The Televisa-Univision marriage announces a new challenge in Mexico’s streaming wars

For the giants Disney, Amazon Prime and Netflix, countries like Mexico, with a population of 126 million, in addition to the 60 million Spaniards in the United States and 600 million Latin markets worldwide, represent a juicy opportunity of growth.

Indeed, Who killed Sara? it was Netflix the most popular non-English language program in the US during the first month after the launch in March and one of the great successes of the transmission in general, proving to the Latin producers that there is a great international market of content in Spanish.

It is also a tempting target for traditional broadcasters making a painful shift into the digital age.

In mid-April, just before the Netflix launch disappointing quarterly subscription figures in Latin America, a region that has long been an engine of growth: Mexico’s leading television station Televisa and New York-based Univision unveiled a $ 4.8 billion content merger.

Reinforced with $ 1 billion in funding from SoftBank of Japan, they plan to launch a transmission service next year aimed at the world market in Spanish.

The company yet to be named will face stiff competition: Netflix entered Latin America a decade ago, while the last two years have seen the demand for Amazon Prime and Disney Plus video demand. WarnerMedia will launch its HBO Max platform in the region this month.

But Emilio Azcárraga, executive president of Televisa, is confident they can do it. “For both Univision and Televisa it would only be impossible to have the scale to generate cash in order to be relevant in the production and distribution of content,” he said. “Together we have the scope, the size and the money.”

He points to the group’s experience in collaborating with Sky satellite TV service in the 1990s, with the goal of facing a much bigger rival than DirecTV. “A lot of people said we were totally crazy: how could we compete?” he told the Financial Times. “[But now] in the region where we operate, DirecTV no longer exists. “

Still, it’s a high commission for Televisa that has a library of hundreds of thousands of hours of melodramatic soaps known as soap operas, movies and sports, but little experience in producing heavier shows or adapting content to what the audience wants to see in the way streamers do.

Even Disney Plus is not expected to be profitable until 2023, while Netflix only said in January that it expected its cash flow to unbalance this year, after years of investing heavily in content.

Few local broadcasting services have managed to hold up against the world’s big players. Nent, a group based in Stockholm, has managed to do so in part by increasing production original Nordic drama.

But, encouragingly for the new company, content in Spanish, and especially Mexican-made, is booming in the important U.S. market, according to data provider Parrot Analytics.

The company Televisa-Univision will use the production capabilities of Televisa and will try to take advantage of its extensive subsequent catalog. But Televisa spends only $ 1 billion a year on content compared to Netflix’s $ 17 billion and Azcárraga did not say how much he would invest in content in the future.

“The reality is that Televisa can’t compete with Netflix productions,” analyst Gilberto Garcia told Barclays.

Also, at least part of what Televisa-Univision is producing seems to be content that viewers don’t want. “Since 2015, Univision’s audiences have dropped more than 50%,” Garcia said.

Alejandro Rojas, director of applied analysis at Parrot Analytics, said it would be critical for Televisa to make a mental shift from producing large amounts of content to really analyzing what consumers wanted. “It’s a completely different mindset to television,” he said.

Azcárraga acknowledged that people wanted more than soap operas. “Romance is always sold [but] there are things we have to do differently. . . we are not closed to anything ”.

He sees Televisa-Univision as an attractive showcase for independent producers who want to produce content for the Latin market and highlighted the success of Televisa with the films, but did not specify where he wanted to focus, as the company goes face to face with cinema loaded with movies. rivals like Disney.

“It’s like an arms race,” Rojas said. “Everyone has to produce more.” In fact, Netflix is ​​planning a new office in Colombia later this year and will be filming 30 new series, movies, documentaries and other programs during 2021-22. Bet on new Latin productions such as the reality show Too hot to handle and teen drama Control Z to revive regional growth, according to Ampere Analysis.

But even the streaming giant is hesitating in Latin America in a business where scale is everything.

Netflix subscriptions in the region increased less than 1 percent in the first quarter compared to the end of last year. The total number of subscribers in Latin America increased by 19% last year, after annual increases of 20% in 2019 and 32% in 2018.

“What the pandemic has shown is that people are advancing their paid subscription: people who could have subscribed in 2021 signed up earlier, so now we see a slowdown in relation to increased growth in 2020,” he said. Rahul Patel of Ampere Analysis.

Azcárraga said a decision had yet to be made on whether the new service would be based on subscription or advertising would be compatible.

Televisa’s first-quarter ad sales rose 28% from the same period last year, while content revenue rose 10% and 200,000 subscribers were added. Univision’s own pay-TV company, PrendeTV, launched in March with about 900,000 subscribers in the first month and basic advertising revenue rose 7% in the first quarter.

Marcelo Claure, chief executive of the international SoftBank group, told analysts that the combined entity “has the potential to be rewarded in the same way that the market rewarded Disney Plus, which now quotes at 35 times ebitda.”

Televisa’s revenue has been largely stable for four years, but net revenue has fallen. Analysts estimate that ebitda is currently trading at about 6-7 times.

“Visualization of figures [at Televisa] they are definitely better and the content has become slower, ”said Soomit Datta, an analyst at New Street Research. “But they will live or die from the quality of their content.”