Hot and Hungry
Latin America is getting mas caliente.
Cable networks have been spicing up their bottom lines for years by launching networks and offering programming to Latin America, but the pay TV market south of the border is beginning to enter a new phase: One that is thirsty for new original content, sparking greater competition between channels.
With an emerging middle class with more disposable income and more time to spend on entertainment (pay TV penetration rates are around 35%), the Latin American market is reminiscent of the early days of cable in the U.S., when distributors searched frantically for programming to differentiate pay TV from broadcast.
“We are going through a lot of the stages that the U.S. did in the late 1970s and the early 1980s, with 35% penetration,” Turner Broadcasting System Latin American president Juan Carlos Urdaneta said. “But there is a lot of potential for growth on the advertising side, and definitely as well on the subscription side.
“It is hard to generalize, because each market has its own unique set of characteristics and criteria,” he added. But “the main point here is there has been good progress in getting consumers to understand the value of pay TV, [and a] more sophisticated focus on marketing and the sales process from operators.”
The Latin American market — mainly Mexico, Brazil and Argentina — has been dominated by four top programmers for years: Time Warner Inc.’s Turner Latin America and HBO Latin America; The Walt Disney Co.; Discovery Networks International; and Fox International Channels. According to Sanford Bernstein media analyst Todd Juenger, the four media giants generate about $2.3 billion in annual revenue combined from the three regions. Add in such emerging markets as Colombia, Venezuela, Chile and Peru, and the revenue total rises to $3.6 billion.
While Brazil currently makes up the bulk of revenue for the programmers — accounting for about $1.3 billion of the annual total — the overall pie is growing, according to Juenger.
Granted, the Latin American market is tiny compared to the U.S., as Turner alone generated about $10 billion in total revenue in 2013. That’s five times as much as Juenger estimates the top four programmers extract from the top three Latin American countries. But unlike the U.S. — whose TV market has matured, especially on the distribution side — Latin America is an unprecedented area of growth.
And there’s reason to be optimistic. According to LAMAC, the Latin American Multichannel Advertising Council, ad sales were up about 21% last year and are growing.
Discovery Networks Latin America/ U.S. Hispanic and Canada president and managing director Enrique Martinez added that the region’s low penetration rates represent a big opportunity for growth and that distributors are making headway in educating consumers and advertisers about the value of pay TV.
“Discovery is a perfect example,” he said. When the programmer first entered the Latin American market in 1994, it did so with a single channel, Discovery Channel. Today, Discovery has 15 networks in Latin America with 309 million cumulative subscribers.
As these markets and their audiences expand, so will programmers’ budgets to buy and create the programming their viewers want to watch. While the networks interviewed didn’t want to get into specifics, each expects to beef up its content spending in Latin America in the coming years.
“It’s very safe to say double-digit [programming expense] growth is clearly where we are at, if not greater, depending on the market and depending on the brand,” Viacom International Media Networks, The Americas managing director Sofia Ioannou said in a recent interview. “As you’re launching channels, you are investing significantly more in the market.”
The Walt Disney Co., Latin America executive vice president and managing director Claudio Chiaromonte agreed.
“With the emergence of a new segment, with greater buying power and access to new technology platforms, new devices, access to pay TV, etc., we can expand the fulfillment of our mission,” Chiaromonte said. “In this regard, we will continue to invest in the region and in the fulfillment of these goals.”
Discovery has already said it has spent about $1.5 billion on programming globally in 2013, up from the $500 million it spent in 2007. In addition to launching Spanish language versions of U.S. shows in Latin America, it has debuted several locally produced shows that have attracted large audiences such as Los Carvotta, a Colombian reality show following a father and son who fix cars; and City Eagles, a reality show following the helicopter crews of the Sao Paulo police force.
While each programmer will spread its overall content investments across the region, the biggest area for growth at the moment appears to be Brazil. According to Juenger, based on its size, TV-penetration rates and regulatory environment, Brazil could “offer the most medium-term upside potential to pay TV network operators of any country in the world.”
