Televisa, Azteca Duopoly Tested

A verdict last month by the Mexican Supreme Court threatens to upset the longstanding Televisa/TV Azteca broadcast duopoly, and its impact may reverberate throughout the U.S. Hispanic television market.

The Mexican government estimated that in 2005 the two networks controlled 99.4% of the national broadcast advertising budget, with Televisa getting the lion’s share. The court ruled that several key components of a law approved last year that would have given existing license holders enormous advantages were unconstitutional. The justices voted to eliminate a 20-year broadcast license term, broadcast spectrum auctions and the grant of data, as well as telecommunications services to existing license holders.

Judge Genaro Gongóra Pimentel compared the latter to “the miracle of the loaves and fish.” The original law called for Televisa and Azteca to automatically and at no cost retain the spectrum freed up through digitalization. Gongóra estimated this would have left 65% of the spectrum in the hands of the two firms.

In a live broadcast of the Court’s deliberations, Gongóra made clear why he considered the provision unconstitutional and said, “The existing license holders would be able to offer other telecommunications services such as broadband or wireless. In other words, they would be able to maximize their profits and exclude the existence of other media outlets.”

The written summation of the Court’s decision is expected soon.

In theory, the Court’s decision opens the door a bit wider to a possible third broadcast network. Telemundo has repeatedly made clear its interest in operating a third network in Mexico with a local business partner. But, Telemundo has been repeatedly stymied in its efforts. It might eventually be able to operate digital channels but running a third analog broadcast network is highly unlikely.

Proposing legislation that would establish framework for a third network is not a priority for President Felipe Calderón Hinojosa. President Calderón’s priority is his recently submitted legislation calling for extensive fiscal reforms, which is likely to command Congressional attention, as well.

Nonetheless, Televisa and Azteca remain fixated on the possibility of new competitors. Three weeks after the preliminary verdict, Alejandro Quintero Iñiguez, Televisa corporate vice president of sales and marketing and a member of the company’s board of directors, reportedly said at a company-sponsored event, “Unless it is subsidized, I don’t see how [a third network] can get the money to generate the kind of programming that attracts audiences and advertising.”

Raul Trejo Delabre, a media analyst and professor at the Universidad Nacional Autónoma de México, dismissed Quintero’s comments as shortsighted and self-serving. Trejo compared Televisa “to those guests who arrive and take over the food and act as if they own the house where the party is being held.” He intimated that Televisa is taking for granted its control of an asset that belongs to the Mexican public, namely the broadcast spectrum.

Trejo said there are no “practical or technical impediments” to establishing a third network in a matter of months. Any obstacles are purely political in nature.

Televisa and Azteca may have also been surprised by the court’s ruling. In Mexico, duopolies and monopolies ranging from breweries and cement makers to the baggage handlers at the Mexico City airport have survived many judicial challenges. As is the case with Televisa and Azteca in the U.S. Hispanic market, many of those duopolies have used their securely high profits in Mexico to finance international expansion.

Televisa alone provides sufficient material for six pay television networks in the U.S. along with much of the programming, primetime and otherwise, on Univision and Telefutura.

Quintero said, “If there would be more media outlets competing for advertising revenue, then there would be less money. And less money means the industry would produce content that was less good.”

The relevant question for the U.S. Hispanic television market is whether Quintero means what he says.