One of the reasons AT&T sees Time Warner as such a good fit has to do with the complementary strengths of the companies’ operations south of the U.S. border.

AT&T’s DirecTV is the largest satellite TV distributor in Latin America by revenue. Time Warner’s biggest international channels presence is found in Mexico, the Caribbean, and Central and South America. The pending marriage of AT&T’s distribution strength and Time Warner’s content, a deal valued at $85.4 billion, positions the company to harness growth opportunities in Latin American markets that are poised to explode in the next decade.

Across the largest countries, a wave of deregulation, rising household income, and broadband penetration promises to turbocharge media consumption. The region’s largest economies, notably Mexico and Colombia, are seeing a loosening of government control and expanded openness to private investment. While the strength of the dollar against the region’s weaker currencies, including Mexico’s peso and Brazil’s real, has posed a near-term challenge for the profits Hollywood pulls out of Latin America — just as currency fluctuations are a challenge in other international territories — investments in channels and content distribution are long-term bets on the continued momentum of pay TV and broadband penetration, in contrast with the short-term time frame for box office returns.

Among the biggest recent moves in Latin America: In November, Viacom sealed a deal to buy Argentina’s largest broadcaster, Telefe, from Spanish conglomerate Telefonica for $345 million — a transaction that would have been unheard of 10 years ago, as Argentinian laws previously barred foreign ownership of major media assets. Mexico has approved licenses for two new broadcast networks to hit the airwaves next year, an effort to dent the dominance of Televisa and TV Azteca. And Colombia just granted a license to an upstart broadcaster, to be run by Miami-based Hemisphere Media Group, which aims to challenge the entrenched duopoly of RCN and XX TV.

As growth prospects for traditional pay TV plateau in the U.S., the major media conglomerates are looking beyond borders for future profits. Latin America’s population (around 625 million), improving social and economic infrastructure, and linguistic uniformity around Spanish and Portuguese makes it an attractive target for media giants. It’s no accident that Latin America was part of Netflix’s first overseas expansion effort five years ago. Netflix is investing
heavily in original series production in Mexico, Brazil, Argentina, and Colombia — programs that have the benefit of appealing to regionally specific tastes but also traveling well in other Spanish- and Portuguese-speaking regions.

“It’s a bit like where the U.S. [pay TV market] was 20 years ago,” Time Warner chairman-CEO Jeff Bewkes said in October as he and AT&T chief Randall Stephenson pitched their merger to investors. “It varies from country to country, but essentially all that growth of the golden era of more channels and more TV is coming now across Latin America.”

Time Warner’s Cartoon Network and Discovery Kids rank among the most popular entertainment pay TV channels in Latin America — an indication of the youthful profile of the consumer base. Fox, Sony, Disney, and Viacom also have big footprints in the region with channel groups.

AT&T’s Stephenson is counting on Time Warner’s content as a driver of its wireless telco and data businesses as well. Stephenson — who has a deep appreciation for the region after working in Mexico early in his career with Southwestern Bell Telephone — told investors in November that Time Warner “has probably one of the best lineups of content in Latin America. We’re really enthusiastic about delivering over our mobile platform [and] throughout Latin America where we have coverage.”

The majority of the region’s advertising and subscription revenue comes from Mexico, Brazil, Colombia, Venezuela, Chile, Argentina, and Peru. Those nations account for 133.5 million TV households, with just under half of them subscribing to some form of pay TV service, according to global media research firm IHS Markit.

The upside in the Big 7 nations, as well as in emerging countries like Paraguay and Bolivia, is enormous, according to IHS Markit principal analyst Erik Brannon. Economic volatility is still a concern, but the combination of deregulation and the general upswing in living standards will only improve the climate for free and pay TV. “In the next 10 years, the economies are going to turn around, and people are going to become more affluent,” Brannon notes. “There’s a real opportunity for people to enjoy significantly more in terms of entertainment experiences. The general media landscape holds a lot of promise for local companies and foreign investments.”

Certainly, there will be speed bumps along the way. Brazil is dealing with a prolonged economic slump driven by inflation and political instability. The political climate in Venezuela under the late socialist Hugo Chávez and his predecessor, Nicolás Maduro, has made it tough for local and foreign investors to do business.

Brannon says he’s not surprised to see U.S. majors such as Viacom take advantage of market weaknesses to go bargain-hunting for assets such as Telefe. “We are in an unprecedented era of deregulation,” he says. “I think you’re seeing a media convergence around the globe that is mainly led by U.S. channel groups buying up properties.”

Brazil represents a particular challenge for AT&T-Time Warner because of regulations that bar TV distributors from owning major content assets. That has prompted speculation that AT&T will sell or restructure its Sky Brazil satellite service, which it operates in partnership with the country’s dominant media company, Globo. Satellite TV has been a bigger player in Brazil than has cable, because the vast expanse of uninhabited area is not conducive to laying miles of cable pipe underground.

As media markets become more competitive, programmers will have to become more sophisticated in their approach to courting viewers and will have to invest more in local content, rather than just exporting U.S. and European fare. Latin America’s entrenched broadcasters have to date been serving up the vast majority of locally produced content. But that is changing: The aggressive push in the region by Netflix has prompted greater investment in original content by Clarovideo, the streaming service owned by América Móvil, the conglomerate controlled by Mexican billionaire Carlos Slim.

“What we’re seeing with [the growth of] streaming is that people are diversifying and going after niche markets,” says Georgia Jordan, associate research analyst at S&P Global Market Intelligence, based in São Paulo. The influx of options has forced homegrown and outside players to step up the quality and array of programs provided.

“Local content is really big,” Jordan adds. “A lot of the [U.S.] programmers had a very pan-Latin approach a few years back, but what we’re seeing is that they’re really making their channels more specific to each country.”