Mexico’s second-largest broadcaster announced Thursday that it will enter the U.S. Spanish-language television market, drawing an enthusiastic response from some Wall Street analysts but skepticism from critics who say the venture faces serious challenges.
The launch of Azteca America, a joint venture of Television Azteca and privately held Pappas Telecasting Inc. of Visalia, Calif., marks the Mexican network’s first major push into the booming U.S. Spanish-language broadcast market after a series of failed attempts. It will be based in Los Angeles.
The venture will create competition for Univision Communications Inc., which has long dominated the market here, as well as for distant-second Telemundo, giving advertisers who channeled $1.5 billion to reach Spanish-speaking Latinos in 1999 another outlet.
“The pie is growing, make no mistake about that,” said Merrill Lynch media analyst Jessica Reif Cohen. “There will be more choice for Spanish-language viewers.”
Recent figures show that the Spanish-language broadcast advertising market for the 2001 television season grew by 31% over last year, compared with 14% for English-language networks. Latino consumer spending is expected to top $450 billion next year, a figure that has triggered unprecedented corporate attempts to tap that market.
For a 20% stake in Azteca America, Television Azteca is contributing an exclusive programming license in the U.S., Canada and Puerto Rico. For its 80% stake, Pappas will contribute 10 stations. It currently owns three of those--in Reno, San Francisco and Bakersfield--and is in the final stages of acquiring seven more in Nevada, Arizona and Texas. A Miami Home Shopping Network station owned by Pappas will eventually convert to an Azteca station, and a station in Los Angeles is under construction, said Harry J. Pappas, who will serve as Azteca America’s chairman and chief executive.
But the venture faces major hurdles. Azteca’s content of telenovelas and sports differs only slightly from Univision’s, offered through top Mexican programmer Televisa. TV Azteca says its more politically and socially daring novelas will appeal to bilingual Latinos here. But others say the network’s content too narrowly caters to Mexico City urbanites.
Although Pappas is the country’s 23rd-largest owner of stations, it must still acquire stations in key Latino markets such as Chicago and New York to launch a national network, as planned in the second quarter of 2001. In addition, most of its 10 targets are low-power stations.
“Even though you have good programming, what are you delivering it on?” asked Gene Bryan, president of HispanicAd.Com, which analyzes the advertising industry.
Snaring ad dollars will also prove challenging, particularly since national buys are not possible until the network expands. Advertising dollars for the 2001 season are virtually locked up. Moreover, Bryan said, the network can’t promise to deliver viewers much different from those reached by Los Angeles-based Univision and Miami-based Telemundo.
The marriage of Azteca and Pappas is an odd one. Mexican upstart Azteca grew from nothing in 1993 to capture 36% of the Mexican prime-time market from Televisa. In an interview on his own Mexican flagship station, Azteca Chairman Ricardo Salinas Pliego said Azteca would carry its battle with Televisa north of the border with hopes of capturing 10% of the U.S. market by next year. Mexican President Ernesto Zedillo and President-elect Vicente Fox also appeared on the network to laud the venture as a sign of strengthening binational ties.
Salinas Pliego had been looking for the right avenue into the U.S. for several years. Azteca had lost an equity bid in Telemundo in 1998, later launching a short-lived co-production agreement with the network. Talks last year with Dallas start-up Hispanic Television Network Inc. also went nowhere. HTVN’s CEO, Marco Camacho, said he had rejected an exclusive-content alliance with Azteca because he questions its appeal to U.S. Latinos. But a TV Azteca spokesman said that the network pulled out because it lacked confidence in HTVN’s distribution.
Pappas, who owns stations throughout the West, the South and the Midwest, sparked the Azteca negotiations with a cold call. This marks his first foray into the Latino market, but Pappas said he is recruiting a management team familiar with Latino broadcasting.
The initial investment in the company by the two partners is close to $500 million, and Pappas said Azteca plans to spend as much as $450 million more on station acquisitions.
TV Azteca closed Thursday on the New York Stock Exchange at $25.19, down 6 cents.
Times staff writer James F. Smith in Mexico City contributed to this report.