Regulators Face a Bilingual Conundrum

Four years ago when millions of viewers tuned in to the planet’s premier sporting event -- World Cup soccer -- they heard pop sensation Ricky Martin belting out the tournament’s theme song, “Cup of Life.”

But when the matches returned to TV last spring, the voice they heard woven through the coverage was of a virtual unknown, 18-year-old Jennifer Pena. She had an inside track: Univision Communications Inc., which owns the U.S. broadcast rights to the games, had just signed her to a record deal. Not coincidentally, Pena’s album was released during the June tournament.

Univision’s choice of singers illustrates the growing moxie of a media behemoth that has far grander plans for itself. Univision already is the king of Spanish-language TV. Last year, it created its own record label. And now the company wants to spend more than $2 billion to take over the nation’s largest Spanish-language radio chain, Hispanic Broadcasting Corp.

If the merger is approved by federal regulators, Univision will obtain a lock on two-thirds of all Spanish-language advertising in the U.S., while gaining an unmatched platform for its talent -- a prospect that raises concerns about conflicts of interests.

“The only reason Jennifer Pena got to sing the song was because she was on Univision’s label,” said Roland Garcia, founder of small, Texas-based Hacienda Records. “They can make their own hits, and they will put us out of business.”

In fact, the proposed merger has churned up turbulence among many players who once were consigned to the sidelines of the multibillion-dollar English-language broadcast industry but now find themselves battling for the riches of an exploding Latino market.

Protests have been voiced to the Federal Communications Commission, including one from Hispanic Broadcasting’s chief competitor and another from a Latino advocacy group headed by New York state Sen. Efrain Gonzalez Jr.

“It is not in our best interests for Univision to control the Hispanic market in the United States,” he said. “No one else will be able to compete.... You create Shamu and guess what? It eats all the little fish.”

Univision executives argue that the merger would strengthen the overall economics of a traditionally underserved sector of the market and that they expect regulators will bless the deal in coming months.

But the antitrust review will be unlike any other undertaken by regulators during the past decade of media mergers, legal experts say. The government must decide whether Spanish-language media are a distinct market or a small slice of the nation’s overall advertising and broadcasting pie.

“The commission is being called upon to make a decision which could have extraordinary consequences,” said Washington communications attorney Vince Pepper, who has argued many cases before the FCC. “If you start recognizing a foreign language as a subgroup of the market, then you are involving the government in waters in which it has never stuck its toes.”

Univision contends that it is part of the overall media market because it competes for advertising dollars alongside such giants as Viacom Inc. and Walt Disney Co., each of which owns television networks, radio stations and other assets.

A ruling that Spanish-language broadcasting stands alone would probably sink the Univision merger because the combined company would amount to a monopoly.

Univision was bought in 1992 by reclusive Los Angeles billionaire A. Jerrold Perenchio, who recognized the immense growth potential in the Latino market. In the last decade, he has guided the company from annual sales of about $200 million to a projected $1.2 billion this year.

Corporate America has caught on.

Companies ranging from the Krispy Kreme doughnut chain to the distillers of Dom Perignon have increased their marketing budgets in an effort to woo Latino consumers, who spend an estimated $580 billion a year. In April, General Electric Co.’s NBC spent $2 billion to acquire Telemundo, the second-largest Spanish-language TV network in the U.S.

Nowhere is the market hotter than in Los Angeles, the nation’s largest -- and most competitive -- Latino media center. Univision’s evening newscast on KMEX-TV Channel 34 often outdraws such English-language counterparts as KABC Channel 7, KNBC Channel 4 and KCBS Channel 2 for viewers.

With the acquisition of Hispanic Broadcasting, Univision’s reach would extend to 55 radio stations, including five in Los Angeles. One of them, KSCA-FM (101.9), has ranked as the region’s No. 1 station for most of the last five years among listeners ages 25 to 54, a group coveted by advertisers.

Since Univision created its new record label, it has quickly captured nearly a quarter of the U.S. Latin music market, according to Nielsen SoundScan. Univision plans to launch a cable channel next month devoted to music videos.

Because Univision already is so dominant, the possible addition of a huge radio chain has presented a minefield for regulators as they try to determine the impact on specific markets and advertisers who are worried about getting squeezed for higher rates.

In recent weeks, Justice Department antitrust investigators have been gathering documents on ad rates and audience size from Univision’s competitors and advertisers. They also are examining whether Univision controls radio stations in Latino markets where it is seeking an even stronger hold.

Investigators specifically are interested in the long-standing relationship between Univision and Santa Monica-based Entravision Communications Corp., which owns Spanish-language TV and radio stations.

