Since his days as a Hollywood talent agent, 75-year-old A. Jerrold Perenchio has a history of great timing in business deals.
His biggest success may have come with the announcement this week of the potential sale of Univision Communications, the Spanish-language media conglomerate he controls.
That's because the U.S. Latino audience is moving steadily from Spanish to English in its media habits. As far back as 2003, when the Century City-based Univision merged with radio firm Hispanic Broadcasting, FCC Chairman Michael Powell rejected the idea that Univision could have a media monopoly by noting that "Spanish-speaking Americans spend a majority of their viewing and listening time with English-language stations."
So far, the language shift hasn't hurt Univision's fortunes. The company reported 2004 revenues of $1.7 billion, and expects "high single-digit" growth when it reports 2005 totals on March 2, according to guidance from the company. Following the announcement of the company's possible sale its stock price jumped 14 percent. The market currently values Univision at more than $10 billion.
But last year Leland Westerfield, a stock analyst at investment bank Harris Nesbitt, calculated that in 2009, the population growth of second-generation Hispanics would pass that of first-generation immigrants, the mainstay of the Spanish audience. As a result, "we are in the golden age of Hispanic mass media in this decade," Mr. Westerfield said. "In the next decade, when bilingualism takes hold more and more, we will probably see a proliferation of cable networks and Internet media tailored to a more fragmented Latino population, fragmented by culture and linguistic differences among generations."
Language fragmentation poses a big challenge for Univision. In her book, "Latinos Inc.: The Marketing and Making of a People," Arlene Davila, associate professor at New York University, reports that Univision refuses English-language ads and prefers a generic Spanish rather than the Mexican, Cuban, or Puerto Rican variants spoken by its audience segments.
Mr. Westerfield concludes that "for Univision in this decade, the opportunity is to invest not only in winning over brand marketers to the Hispanic media environment, but also to invest in the programming to bilingual Hispanics in the coming decade."
In the simplest terms, Perenchio may be cashing Univision out of the Spanish-language broadcasting business at its absolute peak. It's advertising revenues have never been stronger and the network's ratings place it behind only ABC, CBS, Fox and NBC, according to Nielsen Media. The broadcast of this year's World Cup soccer tournament, the most popular sporting event among Latinos, should only solidify that standing.
The parent companies of three of the major U.S. networks Fox's News Corp., CBS's Viacom Inc., and ABC's Walt Disney Co., have all been mentioned in media reports as potential partners, as have Time Warner Inc. and the giant Mexican conglomerate Grupo Televisa.
The catalyst for Univision's potential sale came when its rocky business marriage with its Mexican supplier Televisa landed in divorce court. Televisa, which produces nearly all of Univision's primetime novela programs and is a minority shareholder in Univision, filed claims on January 31 in Los Angeles, alleging that Univision is in "material breach" of the program license agreement (PLA), giving Televisa the legal right to cancel the deal.
The PLA extends until 2017. However, rapid growth of the U.S. Hispanic TV audience and rising ad rates have left Televisa feeling shortchanged. In May 2005, Televisa CEO Emilio Azcarraga Jean resigned from the Univision board, and later that month his company sued. In response, Univision claimed "bad faith" from Televisa in supplying and promoting programs in the U.S.
The spat has years of history. Azcarraga Jean has made no secret of his desire to dominate the U.S. Latino market, and controlling Univision the company his grandfather founded 45 years ago would go a long way towards realizing that goal.
The latest move by Televisa marks the first appearance of the "material breach" claim. Given the insignificant sums involved Televisa says it's owed $1.5 million, while Univision believes it has overpaid by $5 million the core dispute circles around whether to continue or terminate the PLA. That 1992 pact was the result of the alliance forged by Perenchio, Azcarraga Jean and Brazil's Venevision to acquire Univision from Hallmark Cards Inc.
For Univision, the strategic considerations loom tall. According to Census data, 63 percent of the U.S. Hispanic population traces its cultural heritage to Mexico, so access to hit shows from that country at low cost gives Univision a dominant competitive advantage in the U.S. Spanish-language TV market. Univision has produced its own programs with some success, but not in the genre of dramatic novelas, often called soap operas. A 2005 report from Tapestry, a unit of advertising agency Leo Burnett, states: "The king of novela programming is Mexican television producer Televisa. Univision is the king of delivering top-rated novelas within the United States."
The report concludes that during the 2004-2005 TV season, "almost four-fifths of the top-rated programs ... were novelas. Of these novelas, all belong to Televisa."
In answer to Televisa's latest court papers, Univision filed a statement with the Securities and Exchange Commission stating that it "emphatically disagrees with Televisa's characterization of its claims and will take all necessary action to ensure Televisa's continued performance under the programming license agreement until its expiration in 2017."
Televisa reported fiscal-year 2004 revenues of $2.6 billion.
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