UNIVISION STOCK PLUMMETS AS NEW RIVAL PREPARES TO LAUNCH IN U.S.

News that a third Spanish-language television network will launch in the United States sent shares of industry behemoth Univision Communications Inc. of Los Angeles plummeting on Sept. 7, the day after the announcement.

But while upstart Azteca America Inc. took a quick bite out of its competitor's stock price, it will likely take much longer before the network, which will launch in L.A. next year, begins eating away at Univision's market share.

"What (Azteca is) doing makes sense," said David W. Miller, entertainment and media analyst for Sutro & Co. "But it's going to take a long time for them to match the reach that Univision currently has."

Azteca America, a joint venture between TV Azteca S.A. de C.V., the No. 2 Mexican television network, and Pappas Telecasting Cos., the largest private owner of TV stations in the United States, expects to fully launch its network of 13 stations by the second quarter of next year. In Los Angeles, Pappas has acquired Channel 54 and is currently negotiating for a second station, although only one of the two will likely be assigned to the Azteca America network, officials said.

Azteca America will import much of its programming from TV Azteca, an arrangement that gives the startup a low-cost alternative for program development because the shows are produced at TV Azteca's expense and Azteca America can cherry-pick those that attract the largest viewing audiences in Mexico. The arrangement mirrors what Univision has done with its Mexican affiliate, Grupo Televisa.

"Think of all that avoids, compared to the context of what English-language broadcasters face," said Harry J. Pappas, chairman and chief executive of Azteca America. "We know that (in the English-language marketplace), you put 10 shows on the air and you're lucky if three work. By contrast, in essence, Mexico is a low-cost production center where the risk is washed out of a show."

In addition to selections from about 9,500 hours of original programming produced at the Mexican network, Azteca America plans to include a range of news and sports programming in its lineup. The network will broadcast about half of Mexico's soccer league games, programming that was previously sold to (and aired in the U.S. by) Telemundo Network, the country's No. 2 Spanish-language network.

Advertisers welcome new entrant

Although Univision commands about 90 percent of the Spanish-language viewing audience in the U.S., many industry observers believe there is room for a third Latino network, even in Los Angeles where there are currently four Spanish-language television stations. (Those stations are independent channels KWHY-TV Channel 22 and KJLA-TV Channel 57, along with Univision's KMEX-TV Channel 34 and Telemundo's KVEA-TV Channel 52.)

"From an advertiser's perspective, we welcome a new vehicle," said Karen Treydte, executive media director at Conill Advertising Inc., the Torrance-based ad agency that handles Latino advertising for Toyota and other clients. "In the Spanish-language media world we have far fewer options relative to what the English-language stations have."

The four existing Spanish-language stations in Los Angeles have also left a number of gaps in programming for a newcomer to fill, said Carlos Garcia, president of Garcia Research Associates Inc., a market research firm that specializes in the Latino market.

"I'm hearing consumers beg for educational shows, nature shows different kinds of programming that reflect the realities of life here," Garcia said. "I think there are a lot of areas which (the other networks) have been happy to abandon to general market TV."

Perhaps with those market dynamics in mind, Wall Street implicitly acknowledged the legitimacy of the startup last week when shares of Univision dropped more than 6 percent to $40.38 a share on Sept. 7.

But Azteca America still faces a number of hurdles before it can successfully penetrate the U.S. market.

"A lot of folks are scared that Univision finally has some formidable competition," Miller said. "You can call it competition, but to call it 'formidable,' I don't think so."

For one thing, Azteca's 13 stations will pale in comparison to Univision's 19 television stations, 33 broadcast affiliates and 1,100 cable affiliates.

Filling in the markets

The new network will have to acquire enough programming to run a 24-hour operation. And Azteca America will have to command enough viewers to compete with the vast number of options that advertisers currently have, particularly in Los Angeles, where there are numerous Spanish-language radio stations and many well-established print publications in addition to the four TV stations.

Finally, the network has yet to acquire stations in two key markets, New York and Chicago, and onlookers point out that properties there are expensive and in short supply.

Pappas said he is currently negotiating with three parties in New York and two in Chicago, and he is confident that the network will be able to acquire stations in those key markets.

He also points out that, in a sense, Azteca has already shown its mettle competing against Univision because the programming to be aired has been airing in Mexico for years, head-to-head with Univision programming. Although Univision still dominates the Mexican television market, TV Azteca has built a 37 percent share of the prime-time viewing audience in the seven years that it has been in operation south of the border.

"I think it's fair to say that, if we let TV Azteca take the programming risk and pick the best of what they've got, we've got to be able to do at least a 20 or 25 percent share of the viewing market here," Pappas said.

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