TV Azteca, S.A. de C.V.

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TV Azteca, S.A. de C.V.

Periferico Sur 4121
Mexico City, D.F. 14141
Mexico
Telephone: (525) 420-1313
Fax: (525) 420-1456
Web site: http://www.tvazteca.com.mx

Public Company
Incorporated: 1993 as Contraladora Mexicana de Comunicaciones, S.A. de C.V.
Employees: 2,700
Sales: 4.11 billion pesos ($433.81 million) (1999)
Stock Exchanges: Mexico City; New York (for American Depositary Receipts)
Ticker Symbol: TV AZTCA; TZA
NAIC: 51221 Record Producers; 51312 Television Broadcasting; 513322 Cellular and Other Wireless Telecommunications; 54191 On-Line Information Systems; 551112 Offices of Other Holding Companies; 711211 Sports Teams and Clubs

TV Azteca, S.A. de C.V. is a Mexican holding company that, through its three principal subsidiaries, is engaged in the broadcasting and production of television programs and the sale of advertising time. One of these subsidiaries, Television Azteca, S.A. de C.V. (commonly called TV Azteca), operates two national networks and is the only commercial rival to Grupo Televisa, S.A. de C.V., which is the world’s largest Spanish-language media company. TV Azteca also owns a soccer team, a record company, two television stations in Central America, a share in a wireless telephone company, and an Internet portal.

Televisa’s First Rival: 1993–95

The story of TV Azteca may be traced to Contraladora Mexicana de Comunicaciones, S.A. de C.V., the government corporation in charge of two of Mexico City’s seven over-the-air VHF television stations and their network for transmission to other Mexican stations. Founded in 1969 as a concession to Francisco Aguirre Jimenez, one of these channels, Channel 13, had been returned to public status in 1972. This station and some others, including Channel 7, were later grouped under the Instituto Mexicano de Television (Imevision). The offerings of this body were so little to the public taste that a joke ran that the best way to get away with murder was to commit it in front of Imevision’s cameras, since no one would be watching. By 1988, 65 to 80 percent of Imevision’s budget was going to meet its payroll, and practically no funds were available for producing programming. Much studio equipment reportedly was stolen, and what remained was largely obsolete. Some 40 percent of the regional stations that retransmitted Imevision’s offerings were virtually or completely off the air.

The government put Channel 13 and Channel 7 (which was merely retransmitting 13’s programming) up for auction in 1993. They were purchased by Ricardo Salinas Pliego, owner of Grupo Elektra, S.A. de C.V., a chain of stores selling electronic products, appliances, and furniture, purchased the station. Through one of his companies, Radiotelevisora del Centro, S.A., Salinas Pliego submitted the winning bid of two billion pesos ($642.7 million), which was far higher than any other offer. This money came from Salinas Pliego and the other owners of Grupo Elektra; a credit syndicate; and Alsavicion, a firm founded by the textile tycoon Alberto Saba Raffoul. It would later be alleged that conditions surrounding the sale had been unfair, with stories surfacing that the unsuccessful bidders had been told that $450 million would be the ceiling. Moreover, it would later be learned that Salinas Pliego had received about $30 million in loans during the time of the purchase from the notorious Raul Salinas, the corrupt brother of a former Mexican president who was eventually imprisoned for conspiracy to assassinate a political foe. Regardless of the conditions, the purchase was finalized and included a film studio converted to television production and a chain of unprofitable movie theaters that was later disposed of.

Named TV Azteca, the new enterprise was pitted against Grupo Televisa, which owned four of the Mexico City over-the-air VHF stations. (The seventh remained under the control of a public body.) Salinas Pliego, who assumed administrative responsibilities, set about cancelling low-rated programs, launching others that could be produced or acquired abroad cheaply, and cutting the work force from 1,500 to 750. He also offered advertisers—only 18 at the time of purchase—rates far below those of Televisa and put Channel 7 into production.

Salinas Pliego invested money in new studios and updated the transmission network. By mid-1994 Channel 13 was reaching 85 percent of Mexican homes and Channel 7 was reaching 65 percent. Moreover, the company asserted, Channel 13 had raised its market share during prime time from four to 16 percent.

While such moves clearly gave TV Azteca a strong presence in the industry, some critics found fault with the network offerings. Interviewed by the Mexican business magazine Expansion, Salinas Pliego defended TV Azteca’s frankly commercial orientation. Declaring that “Television is the most democratic medium that there is: people decide with the channel selector what they want,” he suggested that criticism of TV Azteca’s programming was coming from “a small group of intellectuals who have nothing better to do.”

