Pay Tv Goes South

David Kahn marvels at the attention he and others from Latin America got during a recent cable-TV conference in Miami. His family owns a 60,000-subscriber system in five Mexican cities, including Acapulco and Cuernavaca. "It's kind of startling," he says. "We used to come to conventions, and no one wanted to talk to us. Now, everybody asks us to dance."

Not just dance, but salsa, samba, and tango. From Mexico City to Buenos Aires, households with pay TV are suddenly inundated with new programs from the U.S. and South America. If it's not NBC Noticias, the U.S. network's 24-hour Spanish-language news show, then it's Fox Latin America Channel, beaming its hit show Cops dubbed in Spanish and Portuguese. MTV launched MTV-Latino on Oct. 1, aiming for the region's teen audience. And soon, Mexico City viewers will be able to order clothes and jewelry from a Spanish-language version of home-shopping channel QVC. These are among a dozen new cable programs announced this year alone (table). In cable and broadcast television, says Tara Devlin, an associate at analysts Kagan World Media, "Latin America is an emerging giant."

What's drawing newcomers is a dynamic market combined with new opportunities spurred by deregulation and technology. As Latin Americans emerge from decades of state controls, they are opening their economies to competition and foreign investment. The airwaves are no exception. Digital technology makes it easier to deliver pro- gramming--and advertising. And slow growth in the mature U.S. market has programmers scouring the world for new viewers.

More than 60% of U.S. households and 28% of Western Europe's are already watching some form of pay television. Latin America, by contrast, has only 7.5% penetration. What's more, the region has strong affinities with the U.S. "In Latin America, there's a demand for" televised foreign culture, says Rob Hersov, media group director at Compagnie Financi re Richemont. Richemont, stalking investments worldwide, plunked down $95 million in September for a 33% stake in TVA Brasil, the country's pay-TV leader.

Now, as the region's TV industry scrambles to plug into swift global changes, its thirst for capital keeps growing. And if such alliances as the merger between Bell Atlantic Corp. and cable giant Tele-Communications Inc. touch off a surge of new information-highway investments, TV south of the border will have to follow. Argentine legislators, for example, are already debating a bill to allow up to 40% foreign ownership in cable TV--a business closed to outsiders up to now.

One hub of the Latin TV boom is in Miami, where shows are often conceived and shot. MTV-Latino produces programs there because of Miami's universal appeal to Latin America and the city's pool of bilingual and technical talent. Miami's allure helps sell Guadalupe--a steamy telenovela, or soap opera, made there by Cablevision International Corp.--to 20 countries.

TAILOR-MADE. True, pay TV in all its forms--cable, microwave, and direct-broadcast satellite--accounts for only a fraction of Latin America's 76 million TV households (chart). But programmers are quick to point out to prospective advertisers that pay TV reaches the most affluent households in a region of great economic disparity. The real promise, many believe, lies in advertising that cuts across borders--a one-stop buy for companies that target Latin consumers. That's a juicy prospect for some multinationals. Coca-Cola Co., for example, is a pan-regional advertiser on MTV-Latino, ESPN, and TNT-Latin America.

What's more, programmers will eventually offer advertisers a two-for-one deal: Buy a spot on Latin American TV, and we'll offer a shot at the U.S. Hispanic market, as well--Miami or New York, say. MTV is already selling time on two continents, aiming to reach by yearend some 750,000 U.S. Hispanic households via MTV-Latino.

On the broadcast front, one of the two largest U.S. Spanish-language networks, Telemundo Group Inc., this year began beaming telenovelas such as Tres Destinos and other programming to 17 Latin American markets. To lure sponsors, Telemundo lets advertisers customize for local markets. It holds open a two-minute slot for big buys, which it sells to multinational advertisers to air either the same commercial in the entire region or drop in different local spots. Eastman Kodak Co. is an early advertiser on Telemundo's Latin American network, mostly for local commercials. The savings can be considerable--up to 40% less than buying individual markets.

Paving the way for such deals are privatization and deregulation, which have spawned more broadcast outlets. Chile, for example, now has six stations, up from four in 1990. Meanwhile, Mexico's giant Televisa, which has 90% of that country's TV audience, is also expanding abroad in broadcast. Linking markets, says Larry Dam, president of U.S. subsidiary Univisa Inc., is part of Televisa's grand plan. A major move was its December, 1992, purchase of U.S. Spanish-language network Univision from Hallmark Cards Inc. Partners in the deal included Los Angeles investor A. Jerrold Perenchio and Venevisi n, part of the powerful Cisneros family holdings in Venezuela.

The lure of cable is so strong, however, that even broadcast giants such as Televisa and Brazil's TV Globo are plunging in. Televisa, headed by tycoon Emilio Azc rraga, currently owns 50% of PanAmSat, and in May it teamed up with TCI in a joint venture to pursue opportunities throughout Latin America. The venture owns Mexico City's biggest cable system, with 193,000 subscribers, and is backing the entry of American programmers such as Discovery.

RISKY BUSINESS. Latin America's pay-television phenomenon is drawing in a number of big international investors. Kagan estimates that approximately $375 million, including Richemont's deal, has been poured into Latin American cable and satellite companies in the past six months. Programmers are also spending heavily--anywhere from between $5 million to $17 million, industry insiders figure--to launch and operate Latin American ventures for the first year.

So what's the downside in all this? Plenty. For one thing, there are technical obstacles strewn across the region. More than 90% of operators have built basic cable systems that can't offer segmented programming--basic and premium channels paid for separately.

Finding enough customers for pay TV could also prove more difficult than some of the operators admit. After all, since there are relatively few pay-TV users in these markets, U.S. programming can be expensive--as much as $1 to $1.50 per subscriber. And if Latins decide not to pay for Hollywood oldies such as Cat on a Hot Tin Roof, sinking big bucks into new infrastructure could be high-stakes gambling. Upping the ante still higher are the new wild cards of potential telephone links and interactive systems.

Already, advertisers are fretting that the market is a little wild and woolly, with few reliable ratings or data on viewers. Some pay-TV systems, such as Brazil's TVA, hire independent auditors to verify customer counts.

Even programming has its mine fields. Although some channels are creating new programs, others are simply sifting through libraries. TNT-Latin America, beyond relying on its hoard of MGM movie classics, is exploring acquiring rights to original Spanish-language programs. But in both broadcast and cable, programs from Argentina, Mexico, Spain, and Venezuela are competing for viewers' time. NBC Noticias went up against a particularly crowded market: In Argentina alone, there are five news channels.

"ADD THE SALSA." To bridge the cultural gap, Fox has given a Latin look to the graphics for the existing programming it offers on its Latin American Channel. "Some channels have taken what they have and exported it without special packaging, promotion, or talent," says Concepci n Lara, vice-president at Fox Latin America Channel. "But you have to add the salsa to it."

Mixing the recipe may not be easy. Nely Gal n, a partner in Tropix, which helped create and position the Fox channel, foresees a widening gap between U.S. Hispanics and Latin Americans. Part of the U.S. Spanish-language market--along with its future--is "second-generation, primarily English-speaking Latinos," she says. "Are you able to reach a kid who can barely speak Spanish and an Argentine 17-year-old? I don't think so."

For U.S. TV companies with worldwide ambitions, those are important challenges. In the emerging mosaic of markets, pleasing Latin tastes has to be part of their global plan.

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