Over the past 30 years, Harry Pappas has grown his company, Pappas Telecasting, from one small California station into a top-25 TV broadcast group. And he has done it largely by buying and turning around underachieving outlets and supporting start-up networks, including FOX, UPN and The WB.
Pappas, president and CEO, is banking on an even more diverse future-and a bilingual one at that. The Visalia, Calif.-based broadcaster, is teaming with Mexico's TV Azteca to shake up the U.S. Hispanic TV market with the launch of a third television network to compete with the leader, Univision, and the distant-second-ranked Telemundo.
Analysts last week said the venture is worth the risk. Bear Stearns' Christopher Recouso called it an "intelligently constructed venture. . We anticipate the new network could at least match Telemundo's current level of audience and revenue share within three to four years," he said. That would translate to $270 million in ad revenue by 2004.
Called Azteca America, the new network will launch formally in second quarter 2001, although it will get a preview in some markets starting this fall. Pappas will own 80% of the new network, and TV Azteca, the second-largest TV broadcaster and producer in Mexico, will own 20%. TV Azteca will supply most of the new network's programming. Plans also call for a cable version of the network in the future.
Pappas is contributing 13 local stations to the venture, including two CBS stations in Yuma, Ariz., and El Paso, Texas, and a WB affiliate in Reno, Nev., that will drop their English-language network affiliations. The rest (in markets including Miami, San Diego, Los Angeles, San Francisco, Houston, Dallas, Phoenix and Tucson, Ariz.) are start-ups or newly acquired stations, and in one case a religious and infomercial station.
Pappas expects the $1 billion U.S. Hispanic TV market to grow 15% a year for the foreseeable future.
Pappas will serve as president and CEO of the new network, based in Los Angeles. Technical operations will be based in Dallas, where an IBM computer system will automatically feed stations much of the programming, promotion and commercial spots. Automation is key to the company's cost-control plans, says Pappas. It will save millions in overhead that would otherwise be spent on employees.
In exchange for a long-term exclusive licensing deal, TV Azteca gets a fixed percentage of the network's gross revenues, starting at 10% and rising to 15%. That model is similar to that used by Univision and programming partner Televisa, Mexico's top TV producer and broadcaster.
Pappas has "modest expectations" at the start, when the network will reach only 45% of U.S. Hispanic TV households, but he expects 70% within two years. Big holes in distribution include New York and Chicago. Like Paxson, Azteca America intends to own virtually all its distribution.
In the first couple years, he predicts a "single-digit" share of the TV-revenue pie now split by Telemundo and Univision. But he expects to break even within two years. He told analysts that the new network could get 25% of the U.S. Hispanic TV audience in five years.