Televisa Leans on Subscribers as Regulation Restrains Growth

Grupo Televisa SAB is counting more heavily on reaping profits from its cable and satellite customers after new regulations forced it to give away programming to competitors for free.

Operating profit rose 6.6 percent to 5.77 billion pesos ($440 million) in the first quarter from a year earlier, leaving out depreciation and amortization, according to a statement yesterday. That fell short of the 5.91 billion-peso average of analysts’ estimates compiled by Bloomberg. While the satellite business continued to grow, adding 139,000 subscribers, it was shy of the 148,000 average estimate.

Sky’s expansion is slowing after four straight years of more than a million additions each, compounding a decline in revenue from licensing fees for Televisa’s broadcast networks. Thus far that’s been enough to keep operating profit growing despite the regulations, which have required Televisa to offer its two most popular broadcast channels to other cable and satellite companies for free since September.

“In the case of Televisa the two main drivers, which are Sky and telecom, particularly Cablevision, still contribute to growth and somewhat make up for the regulation in over-the-air TV,” Valeria Romo, an analyst with Banco Monex SA, said in a phone interview. She advises selling the shares.

Televisa shares gained 1.5 percent to 85.55 pesos at the close in Mexico City trading. The shares have increased 8.7 percent this year.

The Mexico City-based company, which gets about 70 percent of the nation’s broadcast-TV viewers, said pay-TV network revenue fell 21 percent to 688 million pesos as the must-offer rules took a toll.

Advertising Sales

Advertising sales climbed 8.2 percent to 4.55 billion pesos, lifted by a rebound in government and corporate spending. Televisa may soon face more competition in that business as well, as the government prepares to auction two new broadcast channels next year.

That’s forcing the company to look for new areas of growth, such as creating programming for others. Televisa, the biggest producer of Spanish-language TV content, is currently in negotiations to develop exclusive content for streaming-video provider Netflix Inc., said Jose Baston, Televisa’s president of television and content, in a conference call with analysts today.

Iusacell Savings

Tougher regulatory scrutiny continues to loom over Televisa. Under a proposal by President Enrique Pena Nieto, the company’s broadcast networks will have to publish their advertising rates and stand by them regardless of who the customer is.

Other parts of Pena Nieto’s bill could help the company. Already, fee cuts ordered by Mexico’s Federal Telecommunications Institute are cutting mobile-phone unit Grupo Iusacell SA’s costs by 200 million pesos a year, Executive Vice President Alfonso de Angoitia said on the call today. Pena Nieto has proposed even more reductions to mobile-phone fees. Televisa owns 50 percent of Iusacell, with billionaire Ricardo Salinas controlling the rest.

Televisa’s total first-quarter sales climbed 9 percent to 16.9 billion pesos, compared with the 16.8 billion-peso average of eight analysts’ estimates compiled by Bloomberg.

Net income fell to 854 million pesos, or 30 centavos a share, from 1.07 billion pesos, or 38 centavos, a year earlier. Last year’s profit included a gain of 370 million pesos from licensing rights.

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