News Column

Challenging Times for Univision

December 2007, HISPANIC BUSINESS Magazine

Derek Reveron

Univision headquarters
Univision headquarters

Under former CEO A. Jerrold Perenchio, Univision became the leading integrated Hispanic-oriented media company with a television and cable network and radio, online and music divisions.

New CEO Joe Uva, who replaced Mr. Perenchio earlier this year, now faces the challenge of maintaining Univision's multimedia dominance while repaying the heavy debt load the company assumed after its $12.3 billion sale to Broadcast Partners, a consortium of private investors. The group includes Saban Capital Group, Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, and Thomas H. Lee Partners.

Analysts say the inordinate debt poses a challenge to Univision's multimedia dominance, at least in the short run. Here's why: Mr. Uva will likely sell parts of Univision to raise cash and he has little financial room to launch bold and innovative initiatives, according to media experts who follow the company.

As of September 30, Univision carried $12.8 billion in total liabilities on its balance sheet. Financing imposed higher interest expenses and amortization costs resulting in Univision posting net income losses of $26.8 million, compared to a $88.2 million net profit in the third quarter in 2006.

Net revenue for the 2007 third quarter increased 4.4 percent to $529.1 million from $506.6 million in 2006.

Last year's results include $24.7 million in revenue from the 2006 World Cup. Excluding that amount, Univision's revenues increased 9.8 percent over the same quarter last year.

Third-quarter net revenues for television increased 3 percent to $406.7 million, while net revenues for the radio division gained 7 percent to $110.8 million.

MUSIC FOR SALE
Univision said in its second-quarter report filed with the Securities and Exchange Commission that it "intends to divest certain non-core assets, including our music recording and publishing businesses and potentially some non-core television and radio stations and excess real estate." Univision said it expects proceeds from the sales to exceed $500 million.

It's not clear how many of Univision's units the company may sell. Some would attract several bidders, analysts say. The company's Galavision Spanish-language cable network is ranked No. 1 among U.S. Hispanics. TeleFutura is the No. 2 Spanish-language broadcast network after parent Univision. Revenue from the radio division is growing 12 percent annually as overall industry sales remained flat. Univision's web site receives more visitors than any other Spanish-language site.

Univision's buyers decided to sell its music recording and publishing business before the buyout was completed in March. Univision is reportedly entertaining bids from major music labels to sell the music group.

"They would get in the neighborhood of $400 million, which wouldn't do too much on the new debt," says David Joyce, an analyst with New York-based trading firm Miller Tabak + Co. Univision isn't likely to sell Galavision because it's so successful, nor the entire radio unit because of its value in doing cross-promotions with television, Mr. Joyce adds.

AMPING UP ADVERTISING
As Mr. Uva pursues sales of assets, he is taking steps to leverage Univision's media units to boost advertising revenue. Mr. Uva, former CEO of New York-based media buying and strategy agency OMD Worldwide, is apparently no longer content to depend mostly on Univision's ranking as the No. 1 Spanish-language network to sell advertising. He recently revamped Univision's sales structure to integrate media buys for every unit under a newly created president of advertising sales position.

The goal: Increase multiplatform media buys. The new position oversees Univision, TeleFutura, Galavision and the radio and online units. The reorganization allows Univision sales people to represent all of the company's media units to advertising agencies and marketers.

Industry experts say the sales restructuring may not have a significant impact on Univision's bottom line.

The move represents part of the strategy of Univision's new owners. "Their premise for buying Univision was to close the gap in terms of dollars between what Hispanic media companies are getting compared to general market media companies. That gap could be made up from raising ad rates and convincing advertisers to commit more dollars to Univision," says Alex Ryshawy, Partner and Director of Mission Capital Group, a Miami-based investment bank.

A NEW VENTURE?
Mr. Uva sparked speculation that Univision might entertain another option to boost income – launch an English-language network to chase English-language advertising budgets. During a recent panel presentation at the Congressional Hispanic Caucus Institute Mr. Uva said, "It might be an opportunity under consideration, along with a lot of other considerations to have an opportunity to speak to the community in English." He cited sports, news and children's programming as fertile areas for new digital channels.

A Univision spokesperson said that Mr. Uva would not be available for comment and issued the following statement to Hispanic Business: "We are exclusively committed to entertaining and informing our audience in Spanish. There are no plans for an English-language multicast channel. However, we have and continually evaluate a number of strategic options to enhance Univision's ability to serve its many audiences."

Industry experts say there is one option that Univision is likely to take – go public again to pay down debt and provide a profit for investors.

"Private equity firms typically hold their investments three to five years before exiting to make a profit," says Mr. Ryshawy. And private equity firms usually exit deals such as the Univision buyout by going public, he adds.

As Univision redefines itself, the network is expected to maintain its dominance in the Spanish-language television market and becoming a tougher challenger for the major networks. During the second quarter, Univision was the third ranked network in the nation among all 18- to 34-year-olds after Fox and ABC but ahead of NBC, CBS, and CW, according to Nielsen Media Research. Univision's recent bilingual presidential debate attracted more viewers ages 25 to 54 than any other televised debate so far this year.

"Univision will continue to set the course for Spanish-language programming," Mr. Cancela says.



Source: HISPANIC BUSINESS Magazine and Hispanicbusiness.com, Copyright (c) 2007 All Rights Reserved.


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