Two Mexican Networks in Pitched Battle for Markets

MEXICO CITY — Latin Americans devoured the World Cup soccer tournament this summer, watching hours a day of previews, matches and post-game analyses. For Mexico’s two broadcast networks, the Cup became another battleground in the war for dominance over the vast Spanish-language television market.

Azteca, the brash 5-year-old network, claimed a narrow but critical edge in the contest for more than $100 million in Cup-related TV advertising revenues in Mexico. Yet Televisa, the longtime Goliath of Latin broadcasters, won higher audience ratings during the monthlong competition.

The TV soccer war is just one facet of the networks’ high-stakes competition for viewers and ad revenues, not only in Mexico but across the Spanish-speaking world. Televisa and Azteca are competing on every programming front, including Mexico’s famed soap operas, and over a multitude of transmission channels from the airwaves to cable and satellite. And the soccer war isn’t over yet, as the networks now fight for rights to air the national team’s games.

The next arena of battle is likely to be the United States’ rich Spanish-language market, where Azteca is eager to challenge Televisa’s longtime partner, Univision. After losing out to Sony in its pursuit of No. 2 U.S.-Spanish network Telemundo, Azteca is now looking for other routes into the U.S. market. That may mean buying into U.S. television stations, as Azteca has done elsewhere in Latin America, or a programming alliance with Telemundo.

Run by billionaire entrepreneur Ricardo Salinas Pliego, Azteca appeared to be writing its own soap opera-style happy ending following its emergence in 1993 from the sale of two government channels. Salinas took on the lumbering Televisa with a vengeance, introducing aggressive, innovative programming aimed at a more sophisticated audience than the one that devours Televisa’s melodramas.

Over the next few years, Azteca’s viewer share soared as Televisa struggled through the final years of the reign of its autocratic, aging patriarch, Emilio Azcarraga Milmo.

But Televisa wasn’t reading the Azteca script.

When 29-year-old Emilio Azcarraga Jean took over the Televisa empire in April 1997 after his father’s death from cancer, skeptics awaited his demise. Yet the younger Azcarraga has mostly won broad praise over the last year for refocusing the firm, slashing costs, distancing the company from the government and winning back viewers from Azteca.

As Televisa has sharpened the programming on each of its four networks and redesigned its news shows, it has sliced Azteca’s audience share back from a peak of nearly 40% to about 27% this year.

Under the elder Azcarraga and his top newscaster Jacobo Zabludovsky, Televisa’s credibility had plummeted as it clung to its role as proselytizer for the ruling Institutional Revolutionary Party. The young Azcarraga declared Televisa’s independence, retired Zabludovsky and brightened up the news shows.

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A recent documentary series produced by noted historian Enrique Krauze opened with scenes of the bloody massacre of students in Mexico City in 1968. Azcarraga reportedly decided by himself that the controversial segment should air first.

The result of such initiatives is that Televisa’s main newscast has jumped to 24 rating points from only 11 a year ago, Azcarraga noted in a rare meeting with journalists in Cancun last month. Azteca saw its newscast ratings fall to 10 points from a year ago’s 16.

“Independent of the fact that we have produced a better news program, this reflects a greater [public] interest in news in general,” Azcarraga said.

Analysts in Mexico and on Wall Street scrutinize every move by the two companies. When Televisa reported in July that performance was below expectations for the first half of the year, its share price plunged 17% in one day. Azteca’s stock has also slid this year.

Yet there’s no doubt that the battle has injected unprecedented levels of competition into an industry that just a few years ago was a comfortable monopoly, coddled by protective regulation and mutual industry-government back-scratching.

Azteca, for example, has forced advertising sales in Mexico into the late 20th century by introducing ratings-based ad rates. Televisa is now reviewing its traditional system of forcing advertisers to pay for air time at the start of the year. With its stronger grip on higher-earning viewers, Azteca would like to go the next step to demographic-based ad rates.

The competition has not only sharpened both companies’ performance; it also has been good for consumers. Money has poured into developing new shows and more sophisticated transmission systems.

“The arrival of competition was good for us because it woke us up, and it has kept us on our toes,” said Alejandro Burillo Azcarraga, Televisa vice president for international affairs and a cousin of the network chief’s.

Azteca’s deputy financial director, Tim Parsa, agreed that “it’s very salubrious competition, where you have a scrappy upstart competing with the established power. And it’s been good for advertisers, because we’ve introduced worldwide standard systems.”

At the same time, he said, “the competition has been very rational, it hasn’t been guerrilla war. There haven’t been [ad] price cuts or huge spending on stars.”

Salinas, 41, plunged into Azteca in 1993 with no broadcasting experience but with aggressive entrepreneurial instincts honed from years at the helm of the low-margin Elektra retailing chain. He built Azteca on information as well as entertainment.

