular telenovelas, but it's creating a real-life soap opera of its own. Televisa wants out of its deal, claiming a royalty dispute, and a trial that begins Jan. 6 could impact an arrangement that was supposed to hold steady through 2017.
The Hispanic world is watching. Media consultant Julio Rumbaut believes the trial is only part of Univision's problem. Win or lose, he says, the media company still “needs to keep up with its debt and begin to strategize how it plans to produce its own content, because even if it prevails in court against Televisa, 2017 is just around the corner.”
The task is tough, and as with many media companies, the outlook won't brighten anytime soon. Yet, Uva warms to the challenge. “We are still in the middle of our 2009 planning, but one of our priorities is to rigorously manage our cost base and improve productivity,” he says.
Univision was acquired in 2006 for $13.7 billion by several investment groups including Saban Capital Group and Madison Dearborn Partners. With it came $9.9 billion in debt, so managing costs is crucial. But for the quarter that ended Sept. 30, Univision posted a $2.9 billion net loss, resulting from a $3.7 billion writedown to reflect the shrinking value of its core television, radio and online assets. Looming ahead is a $500 million debt payment due in March.
One potential bright spot for Univision is that it is in the midst of negotiating retransmission consents. Like a lot of station groups, it is talking tough with cable operators and satellite distributors for significant fee increases.
It will be going toe-to-toe with EchoStar, the lagging DBS supplier that is losing share to DirecTV. “Does Univision just go for the jugular?” asks Jessica Reif Cohen, first VP and managing director at Merrill Lynch, who has as firm a grasp on media companies as anyone. At last week's B&C/Multichannel News OnScreen Media Summit, she concluded, “I think in this case, the leverage is with Univision.”
The Ratings Advantage
And Univision does holds an important card: It remains by far the dominant player in the Hispanic media landscape in both ratings and advertising revenue, raking in as much as 80% of the nearly $2 billion spent each year on Hispanic television.
It's a growing audience. For this year's November sweeps period, the Univision network reported a 2% growth in total viewers over a year ago (though rival Telemundo claims bigger increases in key demos). It bested major English-language networks ABC, CBS, NBC, Fox and The CW, which saw declines against last year among all viewers, not just Hispanics. Compared to Telemundo, Univision averaged three times more adults 18-49 and nearly three time more adults 18-34 in broadcast primetime viewership.
On the local front, Univision stations were No. 1 in early local news (6 p.m. ET/5 p.m. CT), regardless of language, in Los Angeles, New York, Miami, Houston, Dallas, Chicago, Phoenix and San Francisco among adults 18-34.
Meanwhile, its national newscast Noticiero Univision has grown to become not only the highest-rated newscast among U.S. Hispanics, but also the most-watched newscast, regardless of language, in markets such as New York and Los Angeles.
“Noticiero addresses the issues that are important to Latinos; it's not just about reading the headlines,” says Federico Subervi, a professor at Texas State University and director of the Latinos and Media Project in San Marcos, Texas. Univision's national newscast offers lengthy, amply researched pieces on issues that are relevant to U.S. Latinos and devotes extra time to cover Latin American politics.
Univision anchors hosted the first-ever Spanish-language forums with presidential hopefuls from both parties in 2007. And earlier this year, the network's Destino 2008 election coverage experienced double-digit growth compared to 2004 among key demos, including a 45% growth among adults 18-49, reaching a total of 2.2 million viewers.
Those are audience and journalistic bright spots. But the business side is more complicated. In June 2005, Grupo Televisa filed a complaint in the U.S. District Court for the Central District of California, alleging Univision's failure to pay royalties and unauthorized editing of certain Televisa programs.
“There are no settlement discussions pending, and we do not expect there will be any settlement,” says Marshall Grossman, an attorney at Televisa's law firm Bingham McCutchen in Santa Monica, Calif. The only thing that could postpone this trial, he says, “is an invasion from outer space.”
At stake are almost $100 million in allegedly unpaid license fees that Televisa is demanding from Univision. Most importantly, Televisa now claims Univision has exercised a “material breach” of contract, which, if a jury agrees, could dissolve the parties' programming agreement. Grossman says Televisa has “no confidence” in Univision's management to honor the terms of their agreement and simply wants out of the agreement so it can take its highly rated programming elsewhere.
