Proposal to Create Third Television Network Meets Resistance

SourceMex Economic News & Analysis on Mexico, January 10, 2007 | Go to article overview

Proposal to Create Third Television Network Meets Resistance


The US-based Spanish-language television network Telemundo has filed an application to set up operations in Mexico, but the two existing broadcasting giants, Televisa and TV Azteca, are blocking the proposal to establish a third major network south of the border. The effort to create a new network in Mexico is led by Mexican billionaire Isaac Saba Raffoul, a partner in Telemundo. Joining Saba in the bid is US network NBC, which owns a major share of Telemundo. US corporate giant General Electric (GE) has a controlling interest in NBC and is ready to offer its resources.

Telemundo and Grupo Xtra, a textile company affiliated with the Saba family, filed the formal application to create a network in Mexico in September 2006. The Comision Federal de Telecomunicaciones (COFETEL) and the Secretaria de Comunicaciones y Transportes (SCT) have not acted on the application, but critics say Televisa and TV Azteca are doing whatever they can to thwart the creation of a competing network.

Lucrative advertising market in play

At stake is control of the lucrative television advertising market, about 75% of which is in the hands of Televisa. In recent years, broadcasters have obtained about 26 billion pesos (US$2.37 billion) in advertising revenues annually from free television. The total was almost certainly higher in 2006 because of the tens of millions of pesos that the various political parties paid for television advertisements, the government's anti-monopoly agency (Comision Federal de Competencia, CFC) said in a report released in November 2006.

A study by Grupo Financiero Ixe said a third network could take away about 5% of the combined revenues for Televisa-TV Azteca in its first year. Still, the losses for Televisa and TV Azteca would not be as significant in the long run, with television advertising expected to grow steadily in the coming years.

The Mexican government has forecast expenditures on television advertising to grow by 3.5% annually through 2010. The private accounting company Price Waterhouse Coopers is even more optimistic, projecting a growth of 11% in each of the next three years. The latter study projects growth rates of 9.3% for expenditures on free television and 32.6% for cable, satellite, and other restricted media.

The optimistic projections are based on the growth potential for the advertising industry as a whole. In Mexico, advertising represents only 0.5% of GDP, compared with 1.59% in Brazil and 1.89% in the US, said a recent study by Global Entertainment and Media Outlook.

"We do not know how many more television stations the Mexican market can accommodate," said Ricardo Rubio, president of the Confederacion de Industria de la Comunicacion Mercadotecnica (CICOM). "What we do know is that Mexico invests relatively small amounts on commercial communications relative to other countries."

Televisa and TV Azteca have a history of using their influence to gain favorable treatment from the Congress and from federal regulators. This was especially evident during the debate on a new broadcast law (Ley Federal de Radio y Television, LEFERYT) in April 2006, when Congress approved an initiative that basically consolidated control of the airwaves to the two largest networks (see SourceMex, 2006-04-05).

That law created a public uproar that has increased pressure on Congress to open up competition in the television and radio markets. "There has to be at least one more open television channel," said CFC president Eduardo Perez Motta.

Publicly, the two networks have declared that they are ready and willing to welcome a new competitor. "Televisa has competed historically and competes every day in all of its businesses," said Televisa official Manuel Compean.

Existing networks try to discredit possible competitor

But critics say the two networks are engaging in a subtle campaign to discredit Grupo Saba and General Electric.

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