Domestic recovery fuels int'l boom for Argentina's Telefe.

Argentina's president Nestor Kirchner is riding an economic boom toward reelection and the bright economy has certainly brought smiles to the faces of Argentineans. And no one could be happier than Telefe executives. Everything seems to be going smoothly for the company--one of the two largest broadcasting networks in Argentina. Its link with parent company, Telefonica of Spain--one of Europe's largest telephone companies (which also owns giant Dutch format licensor Endemol)--assures all the necessary cutting-edge transport technology to face the digital future, and the company's expansion into production--both domestic and international--guarantees its content. As they say in the television business: "Content is king and transport is queen."

In terms of TV developments, after the 2001 economic crisis, Argentina is playing catch-up with the rest of the developed world in several areas: broadband, program production, international distribution, TV trade shows and changing those vestigial regulations (such as import roadblocks) that damage the growth of the industry.

According to a study by research company IDC Argentina on behalf of Cisco, the number of broadband connections in the country was expected to rise as much as 56 percent by the end of 2006. Out of 7.95 million TV households (TVHH), the study identified 1,219,497 broadband connections, a TVHH market penetration of 15.34 percent, equivalent to 3.1 percent of the population. Cable subscribers are now back at the level of the pre-economic meltdown of 2001, at 5.5 million.

In terms of production, most of the country's TV product is churned out by Telefe and Artear (the country's two main broadcast entities, out of five TV networks), Claxson (one of the main local cable programmers), and a number of independent production companies, including Ideas del Sur, RGB Producciones, Patagonik Film Group, Pol-ka Producciones and Cuatro Cabezas.

Argentina also boasts several international TV and film distribution companies, including: America Video Films, Ledafilms, Premium Media and Telefilms, in addition to Artear International and Telefe International.

Aided by favorable exchange rates and a prosperous domestic TV industry, Argentina could even become an important TV trade show stop for the international TV sector, with the Jornadas--a market organized by the local cable TV association, ATVC. While, in the past, ATVC's Jornadas was limited to domestic participation, over the years it has become a meeting place for the "Southern cone," and now it has expanded to include the whole of Latin America.

However, one of the many organizational problems facing the Jornadas is the difficult and loosely regulated Argentine customs policy--a problem that even the otherwise efficient FedEx is unable to handle. Argentine customs rules on incoming material for conventions differ according to presiding customs officials and are often blocked from delivery to the exhibition center.

The problems with Argentine customs are so severe that even Argentine TV export companies ship and receive material from neighboring Uruguay and then truck it to Buenos Aires.

The problems between Argentina's TV industry and the country's customs began back in 1991, when then-Economy Minister Domingo Cavallo decreed that, when importing content to Argentine television broadcasters, the importer must pay, as importation duties, 50 percent of the agreed license fee for the corresponding TV episode of movie.

As this was considered an impossibly high demand, nobody really took it very seriously. Previously, the Government had also decreed that all foreign TV episodes or movies to be broadcast locally had to be dubbed into Spanish in Argentina--another decree that nobody took seriously. Thus, both rules failed to be enforced and were subsequently forgotten.

Recently, though, the current tax authority "discovered" the 1991 surcharge decree and began demanding that importers pay back taxes for huge amounts of money (in millions of U.S. dollars, especially for the two main program importers: Telefe and Artear).

The irony is that, problems with Argentine customs ultimately forced the program exporters and importers to increasingly use satellite distribution, which is not affected by the 1991 import duties, thus reducing the back taxes potential, and resolving the clearance problem.

Unfortunately, however, the perseverance of customs difficulties will curtail the potential of such emerging TV trade show as Jornadas, especially in view of the fact that ATVC, being an association, is not an effective market organizer.

But, the Argentine TV industry doesn't seem to be discouraged by the few residual challenges left over from the economic crisis era. Indeed,

the Buenos Aires-based Television Federal S.A., better known as Telefe, is currently the most watched television network in Argentina. With more than 12.4 million residents, or 31 percent of the nation, the greater Buenos Aires area represents the country's largest market and is served by Telefe's main TV station, Canal 11. Telefe was formerly known as Canal Once (Channel 11), a state-run network, which was privatized and established as Telefe in 1989, when Grupo Atantida (with 80 percent ownership) and Murdoch's News Corp. (20 percent ownership) took over the channel. Since 1997, Grupo Telefe parent company, Telefonica of Spain has owned it.

Today, Telefe and Artear share 80 percent of the nation's TV broadcast revenue, estimated at the equivalent of U.S. $200 million per year, which makes Argentina the world's 21st largest TV ad market. Per-second advertising rates on Telefe vary from 200 pesos (U.S.$65) for daytime TV spots to 3,300 pesos (U.S.$1,080) for telenovelas such as Montecristo, during primetime.

Grupo Telefe is divided into several divisions including: Telefe, Telefe Contenidos (the production division under Claudio Villarruel), Telefe International and Cables Interior.

Telefe, headed by chairman Jorge Perez Bello, is the broadcasting division, which operates nine TV affiliate stations in major cities (there are a total of 42 TV broadcast stations in the country).

Cables Interior, led by Gabriel Bianco, is the division responsible for the network of cable coverage in the interiors, allowing Telefe to reach 90 percent of the country's population.

Telefe International is run by CEO Alejandro Parra and is divided into three areas: Programming Sales (led by Michelle Wasserman), Formats, International Co-productions and Production Services (led by Gonzalo Cilley) and International PayTV Stations (led by Daniel Otaola). This latter service now reaches three million subscribers in the Spanish-speaking market worldwide.

A combination of favorable exchange rates, below-the-line high technical skills and good artistic talents, along with low production costs, make Argentina an attractive venue for international production. It is estimated that a one-hour drama, which costs 100,000 euro per episode in Europe, could cost from U.S.$15,000 to $25,000 in Argentina with the same production value.

But format sales are increasingly representing a profit area for Telefe, expanding from the time, in 2003, when the company sold the concept of Ellegado to Italy's RAI for its pre-primetime quiz strip L'Eredita. Last summer, Telefe sold the format of its telenovela Resistere to Fox, while Fox gave Telefe international distribution rights to the series' U.S. version, Watch Over Me. Currently, the format of Montecristo, Telefe's most popular telenovela has been sold to Mexico, Chile and Portugal. At the same time, Telefe is producing a 110-episode series on behalf of Russia's RTR, while renting its studio facilities to Mexican and American production companies.

Since Parra took over Telefe's international activities, program sales were expanded in 80 territories with a catalog of 40,000 hours, and increasing at a rate of 1,200 new hours per year, including 1,000 new telenovelas.

Parra, a graduate of the Wharton Business School, entered Telefe via Grupo Telefonica de Argentina, a company he joined as an engineer in 1991. With the acquisition by Spain's Telefonica of Argentinas MSO Multicanal, Parra was transferred to the new entity in 1996 to manage the technical requirements and consolidate more than 95 cable operators. In 1998, he became Technical and Operations manager of Cablevision, the leading cable operator in Argentina (part of Multicanal). In March, 2000, when Telefonica Media became Grupo Admira, he was appointed a member of Telefe's management team. In 2002, Grupo Admira (formerly known as Telefonica Media) was split into Admira Media and Telefonica Contenidos (which includes Endemol Argentina), with the former generating about three billion euro in revenue. Currently, in addition to holding the position of CEO of Telefe International, Parra is also in charge of business related to shows, music, movies and theater.