Empire Building: The Slow Track

A multimedia mogul pieces together a conglomerate

Gustavo A. Cisneros is a collector. There's his famed collection of modern Latin American art, and his collection of Amazon Indian artifacts, currently on display at a Bonn museum. Then there are his homes: a Colonial era coffee-estate in Venezuela, a townhouse on New York's tony Upper East Side, and a seaside retreat in the Dominican Republic.

But this Venezuelan tycoon's true passion is collecting media companies. "I envision a future where we have a terrific stable of savvy, sophisticated brands woven together through a convergence of technologies," says the 55-year-old chief executive of the Cisneros Group of Companies (CGC), one of Latin America's largest private conglomerates with revenues of $3.5 billion in 1999. Yet Cisneros faces some major hurdles before his vision becomes reality: He's up against tough competition, and some of his key media ventures have serious problems.

CONTENT RESERVOIR. Cisneros has already spent upwards of $1.5 billion over the past five years to turn the sprawling conglomerate built by his Cuban-born father into a multimedia group. Gone are the Venezuelan supermarket and department store chains, along with a lucrative cola franchise. Profitable U.S. businesses, including Spalding Holdings Corp., a sporting goods company, and Evenflo Co., a maker of baby products, have also been sold off. The proceeds from these deals have been plowed into an assortment of broadcast, cable, and Internet holdings, as well as joint ventures with big-name U.S. partners, including the satellite TV division of Hughes Electronics Corp. and Internet behemoth America Online Inc. The deals give Cisneros a deep reservoir of content plus the pipes to deliver it. "We will be the leading multimedia group in Latin America," he says.

That's quite a claim. After all, Cisneros is not the only media baron with designs on the region's nearly 500 million-strong market. Latin America has its share of homegrown giants, including Grupo Televisa in Mexico and Globo in Brazil, and is also attracting international titans such as Rupert Murdoch. One of the region's main draws is the explosive growth in Internet usage. According to research firm IDC Corp., 29 million Latins will be online by 2003, up from just 8 million last year.

Yet analysts warn that there is room for only a handful of big players. "The advertising market is $3 billion to $4 billion, so sharing that among plenty of [Internet] portals makes it a pretty small market, and the e-commerce stream is going to take time," says Jose M. Linares, Latin America media analyst at J.P. Morgan & Co. in New York.

Eager to stake his claim on the Latin Web, Cisneros jumped at the chance of becoming AOL's partner in the region. In December, 1998, the two established a 50/50 joint venture, with Cisneros putting up all of the startup capital--$135 million so far. Yet AOL Latin America Inc. has been plagued by problems from the start. Its star-studded launch parties in Brazil, Mexico, and Argentina have grabbed headlines. But so too have embarrassing missteps, such as the distribution of some 500 faulty software CDs in Brazil. "The technical problems were really exaggerated by the press," says AOL International Director Michael Lynton.

Maybe so. But there's no arguing that AOL's Latin expansion has been progressing at a snail's pace. The venture launched service in Brazil in November. Yet it took eight months for the partners to roll out to Mexico. "AOL is very American in thinking that their brand name will carry them outside the U.S.," says Greg A. Kyle, president of Pegasus Research International in New York. Indeed, although AOL remains the leading Internet service provider at home, it trails rivals in Latin America, including Terra Networks, the Internet arm of Spain's Telefonica.

In Brazil, AOL recently was cut down to size when the national advertising council ruled on Aug. 18 that the company must cease using the slogan "the biggest because it's the best." That title, at least in Brazil, rightly goes to a local, Universo Online, or UOL, which claims to have 760,000 subscribers, compared with AOL's 130,000.

AOL's travails in Latin America, along with the inauspicious climate for tech stocks in the U.S., have taken their toll. An initial public offering of AOL Latin America shares on the Nasdaq finally went ahead on Aug. 7 after repeated delays. But not before the offer price had been slashed to $8 per share, from an initial range of $15 to $17. The IPO raised $200 million, but the stock has been flat, trading at $7.

At that rate, it may take years before Cisneros sees a return on his investment in AOL Latin America. Then again, this is a man with a great reserve of patience. Five years after it was first launched in 1995, Galaxy Latin America, the satellite TV service run by Hughes Electronics, remains a money loser. Two of Galaxy's original founding members have since bailed out, but not Cisneros. He still holds a 22% stake in the venture into which he has sunk $380 million. Such tenacity has impressed Galaxy chairman Kevin N. McGrath. "They believe very strongly that if they decide to do something, they do it and do it to win," he says of Cisneros and his crew.

Victory, however, is not yet in sight. Some 17 million households in Latin America have some form of pay TV. But only 1.1 million are Galaxy subscribers. To make its service more competitive, Galaxy has slashed the installation fee to $100 and brought monthly charges in line with those of cable companies. Still, Marc E. Nabbi, a satellite communications analyst at Merrill Lynch & Co. in New York, figures that Galaxy won't become profitable until it reaches the 3 million-subscriber mark, which will probably not happen until 2003.

Well-placed sources say Galaxy may go public before that. Cisneros, meanwhile, does not rule out joint ventures with competitor News Corp.'s SkyTV in some countries. "We're friends," he says of News Corp.'s Murdoch. "We're always talking."

Cisneros certainly isn't shy about whom he pals around with. The reception area of his Caracas office is wallpapered with photos of him with royalty, heads of state, Hollywood celebrities, and business tycoons. "Gustavo knows everyone," says AOL's Lynton. "If you want to talk to the president of a corporation or the president of a country, it's a phone call away."

Thanks to his connections, as well as his large stable of media properties, Cisneros is in many ways an ideal partner. Roberto Vivo-Chaneton, the chairman of El Sitio, a Buenos Aires-based portal in which Cisneros holds an 8% stake, says that he's talking with CGC's programming arm about showcasing two of its music channels on his site. And AOL Latin America plans to have stars from popular soap operas produced by Cisneros' Venevision network take part in online chats.

There are more big plans. Pointing to the paintings and sculptures that line the halls of his Caracas offices, Cisneros confides that he is soon planning to take his extensive collection of Latin American art public: "We've just signed an agreement to show them on the Internet," he says. High art on the Net, earthy soaps on satellite: Clearly, Cisneros has a thing for mixed media.

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