“Televisa is committed to ensuring its programming will remain on the air without interruption in an orderly transfer to another network,” Grossman says. “And that will be the 'ABU Network': Anywhere But Univision.”
Univision, of course, disagrees. “Even in the event that there were an adverse ruling in the Televisa trial—which again we don't think there is any chance of—there would be an appeal process and during the appeal, the programming would still be available to us. So it's multiple years out until the programming is not available,” said Univision CFO Andy Hobson during a Nov. 17 call with investors.
That's a vital caveat: Univision has said it would be difficult to develop or acquire replacement programming of comparable quality. Failure to do so “could have a material adverse effect” on the company, according to a recent regulatory filing.
To put it more bluntly: “Univision without Televisa is Telemundo,” says José Cancela, principal of Hispanic USA, a Miami-based Hispanic marketing communications firm and a former Univision executive. “And by this I don't mean to be mean-spirited. It's just that Televisa is very, very important to Univision.” (And Telemundo, though greatly invigorated and a major player worldwide, still brings just a fraction of the audience Univision does.)
Televisa also understands the stakes. It would lose a great deal without a U.S. partner, as some 67% of its export revenue still derives from its sales to Univision. One potential partner, of course, is the revitalized Telemundo, which has steadily strengthened ties with Grupo Televisa in Mexico. In March, Telemundo and Televisa partnered to distribute Telemundo content through Televisa's Channel 9, Sky Mexico satellite TV service and cable outlet Cablevision.
“Televisa is a great brand and a world-class company. We are very pleased with our partnership in Mexico,” says Alfredo Richard, a Telemundo spokesperson, although he declines to elaborate, or even speculate, on a potential U.S. extension of such a partnership.
In Search of New Revenue
The revenue generated by Televisa content helped management build Univision into a multimedia giant, with the No. 1 Spanish-language network, the No. 1 Hispanic cable network (Galavisión) and the No. 1 Spanish-language radio group.
Univision has also developed shows that have become important sources of ratings and revenues, including El Gordo y la Flaca, Don Francisco Presenta, El Show de Cristina, Escándalo TV and Sábado Gigante. The question from Hispanic advertising agencies and analysts is why Univision isn't doing more.
Univision originals aren't bashful about product integration. In the most recent example, embattled Ford used Univision's popular Sábado Gigante variety show to unveil its 2009 Ford F-150, the first time an automaker used Univision to introduce a nameplate among U.S. Hispanics.
But the recession may slam the once-resilient world of Hispanic media. Spanish-language TV, which for years grew at a 19%-20% rate on a year-to-year basis, is poised this year to remain flat compared to 2007.
“Everybody knows this year was tough, and next year is going to be even tougher. But Univision has taken all the right steps to batten down the hatches,” says Hispanic USA's Cancela.
A Tough Market
Univision continues to pursue selling non-core assets, but it's a tough market. It fetched barely $153 million for the sale of its music division to Universal Music Group earlier this year; it once had hoped for $500 million. Other plans include shedding some non-strategic radio assets. Says Uva, “We want to make sure we're not going to be doing things that will put further economic stress on the company.”
Another key is the new revenue Univision expects from retransmission consent fees. It is reportedly seeking up to $1 per subscriber, though some observers think that number is unrealistic.
“Univision's requirements to meet its debt service obligation makes it awfully difficult for them to play hardball with the cable companies,” says a TV analyst who declined to be identified. Univision has been projecting $300 million in retransmission consent money.
Univision execs would argue they're hardly playing hardball. Instead, company brass have been telling cable operators about the potential benefits of targeting Hispanics, who have the lowest cable-subscriber penetration of any demographic. Univision has estimated, for example, that the more than 3 million Hispanic households that don't subscribe to cable offer a revenue potential to operators in excess of $3 billion each year in video services, broadband services and home telephony.
Whether Univision gets its way with cable operators and in court, one thing is certain: The company will be closely watched as it faces a tough fourth quarter and a bleak 2009. To its advantage is the growth and growing power of Hispanics.
“For the next few decades,” Uva says, “the only population that is going to grow in numbers and in purchasing power is the Hispanic population.” To enjoy that growth curve, the network needs to survive its debt and its legal battle. That's the one sure-fire way to turn the Univision story into a telenovela with a happy ending.