THE SIN SALE: WILL IT MAKE ANY DIFFERENCE?

The forced sale of KMEX-TV in Los Angeles and nine other Spanish International Communications Corp. (SICC) TV stations appears unlikely to break the grip of a Mexican media magnate over this country’s largest Spanish-language broadcasting chain. Nor is it likely to foster any substantial changes in what its 10 million American viewers will see on the air.

It appears that Emilio Azcarraga Milmo, his Mexican media monopoly Televisa and his Spanish International Network (SIN) will continue reaping millions in profits from the stations after legally transferring them to American ownership. That’s the assessment, according to critics, sources familiar with the stations and court and financial documents relating to the July sale of the SICC stations.

Azcarraga and his close associates are making use of a U.S. law that restricts foreign ownership of broadcast stations while imposing no limits on holdings in companies that supply programs. They are poised to maintain substantial control over the programming and advertising after selling them for a record $301 million to Hallmark Cards Corp. and First Capital Corp. of Chicago.

“Landing on their feet is an understatement,” said Henry Rivera, a former Federal Communications Commission commissioner. “They (Azcarraga interests) came out smelling like a rose. If this (sale goes through), they will have gotten away with something virtually unprecedented.”

“The story of the Azcarragas, of Televisa, of SIN, of SICC, has been the story of an organization that can read U.S. law, see the opportunity and seize the loophole to exploit that opportunity,” said Felix Gutierrez, a USC associate professor of journalism and one of the first journalists to investigate the Azcarraga media empire in the United States.

The Azcarraga story was first unraveled by Gutierrez in 1979 in an academic journal. His article traces the beginnings of SICC to 1961 when, according to Gutierrez, the late magnate’s father began weaving an intricate web of financial ties and personal allegiances that permitted him to control stations apparently without violating the 20% ownership limit allowable to foreigners. The issues raised by Gutierrez later became the focus of the FCC’s January ruling.

Today the family’s Televisa media empire is the world’s largest Spanish-language broadcaster, and Azcarraga has expanded Televisa’s program market into the U.S. through SIN, where it reaches as many as 10 million viewers daily. Azcarraga’s Televisa-owned SIN sells programs to Azcarraga-influenced SICC stations.

“What’s really important is not so much the ownership (of the stations) but SIN, which is legally owned by the Mexican television monopoly that sees this as a nice opportunity to distribute programs they produce for pesos and sell for dollars,” Gutierrez said.

And, to Tirso Del Junco, a Los Angeles surgeon who led a group of Latinos in a $260-million bid rejected by SICC officials because of unsatisfactory financing, the sale of the SICC stations has changed little.

“SIN wants to have a monopoly and control things,” said Del Junco, who represented one of 10 bidders for the stations. “SICC and SIN is the same management,” he believes.

Azcarraga declined requests for interviews by Calendar. But Larry Dam, an SIN attorney and spokesman, called Del Junco’s allegations “outrageous.”

“(SIN) has no monopoly,” Dam said. If SIN has become the nation’s biggest supplier of Spanish-language programming, he said, it is because other stations choose to buy the network’s shows. “What we are talking about is an open market, simple supply and demand.”

According to Daniel Villanueva, KMEX station manger and a SICC director, Televisa recently increased its ownership of SIN from 75% to 100%. SIN supplies programs to more than 300 affiliated stations, cable systems and low-power repeater stations in the U.S. and reaches an estimated 70% of the nation’s Latino market, according to FCC records.

Prior to the sale, 75% to 90% of the programs broadcast by KMEX and the other SICC stations were supplied by SIN; the network sold 50% of the stations’ advertising time, and the stations returned 37.5% of their net revenues to SIN.

Confidential documents provided to prospective buyers to assist them during the bidding process obtained by Calendar--including financial reports prepared by the New York-based accounting firm of Bear, Stearns & Co.--show that little is destined to change.

Under the terms of the sale, which must be approved by the FCC, SIN will continue to supply the stations with most of their programs, will continue to handle their national ad sales and continue to receive the same percentage of SICC stations’ ad revenues, the documents show. They also indicate that those revenues are expected to reach $31.7 million this year.

But until the sale of the stations, Azcarraga stood to loose his American media empire.

First, Azcarraga and his associates found themselves coming under increasing pressure to sell the stations due to a bitter 10-year federal civil law suit filed by a group of minority shareholders in L.A. who accused Azcarraga and company directors of making deals favorable to SIN, the programming supplier, at the expense of SICC, the station group.

U.S. District Judge Mariana Pfaelzer issued a preliminary ruling in August, 1985, sustaining many of the allegations, and, at one point considered placing SICC’s day-to-day operations in the hands of a court-appointed manager. Pfaelzer refrained from making a final judgment while both sides negotiated terms for selling the stations. But the legal findings that she filed and sealed after her preliminary ruling were included in the court record of a related legal action in Texas.

