Spanish-language television giant Univision Communications launches a third network today in an ambitious attempt to capture the company's most elusive audience: bilingual Latinos who primarily watch English-language television.
The Los Angeles-based company has spent more than $1.4 billion during the last year to expand its dominance in the Spanish- language media sector by piecing together the new broadcast network it is calling TeleFutura.
When TeleFutura goes on the air at 4 p.m., it will reach an estimated 80% of Latino households nationwide. The network initially will consist of 42 stations, including 13 that Univision acquired during the last year from Barry Diller's USA Networks for $1.1 billion.
Univision executives predict that TeleFutura will break even during its first year and will immediately come in No. 2 in the ratings race behind Univision's flagship network.
"TeleFutura could become a bigger network than Univision," said Ray Rodriguez, president and chief operating officer of Univision Networks. "There is this huge audience that is not watching Univision and a large percentage are Spanish speakers."
Univision commands 80% of the U.S. Spanish-language television market. However, less than half of all U.S. Latino households regularly tune in to Univision or its rival network Telemundo, and those are the viewers TeleFutura hopes to attract, Rodriguez said.
"Univision and Telemundo don't meet the needs of all Hispanics," said Carlos Santiago, co-chairman of Santiago & Valdes Solutions, a San Francisco marketing firm. "We don't have that many choices. You either can watch a telenovela on Telemundo or a telenovela on Univision."
Telenovelas, the low-cost Latin American soap operas, have become the bread and butter of Spanish-language television. But no prime-time telenovelas will appear on TeleFutura.
The new network's evening schedule will be filled with sports and news capsules and dubbed Hollywood movies such as "The Mambo Kings," "Tango and Cash," and "Dog Day Afternoon." The network will feature Friday night boxing, weekend soccer matches and a daily 11 p.m. ESPN-style sports highlights program called "Contacto Deportivo" (Contact Sports) to attract male viewers. Telenovelas have been relegated to the afternoon slot.
'Counter-Programming' for a Broad Audience
Univision calls its strategy "counter-programming." The idea is to offer viewers different selections without directly competing with programs found on the original network. The company says it is not zeroing in on any one demographic group.
"TeleFutura is a broad-based broadcast network with programming that will appeal to a full range of viewers--women, men and youth," Rodriguez said.
Univision is building TeleFutura at an ideal time, analysts say. More than 35 million Latinos were counted in the U.S. during the 2000 census, several million more than anticipated. The increase in population raised awareness of the potential of Spanish-language media, and advertisers climbed aboard.
Univision has signed up major advertisers for TeleFutura, including Johnson & Johnson, AT&T;, MCI, Sears, J.C. Penney, Ford, Toyota, Gillette, Wendy's, Miller Brewing and Budweiser. Pepsi-Cola is sponsoring a weekend "American Bandstand"-style music program that will feature Latin music stars, primarily ones from Univision's record labels.
Univision executives expect advertising revenue to cover the $100million the company plans to spend this year on TeleFutura programming and operations.
Some analysts say revenue will probably trickle in until TeleFutura's success can be gauged through ratings. Merrill Lynch analysts estimate that start-up losses for TeleFutura could be $20million to $30million for the year.
Other analysts predict that TeleFutura will break even or be profitable, particularly if advertising spending rebounds by the middle of the year, as some are predicting.
David Joyce, senior equity analyst for Guzman & Co., a Miami-based investment banking firm, said TeleFutura could add as much as $20 million to Univision's 2002 earnings before interest, taxes, depreciation and amortization, a common yardstick to measure the financial performance of a media company.
"Spanish-language media companies are going to be particularly strong beneficiaries of a turn-around," Joyce said.
Univision Communications' stock has more than doubled in value during the last quarter, soaring from $18 a share in late September to Friday's close of $38.76 on the New York Stock Exchange. Analysts attribute the increase to a swirl of Univision takeover rumors fueled by NBC's announcement that it plans to buy Telemundo for $2.7billion, including debt.
Wall Street has been concerned that TeleFutura might simply peel off viewers from Univision's popular flagship network, thus diluting the network's dominance in the market.
Some believe that most of TeleFutura's viewers will come from the Univision network because the company has primarily promoted TeleFutura on Univision and Galavision, its cable network.
"Univision's greatest risk is to suffer any kind of fragmentation," said James McNamara, president and chief executive of the rival Telemundo network. "They're not going to hold on to their dominant market share forever."
Andrew Hobson, Univision's executive vice president, told analysts last month that the company was willing to make that sacrifice. "If you don't eat your own lunch, someone else will," Hobson said, adding that the traditional networks were slow to recognize the strength of cable and other niche channels.
"They made huge mistakes," Hobson said. "The ones that were early in the game made very large money for their stockholders, and we intend to be in that case."
Univision has long wanted to start a third network to join the flagship Univision network and Galavision.
Chief Executive A. Jerrold Perenchio often suggested to Barry Diller that Diller sell some of the USA Network stations to Univision, Rodriguez said. So when Diller decided in late 2000 to sell his stations that distribute the Home Shopping Network, he immediately called billionaire Perenchio.
"We knew there was this huge market out there, but it is very difficult to put a network like this together for an affordable price," Rodriguez said. "But Barry Diller had done all of the heavy lifting."
Other would-be contenders in the Spanish-language television market--Hispanic Television Network of Fort Worth and Azteca America of Visalia, Calif.--have struggled during the last two years to buy stations and gain distribution in key Latino markets.
In contrast, Univision today will make its final $592-million payment to USA Networks for 13 stations, including in major markets such as Los Angeles, New York and Miami. Univision spent an additional $300 million last year to buy other stations, converted several of its existing stations and rounded out the network with 19 affiliate stations, including more than 10 owned by Santa Monica-based Entravision Communications, a company 32%-owned by Univision.
The amount paid by Univision for the stations is about half of the $2.7 billion, including debt, that General Electric's NBC network agreed to pay for Telemundo. Univision says TeleFutura will be a lean operation, sharing its sales and management team with existing Univision stations, including KMEX-TV Channel 34 in L.A.
"We're launching with programming 24 hours a day, seven days a week," Rodriguez said. "It's pretty daunting with most of the stations coming on board at once, and we've done it all in one year."
Some experts are skeptical that TeleFutura will be an immediate hit. They don't think viewers who watch ABC, Fox and the WB network will suddenly switch to TeleFutura to watch dated Hollywood movies. The company, they point out, is not pouring large sums into original programming.
Alliance Formed With Grupo Televisa
Instead, Univision last month agreed to a new programming alliance with its Mexico City partner, Grupo Televisa, allowing the network to show Televisa programs on TeleFutura.
Televisa supplies Univision with its most successful telenovelas. Though Televisa programs are popular with Latinos of Mexican and Central American heritage, industry watchers say the shows do not play as well on the East Coast among Puerto Ricans in New York or Cubans in Miami.
"The question is: Do they understand the culture and the mind-set of U.S. Hispanics to the degree needed to provide successful programming?" asked Carlos Santiago of Santiago & Valdes Solutions. "I think the jury is out."
Manny Gonzalez, president of the L.A. marketing firm Sapo Communications, agreed, saying TeleFutura might do little to expand the pie of Latino viewers tuning into Spanish-language programs.
"I suspect that TeleFutura will capture more Telemundo viewers than those watching English- language programs," Gonzalez said. "How do you capture more of the English-speaking segment if you don't invest in original quality programming?"
Univision's Rodriguez said the network probably will evolve.
"As we go forward, we will be testing different concepts," Rodriguez said. "TeleFutura is a new network and it can afford to be different. We're going to mix it up."