Argentina's economic crisis brings boom to production.

Nowadays, investing in Argentina is not for the faint of heart. But ever since the convertibilidad, the country offers enormous potential for investments, especially in audiovisual production and co-production.

According to Ralph Haiek, president of Pay-TV at Claxson, Argentina is already experiencing a shortage of technicians for TV spots and movie production. The country has recently been invaded by international producers-primarily from Puerto Rico for TV commercials and from Spain for movies-thanks to the favorable exchange rate, excellent technical facilities and the presence of skilled technicians.

Claxson, the Argentinian company whose major shareholder is Cisneros Group of Venezuela, produces 11 TV cable and satellite channels, including three premium ones.

VideoAge met with Haiek during Jornadas de ATVC, the annual trade show for cable TV programming held in conjunction with the Latin America Conference of PROMAX (the Los Angeles-based association of marketing and promotion executives for international TV), which took place in Buenos Aires last November.

Raul Lecouna, president of Central Park Productions, one of the three largest production studios in Argentina, stated that before the con-vertibilidad-- when the peso was tied with the U.S. dollar -- Argentina produced six telenovelas a year. Now, with the free exchange, the country produces 11. And, from a cost of $40,000 per hour, telenovelas are now produced for $12,000 per episode, with $4,000 for below-the-line costs and the rest for the artistic/creative portion. Usually, a telenovela consists of 120-150 episodes, while a miniseries is composed of 23 episodes. Miniseries are more expensive, costing up to $40,000 per hour, because they receive a "movie" treatment. Still, it is less expensive than producing them in a place like Spain, where the cost is around $300,000 per hour.

Argentina's five terrestrial networks and the myriad of cable and satellite channels prefer to produce their scripted programs locally instead of acquiring them from abroad, even if the cost per hour is now about $2,000 versus the $8,000-$ 10,000 cost charged prior to the crisis. Local product is more popular with viewers and brings in extra revenue through international distribution, especially in Asia and Eastern Europe. In this case the producer gives the international rights to the network's sales division in exchange for 75 percent of the revenue.

"The positive aspect of the crisis, said Haiek, "is that we purchased our state-of-the-art production equipment when our currency was tied with the U.S. dollar, and now we rake advantage of all these technical facilities as well as a favorable exchange rate."

One of Claxson's TV channels, "Infinito," is now made up of 90 percent local production, whereas prior to the crisis, local production accounted for only 30 percent of its schedule. "It's more expensive to produce than to purchase programs abroad, but we get to keep the content rights," said Haiek. Content is now utilized for international sales as well as to expand the channel throughout the entire Latin American area.

Today, "Infinito" has 10 million subscribers, including 3.4 million in Argentina. Local product for "Infinito" (reality/documentaries), costing about $2,000 per hour (versus $1,000 for a purchased reality-type program), allows the channel to better compete in an Argentinian TV universe of 117 channels (45 cable and 72 satellite). Furthermore, local programming is better appreciated by cable TV systems competing within the same area (in Buenos Aires, for instance, users can pick among three cable systems and one satellite system).

An additional consequence of the economic crisis is that TV networks, to lower their overhead costs, farm out production to independent studios, sometimes bringing in co-producers. Central Park is currently co-producing with Israel, Spain and Russia. Italy, which is nor involved in TV production, is active with theatrical co-productions.

Television in Argentina should be examined as a case study. Here are the key issues facing the market:

1) How can television grow in a market (such as Buenos Aires) which has five terrestrial TV networks and 117 TV channels, of which, on average, 45 are on cable and 72 are on satellite?

2) How can terrestrial television go digital if, for financial reasons, cable TV remains analog (especially since cable serves 55 percent of the national population and 70 percent of the Buenos Aires population)?

3) How can one compete in a market where multiple TV operators work in the same area? In Buenos Aires, for example, consumers can choose from three cable TV systems and a satellite system.

4) How can one face the future in the middle of an economic crisis and with a declining "Growth Competitiveness Index," which has slipped, according to the World Economic Forum, from 49th to 63rd place?

VideoAge asked these questions to Walter Burzaco, president of ATVC (Argentina's Cable TV Association), during the annual Jornadas ATVC, held last November in Buenos Aires.

"At this point," Burzaco stated, "the problem is not growth. The goal of all cable TV companies is to hold onto their subscribers. It's not just a matter of revenues, but of costs. If it were to cost one dollar to hold onto a subscriber, it would cost seven dollars to gain one.

The growth of cable TV in Argentina happened during the ten-year period 1988-1998, when subscribers reached 5.5 million households. Then the recession at the end of 1998 and the economic crisis which started last year caused subscriber numbers to plunge to 4.5 million.

In an effort to keep their revenues steady, companies have increased subscription costs 25-40 percent, mostly on the basic service, which can offer up to 65 channels. At the same time, they've tried to improve premium services, whose cost is added onto the basic rate. "The cable TV service hasn't changed and, in some instances, it has improved," continued Burzaco, "but some subscribers, somehow, have the perception that the service has deteriorated. This is a problem we have to face."

As for future growth, according to Burzaco, this will happen by offering an analog, interactive (bi-directional) service. "Every company has plans for digital television," said Burzaco "but there's no way they can be carried out in the near future."

Obviously, if the cable TV system remains analog and it carries the terrestrial TV signals to the wealthier households, it's not worthwhile for stations to invest in digital television, since there wouldn't be a sufficient return.

Plans, commented Burzaco, now consist of adapting the cable network to interactivity so that more services can be offered, including Internet access. Cable TV systems in Argentina have fiber-optic trunks with the last mile made of coaxial cable.

Recently, the cable TV system CableVision--where Burzaco is manager of public affairs--installed cable modems for 60,000 of its subscribers. With these modems, viewers can request two types of Internet service: one at 256 kbps and the other at 520 kbps. To keep these speeds as stable as possible, the nodes, which usually serve 2,000 households, got subdivided into four sub-nodes, each carrying a 10 Mbps channel. This way, up to 50 subscribers can use the same line simultaneously without any slowdown.

The problem now is that all these sub-nodes and modems generate noise, which gets channeled and amplified into the return network, causing problems at the headend. This is what is limiting the two-way service at the moment, representing--according to Burzaco--one of the key problems the industry needs to tackle in order to grow under the present conditions.