Government rules prohibit a company from owning more than eight stations in any market. The question being pursued by regulators is whether Univision essentially is controlling Entravision through its 31% ownership. If so, then the proposed merger might put Univision over the government limits.

To try to assuage regulators, two senior Univision executives resigned in August from Entravision’s board. Univision also has vowed to convert its interest in Entravision into nonvoting stock if the merger is approved.

Even if Univision passes that test, another awaits: Regulators must be convinced that Univision’s new stations would remain truly competitive with those in which it already has an interest.

And if that isn’t enough to keep regulators busy, then there’s this question: Are television and radio separate markets, or do they compete with each other for the same advertising dollars? Univision is arguing that they are distinct markets, meaning the company could own a big piece of both without monopolizing either one.

Opponents of the merger, however, are not content to wait for the resolution of those technical issues. They recently stepped up a behind-the-scenes lobbying campaign to muddy the merger by targeting the role of Hispanic Broadcasting’s biggest shareholder, Clear Channel Communications, which already is embroiled in a number of controversies involving alleged anti-competitive tactics in its radio and concert divisions.

Critics of the proposed union accuse Clear Channel of secretly masterminding the deal in possible violation of an agreement with the FCC. The radio chain, by far the largest in the U.S., obtained the agency’s approval for its stake in Hispanic Broadcasting only after vowing to be a “passive” investor with nonvoting stock.

That assurance was necessary to avoid monopoly problems because of the high number of stations Clear Channel controls in various markets.

But documents submitted to the Securities and Exchange Commission detailing the proposed merger suggest that Clear Channel instigated the talks that led to the deal. Here, according to the documents, is what transpired:

The first overture came in an e-mail from Clear Channel’s chief financial officer, Randall Mays, to Univision’s senior vice president. Mays told the executive that another company was making a play for its 26% share of Hispanic Broadcasting. Mays said that if Univision executives wanted in the game, they should contact him.

A few days later, Univision officials got a call from Clear Channel’s outside financial advisor, again asking whether Univision was interested in its piece of the broadcaster. Univision said it would only if a deal could be made for full control of the radio chain.

A third contact came two weeks later, when Clear Channel’s Mays saw Univision’s senior vice president at a broadcasters’ convention in Las Vegas and pitched his plan face-to-face.

Within weeks, it became clear to Univision that it could, in fact, purchase not only Clear Channel’s holding but all of Hispanic Broadcasting, whose executives were fielding offers from other suitors. One of those was archrival Spanish Broadcasting System Inc., which owns 24 stations nationwide and has become the most vocal critic of the proposed merger.

Mays declined to discuss his company’s role in the talks except to say, “We have nothing to do with the operations of Hispanic [Broadcasting].”

But critics argue that if FCC regulators believe there is evidence that Clear Channel was more than a passive bystander in Hispanic Broadcasting strategy, there could be grounds to delay or even reject the merger.

Despite all the controversy, U.S. Rep. Xavier Becerra (D-Los Angeles) said critics of the deal should keep Univision’s size in perspective.

“As big as Univision is, it hasn’t been able to get its fair share from the advertising pie,” he said.

“Maybe a stronger player [in Spanish-language broadcasting] will be what it takes to get advertisers up to the table and willing to pay more.”

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Two Spanish-language powerhouses seek to marry:

Spanish-language TV giant Univision Communications Inc. is seeking to buy the nation’s largest Spanish-language radio chain, Hispanic Broadcasting Corp., for more than $2 billion. If the deal is approved by federal regulators, Univision will capture an estimated two-thirds of all Spanish-language advertising in the U.S.

Univision plunged into the record business last year, financing its own Univision Music Group and then purchasing independent Fonovisa Records for about $230 million. Univision Music Group, with such artists as singer Jennifer Pena, left, now accounts for about 22% of the U.S. Latin music market, according to Nielsen SoundScan.

Univision owns 53 TV stations. In Los Angeles, Univision’s evening newscast on KMEX-TV Channel 34, featuring Eduardo Quezada, left, as news anchor, often outdraws such English-language counterparts as KABC Channel 7, KNBC Channel 4 and KCBS Channel 2.

Hispanic Broadcasting Corp. owns 55 radio stations, including five in Los Angeles. One of them, KSCA-FM (101.9), has ranked as the region’s No. 1 station for most of the last five years among listeners ages 25 to 54, a demographic group coveted by advertisers. It features the nationally syndicated show of Renan Almendarez Coello, below, who is Los Angeles’ top-rated morning host.