Is There Room for a 5th Hispanic TV Net?

The quest to build a fourth and possibly a fifth Spanish-language (Hispanic) TV network in the U.S. to compete with Univision, Telemundo and HTVN is well underway. It is expected that a fourth Hispanic TV network will be created soon, based on Univision's purchase for $1.1 billion in cash of USA's 13 full-power TV stations and its minority interest in four additional full-power stations.

Univision, the number-one Hispanic broadcaster, will also assume $100 million of USA's programming liabilities.

Univision already owns and operates 13 full-power TV stations in 11 of the top 15 Hispanic markets and seven low-power TV stations. Univision's three owners are: Investor A. Jerrold Perenchio, Mexico's Televisa and Venezuela's Venevision. The USA deal now gives Univision duopolies in seven of the top eight Hispanic markets, including New York and Los Angeles.

The purchase, which is expected to close around June 2001, will give Univision a second national network with 55 to 60 percent coverage of the Hispanic TV market. USA's stations for The Home Shopping Network were mainly a cable play and these home shopping stations were said to have been acquired merely to get obligatory "must carry" in the major cities.

The estimated expenditure required to reach 80 percent national coverage (needed to fully benefit from national advertising) is between $100 million and $200 million. Capital investments to upgrade the stations is estimated at another $100 million to $200 million. Programming will cost between $50 million to $70 million per year. But Univision can well afford such start-up costs. It will also be expensive to cover the local markets, since the Hispanic market is so diverse (unlike the African-American market, see box). Univision spends an estimated $100 million a year on local news. Telemundo, the second largest Hispanic TV network, for example, spends an estimated $50 million per year on local news operations, in addition to $85 million on network programming.

Meanwhile, with minority partner TV Azteca (Mexico's second largest TV network), Harry J. Pappas' Pappas Telecasting has reportedly budgeted an estimated $1.5 billion on Azteca America in a quest to be the first to launch the fourth U.S. Spanish-language TV network. California-based Pappas Telecasting is the largest privately held TV station group in the U.S., controlling a total of 30 outlets. Pappas will ultimately be contributing 10 stations to Azteca America, including the new network's operations center at KXTX-TV in Dallas. Initially, the network will reach 45 percent of the total Hispanic population, compared with 92 percent for Univision and 85 percent for Telemundo. Even though the corporate and programming headquarters is located at KIDN-TV, Channel 54 in Los Angeles, direct competition with the Los Angeles-based Univision is not seen as a threat.

It is expected that Azteca America will first pursue Telemundo's viewers in order to get a piece of the annual $1 billion Hispanic TV advertising pie. In the process, Azteca America hopes to break even in two years. For the 2000-2001 season, Univision reported upfront sales of $501 million and Telemundo $175 million. Univision captures approximately 80 percent of Hispanic TV's ad spending. Some types of advertising costs to reach the Hispanic market are 22 percent higher than costs in the Anglophone market. Heightened television competition should lessen the discrepancy. Plus, a Hispanic TV market growing at a rate of 25 percent per year and dominated by only two competitors with a distant third is an irresistible call for new operators to enter the market.

Stuart Livingston, a Mexican-American former executive at Univision, Galavision and Telemundo, is the president of Azteca America. In exchange for providing exclusive programming, TV Azteca will get a 20 percent equity stake in the new network and an initial 10 percent of the network's annual revenues (climbing to 15 percent after five years). In any case, it is guaranteed income of $15 million per year. The program license agreement is for a 20-year term with a 10-year renewal option.

Will the Miami-based Telemundo suffer any loss of share due to the new entries? Possibly, but it is expected that the biggest challenge will be for Univision. They will have to promote Univision 2 and any channel switching will benefit the competition as Univision's big advantage now is that their audience doesn't ever channel surf. According to the Nielsen Hispanic Television Index, Univision drew 85 percent of Hispanic viewers 18 to 49 last year, with programming mostly supplied by Televisa, Mexico's top broadcaster. With the addition of Univision 2 to the Hispanic market, analysts expect a tough going for Azteca America.

With Telemundo's rise in ratings, the cost of doing business in the Hispanic TV market has risen dramatically. Telemundo is owned by Japan's Sony Pictures, plus Liberty Media Group and Council 3 Communications. Reportedly, Telemundo will not plant a stake in a second network, even though company executives announced the acquisition of Miami's WEYS and Los Angeles' KWHY Channel 22, which will give the network a duopoly in both the Los Angeles and Miami markets since it already owns KVEA-TV and WSCV-TV there. This means that Los Angeles, the largest Hispanic market, will have five Spanish-language TV channels before Azteca America even gets on the air.

In Los Angeles, Fort Worth, Texas-based Hispanic Television Network (HTVN) owns KJLA-TV Channel 57. This third Spanish-language U.S. TV network covers 33 percent of all Hispanic households with 25 stations nationwide (of which 13 are owned and operated) and it is specifically targeted at Mexican Hispanics. HTVN is owned by several investors, including Mexico's MVS Television, a production, distribution and satellite TV service.

In a recent Wall Street Journal interview, Pappas was interpreted as saying that Azteca America may have no choice but to merge with Telemundo. In 1999, TV Azteca signed a programming deal with Telemundo which is now expected to be rescinded. However, it is considered more logical for Azteca America to wind up with HTVN, which could use the added coverage.

Hispanic broadcasters also have to contend with five key Spanish-language cable networks, including HBO Latino and Galavision, which is also owned by Univision.

The Figures Tell a Market

At 34 million, Hispanics account for 12.3 percent of the total U.S. population. There are 9.33 million Hispanic households, with an average of 3.65 persons in each. Over three million Hispanic households earn an income of $50,000 or more a year. The rush is on to take advantage of Hispanic purchasing power, now estimated at $411 billion per year.

Immigrants make up 63 percent of the Hispanic population (of these, 70 percent are Mexican) and 88.6 percent of Hispanics learn Spanish as a first language. Mexicans are by far the largest Latino group in the U.S. (there are also 18 million people of Mexican ancestry). In addition, some of the biggest stars in U.S. entertainment are Hispanic, including Ricky Martin and Jennifer Lopez.

Top 10 Hispanic Markets:

1) Los Angeles

2) New York

3) Miami

4) San Francisco 

5) Chicago

6) Houston

7) San Antonio 

8) Dallas/Fort Worth

9) McAllen/Brownsville (Texas)

10) San Diego