Second, FCC Administrative Law Judge John H. Conlin found in January that Azcarraga had violated the law governing the ownership of the stations through a complex web of personal and financial ties and programming sources. Conlin refused to renew SICC’s operating licenses, concluding that “alien influence and direction of the (stations) . . . greatly exceeds that permitted” under the law although the Azcarragas never exceeded the legal limit.

One indicator of this control, Conlin wrote, was the “striking relationship” between key figures in the SICC-SIN hierarchy. Several SICC executives and nearly all of its stations managers, he noted, have “served a tour of duty at SIN. Indeed, the findings show that personnel transfers among the Licensees and SIN occur with such ease and regularity that the entities would seem to function as divisions of the same company.”

His ruling set off the series of events that led seven months later to the sale of the SICC station group to Hallmark and First Capital.

Given the severity of the findings, the FCC could have revoked the licenses, rendering them virtually worthless, said former FCC commissioner Rivera. The FCC also could have required a sale of the stations at 75% of their value under federal policies designed to increase minority ownership of TV stations, Rivera said.

Neither happened. Instead, Azcarraga and SICC shareholders offered to settle the lawsuit and satisfy the FCC by selling the stations. Judge Pfaelzer chose Hallmark’s bid after a committee of SICC officials formed by the FCC failed to agree on a winner.

Hallmark officials haven’t disclosed details of the sale because, officials say, it is against the privately-owned company’s policy to discuss its contracts.

“Hallmark is a successful company and we entered this transaction because we viewed it as a good business opportunity,” said Charles W. Hucker, divisional vice president of public relations and communications. “We are very excited about it.”

Hucker said the firm does plan to hire some of SICC’s current top officials, but he declined to identify them.

“Hallmark is obviously keenly interested on people like Danny (Villanueva) contributing to the company,” said Ronald L. Fein, the L.A. attorney selected by the shareholders to oversee the secret bidding process. “They have indicated that they would like to retain all as key management of the company and they intend to make those arrangements as soon as they can.”

But a motion filed in the L.A. suit last month by Latino-owned TVL Corp., one of the unsuccessful bidders, in a bid to halt the sale alleges that Hallmark agreed to hire three SICC directors and a former Spanish International official soon after the FCC judge’s January decision. Moreover, the motion charges that Hallmark secretly agreed to sell stock in the stations to the same SICC directors, which would be an apparent violation of FCC requirements that former directors who owned more than 2% of station shares be prohibited from owning shares in the stations.

Four directors are named in the motion as the persons who allegedly made the secret agreement with Hallmark--Villanueva, Joaquin Blaya (WLTV Miami’s station manager), Emilio Nicolas (KWEX San Antonio’s station manager) and former Spanish International official William D. Stiles. (Judge Pfaelzer is scheduled to hear the TVL motion Oct. 6.)

Fein, the attorney representing the shareholder’s in the sale, said he would respond to TVL’s allegations in court, where, he added, they would be answered “most satisfactorily.”

“We are not going to litigate this motion in the newspaper,” said Hucker. “Obviously Hallmark does not agree with certain charges that have been made.”

Some bidders said it makes sense to hire the SICC executives who have built the company into a profitable business.

But Del Junco, an unsuccessful bidder who is a former California Republican Party chairman, was outraged that SICC directors who built their careers working for Azcarraga, Televisa and SIN could be permitted to continue running the stations.

“SIN is responsible for the subterfuge that has gone on because it has allowed the same managers to be employed,” Del Junco said. “So, in essence, the relationship is not going to change.”

Despite the FCC’s eight-year investigation, Villanueva insisted that the administrative law judge found nothing that impugned the character of the company’s directors.

But in court documents obtained by Calendar, Judge Pfaelzer described the actions of of several company officials in a series of dealings from 1972 to 1978, including Nicolas, Villanueva and Blaya, as having been “dominated and controlled by . . . SIN and Televisa” and of acting in the interests of Televisa, SIN and their own self-interests, rather than those of SICC.

The jurist was harsher on Nicolas, writing that his decisions to relinquish his authority as SICC chairman to a shareholder and SIN official dominated by Azcarraga and Televisa were “grossly negligent.”

“Those are legal things she had to put in there,” Villanueva said. “You call her and ask her about the work I’ve done here. She, more than anyone else, understands what I’ve done here.” Pfaelzer did note that Villanueva “has made a significant contribution to the growth and success of KMEX.”

“No final judgment was rendered” by Pfaelzer, Nicolas said. “Even if it had been, it could be appealed.”

Blaya has not returned repeated calls from Calendar.

But to critics and unsuccessful bidders, the most telling facet of the SICC sale was from the secret negotiations between SIN and the bidders over a confidential programming and advertising contract, otherwise known as an affiliation agreement, obtained by Calendar.

“The affiliation agreement was much too demanding on the stations,” said Marvin Shapiro, executive vice president of Veronis, Suhler Associates, which bid for the stations with Forstmann, Little & Co., an investment banking firm specializing in leveraged buyouts. “In my experience it is unique and extraordinary and quite atypical.”

