With Spanish-language television continuing to surge, NBC gets in on the action by acquiring Telemundo.
By Derek Reveron
HISPANIC BUSINESS® magazine, Dec. 2001 Despite the economic recession and lower corporate marketing budgets, Univision and Telemundo continue to gain advertising revenue, even as many general-market networks post double-digit declines. Telemundo and Univision are the nation’s two fastest-growing television networks, and both companies plan to attract more advertising through new networks aimed at younger viewers. In October, Telemundo relaunched its Gems Television cable network as Mun2, or “mundos,” which means “worlds” in Spanish. Univision, which already operates the cable TV network Galavision, plans to launch Telefutura in January. Despite the poor economy, the new networks will attract enough advertising to succeed, according to industry observers. “There is advertising strength among Spanish-language networks, as compared to the general-market sector where revenue is flat or down,” says David Joyce, senior media analyst for Guzman & Co., a Miami investment-banking firm. Univision, which is about three times the size of Telemundo, remains the dominant network. Several of Univision’s stations, including those in Miami and Los Angeles, regularly finish first among adults age 18 to 34, beating NBC, CBS, ABC, Fox, and Telemundo. But the number 2 Hispanic network is gaining ground. Two years ago, Telemundo attracted about 10 percent of Hispanic adult viewers age 18 to 49, compared to Univision’s 90 percent. During the May audience sweep this year, Telemundo commanded about 30 percent of such viewers, says Steve Levin, executive vice-president of sales for Telemundo. The bigger market share brought more advertisers and higher rates for Telemundo, says Mr. Levin. He declined to provide specifics, but industry insiders say that advertisers, who routinely split their buys between the two networks, now have more reason to provide Telemundo its share. “The confidence level in Telemundo has increased since they have been reprogramming and gaining audience,” says Rochelle Newman-Carrasco, chief executive of Enlace Communications, a Los Angeles ad firm that targets Hispanic audiences. “With increased ratings comes a bigger share of the buy.” Telemundo believes it can make more headway against Univision after completing its merger with NBC. In October, the peacock network acquired Miami-based Telemundo for $1.98 billion in cash and stock. Under terms of the agreement, NBC also will assume about $700 million in Telemundo debt. “We are looking to make even more progress because NBC brings great news, programming, and distribution resources to the table,” says Mr. Levin. Univision declined requests for interviews. Compared to Telemundo, however, the Los Angeles–based network continues to book about twice as much crucial “upfront” advertising that networks sell before the start of each fall television season. Univision sold about $550 million in advertisements for the 2001 season, a 10 percent rise over 2000, according to industry analysts. Telemundo sold $200 million to $250 million in advertisements, a 15–20 percent rise over 2000, says Mr. Levin. Analysts predict that Univision’s 2001 total revenue will reflect growth of about 3 percent, down from the 7 percent figure predicted earlier this year. The network will record revenue of $1.7 billion in 2002, up 21 percent from 2001 but down 8 percent from earlier estimates, according to Merrill Lynch analyst Jessica Reif Cohen. NBC CEO Bob Wright recently predicted that Telemundo will record revenue of about $400 million for 2001. And Telemundo CEO Jim McNamara has forecast growth of at least 20 percent for 2002. Telemundo and Univision are counting on their new networks to help them meet revenue forecasts. Neither network is in the driver’s seat, however, when it comes to selling advertising for the new ventures, industry insiders say. “Packaging the advertising with the parent networks and offering discounts isn’t the preferred strategy, but they don’t have a choice with some large advertisers who can demand what they want,” says Ms. Newman-Carrasco. “The new networks need to prove themselves.” Univision will use 11 stations, purchased from Barry Diller’s USA Networks for $1.1 billion, to launch Telefutura, a network that targets young, bilingual Hispanics. At its debut, Telefutura will reach 80 percent of U.S. Hispanic homes and will feature programming from Colombia, Mexico, and Venezuela as well as original shows produced by Univision. Telefutura is selling advertising independently and as part of a package with Univision, according to advertising agency executives. Telefutura probably won’t attract big advertising revenue initially, and there is bound to be some cannibalization of existing Univision clients, says Mr. Joyce. However, he adds, the network should add significantly to Univision’s total revenue when the economy rebounds and corporate advertising budgets increase. Telemundo had scheduled its launch of Mun2 for September but postponed it