Operator Series: Televisa, the M&A strategy that led to market dominance

By
Friday, May 12, 2017

Mexico's Grupo Televisa has shaped Latin American pop culture in a way few companies have, as its telenovelas, or soap operas, made their way across the region and parts of Europe, influencing the culture for generations. 

But the media content juggernaut did not rest on its laurels and a decade ago decided to expand through an aggressive M&A strategy. The result has been a significant participation in the Mexican pay-TV market that granted the group a dominant player status in the segment. 

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Televisa's presence in the pay-TV market can be traced back to 1969, when it acquired Mexican cable operator Cablevisión, which shed its name in 2014 to operate under the Izzi brand. It was the first telco to offer triple-play services in Mexico.

In 1996, a joint venture between Televisa and US mass media companies News Corporation and Liberty Media led to the creation of satellite TV supplier Sky. This company absorbed DirecTV Mexico when it went bankrupt in 2004. DirecTV began offering pay-TV services in Central America and the Caribbean in 2007. 

From 2006 to 2015, Televisa completed the acquisition of Mexican telcos Cablemás, Televisión Internacional, Cablecom and Cablevisión Red. The latter was bought with the earnings Televisa made from the sale of its stake in telco Iusacell, which was later bought by AT&T

In 2007 Televisa acquired telecom service provider Bestel for US$325mn, including its 8,000km fiber optic network, which provided connectivity between Mexico and the US.

PAY TV

The leading free-to-air broadcaster in Mexico has also come to dominate the pay-TV segment. Data from telecom regulator IFT shows Televisa with 61% of the pay-TV market, which totaled 20.1mn subscriptions, in 4Q16. Media group MVS' Dish cable operator had 16.7% and Megacable 14.6%. 

Satellite comprised 57% of the pay-TV segment and cable accounted for the remaining 43%. Televisa's Sky subsidiary had 64% of the satellite TV market, and MVS's Dish satellite TV operator had 36%. 

Sky remains one of Televisa's most profitable business units, yielding 5.54bn pesos (US$290mn) in the first quarter of this year and a total of 21.9bn pesos last year, up 14% from 2015. 

Sky started offering pay-TV services through DirecTV in Central America and the Caribbean in 2007. DirecTV operates in Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador, and the Dominican Republic. 

Televisa's Q1 earnings report said Sky had 207,827 subscribers in Central America and the Dominican Republic, up 13,412 from a year prior. 

Data from Dominican regulator Indotel indicates that Sky had 56,101 subscribers in the Dominican Republic at the beginning of this year, or 7.8% of the market. América Movil's Claro has the lead with 50.3%, followed by Tricom with 19.3%.

Televisa's cable segment brought in revenues of 8.09bn pesos in 1Q17 and 31.8bn pesos last year, up 12% from 2015. The company's cable subsidiaries recorded 9.73mn revenue generating units (RGUs) at the end of last year. The figure dropped to 9.5mn in the first quarter of this year due to changes in the company's RGU accounting methodology. 

The group's companies had a market share of 50.8% in Mexico's cable pay-TV segment in 4Q16, followed by Megacable with 32.3% and TV Azteca's Totalplay with 4.4%. 

The participation of Televisa's companies in the cable segment is as follows:

Cablemás: 38% share in Televisa's cable business; 19.3% total market share. 

Cablevisión: 22.2%; 11.3% total. 

Televisión Internacional: 14%; 7.2% total.

Cablevisión Red: 13.3%; 6.8%.

Cablecom: 12.2%; 6.2%.

BROADBAND

Televisa had 3.37mn broadband RGUs in the first quarter of this year. 

At the end of 4Q16, there were 16.1mn broadband subscriptions in Mexico, and Televisa had a 21.5% share of this market, behind América Móvil's Telmex and Telnor subsidiaries with 57.5%, and ahead of Megacable with 13.3%. 

The participation of Televisa's companies in the broadband segment is as follows:

Cablemás: 34.8% share of Televisa's broadband business; 7.5% total market share.

Cablevisión: 30.6%; 6.6%.

Televisión Internacional: 20.4%; 4.4% total.

Cablecom: 8%; 1.7%.

Cablevisión Red: 6%; 1.3%.

FIXED TELEPHONY 

Televisa's voice service RGUs totaled 2.06mn in the first quarter of this year. The company had 16.1% of Mexico's fixed telephony market in the fourth quarter of last year, once again preceded by Telmex-Telnor with 63.2% and followed by Megacable with 7.2%. 

The participation of Televisa's companies in the fixed telephony segment is as follows:

Cablevisión: 25.4% share of Televisa's fixed telephony business; 4.1% total market share. 

Bestphone: 23.6%; 3.8%. 

Cablemás: 21%; 3.4%.

Televisión Internacional: 17.3%; 2.8%. 

Cablecom: 9.31%; 1.5%. 

Cablevisión Red: 3%; 0.5%.

CURRENT STATUS

In February, Alfonso de Angoitia, vice president of Televisa, announced that the group would decrease its capital investments by 37% from the US$1.60bn allocated last year. De Angoitia said Televisa will not be investing in its cable and telecoms areas this year, as network upgrades in subsidiaries are at 80%.

Two years ago, Televisa was cleared from having a dominant position in the pay-TV segment. However, competitors Totalplay and Televisora del Valle de México challenged the resolution. 

IFT recently determined that Televisa is indeed a preponderant economic agent and thus should face asymmetric measures.  Televisa said it will use all the available legal mechanisms to challenge the IFT's resolution, since the group now faces stronger competition from other operators and over-the-top platforms. 

De Angoitia said the regulator should review current market conditions, as the new landscape has created opportunities for new players.