TV Azteca first brought in such programming as soap operas from Europe, Brazil, and other Latin countries. The company also entered a partnership with NBC that gave it exclusive rights to transmit certain programs—NBC Nightly News, four television serials, and about 20-odd films—but that relationship eventually ended. To guarantee popular sports programming, the company bought professional soccer teams in Veracruz and Morelia. By the end of 1995 Channel 13 was reaching 91 percent of all Mexican households with televisions, and Channel 7 was reaching 81 percent. Revenues rose from about $60 million in 1994 to about $150 million in 1995. Also in 1995, TV Azteca hired Argos Comunicaciones to produce a popular semidocumentary police show called “Expediente 13/22:30” (File 13/22:30). This and future Argos productions were characterized by scenes filmed outside the studios, and the kind of care and technical realization more characteristic of feature films or theater than television.

TV Azteca’s Golden Year: 1996–97

In 1996 TV Azteca turned to Argos for the popular telenovelas format pioneered by Grupo Televisa. Although of ten likened to U.S. soap operas, telenovelas had a finite life span—usually six to nine months—and appeared in prime time slots as well as during the day. TV Azteca’s first telenovela, Nada personal (Nothing Personal), revolutionized the format by basing the show on the seamy realities of Mexican public life. In the first episode of the series a prominent politician was assassinated, reminding viewers of the recent murder of the presidential candidate for Mexico’s ruling Institutional Revolutionary Party (PRI). The 150-episode prime-time show, with storylines featuring drug-dealing criminals and corrupt policemen, was largely shot in recognizable public places in and around Mexico City. TV Azteca invested $5 million in this production.

TV Azteca followed up Nada personal with Mirada de mujer (A Woman’s Gaze), a popular telenovela about a woman who seeks to avenge her husband’s philandering by taking a young lover. Another program, Ciudad desnuda (Naked City), a documentary, used hidden cameras to expose crimes even as they occurred, while the show Te cache (I Caught You) was a 1990s version of “Candid Camera.” Moreover, the company introduced an Oprah-like talk show uniting guests with long-lost relatives. The company’s nightly news program presented a young, irreverent anchorman to counter Televisa’s establishment image—and its close ties to the ruling PRI. TV Azteca more than doubled its revenues in 1996, to about $305 million. Also in 1996, the company introduced Azteca Music, a producer of compact discs associated with Warner Music.

The founding company was reincorporated as TV Azteca in 1996 and offered shares to the public the following year, raising an impressive $604 million in Mexico City and New York for 21 percent of the shares. Shareholder Saba Raffoul then sold his stake of about 22 percent to Salinas Pliego, cashing in $400 million immediately (with $92 million more paid later in the year and still more due later) for his original investment of $180 million. Salinas Pliego ultimately increased his share of the company to 73 percent. In 1997, TV Azteca marketed $425 million in bonds abroad, most of which went to repay bank loans for the original purchase, then sold $255 million more to buy back the stock options coming due to the creditor banks.

TV Azteca reached, in this year, the zenith of its fortunes in the 1990s. Revenues climbed about 60 percent, to $511 million. Its profit margin, in terms of operating income, was a sensational 43 percent. The company’s share of the prime-time weekday audience in Mexico City rose to 35 percent, compared to only 14 percent in 1994. TV Azteca also claimed to have a larger share of higher-income viewers than rival Televisa. By now it had enrolled hundreds of advertisers, including such blue-chip clients as Bayer, Burger King, DHL, Jose Cuervo, Nissan, and Volkswagen. Seeking more markets, TV Azteca purchased a 75-percent interest in an El Salvador station intended as the axis of a national network and 75 percent of a UHF station in Guatemala City.

Key Dates:

1993:: Ricardo Salinas Pliego purchases a government-owned television network.
1996:: TV Azteca launches the first of several popular telenovelas.
1997:: TV Azteca’s share of the prime-time Mexico City audience reaches 35 percent.
1997:: The company goes public, selling about one-fifth of its shares for $604 million.
1999:: TV Azteca takes a 50-percent stake in a Salinas-owned telephone company.
2000:: Azteca assumes stakes in an Internet portal and a planned U.S. Spanish-language network.