following the terrorist attacks. Mun2, which will initially reach 2.8 million households, targets Hispanics age 18–34 and features trendy original programming. FuZion, for example, presents segments on entertainment, music, and film. CHAT, a talk show, focuses on youth issues. Viewers can participate through telephone calls and e-mail. Music programs include Planet Rock and Padrisimo, which features Tex-Mex artists. “Mun2 creates a position in the marketplace that many advertisers want,” says Mr. Levin. Like Univision, Telemundo is selling advertising for Mun2 solo and as part of a package, depending on the needs of advertisers. So far, he says, Mun2 is exceeding its advertising goals. Univision and Telemundo hope the new networks will broaden their categories of advertisers. Currently, automakers and packaged goods companies account for the largest chunk of advertisements. Top clients include Ford, General Motors, Kraft, Procter & Gamble, and Nestlé. The networks are trying to lure more electronics and home appliance companies. “Those categories are almost totally vacant,” notes Mr. Levin. The networks also covet financial services firms and insurance companies, advertising executives say. Telemundo sees Mun2 as the latest example of innovative programming that has cut into Univision’s market lead. Telemundo started making progress two years ago after Mr. McNamara became CEO and improved ratings by focusing on novelas, or soap operas, some of which broke new ground. Xica, a Brazilian novela, chronicled the rise of a 19th-century woman from slave to courtesan. Yo Soy Betty, la Fea, a comedic novela from Colombia, helped increase Telemundo’s audience share in May to 28 percent among 18- to 49-year-olds, compared with 22 percent the previous year. Univision ended up acquiring rerun and sequel rights to the show through a programming deal with RCN, a Colombian network and telenovela producer. Univision’s daytime programming recorded the highest second-quarter viewer levels among adults 18 to 34 in the network’s history, the company announced in a conference call with analysts in August. This season’s novelas include Amigas y Rivales (Friends and Rivals), El Derecho de Nacer (The Birthright), and Secreto de Amor (Secret Love). Univision also launched Los Metiches, its first network-produced original weekly evening comedy hour. Don Francisco, host of longtime ratings juggernaut Sabado Gigante, launched a weekly prime-time talk show, Don Francisco Presenta. Both networks are benefiting from the explosive growth of the Hispanic market. More than 35 million Hispanics live in the United States, according to the 2000 U.S. Census. Combined annual purchasing power of U.S. Hispanics is about $500 billion. The Census report provided marketing ammunition for the two networks, which sent promotional materials to large corporations detailing Hispanic population growth. The broadcasters hope to close the gap between the amount of advertising directed at Hispanics and their market size. Advertisers spend a total of $200 million each year, but less than 2 percent targets Hispanics. Mr. McNamara has put it another way: Six to 10 percent of U.S. households are watching Univision or Telemundo at any given moment, but Hispanic media draw only 2 percent of all advertising. Another disparity is that advertisers are willing to pay higher rates for similar-sized audiences on general-market networks. Hispanic ratings recently got a boost, however. On the basis of Census reports, Nielsen Media Research increased the number of Hispanic households in a rating point by 14 percent. Rating points determine how much money advertisers pay for commercials. The more Hispanic households in a ratings point, the more a network can charge for advertising. The change was long overdue, says Ms. Newman-Carrasco. “The industry couldn’t keep denying the overwhelming mathematics of growth,” she says. The burgeoning clout of the Hispanic market increasingly appeals to major media conglomerates. “The vibrant Hispanic market accounts for a significant and growing share of the nation’s economy, and we are eager to draw on Telemundo’s expertise to better serve this important audience,” said NBC CEO Bob Wright in announcing the merger. NBC had to fight off other suitors, including Viacom and, reportedly, AOL Time Warner and Walt Disney Co. Industry watchers speculate that some of those companies now covet Univision. Mr. Joyce says he believes that potential suitors have approached the network. Univision’s market capitalization increased about 7 percent on the day that NBC and Telemundo announced their deal. “The purchase by NBC is an indicator of the success of our market. It sets a huge precedent,” says Fausto Sanchez, president of Publicis Sanchez & Levitan, a Miami-based advertising agency. PHOTO CAPTION: Telemundo’s new Mun2 network targets Hispanics age 18–34 with trendy original programming such as FuZion. Hosted by Kenya and Alfonso de Anda, the program features segments on entertainment, music, and film.
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