Azteca America: New Accent on Hispanic TV

June 22, 2007

By Alex Ryshawy, Research Director. Mission Capital Group

In the latest of an exclusive HispanicBusiness.com feature, "Conversations," Alex Ryshawy, research director of Mission Capital Group, talks with Luis J. Echarte, chairman of Los Angeles-based media company Azteca America, a wholly owned subsidiary of Mexico's TV Azteca.
Q. What is your current view of the U.S. Hispanic TV market?

A. We are very optimistic its growth potential. We believe the market has nowhere to go but up, and that it will continue to outpace the performance of the general TV market. The main reason is that while Hispanic-focused advertising continues to rise, it still lags the growing spending power of the community. Hispanics account for 8 percent of total consumption in this country – but less than 2 percent of total advertising spending is allocated to this demographic.

Meanwhile, at Azteca, we're continuously improving our performance. We recently scored a major ratings coup with the Mexican Soccer league final (aired live on May 27). Although the U.S. is still not considered a "soccer nation," the Mexican Soccer League is changing things. Among male audiences aged 18-34, the Pachuca vs. America final match, which ran exclusively on Azteca, notably beat out many national U.S. pastimes – including the NBA Western Conference Finals, NASCAR, the Indy 500 and Major League Baseball on ABC and FOX.

Azteca's Mexican soccer coverage dwarfs that of other U.S. Hispanic networks. We air half of all the games, the equivalent of all the games that the next three networks show combined (Univision, Telefutura and Telemundo).

Q. What is Azteca America's market positioning?
A. We finally reached network status (as measured by Nielsen) last year, and are now viewed as the fourth major Hispanic broadcast TV network in this country, after Univision, Telemundo and Telefutura. At present, we have an approximate 5 percent share of the U.S. Hispanic TV ad market, and our goal is to reach 15 percent to 20 percent by 2012. In the next few years, we expect to benefit from overall market growth – the U.S. Hispanic TV ad market is expanding by approximately 10 to 15 percent annually – as well as from increasing market share.

Although many smaller cable and regional TV networks have seen significant growth, their limited market coverage and programming limitations prevent them from competing directly with the major broadcasters, especially when it comes to attracting blue-chip advertisers. It's expensive to provide quality programming on a 24-hour basis. Luckily, we're able to tap the large inventory of high-quality programming from our parent company in Mexico. TV Azteca invests about $300 million each year to produce 14,000 hours of programming, which lends us a strong advantage as we look to compete in the U.S.

The good news is that the Hispanic TV market is growing strongly overall, which benefits all the players, both large and small.

Q. How has the market responded to having a new Hispanic TV network?
A. At the beginning, we knocked on a lot of doors and spoke to many different advertisers and agencies to introduce them to our product. Since then, advertisers have been interested in speaking with us, simply because we offer more variety and options when it comes to placing their ads. We measure our success by the network's large and growing number of repeat clients – customers that have had a positive experience advertising with us and that are coming back.

The fact that Nielsen boosted us to national network status has also been very positive, and opened up new doors to many clients that required national coverage before they could advertise on our network.

Azteca America: New Accent on Hispanic TV

Q. Have you had to adapt your programming strategy for the U.S. market?
A. Yes, definitely. We've modified our programming strategy from the outset, since the U.S. Hispanic market has different tastes and a different rhythm than Mexico. On the plus side, given Univision's history and its heavy use of programming from Televisa (the leading Mexican broadcaster), the U.S. Hispanic market is very used to Mexican accents and types of shows. But we soon realized that we needed to edit our successful Mexican telenovelas to make them suitably fast-paced for a U.S. audience. In addition, to boost our appeal to a wider cross-section of Latinos, we've added telenovelas from other South American countries and – in larger cities – tweaked our programming line-up to better fit the local Hispanic demographics. Azteca even hires U.S. Hispanic commentators for its Mexican Soccer League games (rather than using local Mexican announcers), guaranteeing an engaging mix of styles and accents.







Of our total U.S. programming, we currently produce roughly 1,000 hours (or 25 percent) exclusively for the U.S. market. The remaining 75 percent comes from our Mexican parent.

Q. How were the recent TV "upfronts," when advertisers see the coming season's shows for the first time?
A. This year, we arrived with a very exciting programming line-up for the new season. Shows include "El Premio de La Gente," "Bienvenido a Casa," a new entertainment show from Las Vegas, "Billboard Latino," and a new season of "La Academia" and "Suegras II." Meanwhile, in sports, we have signed several new boxing and Ultimate Fighting Championship events to complement the soccer line-up. Finally, a deal that we recently signed with Discovery en Espaņol promises an entertaining range of children's programming. As a result, we expect ad commitments from the upfronts to be 30 percent higher than last year.

Q. Any new future plans regarding the network or your coverage?
A. From the beginning, our plan has been to focus on building a network while relying on local partners to become affiliates that own and operate the stations in different markets. To be sure, it makes sense for Azteca to operate at least one station: That way, we'll have a direct, hands-on link with the marketplace. Our Los Angeles station – which we operate through a lease marketing agreement (LMA) – is located in the number one Hispanic market in the country, and helps us to stay in touch with the US Latino community.

As for our affiliates, we have great partners who have shown a deep commitment to helping develop the brand. They've invested a significant amount of time and money to develop a strong local presence for us in each market. In general, we have four large affiliate groups that own and operate the majority of the stations in our 57 markets– Una Vez Mas, McGraw-Hill, Bustos Media Group and TVC Broadcasting. These stations allow us to cover 89 percent of the U.S. Hispanic population, and we plan to continue adding more markets in the future. Our affiliate agreement with Pappas Telecasting ends on July 1 for Houston, Sacramento and San Francisco, but we anticipated this move and have new stations ready to go at 12:01 am on July 1.

Beyond this, we have cable and satellite carriage with Cox, Comcast, Time Warner, DISH and DIRECTV, and will soon be announcing a deal with another national cable operator.

In management, we recently hired Bob Turner, a respected and experienced veteran from Interep, the largest independent radio "repping" company in the country. Already, he has done a great a job of restructuring our sales force to grow with our expanding business. To head up our marketing efforts we've brought on Karen Davis, who boasts a strong track record with the NBA, Telemundo, MTV and Cinecanal. Both Bob and Karen are working well with our CEO, Adrian Steckel, and we look forward to introducing other talented, top-drawer managers to our team.

Q. What are your plans for the Los Angeles market?
A. We're currently operating a station from Pappas Telecasting under an LMA (local management agreement) contract, which gives us operation until January 2009. In case we decide not to renew the LMA with Pappas, we're considering other alternatives. Regarding distribution, it will be interesting to see how the landscape changes with the transition to digital and high definition, and the ensuing introduction of more channel options. (The transition is currently scheduled by the FCC for February 2009). Our view is that with the increase in distribution alternatives, content will become even more valuable.
Q. Are you on track to achieve your financial targets for this year?

A.Yes. We grew revenues 29 percent in 2006, and are estimating a 30 percent revenue increase this year, with attractive margins. At Azteca, we feel that we are just beginning to hit our stride: Given our strong coverage and quality programming, we expect to be able to enjoy double digit sales growth for the foreseeable future given our strong coverage and quality programming.


 Source: HispanicBusiness.com (c) 2007. All rights reserved.