Argentina TV Offers Opportunities Rich With Challenges.

The reason Buenos Aires lacks any street signs, at least in the opinion of one local taxi driver, can be attributed to the fact that most Argentineans are of Italian origin: "If the signs were in place, no one would respect them anyway," the driver commented.

Indeed, almost half of the 34 million Argentineans are said to be eligible for Italian passports. One running joke is that an Argentinean is an Italian who speaks Spanish and thinks he's British. However, despite a large Italian population (one million already travel with Italian passports), Italian companies are virtually invisible on Argentina's media landscape which is shared mostly by Spain (TISA), Venezuela (Cisneros Group) and the U.S. (CEI, TCI).

Saving money on street signs, though, could help Argentina's public debt, which has now reached a record $115 billion. And since the street signs would most likely be imported from Brazil (a sour point), Argentina could also be saving on its foreign debt, which is now $77 billion. Add to this a 10 percent drop in industrial production (in the first quarter of '99), and one could well declare that Argentina is in the midst of a deep depression.

Fear of inflation has kept the peso tied to the U.S. dollar, making everything too expensive to produce locally and driving unemployment up (unofficially estimated at 20 percent, the official figures are 14.5 percent).

People wonder why the government can't emulate Brazil, which devalued its currency and managed to keep inflation at bay. This and high taxes, however, will be issues for the next government. Citizens will hit the polls late this month to elect a new president, choosing between one candidate considered "undesirable" and another perceived as "weak." In the opinion of one Azul TV executive, all this combined makes for "the toughest year since 1994."

Nevertheless, compared to the period when Buenos Aires was falling apart in the late '80s/early '90s, this time some of the world's top media players have converged upon Argentina. Its relatively high income levels have become attractive to multinational conglomerates. In addition, there are 10 million "big spenders" between the ages of 10 and 24. Argentina's "Generation Y" is a cross-section that differs from generation X in the U.S. and generation N in other Latin American countries only by its level of sophistication.

Argentineans like to point out that Buenos Aires is the most European city in Latin America, as well as the most technologically advanced. Indeed, one cannot walk the streets of Buenos Aires without spotting a store hawking computer and Internet products. But because there is no backbone, most of the international Internet traffic in Argentina (and Latin America in general) comes via satellite dishes. Even though there are no figures for Argentina alone, it is estimated that the number of Net surfers in Latin America is currently 7 million people, out of a population of 460 million. Worldwide, the number of Spanish-speaking Internet viewers is now estimated to be 14 million. It is also estimated that, by the end of the year 2000, the number of Net users in Latin America will grow to 19 million.

AOL is planning to build a network in Argentina in a joint venture with the Cisneros Group. Similarly, CableVision expects to introduce interactivity in the next two years. In the beginning, the two-way cable Internet will be available only in Buenos Aires, Rosario, Cordoba, Santa Fe and Parana.

As it stands now, 18 million people in Argentina are watching TV via cable, which represents more than 50 percent of TV households. The basic package includes 65 channels at $33 per month. Due to consolidation in recent years, three MSOs -- Multi-canal, CableVision/TCI and Super-canal -- now control the lion share of subscribers. The 2,000 mom-and-pop cable system companies that used to operate in the interior of Argentina now number around 600, with only some 2,000 customers each. Red Intercable, an alliance of independent operators, has a big stake in the rest. Reportedly, CEI, part of the CitiCorp group which owns a large portion of the media properties in Argentina, is looking to acquire an additional 500,000 cable-TV subscribers.

With a total of 70 cable channels, five over-the-air broadcast networks, two (soon to be three) direct-to-home satellite (DTH) services, a well developed home video market and a good theatrical landscape, Argentina has the distinction of being one of the most competitive markets in the world. Adding to this, Argentina is home to two of Latin America's largest TV trade shows -- ATVC's Jornadas and Caper -- and is one of the most active television program distribution sectors in the world, both domestically and internationally. All of this is despite a high cost of living that makes domestic production very expensive.

There are other problems. While the home video business has climbed in the first six months of '99, the number of moviegoers for the country's 750 screens was only 14.5 million (a 19 percent drop from the same period last year).

The high cable subscription rate can be attributed to the fact that the cable TV financial model is based on subscribers' fees and a little advertising revenue. In fact, all the cable channels together cumulatively generate the rating of a single top broadcast network (e.g., 15 points).

Companies are saving their advertising budgets for later since the high unemployment rate has lowered consumer spending (to encourage spending, retailers are even offering small toys with easy payment plans). But a 30 percent slump in the broadcast networks' ad revenues coincides with a great ratings season for free TV. During the six-month period from January to June 1999, the top network was Telefe (Channel 11), followed next by Artear (Channel 13) and then America 2, Azul TV (Channel 9) and ATC (Channel 7). All channel numbers refer to the flagship stations in Greater Buenos Aires (the smaller metro area is referred to as Capital Federal), and rating samples are taken only in Buenos Aires.

In addition, Supercanal, the third largest MSO, has financial problems. Supercanal, reaching some 500,000 subscribers, has a debt that exceeds $400 million.

Finally, there is the HBO Ole affair. Reportedly, HBO Ole's president, Jose Manuel Pagani, did not go to the Jornadas last July because in his view, with 80 percent of the market being controlled by two companies, it was better to take the money he would have spent on the market and visit the other 20 percent in the interior. Not that Pagani needs cable nowadays. Earlier this year, HBO Ole and Cinemax pulled out from most cable TV companies in Argentina and signed an 18 month exclusivity with DirecTV, for which DirecTV reportedly paid $50 million. The problem was that HBO is a premium service everywhere else in Latin America but Argentina, where it was lumped into basic services by cable providers. To change HBO from a basic offering to a premium channel on cable in Argentina would have required an expensive capital investment that neither the MSOs nor HBO wanted to undertake.

Supercanal, CableVision and Multicanal originally agreed to present a united front when negotiating with HBO, but then Supercanal broke rank and decided to keep the signals. This was also due to the fact that while the contract expired with the major cable companies, it was still in effect with the interior companies represented by Supercanal. CableVision has reportedly lost about 3 percent of its subscriber base since HBO Ole and Cinemax left its programming line-up last January. But a new mandatory 13.5 percent tax on cable operators is as much to blame for the loss.

DirecTV subscribers currently number about 60,000. But the pay-TV field will soon be crowded: Sky Argentina, Rupert Murdoch's consortium, plans to launch a DTH service soon, while Cisneros Group's Imagen Satelital is currently finalizing their DTH plans.