Brazil currently has about 17 million pay TV subscribers (25.4% penetration), he estimated, and the addition of 44.2 million additional subscribers over the years could boost the annual revenue potential of that country to $19.5 billion. Japan, which has 14.1 million pay TV customers (28.7%), is a distant second, with annual pay TV revenue potential of about $15.7 billion, according to Juenger.
A boom period in the Latin American economy has fueled that growth. According to Juenger, gross domestic product per capita in Mexico alone has risen 45.5% from $11,000 in 2004 to $16,000 in 2012. That kind of income growth is occurring all over the region — GDP per capita is up about 50% since 2004 in Brazil, up 28% in Venezuela, 29% in Colombia, 30% in Chile and 84% in Peru.
And as incomes rise, so does the desire for pay TV. According to Juenger, pay TV subscribers have risen 17% annually in Venezuela since 2008, 12% in Chile; 10% in Peru; 8% in Colombia; 6% in Mexico and 14% in Brazil.
“Pay TV is the least expensive form of entertainment — the first thing households add when they get a little bit of discretionary income, and the last thing they drop,” Juenger wrote in a recent report.
That should translate into more revenue from affiliate fees and advertising. Over the next five years, Juenger estimated, the TV market in Mexico is expected to grow by high single digits and in Argentina by low single digits. with the remaining Latin American countries — Colombia, Venezuela, Chile and Peru — rising at a mid-to-high single-digit pace over the same time frame.
PricewaterhouseCoopers is even more optimistic. In its Global Entertainment and Media Outlook: 2013-2017, the research giant estimated entertainment and media revenue would grow at a 10%-plus annual clip in Argentina, Mexico and Brazil through 2017.
Turner’s Urdaneta said the emergence of that new middle class has helped make pay TV affordable for a greater segment of the population. At the same time, there was a period of consolidation in the Latin American pay TV distribution market — telcos were entering the market, along with satellite-TV providers. And with that shift also comes a shift in the quality of content.
“We are entering a new phase because as you go more into the middle class, as you expand the base of subscribers in pay television, you need to become more and more local to continue to be relevant,” Urdaneta said.
The emerging middle class has different tastes in programming — while Spanish language versions of U.S. shows are still popular, a growing segment of the Latin American audience is looking for shows that reflect what is going on in their lives.
“In the first 15 years, we have sold people what we had to sell,” Urdaneta said. “Now, we’re starting to invest a lot more in research to understand what people want so we can produce or acquire what these new audiences want. We are in the early stages of the second part.”
Urdaneta added that Turner has produced some original animation in the kids’ space, especially in Brazil, and is expanding its scripted-series portfolio. But he said the bulk of programming — at least 70% — will be U.S.-based shows.
Turner has more channels in Latin America (15) than it does in the U.S. (10) and even those channels that overlap have a different mission south of the border. For example, in Latin America, TNT is primarily a movie channel, while its male-skewing channel Space airs action series, news, boxing and National Basketball Association games.
Both new and not-so-new players are also beefing up their presence in the market, armed with burgeoning programming and marketing budgets. That includes traditional U.S. programming powerhouses such as Viacom and NBCUniversal, as well as such independent programmers as AMC Networks, A+E Networks, and Sony Pictures Entertainment.
Through its Universal Networks International division, NBCUniversal delivers brands such as Syfy Universal, DIVA Universal, Studio Universal, Universal Channel, 13th Street Universal, E!, Style and Golf Channel to more than 387 million subscribers in over 150 territories across Europe, the Middle East, Africa, Latin America and Asia. Universal Networks International also operates Movies 24 and has an interest in the KidsCo joint venture.
Sony has about 127 separate channel feeds serving 950 million subscribers in 150 countries. In Latin America, its Canal Sony channel reaches 26 countries, while its other channels in the region — AXN and Sony Spin — reach a more targeted audience. A+E Networks operates a joint venture in Latin America with Ole Networks and Sony Pictures Television, and plans to launch Lifetime in the region in July, joining History, A&E, Bio and H2 across Latin America and Brazil.
