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Televisa: Wait a Minute, I've Seen This Show Before


Back in the 1970s, Mexican families used to settle down in the evenings to watch The Kid at No. 8. The TV comedy about an orphan boy and his eccentric working-class neighbors was so successful it was exported to the rest of Latin America. Now, a new generation of Mexican children, along with their nostalgic parents, is tuning in to el chavo's slapstick antics.

Mexicans will soon be treated to many more reruns. Grupo Televisa (TV), the country's No. 1 broadcaster, recently announced that it will limit new programming to prime time and rely on old standbys to fill much of the schedule on its four networks. That's a surprising turnaround for the world's largest Spanish-language media conglomerate and one of the most prodigious producers of television content. Televisa churned out 47,000 hours of programming last year. But now, with the Mexican economy decelerating fast, the $2.16 billion company is having to put the brakes on spending. Analysts at Deutsche Bank Securities predict that Televisa's operating cash flow will dip to $612 million this year, from $627 million in 2000.

Faced with a slump in advertising revenues, Televisa has embarked on a $60 million cost-cutting drive. The media giant has cut 750 jobs out of its total 14,600 workforce, closed two studios, and shut down its all-news channel, ECO. "The market was expecting advertising growth in the range of 10% to 12%," says Jean Charles Lemardeley, Latin America media analyst at J.P. Morgan Chase in New York. "Expectations were reduced very sharply."

The stagnant ad market is one of the reasons Televisa's stock price has languished. On the New York Stock Exchange, its global depositary shares are now trading at around $39, way off their 52-week high of $75.63 in early July.

With a 75% share of the Mexican prime-time market, Televisa is in an enviable position at home. But if it is to boost revenues over the long term, the media conglomerate must recharge its strategy. The performance of its radio, publishing, and recording businesses, which account for nearly one-third of sales, has flagged. That's despite pledges to turn them around from 33-year-old CEO Emilio Azc?rraga Jean, who assumed the helm after his father's death in 1997. Also, Televisa has yet to cash in on the fast-growing U.S. Hispanic market, where its shows give Spanish-language broadcaster Univisi?n Communications Inc. an 87% prime-time share. "They have to look at international expansion or expansion outside the core [business]," says Chris Hussey, Latin America media analyst for Goldman, Sachs & Co. in New York.

Some analysts suggest that Televisa might be better off selling majority stakes in its underperforming businesses and concentrating on its main strength: TV programming and broadcasting. "I think that would make them better prepared to face global competition," says Pablo Burbridge, Latin America media analyst at Salomon Smith Barney in New York. Yet Televisa executives say they can still turn around the other divisions.

TENSE TALKS. Azc?rraga Jean had hoped to double TV revenues by 2004 by hiking Televisa's ad rates, Now he's looking for other ways to bring in cash fast. Univisi?n, in which Televisa owns a 6% stake, is preparing to launch a second network and will need more programming. Azc?rraga has seized the opportunity to press Univisi?n's owners to renegotiate their licensing agreement. Televisa currently supplies loads of programming in return for a paltry 9% of Univisi?n's advertising revenues.

Although Televisa executives say they expect to reach an agreement with Univisi?n by July, the talks are sure to be tense. The prize is rich: Ad spending directed at the U.S. Spanish-language market reached $2.4 billion last year, vs. $2.7 billion in Mexico. But without a lift in its core Mexican business, Televisa's results will look as tired as some of those reruns. By Elisabeth Malkin in Mexico City


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