Photographer: Susana Gonzalez/Bloomberg

Televisa Takes Page From U.S. to Cash In on Viewership Gains

  • Viewership at flagship network up 40 percent from year ago
  • New ad sales strategy seen lifting revenue next year: analyst

Grupo Televisa SAB is making a comeback, with ratings up 40 percent at its flagship network so far this year. Now, the Mexican media giant wants to cash in.

Starting later this year, the world’s largest Spanish-language broadcaster will sell TV commercials the same way they are sold in the U.S., a move that could help the company capitalize on recent viewership gains.

The plan could help restore some luster to Televisa shares, which have underperformed the market as the company adapts its programming and advertising pricing to a more competitive landscape, with new threats from online services such as Netflix and YouTube. A decision two years ago to charge advertisers a uniform, higher rate -- instead of relying on one-time discounts to close deals -- backfired, with some customers choosing to take their business elsewhere.

Now Mexico City-based Televisa plans to make another change, this time to its traditional practice of fixing TV commercial prices based on viewership in time slots from the year before. That protected the company if ratings declined. But if ratings went up, as they have this year, advertisers got a bargain: they didn’t have to spend as much to reach the number of viewers they wanted to target.

As a result, Televisa’s ad revenue fell 9.8 percent in the second quarter of this year and 8 percent in the first quarter -- even as viewership has grown. The sluggish ad sales have frustrated investors. Televisa shares are down about 11 percent over the past 12 months, compared with a 4.1 percent gain for Mexico’s benchmark IPC index. Shares fell less than 1 percent to 87.90 pesos at 12:17 p.m. in Mexico City trading Wednesday.

Under the new plan, Televisa will set prices by guaranteeing a certain amount of people will see a commercial. If ratings go up, the broadcaster will be able to deliver those guaranteed audiences with fewer spots, leaving more inventory to sell to other customers and boosting revenue.

“That will benefit Televisa some more in the near term when the ratings are doing better,” said David Joyce, an analyst at Evercore ISI.

The new ad strategy also poses a risk because Televisa will start providing guarantees to advertisers. If Televisa’s doesn’t deliver the audience it promised, the company will have to give away free commercial time, which could hurt ad revenue.

“What’s worrying is that this won’t necessarily translate into better sales in the short term,” said Carlos de Legarreta, an analyst at Grupo Bursatil Mexicano. “It’s an important change in strategy that’s in line with what the new management is doing -- but in my opinion, it doesn’t guarantee a business turnaround.”

Still, it’s a risk that Televisa is willing to take because it believes its new programming strategy, under the leadership of Isaac Lee, will boost viewership. Lee, who took over as head of content in January, has replaced seven Televisa executives who report to him and introduced methods common in the U.S. to learn what viewers want.

For instance, Televisa is testing shows on social media before they air on TV, creating focus groups and hiring consultants to ask viewers if they’re interested in particular storylines. It’s also promoting shows more often on other Televisa-owned platforms, like radio and magazines. And it’s producing shorter shows with faster-moving storylines. So far, Televisa’s new strategy has been confined to its flagship Channel 2.

“We are now instituting a data-driven approach to everything we do,” Carlos Madrazo, head of investor relations at Televisa, said in an interview. “It is a massive culture change.”

The changes are starting to pay off. From mid-July to mid-September, 28 of the top 30 shows on Mexican television were produced by Televisa, according to Nielsen data. The other two programs were soccer matches that aired on the networks of its rival, TV Azteca SAB. The top Televisa show was a biographical series about the Mexican singer Lupita D’Alessio, who struggled with drug addiction -- another example of how Spanish-language TV is moving away from the traditional telenovela format.

Some advertisers have left Televisa to go to Azteca, which has been selling advertising at a discount, according to Joyce of Evercore. But he expects the changes that Televisa is making to its ad strategy will boost ad revenue “in the low single digits” next year.

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