NBC's "crown jewel Spanish-language TV station

[Harold F. Schiffman]

>>From the NYTimes, July 12, 2004

NBC Sees a Crown Jewel in a Spanish-TV Also-Ran By BILL CARTER

MIAMI - Bob Wright, the chairman of NBC Universal, has no doubt about what
he considers his company's most important asset. No, it is not the NBC
network, or the newly acquired Universal movie studio. "Telemundo is the
biggest thing we've got going now," Mr. Wright said in a recent interview
here on his first visit to the Spanish-language television network's
studios.

Telemundo? Though it has long been an also-ran in the Spanish-language
television market, Telemundo Communications Group Inc., which NBC acquired
in 2001 for $2.7 billion and is pumping tens of millions of dollars into
each year, is a bet on the future of American television, one Mr. Wright
says media companies ignore at their peril. "The inability to reach
Hispanic audiences would have over time taken a serious toll on us," Mr.
Wright said.

The attractions of the market are obvious. The Hispanic population,
estimated at 35.6 million in 2002, is growing far faster than any other
segment of the American population. According to the Census Bureau, the
growth rate for Spanish-speakers in the last three years was 13 percent,
about four times the figure for the population as a whole. And the
advertising market for Hispanic viewers is expanding by at least 10
percent a year and now eclipses $3 billion annually. But before Telemundo
can ever be a significant part of that future, it has to take on the king
of Spanish-language television, Univision Communications Inc., which
dominates its market unlike any other current television entity.

Despite recent progress by Telemundo, Univision's two major networks - its
flagship, Univision, and the 2-year-old TeleFutura - still command
audience shares that routinely eclipse 75 percent of Hispanic viewers
watching Spanish-language television. And the bulk of advertising revenue
continues to flow to Univision. Initially, NBC's version of Telemundo
seriously misread the audience's taste. Executives thought they could take
a step away from what has been the staple of Hispanic programming: the
telenovela, the Spanish-language entertainment that consists of soap-opera
storylines spun out over four or five months. Unlike American soaps,
telenovelas always come to an end, which means no network can count on
having a hit from one year to the next.

And the telenovelas that Telemundo did buy came with problems of their
own. Because Univision has a stranglehold on the main pipeline of
telenovelas, from Mexico, the search for programming took Telemundo to
Brazil. Mr. Wright noted ruefully that the idea of trying to build a
Spanish-language network on programs dubbed from Portuguese was not a
winning strategy. "It just didn't work," Mr. Wright said. "We were really
nervous. As good as our sales guys are, you can't sell a zero rating."

Having invested so much already, NBC faced a choice: pour in more money or
accept the limitations of cheap, foreign-made programming. NBC decided to
invest, spending more than $50 million to create programming and set up
the production site in Miami. Telemundo executives say the strategy gives
them more flexibility than Univision, which is locked into a long-term
programming deal with Mexico's Televisa. It also allows the network to
differentiate itself by emphasizing the American Hispanic experience in
shows like "Pasin de Gavilanes" ("Passion of Hawks"), "Prisionera" ("The
Woman Prisoner") and "Amor Descarado" ("Shameless Love"). Another, a
romantic comedy called "Anita: No Te Rajes" ("Anita: Don't Give Up"), is
an example of what Ramon Escobar, the network's chief programmer, said was
the "Telemundo twist" - it deals with a woman's experiences as an illegal
immigrant in America.

Telemundo executives argue that because all Univision's programs were
originally created for Mexican television, they do not speak directly to
the American Hispanic audience. But because the vast majority of Hispanic
television viewers in the United States, about 62 percent, are of Mexican
heritage, many stars have been brought in from Televisa and are of Mexican
background. (Telemundo recently won a court fight to hire the Mexican soap
star Mauricio Islas.) The plan is to have actors who speak in what Mr.
Escobar called "Mexican neutral" accents. Telemundo hopes that will bring
in the Mexican base audience, while not alienating any other audience
groups.

