Grupo Televisa: Beyond The Steam

By Gregory S. Davis | May 28, 2008 AAA

The supposedly steamy soap operas that have kept American daytime viewers enthralled for years are barely lukewarm in comparison to the passion displayed in one of Grupo Televisa's (NYSE:TV) telenovelas (miniseries soap operas). Passion and commitment has led Grupo Televisa into a prolonged battle with Univison, the privately held preeminent Spanish language broadcaster. Without a publicly traded direct competitor in the U.S., Televisa has more to offer than steamy telenovelas that could make it a welcome addition to an investor's portfolio.

Telenovela Originators
Grupo Televisa introduced the world to the telenovela 50 years ago and today is the largest Spanish media company in the world with viewers in the U.S., Canada, Latin America, Europe and Asia Pacific. To put its popularity into perspective note that the finale of Destilando Amor, one of Televisa's most popular telenovelas, attracted nearly 13 million viewers while the Associated Press reported that 31.7 million viewers tuned in for the American Idol finale. As the Latino population continues to explode in the U.S., I expect the viewership to go up as more Spanish television viewers indulge in the emotions of the telenovelas. According to the Census Bureau, Latinos are the largest and fastest growing minority group in the U.S., representing approximately 15% of the 300 million population.

Televisa's First Quarter
For the first quarter of 2008, Grupo Televisia's net revenue increased 13% to 9,538 million Mexican pesos (US$923 million). Televisa's Television Broadcasting and Sky segments (its direct-to-home satellite television service) continued to be its No.1 and No.2 revenue drivers with a combined contribution of over 65% of revenue. Despite a 19% increase in sales for its publishing segment, sales from its Cable and Telecom segment allowed it to become the third largest contributor to Televisa's revenue. The Cable and Telecom segment experienced an 85% surge in revenue to more than 1,052 million Mexican pesos (US$102 million). (To learn how to evaluate a company's segments and earnings, read The Importance Of Segment Data and Everything You Need To Know About Earnings.)

Savings with a Bundle
Televisa's ownership stake in Cablevision, Mexico City's cable company, has positioned it to capture the adoption of triple-play-service revenues in Mexico. The triple-play-service is the same as the bundled services that Comcast and Time Warner cable offer here in the U.S., where customers can purchase their TV, phone and internet service all from a single provider.

What's the feud all about?
Televisa has long been the top content provider for Univision's television network and in 2006 was in contention to acquire the Spanish broadcaster. A group of private equity firms including Madison Dearborn Capital Partners and Saban Capital Group stepped in and ended up winning the bid for Univision leaving a stunned Televisa out of the running. However, even prior to the lost acquisition attempt Televisa had filed suit against Univision claiming unpaid royalty fees for its programming. An upcoming court date was recently pushed back until July. A win for Televisa could be huge since it could then offer its programming for higher prices to Telemundo, Univision's direct competitor in the US.

Televisa is a major component of the exchange-traded fund iShares MSCI Mexico Index Fund (PSE:EWW) which is up approximately 10% year to date. Other Mexican based companies' investors should consider including wireless provider American Movil (NYSE:AMX) and fixed line provider Telefonica (NYSE:TEF). Other notable Televisa holders include Cascade Investments, Bill Gates' investment vehicle, and the Davis Selected Advisers fund managed by value investor, Chris Davis. (To read more about big players, check out The Pros And Cons Of Institutional Ownership.)

Content is King
Televisa's mixture of programming, publishing and pay-per-view content make it the clear leader in Spanish media content. While the pending court case will have serious implications for how Televisa does business in the U.S., the world is proving to have an appetite for Televisa telenovelas and more of its Spanish cultural content.

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