“The newscasts are the soul of this operation, because that is what puts us in contact with the people. And it is has been precisely in the news where we have hit them harder,” Salinas said in a recent interview with The Times. “We inaugurated a new style of broadcasting news in Mexico. It’s fast-paced, young, aggressive.”

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Azteca remains confident of its longer-term prospects. Though its viewer share has slipped in recent months, it still is expecting to collect about one-third of prime-time ad revenue for 1998.

While Azteca focuses on television, Televisa is far more than a TV network. Indeed, the degree of vertical and horizontal integration within Televisa would make any global conglomerate envious.

It has its own acting school in Mexico City, keeps stars under contract like the Hollywood system of the 1940s and is said to be the largest producer of broadcasting content in the world, generating about 50,000 hours of programming (against 10,000 for Azteca) at its huge Mexico City studio complex.

Televisa resells its shows to broadcasters not only throughout Latin America but to scores of other countries, including Russia and the Philippines, where the programs are dubbed locally.

Leonardo Simpser, media equity analyst for Deutsche Bank Securities, said Salinas is right to seek a U.S. foothold and broaden the outlets for Azteca’s growing production. Azteca must improve its ratings in Mexico to command high ad rates, and to do it needs to make more new soaps and other shows to attract viewers, he added. But such content is costly. “So what do you do? You start exporting your programming.”

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Simpser said a partnership with Telemundo would make more sense for Azteca than going on its own and creating a third U.S. Spanish-language competitor when the second is already struggling. Azteca has bought portions of stations in Chile and El Salvador and has distribution deals elsewhere, giving it outlets in markets to the south.

In addition to Televisa’s 19% stake in Univision (soon to be reduced through a stock sale), the network also owns the Eco 24-hour Spanish-language news channel and a major share of Sky Latin America satellite TV, and controls Mexico’s largest cable system. It also owns the world’s largest Spanish-language magazine-publishing business, a paging company and three recording companies, among them Fonovisa in Los Angeles.

Analysts doubted that the young Azcarraga could fill his father’s shoes and make the hard decisions needed to restore the company’s competitive edge in the face of Azteca’s challenge. Indeed, early in his tenure squabbles broke out over board membership and strategy.

But Azcarraga, who is one of the few Mexicans even richer than Salinas, successfully resolved the infighting, pushing out senior executive Guillermo Canedo White and bringing in a tough financial director, Gilberto Perezalonso, from Cifra retail group. In May 1997, Azcarraga told investors he would cut $270 million from the operating budget within three years. He quickly got rid of company planes and other big-ticket costs and cut the head office and administrative staffs.

Azteca’s Parsa accords due respect to Televisa and acknowledges that Perezalonso “is the kind of guy who goes around turning out the lights,” just right for the kind of cost-cutting Televisa requires. But Parsa says Televisa has already cut the easy costs--the executive perks and support staff; it will be much harder to cut operating expenses without hurting production, whereas Azteca’s production has stayed lean from the outset.

Televisa has sold some non-core assets, including its stake in the Panamsat satellite business, to reduce Televisa’s substantial debt. But not its landmark 112,000-seat soccer stadium (confusingly known as Azteca Stadium) and its two teams in Mexico City, which give the network leverage in obtaining rights to soccer coverage.

Soccer is the second-highest revenue generator in Mexican TV, and Salinas couldn’t ignore it. So he also bought two soccer teams, Veracruz and Morelia, and the broadcast rights for other teams. He is now challenging Televisa’s exclusive right to broadcast matches played by the Mexican national team.

Azcarraga still appears somewhat awkward in public, but he is growing steadily more confident in declaring his basic strategic goals.

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One motive for building partnerships with other Latin broadcasters that use Televisa’s content is “to try to defend the language that we share and not suddenly find that, as in Spain, out of the top 10 songs five are in English,” he said. “I think it’s a significant achievement that in most of our countries, the 10 most popular songs or programs are usually in Spanish.”

For both networks, the pickings are rich. Mexico’s $1.6-billion Mexican advertising market is growing at 2.5 times the rate of the gross domestic product, Parsa said. Finally emerging from the horrific 1995 recession, the economy grew at 7% last year and should maintain a period of sustained growth.

Azcarraga is clear that Televisa’s competitive edge lies in the programming it produces.

“We think that content is more important than any distribution system. Technologically, each year it is becoming easier to distribute entertainment,” he said. “Today there are 150, and if tomorrow there are 500 channels, the question is, what are you going to put on those 500 channels? So I believe we are in a privileged position to grow--to produce more, to produce better quality entertainment and to keep growing.”

Times staff writer Chris Kraul contributed to this report.