"When you make it yourself," Mr. Escobar said, "you can ensure the
quality."

Liz Castells-Heard, president of Castells & Asociados, an advertising
agency that specializes in the Hispanic market, with clients like
McDonald's and Dole foods, endorsed Telemundo's strategy. "I think it's a
definite advantage," she said. "If you are an U.S. Hispanic, you want to
see programming that reflects your interests."

But some analysts are not as bullish. "We would note that Telemundo's
programming strategy, while currently performing ratings improvements, is
inherently more risky than Univision's," Andrew W. Marcus at Deutsche Bank
wrote in a research report issued in April. "In contrast to Univision,
which acquires most of its prime-time novella programming, we believe that
Telemundo produces in-house 75 percent of its prime-time programming.
Thus, Telemundo must gamble on the success of first-run programming, while
Univision relies primarily on proven ratings winners that have already
aired on Televisa or Venevision in their home countries."

Nonetheless, the home-grown approach has scored significant ratings
increases for Telemundo. In June, the network was up to a 25 percent share
of the 18-to-49-year-old prime-time audience that both networks covet
because advertisers pay a premium to reach that group. That was a jump
from just a 13 percent share last June.

And Telemundo's moves have gotten the attention of some neutral observers.
In a company update report last March, Jessica Reif Cohen, the media
analyst for Merrill Lynch, noted the success of recent Telemundo programs
and, as a consequence, listed Univision as being at high risk for
volatility.

"Telemundo has done a really good job this year. They have made up all the
ground they lost in their first year under NBC," Ms. Cohen said in an
interview. "They obviously now have the management capabilities and the
resources to begin to challenge Univision."

Univision, meanwhile, has reacted to Telemundo mainly with disdain. In
response to questions about the impact of Telemundo, a spokeswoman for
Univision, Stephanie Pillersdorf, said in an e-mail message, "The ebbs and
flows of our competitors are truly insignificant to our sales and overall
business." (Ms. Pillersdorf said none of the company's senior executives
were available last week to comment.)

In a conference call with analysts in May, Ray Rodriguez, the president of
Univision, dismissed the Telemundo threat, saying that even with all NBC's
trumpeting, Telemundo still attracts less than a third of Univision's
household ratings.

In a barrage of news releases in recent weeks, Univision has done plenty
of boasting. Its flagship network broadcast 49 of the top 50 shows among
Hispanics during the second quarter, it said. TeleFutura, which was
created in part to play defense against Telemundo with a schedule full of
counterprogramming like sporting events and movies, beat the NBC
Universal-owned network in daytime ratings in the first two quarters of
this year. And while the flagship network did slip in market share, the
company said that was because of the addition of TeleFutura, and the
combined share of the two companies was still more than 75 percent.

While Telemundo has whittled away at Univision's market dominance, that
does not mean Univision is suffering in any way. In 2003, the company
posted operating profit of $349 million on revenue of about $1.3 billion;
the previous year, the corresponding figures were $253 million and $1.1
billion, respectively. (The General Electric Company, the parent company
of NBC Universal, does not break out revenues and profits for Telemundo,
but in its year-end regulatory filing it said the recently acquired
Telemundo and Bravo networks brought in a combined $100 million in
operating profit.)

And, the overall market is growing. While 39 percent of Hispanics watched
Spanish-language television in 1992, that audience (of a much bigger
overall number) is 52 percent. And advertisers spent $3.7 billion on
Spanish-language television during 2003, which was more than double the
$1.6 billion spent in 1998, according to TNS Media Intelligence/CMR, part
of Taylor Nelson Sofres.

Randy Falco, the president of the NBC Universal Television Group, said the
move into Hispanic television had a benefit beyond its financial promise.
"It is just plain exciting to be in the Spanish market right now. I love
it."




http://www.nytimes.com/2004/07/12/business/media/12telemundo.html