And AMC Networks, which gained some girth in the Latin American market with its February acquisition of Chellomedia, launched Sundance Channel in seven countries there in 2013. It expects to launch Sundance in Brazil later this year. Chellomedia already has about 11 channels divided into two genres — Movies & Arts and Lifestyle — in the Latin America market, including brands such as MGM and Cosmopolitan TV, as well as uniquely Latin American channels such as El Gourmet and Casa Club TV.
Viacom has been a player in the Latin American market for several years, but it has only been in the past two years that it has significantly stepped up its efforts in the region. In 2013, the media giant took control of MTV Brazil, converting it from a free-to-air channel to a pay TV network. The year before, it launched Comedy Central in the country and stepped up production of locally produced programming all across the region, airing Latino versions of Jersey Shore, the Comedy Central Roast, MTV World Stage, Catfish: The Series and others in Mexico, Brazil and Colombia.
ENTERING THE NEXT STAGE
Ioannou said her company’s push into those markets wasn’t a change of strategy, but rather a normal reaction to a changing market. Latin America is entering the next stage, she said.
That means not only producing more localized programming, but also paying attention to viewer habits. For example, she pointed to internal research that showed that young millennials, particularly in Mexico and Brazil, consume entertainment in a variety of ways.
“The belief that they were moving away from linear [TV] and into only watching digitally, that they weren’t watching television any more, was wrong,” Ioannou said. “They watch TV at the same time they are on their tablets, at the same time they are on their mobile phones.”
That led the programming giant to make sure that subscribers in Latin America had access to programming online and via mobile, as well as through their TV sets. And it also influenced which types of U.S. shows were localized — for example in Colombia, the MTV U.S. show Catfish: The Series, in which the hosts help people find their online loves, was very popular and influenced the network to produce an adaptation for that country.
“Our shows like Catfish are really addressing that life that they have, that more digitally-driven life,” Ioannou said. “But Viacom is not only producing locally; we’ve been launching networks. We launched Comedy Central two years ago; we’re now in very assertive conversations with our partners in the market to launch our Paramount Network. Nick Jr. is expanding and Nicktoons has been expanding. Viacom is one of the few that continues to launch and expand its footprint in the key Latin American growth markets.”
Viacom also is queuing up several shows for the Latin American market based on popular U.S. programming. In January, it announced a 13-episode order of Mexico Shore, a Latin American version of the U.S. monster hit Jersey Shore, and also announced plans for Latin American versions of U.S. viral video hit Ridiculousness, as well as the aforementioned Catfish.
VIMN Latin America also took a risk in 2012 when it converted its free-to-air MTV Latin America to a pay TV channel. But so far, Ioannou said the gamble has paid off.
Since its relaunch as a pay TV channel in October, with a commitment for about 350 hours of fresh content, MTV Brazil was ranked No.16 in the key 18-24 year old demographic. As a free-to-air channel, the network had ranked in the 30s or 40s within that demographic group.
“It’s been a tremendous success moving the channel over, and it has been growing and growing,” Ioannou said. “The result of that came from a belief that we were in a growth market like Brazil and not having our brand in that market was perhaps not a savvy long-term view. It took it a while for us to get it back, but I think it is a testament to Viacom’s commitment to Brazil.”
Pesos and Bolivars and Sols and Reals, Oh My
According to Sanford Bernstein media analyst Todd Juenger, the Latin American market is generating a combined $2.3 billion in revenue for the four top programmers:
Turner: $332 million ($544 million including HBO Latin America)
Fox: $306 million Discovery: $270 million Disney: $216 million
Viacom: $125 million
Fox: $175 million
Turner: $175 million
Disney: $90 million
Discovery: $70 million
Viacom: $30 million
Turner: $200 million
Fox: $140 million Disney: $70 million
Discovery: $60 million
Viacom: $30 million
Colombia, Chile, Venezuela, Peru:
Turner: $453 million (including $200 million from HBO Latin America)
Fox: $378 million
Disney: $290 million Discovery: $165 million
Viacom: 70 million
SOURCE: Sanford Bernstein
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