The major networks--ABC, CBS and NBC--pay local stations and not, as in the case of SIN, the reverse. Typically, major networks pay local stations between 15% and 17% of their commercial rate in exchange for the stations airing network programs and commercials. Networks do not receive a share of advertising revenues sold by the stations.

By contrast, Shapiro said, SIN asked for two-free minutes of time for every hour of programming and 37.5% of net national, network and local advertising revenues as a programming fee for each hour or half-hour network programming.

“In our appraisal, we could not see it as a viable economic situation,” he said, because paying such a rate would cut deeply into the estimated $17 million in cash flow the stations are projected to make this year.

Dam, who represented SIN in these negotiations, said, “It is true that one of the buyers wanted to have a commitment from SIN to those guidelines. And using those guideline as a framework, they (Hallmark) did negotiate a memorandum of agreement with SIN. We at that time had no idea who was going to be the successful bidder.”

Dam said that the two-year agreement is “fair for both parties” and “very beneficial to Hallmark.”

But Henry Hernandez, president of an Alhambra-based government contractor and a member of the bidder’s group that included producer Norman Lear, claims that a gun was figuratively held to his head during the negotiations when SIN’s representatives disclosed that one bidder had already agreed to its terms.

“ ‘Either you take it at 37.5% or there’s no agreement,’ ” Hernandez remembered being told by two SIN officials. “ ‘And we already have an agreement with one of the bidders,’ which turned out to be Hallmark. So there was really no true negotiations on our part.”

Dam responded: “I cannot simply recall if I told them that or if people from SICC told them that, but I assume that that was communicated to them.” However, he denied that disclosing this information coerced the bidders into accepting SIN’s contract because agreeing to network’s terms would not have ensured a bid’s success.

“We told them we (were) prepared to negotiate anything, up to and including any agreement they may have found acceptable,” said Jaime Davila, SIN executive vice president.

But Shapiro said accepting SIN’s contract would have perpetuated dependence on the network. Hernandez said the terms would have locked the SICC stations into their current SIN contract, making it impossible for him to service debts or to buy from new sources of programming.

Dam argued that SICC’s current affiliation agreement with SIN is necessary because the stations don’t have the full confidence of advertises. The stations are not able to sell all of their ad time, he said, so SIN provides its sales assistance and guarantees its programming to insure the viability of the stations.

John Weigman(), a local financier and unsuccessful bidder, agrees with Hernandez and Shapiro that SIN’s affiliation agreement is onerous. Still, Hallmark did not necessarily get the worst of the deal, Weigman said. The acquisition agreement Hallmark filed with FCC last month shows that the selling price could be reduced by millions if the stations do not generate a predetermined amount of gross revenue, he said.

Hallmark’s Hucker said the formula for determining the selling price according to the amount of revenues returned by the stations is not unusual. But, Hucker added, “I am not going to speculate about circumstances that have not occured yet,” referring to Weigman’s claim that the purchase price could be substantially lowered.

But as its rapid growth attests, SIN’s special relationship with its affiliates has had spectacular results for the 24-year-old network and the millions who tune in each day.

Particularly during moments of crisis, such as last year’s Mexico City earthquake, Spanish-language viewers have depended on the SICC stations and SIN supplied news and entertainment programming as a vehicle for reaffirming their Latino roots.

More than anything else, this informational, linguistic and cultural bond has helped to create a national television community uniting Latinos of diverse backgrounds and origins. The network has built this audience beaming, via satellite, a diet of telenovelas (soap operas), musical variety shows, sports and news.

And to journalist Gutierrez, there is little to indicate that the program menu will improve.

“They tend to export entertainment that is going to have the largest mass appeal, so they appeal to the lowest common denominator.”

Gutierrez, who has written on the subject, claims that this narrow approach stems from Televisa’s view of American Latino audiences as a secondary market, or what he sarcastically calls “reverse neocolonialism.”

“It’s a Latin American network taking what Yankees have done to them by doing it to Latinos in the U.S.,” Gutierrez said.

Because of the diversity of Latinos from Mexico and Central and South America, the stations cannot afford to air programs that do not have broad audience appeal, Villanueva said.

“I’m hearing a professor who doesn’t understand budgetary restrictions,” Villanueva chided. “It cost $2,500 for a station to run a Julio Iglesias concert (produced by SIN). But for the station to go out and do a show with just local talent it costs $15,000.”

Villanueva acknowledged some of Gutierrez’ comments. “One criticism has been that we don’t provide a window for local talent. We understand that, that’s bona fide.”

But the stations have responded by making programming changes and developing new programs, such as the locally produced talent show “Lo Nuestro,” permitting KMEX to cut its reliance on Televisa shows down to 60%, he said. Settlement of SICC’s legal battles will make the task easier, he said.

Gutierrez concedes that SIN has improved its national and international news programs, which now total two hours daily, though this still is a small part of the network’s viewing format.

But “SIN still is part of parcel of Televisa and the Azcarraga family,” Gutierrez said. “The same individuals are involved. The same people set up the different corporations to make them appear as if they are having arms-length negotiations, when in reality they can all take their name from the old TV show ‘All in the Family.’ ”