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Habla Español: Viacom in Telemundo Talks

Viacom Inc. is circling Spanish broadcaster Telemundo Communications Group Inc. According to sources the media giant initiated talks early this month to buy out the niche network.

Several sources said that Viacom and other companies have approached Telemundo's largest shareholders — Liberty Media Group Inc. and Sony Pictures Entertainment — about buying the Spanish-language network. Liberty and Sony each own about 40 percent of Telemundo, with financial firms Council Tree Communications, BV Capital and Bastion Capital Fund holding the rest.

Including assumed debt, Telemundo's price tag could be about $4 billion, according to published reports, more than what Viacom spent on BET Holdings Inc. last year. Telemundo's holdings also comprise broadcast stations in eight top U.S. television markets — Los Angeles, Chicago, New York, Miami, San Francisco, Houston, San Antonio and Denver. Telemundo reaches about 88 percent of the total U.S. Hispanic market and is available to about 18 million cable subscribers.

Viacom and Liberty declined to comment. Officials at Sony did not return phone calls for comment.

However, at the National Show in Chicago on June 10 Viacom chairman Sumner Redstone said that while he could not comment on specific targets, "we look at the things we should look at and we're aware of the importance of the Hispanic community in this country."

Viacom chief operating officer Mel Karmazin has also expressed interest in Hispanic broadcasting in the past, adding the prices being asked for those properties were too high.

Viacom has been hot on the trail of Spanish-language properties since its talks to buy Univision Communications Inc. broke down last year. According to sources, that deal was scuttled because Viacom thought the asking price too high.Telemundo president Jim McNamara was quoted in the Miami Herald last Wednesday confirming the Viacom talks. He added, though, that Telemundo has been approached by practically every large media group with the exception of AOL Time Warner Inc. McNamara told the Herald that Telemundo's owners were happy with the network's performance and were not putting their stakes up for sale.

McNamara was said to be out of the country last week and could not be reached for comment. Telemundo spokeswoman Roxanna Brightwell reiterated his published sentiments.

"Our owners are very pleased with the performance of the company," she said. "Since Jim [McNamara] came on board [July 1999], we've gone from 11 [percent] to 12 percent of the market to 30 percent. We went from ad sales of $175 million last year to projected 23-percent growth this year. What Jim was basically saying is that the [owners] are happy with us."

But Brightwell left the door open for a possible sale of the network, especially if the price is right.

"I've heard numbers thrown around of $4 billion," Brightwell added. "As Jim would say, if the offer is $4 billion, probably our owners would listen."

Such a price tag would represent a substantial return on Liberty's original investment in Telemundo.

Liberty, Sony and private investor Leon Black first invested in the network in 1998 for $539 million. Assuming Liberty would get a 40-percent cut of a Telemundo sale, the Denver-based company could end up with $1.6 billion.

Landing a Spanish-language broadcaster also could help Viacom lessen the blow of a weak domestic advertising market. Spanish-language advertising is growing at a rate three times faster than the general U.S. advertising market.

Telemundo also is relaunching its Gems cable network — renamed Mun2 — in September, targeting bicultural and bilingual teens and young adults. Currently, Gems has about 3 million cable subscribers.

Despite its recent success, Telemundo remains a distant second in Spanish-language broadcasting. Univision, which reaches about 95 percent of the U.S. Hispanic market through cable and DBS carriage and its 13 broadcast stations, controls about 70 percent of Hispanic viewership in the U.S. Its cable network — Galavision — is available to 24 million cable and DBS subscribers and the company also plans to launch a second broadcast network — Univision 2 — in January on 13 additional broadcast stations it acquired from USA Networks Inc. earlier this year.

Univision also has been making deals to extend its lead, most notably its recent acquisition of an additional 1,100 hours of programming from RCN of Columbia and Venezuelan network RCTV. Many analysts saw the deal as a way to attract the non-Mexican Hispanic market in the U.S., which represents about 35 percent of the domestic Hispanic population. As part of the deal, Univision wrests one of the more popular Spanish-language programs —Yo Soy Betty La Fea
("I am Betty the Ugly") — from Telemundo.

Although "Betty" was a ratings winner for Telemundo — averaging an estimated 1 million viewers — Brightwell downplayed the loss of the novela. She pointed out that the first run of "Betty" was completed — novelas usually run five-to-six-months and then leave the air. The Univision deal only involves reruns of the show and the rights to air a sequel, Echo-Moda.

" 'Betty' was a big success," Brightwell said. "But we're talking about a sequel and there has never been a successful sequel in novelas."

With Viacom, however, Telemundo could receive Latin America-targeted programming through Viacom's Spanish-language properties like MTV: Español and VH Uno.

Liberty, which sold its 35-percent interest in BET to Viacom in November, could be looking to unload its Telemundo stake before it is spun off from AT&T Corp. as a separate company on Aug. 10.

Sanford Bernstein & Co. analyst Tom Wolzien said Telemundo would be a good fit for Viacom.

"Viacom has been moving into these large niches with MTV and BET," Wolzien said. "This would be consistent with what they've been doing. Philosophically, it fits."

Wolzien added that it also makes sense that Liberty could be looking to monetize its Telemundo investment, especially since it has a large block of Viacom stock already as part of the BET sale.

"Anything that's large and liquid like that, they take it and do a derivative, and then take a piece of the money and reinvest it," Wolzien said.