Latin America's cablers prep to fight satcaster as market finally improves
MIAMI — If you thought the cable-satellite wars in the U.S. and Europe were tough, brace yourself for Latin America.Cable operators are ramping up digital tiers and adding services to stem runaway piracy, diversify their revenue base — and position themselves against Rupert Murdoch, who has emerged as the Continent’s single solid satcaster thanks to the consolidation of Sky and DirecTV.
And in some key territories, cablers are looking over their shoulders at the telcos, which remain a wild card.
After several years of stagnation and churn, the underlying economies in Latin America have improved, with brighter prospects for pay TV. Estimates for the number of subscribers across the region at the end of 2004 vary from 19 million to 22 million homes.
Signaling confidence in future growth, programming powerhouses like Turner, MTV, Discovery and Fox have rolled out or announced new channels. The digital evolution among cablers is fueling demand for additional content and opening up space on filled-to-capacity analog platforms.
And they anticipate an increase in satellite penetration once the Sky/DirecTV merger is complete.
Latin America was the only region in which Hughes’ DirecTV and Sky — backed by Murdoch’s News Corp., Liberty Media, Mexico’s Televisa and Brazil’s Globo — competed head to head.
News Corp. acquired a controlling stake in DirecTV from Hughes last December after DirecTV’s spending spree on programming rights pushed it into bankruptcy.
“DirecTV was moribund while in bankruptcy” from which it emerged last year, acknowledges Bruce Churchill, prexy of DirecTV Latin America, who is also an EVP of the DirecTV group. .
Shutting down DirecTV in Mexico and Brazil — the popular Sky service will stay aloft — will enable the company to re-deploy refurbished set-top boxes elsewhere at lower prices.
Churchill also anticipates leveraging off Murdoch’s global deal for new boxes as well as Rupe’s plans to introduce digital video recorders in the U.S.
“We compete against cable in the United States and we can do the same in Latin America,” Churchill says.
Premium services also perceive greater opportunities ahead.
One such is LAPTV, a venture formed by Universal, MGM, Paramount and Fox that operates several movie nets and one basic paybox.
“The consolidation of satellite platforms is very attractive because from the start, every subscriber to basic is a potential premium customer,” says LAPTV general manager Carlos Diaz. The merger of Sky and DirecTV invariably ups the pressure on pricing, say programming providers.
At the same time, pay TV may expand into previously untapped demos.
As the upper and middle-class consumer upgrades to digital cable or to a higher end satellite package, “that leaves space for the operators to reprice basic down,” says Pierluigi Gazzolo, managing director of MTV Networks Latin America.Meanwhile, as in the States, cablers are betting on other services to increase revenue and boost their competitive standing against satellite.
Satellite has a limited presence in Argentina, which remains dominated by cable ops Cablevision and Multicanal. They have rolled out broadband Internet connections, offering discounts to subs that take both cable and broadband. Cablevision says it will spend $220 million over five years to digitalize its system so it can offer the vaunted triple-play of telephony, digital TV and Internet.
Brazil too is making advances.
In the region’s largest country with the lowest pay TV penetration — 8% at the end of 2004 — leading cablers Net Servicos and TVA are expected to launch voice over IP services by the end of this year.
Helping drive things along is Mexican telco Telefonos de Mexico (TMX), which came to the rescue of debt-laden Net Servicos, a division of the Globo empire, with a cash infusion in exchange for an equity stake.
Back in Mexico, the bigger cablers are also investing in broadband and digital services and are chomping at the bit to compete with phone services provided via Internet connection but they’re hamstrung by the absence of regulatory approvals and framework to do so.
“There’s a lot of frustration on the part of cable operators,” says Roberto Salermo, VP of sales at Digital Latin America, a Florida-based provider of digital content. Operators like Cable Mas, Cablevision and Megacable blame government foot-dragging on pressure from Telmex, which has expressed interest in offering video, currently prohibited by law.
Even without a clear outlook in Mexico, “everyone is jockeying for position,” observes Salermo, who nonetheless adds, “everyone’s holding their cards very close to their chest.”
(Charles Newbery in Buenos Aires, Ken Bensinger in Mexico and Marcelo Cajueiro in Rio de Janeiro contributed to this report.)