New Shows and New Markets: 1998–2000

However, in 1998 TV Azteca surrendered some of these gains. After Mirada de mujer concluded in April, the company lost 15 to 20 percent of its prime-time viewers. Tentaciones (Temptations), a telenovela about a priest in love, offended some of Mexico’s Catholics and failed to find sponsors. Demasiado corazon (Too Much Heart) was also a failure. Weekday prime-time viewership in Mexico City dropped to 25 percent for the year, resulting in disappointing advertising receipts, because such receipts were based on ratings. The company brought in a new chief financial officer during this time, 31-year-old New Yorker Adrian Steckel, who had been with the company since the beginning, serving as Salinas Pliego’s assistant and then vice-president of business operations. In addition to overseeing the financial future of the company, Steckel was often tapped for public relations duties, acting as spokesperson in times of controversy. Although the company’s net revenues still posted a modest gain and operating profit came to a solid 36 percent, high financing costs reduced net income to less than $7 million. Near the end of the year, TV Azteca formed a joint venture with a smaller television company to operate and provide programming for Channel 40, a Mexico City UHF station. It also negotiated an agreement with the programming division of Walt Disney Television International for rights to broadcast Disney movies, television series, and children’s programming in Mexico. The company repositioned the Channel 7 network for children and young adults, retaining Channel 13 as the flagship network.

During 1999 TV Azteca retained its share of the prime-time audience, but its revenues slumped by 19 percent in real terms, to 4.11 billion pesos ($433.81 million), and it incurred a net loss of 158.96 million pesos ($16.77 million). The company blamed the revenue decline mainly on lower advertising sales in real pesos because it had not adjusted rates to compensate for double-digit inflation. A 36 percent rate increase was announced for 2000. TV Azteca also noted a lack of special events to attract viewers during the year, such as the world soccer championships in Mexico in 1998; thereafter it divested itself of its interest in the Veracruz soccer team. During 1999 Channel 13’s programming was available in 97 percent of Mexican households, while Channel 7’s was reaching 94 percent. All but 39 stations outside Mexico City were retransmitters; the remainder were in other metropolitan areas and were presenting some local content as well. TV Azteca was producing about half of its own programming and, during the year, sold about $20 million worth of its programming, including two telenovelas to Tele-mundo, a U.S.-based Hispanic network. Azteca Music released 32 recordings in 1999.

During the summer of 1999, popular game- and talk-show host Francisco (Paco) Stanley was brazenly gunned down in broad daylight not far from TV Azteca’s studios in Mexico City. The company launched an offensive against the city’s mayor, presidential candidate Cuahtemoc Cardenas, blaming him for the area’s high crime rate. City prosecutors countered by arresting several of Stanley’s colleagues and charging them with the murder. TV Azteca’s image also suffered a blow when Stanley was linked with drug dealers, following the revelation that cocaine had been found in his pocket at the time of the murder. In 2001, however, a judge threw out the case against the defendants.

Controversy continued, as Salinas Pliego enraged minority shareholders of TV Azteca in 1999 by using company funds to buy a 50-percent stake in his low-cost fixed wireless telephone service Unefon S.A., despite repeated pledges earlier not to do so. In 2000 TV Azteca purchased 50 percent of another Salinas company, Todito.com, S.A. de C.V., an Internet portal with the exclusive right to distribute over the Internet all TV Azteca content. Also in 2000, TV Azteca agreed to sell EchoStar Satellite Corp. exclusive rights for three years to transmit Channel 13’s programming to the United States via DTH all-digital satellite technology.

TV Azteca’s most popular new telenovelas in 2000 were Todo por amor (All for Love), El amor no es como lo pintan (Love Isn’t How It’s Painted), LA calle de las novias (The Street of Girlfriends), and Tio Alberto (Uncle Albert). Continuing from 1999 was El candidato (The Candidate), which recalled Nada personal in treating formerly taboo themes such as vote buying and the links between corrupt politicians and police and drug kingpins. The last episode of that series aired three weeks before Mexico’s presidential election. TV Azteca’s most popular talk show during this time was Cosas de la vida (Real Life). Broadcast in the afternoon, it was being seen regularly in 1.5 million of Mexico’s nine million households.

In 2000 Argos severed its links with TV Azteca, frustrated that Salinas Pliego would not allow it to profit from the resale of the programs it produced. TV Azteca then turned to Columbia Pictures Television Inc. and a unit of Pearson plc. The former was to co-produce films, and later, telenovelas, while Pearson was to continue to produce programs for TV Azteca such as the game show La venta incredible (Incredible Sale) and perhaps telenovelas. Meantime, Argos went to work for the Spanish-language U.S. network Telemundo. TV Azteca was planning to join Pappas Telecasting Cos., the largest private owner of U.S. television stations, in a new Spanish-language network, Azteca America Inc., which would debut in 2001, with TV Azteca owning 20 percent. The Salinas Pliego family controlled 62.5 percent of TV Azteca’s shares in 1999, mostly through Azteca Holdings. The company’s long-term liabilities came to 4.04 billion pesos ($425.9 million) at the end of 1999. As management hoped to restore the profits and reputation of TV Azteca to the heights of its 1996 season, efforts were focused primarily on new program development; game show and situation comedy formats were both being explored in the quest to captivate the Mexican audience.