If you watch Spanish-language soap operas in the United States, chances are you’re watching programming produced by the Mexican media giant Grupo Televisa (TV). Back in Mexico, Televisa has a tough fight on its hands with telecom tycoon Carlos Slim, and competition in cable television is zapping the company’s bottom line.
In the second quarter, net income was essentially flat at $154 million. Sales rose 4.7 percent to $1.2 billion in the April to June period but profits were negatively impacted by higher spending on client-base expansion.
Televisa dominates television in Mexico, offering TV, Internet and fixed-line services that often are bundled into a “triple pack” by its cable television providers. It also provides satellite television through its subsidiary Sky.
But higher competition in cable television from rivals such TV Azteca (AZTEF) and TVE has forced Televisa to spend more in order to retain and solidify its customer base. This led to an increase in depreciation and amortization charges in the second quarter.
In the United States, competition in Spanish-language programming also is rising, but Televisa boosted programming exports by 40.5 percent in the second quarter compared to the same period of 2010. This was mainly due to higher royalties from Univision Communications, which has an exclusive agreement to broadcast Televisa content in the United States.
Televisa competes fiercely at home in voice services with Slim’s telecom firm Telefonos de Mexico (TMX). Televisa has offered voice services since 2007 and its cable television service, Yoo, recently launched an aggressive advertising campaign casting Telmex as the slow, old incumbent.
Telmex has not yet obtained approval from Mexican authorities to offer video, but if and when that happens Televisa will face stiffer competition from Slim.
Meanwhile, Slim withdrew a significant amount of advertising from Televisa this year as the result of alleged price hikes and legal battles.
Further complicating matters is the growing influence of streaming media, making it more difficult for traditional operators like Televisa to maintain viewership.
Televisa is trying to enter Mexico's wireless market and recently reached a deal to buy a 50 percent stake in mobile phone operator Grupo Iusacell, but the deal awaits regulatory approval.
The highly competitive media industry is constantly changing with regard to viewer retention and delivery of content. With more content being streamed online or via mobile phones, Televisa is at a competitive disadvantage.
Zacks Equity Research downgraded its recommendation on Televisa to underperform following the release of its second quarter results, noting that a prolonged legal battle with Slim-controlled entities will continue to affect the overall financials of Televisa this year.
“We do not find any near-term catalyst for the company,” Zacks analysts write. Televisa next reports on or about Oct. 11.
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