Reais rally pulling TV industry out of crisis

Operators optimistic for rest of year

RIO DE JANEIRO — Brazil’s improving economic condition is helping the TV sector pull out of crisis.

Under President Lula da Silva, who took over Jan. 1, the local currency is gradually recovering the value it lost last year, closing at 3 reais to the U.S. dollar on May 20 compared to 3.54 on Dec. 31.

Monthly inflation fell to under 1% in April from 2.25% in January, and analysts are increasing the country’s GDP growth estimates for this year.

Brazil appears to have defied analysts’ predictions that the economy would follow Argentina’s into collapse.

This is good news for the pay TV sector, which has large debts and costs in U.S. dollars and revenues in reais.

In 2002, when the subscriber base decreased 2.8% to 3.4 million, the sector faced its hardest time since pay TV was introduced in Brazil in the late 1980s.

Many operators defaulted on dollar-denominated programming deals. No. 1 cabler Net Servicos had to renegotiate debt payment terms with creditors. According to the company’s first quarter report for 2003, 66.2% of its $389 million short-term debt was denominated in dollars.

“I believe the worst of the crisis is over,” says Leila Loria, general director of TVA, Brazil’s No. 2 cable operator, whose sub count fell 10% in 2002 to 294,000. “We expect a recovery in the second half of this year both in subscriber growth and advertising sales.”

Ricardo Rihan, programming director of Net Brasil, which distributes channels to 110 operators, including Net Servicos and Sky Brazil, says that some licensed operators are now considering expanding and upgrading cable networks.

“I am optimistic,” he adds. “I believe the subscriber base will resume its growth this year.”

The crisis in terrestrial TV was not as acute as in pay TV, but last year’s economic slowdown hit advertising investment, which rose just 3.36% in 2002 to $3.31 billion, below the inflation rate.

“I expect advertising to improve this month. Advertising responds fast to the economy,” says Jose Carlos Salles Neto, president of Meio & Mensagem, which publishes the Intermeios ad investment research.

Carlos Ferrari, media director of research firm Ibope Media, expects a full recovery in the second half of this year. “Transnational corporations closed their 2002 budgets in September amid the uncertainties of Brazil’s presidential race. They are now revising their budgets.”

But while most networks are struggling, market leader TV Globo, which accounts for more than 70% of the total TV ad investment, is doing better.

Its revenue in the first months of this year was above company estimates, says Octavio Florisbal, TV Globo’s commercial superintendent. “We estimate that our total revenue will grow 10% this year,” Florisbal says.

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