Despite analysts’ predictions that the proposed merger involving Univision and Hispanic Broadcasting Corp. (HBC) will win rapid regulatory approval, a federal lawsuit by Spanish Broadcasting System (SBS) may have already sown the seeds of the deal’s demise.
Related Materials•SBS Complaint vs. Clear Channel & HBC•SBS Complaint vs. Clear Channel, June 25, 2002
Filed in U.S. District Court in Miami the same day the merger was announced, SBS’s antitrust lawsuit could expose the newly constituted Univision to paying monetary damages if SBS were to prevail. Moreover, the suit calls into question whether HBC has been completely forthcoming with its would-be suitor.
In merger-related disclosure documents filed with the Securities and Exchange Commission, HBC denies having been threatened with litigation in the months leading up to the merger announcement. However, in at least one letter earlier this year, SBS CEO Raul Alarcon Jr. threatened both HBC and Clear Channel Communications – the two firms named in the SBS lawsuit – with legal action for anticompetitive behavior.
If Univision were to seek a way out of the merger, Mr. Alarcon’s correspondence could provide a convenient opening.
The SBS lawsuit accuses HBC and Clear Channel Communications of predatory behavior in an effort to monopolize the top 10 U.S. Spanish-language radio markets in violation of the Sherman Act. The 20-page suit contends that tensions between the companies rose sharply after Clear Channel and HBC tried unsuccessfully to acquire SBS last year.
The most sensational allegation holds that Clear Channel’s executive vice-president and chief financial officer, Randall Mays, tried to derail SBS’s 1999 initial public stock offering by telling a Lehman Bros. official that Mr. Alarcon was a “drug user and/or drug trafficker.”
Clear Channel owns 26 percent of HBC and would own 7 percent of Univision should the latter’s acquisition of HBC go through. It is unclear what Univision’s liability would be in the event its acquisition went as planned and SBS prevailed in court.
Under the agreement announced in June, Los Angeles–based Univision, the nation’s leading Spanish-language TV broadcaster, would acquire HBC, the top Spanish-language radio network, in an all-stock transaction valued at about $3.5 billion. HBC, which owns 55 stations and has more than 1,100 employees, would be renamed Univision Radio Group and would continue to be based in Dallas. HBC CEO McHenry T. Tichenor Jr. would serve as CEO of the new subsidiary.
Analysts say the deal is a good move for Univision, which will be able to promote its programming during HBC broadcasts. HBC is the top-billing Spanish-language radio owner in such key U.S. Hispanic markets as Los Angeles, Houston, Miami, Dallas, and San Antonio (see “Calm After the Storm,” December 2001).
However, the proposed merger troubles activists such as Alex Nogales, chairman of the National Hispanic Media Coalition.
“We’re very concerned about what this means. Unlike English-language TV, where you have at least five players, in Spanish-language TV, for all intents and purposes, you have just one. There is a real danger of this becoming a monopoly,” Mr. Nogales says, hastening to add that he would reserve judgement about the deal until he’d had a chance to meet with Univision officials.
Mr. Nogales and representatives from 11 other Hispanic activist organizations that make up the National Latino Media Council were scheduled to hold a series of meetings with Univision officials throughout July.
Despite the continued resurgence of Telemundo, Univision commands more than 70 percent of the U.S. Spanish-language TV market. According to HispanTelligence, the research arm of Hispanic Business Inc., Univision received about 40 percent, or about $872 million, of the roughly $2.2 billion spent on Hispanic advertising in the United States last year.
Univision’s programming strategy is as simple as it is successful: The network acquires most of its primetime offerings – the overwhelming majority of which are telenovelas – from foreign producers, minimizing production costs while retaining, and in many cases building, audience share.
It is precisely that model that bothers Mr. Nogales.
“This material is detrimental to our people in that it keeps them rooted in another society and keeps them from becoming fully integrated in the country where they have to be able to compete for a job,” he says.
In fact, Telemundo’s emphasis on foreign-produced telenovelas is one of the reasons Mr. Nogales and other members of the National Latino Media Council are petitioning the Federal Communications Commission (FCC) to overturn NBC’s purchase of the network.
With Univision, Telemundo, and upstart Azteca America all pursuing a programming format rich in telenovelas and other foreign-produced content, some observers worry about U.S. Spanish-language TV becoming homogenized.
Federico Subervi, a professor of communications at the University of Texas at Austin, says the merger would mean political debate within the U.S Hispanic community becoming degraded still further.
“Latino media is going the way of the Anglo media conglomerates,” he says, referring to recent mega-mergers that have spawned media empires on the order of AOL Time Warner and Viacom. “With consolidation, you always have to be concerned about whether a variety of viewpoints will be represented. There’s hardly a diversity of political voices on the air now, and yet we expect Latinos to be involved.”
The merger would enable Univision to become a diversified media conglomerate in its own right. For one thing, it would enable the network to promote its music acts via HBC’s popular radio programming. Univision owns three record labels, including Fonovisa, the industry’s leading distributor of Mexican regional music. Univision acquired that label from Televisa in a deal valued at upwards of $240 million that closed in April.
Univision, whose chairman, A. Jerrold Perenchio, controls more than 60 percent of the company’s voting stock, owns more than 50 television stations and recently launched a second broadcast network, TeleFutura. The latter network has already achieved nearly a 10 share of the U.S. Hispanic audience. Univision also operates the cable channel Galavision.
The merger would give Univision the number 1 Spanish-language TV station and the number 1 Spanish-language radio stations in Los Angeles, Miami, and Houston. In New York and Chicago, it would own the number 1 Spanish-language TV station and the number 2 radio station.
Nevertheless, analysts expect the merger to meet with minimal resistance from the FCC. One possible complication involves Univision’s 31 percent stake in its primary affiliate owner/operator Entravision, whose other media properties include radio stations in several markets also served by HBC. Regulators may require sale of some of the seven stations owned by HBC in Dallas because Entravision owns six stations in that market. Under a less likely scenario, regulators might order some of HBC’s six Los Angeles stations sold to avoid an ownership concentration in that market; Entravision has four Los Angeles radio properties.
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