MIAMI — If the dawn of the 21st century brought economic recession to much of Latin America, things today are looking decidedly up.
Economies have stabilized, fostering incremental expansion of the regional subscriber base and fueling a huge jump in advertising sales in 2005, gains that programmers expect to consolidate in the coming year.
The advent of digital cable is paving the way for new channels and other content, like video-on-demand and greater pay-per-view options.
And the industry is looking to new media, mobile telephony and, cautiously, the pending entry into the market of telecoms, which would expand the potential reach of pay-TV and allow — pending resolution of numerous regulatory hurdles — telcos and cablers alike to offer the so-called triple play of voice, Internet and video.
“There’s the feeling that things have turned around,” says Sean Spencer, head of TAP Latin America, a pay-TV programming industry trade group. “People are feeling more optimistic about the future.”
Spencer notes that a significant number of cable operators in major markets are beginning to introduce digital cable, using a carefully targeted approach.
“Instead of investing in expanding the entire subscriber base, they are doing a more limited rollout in major cities,” he says. “It is a slow-going trend for the year, but it’s creating more capacity and space for our guys.”
A notable exception: Mexico’s Cablevision, the country’s largest MSO, serving the megalopolis Mexico City, and a division of Grupo Televisa, which also operates satcaster Sky Mexico, the leading provider with more than 1 million Mexican homes. Cablevision is in the process of upgrading its entire sub base of about 450,000 homes to digital.
Programmers note that digital cable is impossible to pirate, as piracy remains a huge problem throughout the region, but they recognize that many operators do not have the means to finance a system-wide upgrade, a la Cablevision.
Analog will continue to grow, says Vera Buzanello, senior vice president of distribution for Discovery Networks Latin America. “Latin America is still an analog environment,” she emphasizes.
Pierluigi Gazzolo, the managing director of MTV Networks Latin America and head of Viacom Networks Brazil, says his company views digital services, still in the early stages, as a strategy to support the operators. “Excluding DTH, (digital) is not a huge revenue source,” he says of MTV’s suite of five digital networks. “But it is important to the overall contractual relationship.”
In November, MTV opted to introduce the gay-oriented Logo, in the channel’s first foray outside the U.S., as a pay-per-view block on satcasters Sky Mexico and Sky Brazil.
Two years ago, the group aimed wide with VH1, adding it to the portfolio that was then limited to MTV and the popular kids net Nickelodeon. By year-end 2004, the channel had about 3 million subscribers. VH1 then tripled its distribution in 2005, reaching 9.4 million homes.
Even faster out of the gate has been male-oriented F/X, which launched in January of 2005 and zoomed past owner Fox’s expectations to end the year with 12.3 million subs.
“There was a gap in the marketplace that F/X filled,” says Hernan Lopez, president of Fox Latin America Channels, which also introduced Speed last year and Fox Life this past January. “There was no entertainment channel for men.”
Notable among the newer feevees, which also include Turner Classic Movies, Sony’s Animax and Discovery Travel & Leisure, is they are nearly always backed by an established player.
“The days of the one-offs are over,” Spencer says.
Soaring Ad Sales
Outside of new channels, adding homes depends on the overall growth of the market. Estimates of the number of legitimate pay-TV homes range from 18 to 22 million, with an average of three members per household, but pirated signals reach several million more.
But ad sales are booming, pay-TV executives say.
Fox’s Lopez says his group’s sales — which include the general entertainment channel Canal Fox, National Geographic and Universal — rose 49% in 2005, this on top of a 32% increase in 2004 before the new channels were launched.
Ad sales for the channels that are members of the Latin American Multichannel Ad Council (LAMAC) overall rose an average of 31% in 2005 Mexico represents the driving force in terms of absolute dollar volume, while some of the secondary markets, like Colombia and Venezuela, are charging ahead, but have a small base.
Discovery Networks Latin America’s Ivan Barguerias, senior VP of ad sales for the group’s portfolio of nine regional feevees (three of them digital only), noted that lifestyle channels like Home & Health and Travel have allowed him to bring in new categories. At the same time, he says, “some categories increased their overall investment with us with the lifestyle channels.”
The pan-regional advertising market has matured, Barguerias maintains, with local ad business fueling much of the growth.
Over the past several years, pan-regional programmers have added multiple feeds, serving individual countries to build business. At the same time, regulators in Argentina are making noise about banning pay-TV advertising altogether, and in Mexico, there is a movement to shift the balance of ad minutes. (Currently pay-TV programmers can air six minutes per hour, with two given to the local operator to sell.)
Also helping fuel the ad business is original in-region programming.
Gretchen Colon, senior vice president of advertising sales and business development for Turner Broadcasting System (TBS) Latin America, says localized programming on news net CNN en Espanol is directly linked to an uptick in ad sales on that channel.
A contestfilmmaking series “Proyecto 48,” for which TBS has produced several iterations in different countries, opens the door for product placement, she says.
Similarly, Discovery, which has been adding more Latin American productions — some original shows, some regional adaptations of global hits like “Wife Swap” — partnered with General Motors for the adaptation of car-transformation show “Rides.”
The Latin American episodes will showcase GM models available in these countries, an example of “aligning our strategy alongside the advertiser’s,” Barguerias says.
And original productions ostensibly foster appointment viewing. Sony Entertainment Channel is prepping a pan-Latin version of “American Idol,” to that end.
NEW MEDIA BRIGHT
Outpacing ad sales is new media business, many programmers report.
Coming off a very small base — TBS’ Colon calculates subscription fees still generate roughly 60% of revenue, with ad sales making up most of the balance for Turner — new media and other technologies allow the programmers to tap viewers in different ways and reach consumers who don’t have access to pay television.
“There are 18 million pay-TV homes in Latin America, while there are 200 million cell phones and 70 million Internet users,” says MTV Networks’ Gazzolo, who has struck deals with wireless carriers throughout the region. From screensavers and ring tones to wake-up calls from SpongeBob SquarePants, wireless is a perfect fit for MTV and Nick. His new media revenue, encompassing wireless, online and broadband, rose 80% in 2005.
Fox Latin America introduced the myfox mobile content that is leveraged off the efforts of its sister U.S. company’s movizo.com. “It’s creating new revenue streams,” Lopez says.
In addition to mobile content deals, Turner introduced a DSL video-on-demand service with Brasil Telecom last year; signed with Sky Mexico to launch Boomerang-inspired interactive games; and is experimenting with a Cartoon Network “allowance card” on Telefonica Argentina’s broadband service, to purchase access to a special section on the Cartoon Network Web site.
Programmers are also talking to the telephone companies, which are preparing for the day when they can offer video services.
“It’s still a work in progress, and not as advanced as in Europe,” Colon cautions. “But if regulators allow it for Latin America, it will represent the next big increase in multichannel distribution.”