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New Kagan Report: State of Mexican TV Broadcast Sector

Highlights

Despite the many hurdles for broadcast TV in Mexico, the country's love of sports still draws a large television audience.

Mexico has the largest NFL fan base outside of the U.S.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

The Mexican over-the-air TV broadcast sector has many challenges ahead as a sluggish economy combined with government advertising cutbacks constrain ad revenue growth. In addition, the emergence of digital TV platforms and the strength of multichannel TV in Mexico are hurdles facing broadcast television over our five-year projections through 2025.

The Mexican television market has traditionally been highly concentrated with little foreign participation. Grupo Televisa SAB and TV Azteca SAV de CV have historically dominated broadcast TV and are also heavily involved in content production and transmission processes, making for a dense infrastructure and raising entry barriers for outside competition.

In 2018, the FIFA World Cup sporting event boosted the Mexican broadcast TV sector, keeping declines to just 2% year over year. An economic slowdown has led to a pullback from private sector advertisers, resulting in broadcast TV struggling to grow ad dollars. Structural reforms in the Mexican government and anti-corruption initiatives by President Andrés Manuel López Obrador have placed a focus on cutting government ad spending and better management of government ad dollars.

In 2019, we estimate broadcast ad revenue in Mexico further declined to nearly $1.5 billion, a decrease of 7% from nearly $1.7 billion in 2018. Our projections show total ad dollars for broadcast TV will continue to decline over the next few years due to increasing pressure from digital streaming, the government's focus on cost cutting and volatile economic conditions.

Despite the many hurdles for broadcast TV in Mexico, the country's love of sports still draws a large television audience. In 2022, the return of FIFA World Cup soccer is expected to again boost ad revenues for both Televisa and TV Azteca, which share the Mexican broadcast rights to the globally renowned tournament.

Both major broadcasters renewed their TV rights agreements with the Mexican Football Federation, the governing body for soccer in Mexico, in October 2017. The agreement allows them to share coverage of Mexico's men's and women's national teams up to the men's 2026 FIFA World Cup. A renewal clause for these rights will end after 2026, allowing the Mexican Football Federation to seek out and improve the terms.

The NFL is also becoming more popular in Mexico and has approximately 20 million fans in the country, according to a November 2019 report from Forbes. Mexico has the largest NFL fan base outside of the U.S., with nine live games aired per week during the season by Televisa and TV Azteca, which share the Mexican TV rights. Those numbers are likely to grow as the NFL focuses on bringing live games to Mexico, with three regular-season games played at Mexico City's Azteca Stadium in the last four years. In 2018, the game scheduled in Mexico City was moved due to field conditions.

Televisa is the top media company in Mexico and all of Latin America. By owning cable systems, broadcast channels, satellite TV systems and over-the-top services as well as distributing its produced content, it controls the TV ecosystem from beginning to end. Televisa's cable business offers services to residential and commercial customers through five cable multisystem operators as well as one direct-to-home operator and broadband provider in Mexico.

Televisa owns a majority interest in Sky, a DTH satellite pay TV system in Mexico, and a diversified portfolio of assets that includes spectrum licenses, film distribution, soccer, radio and gaming. In addition, Televisa is the largest cable provider in Mexico with its Izzi Telecom umbrella of subsidiaries that consists of Cablevisión México, Cablemás, Cablecom, Cablevisión Red SA de CV and Televisión Internacional SA de CV, or TVI.

Unlike the USA, where political advertising provides a windfall of ad revenue in even/election years, broadcasters in Mexico receive a much smaller boost. Due to the influence of Televisa and TV Azteca within government entities, political ads are heavily regulated and scrutinized by regulatory bodies. In addition, political corruption and fear of retaliation for airing unfavorable political ads are still prevalent.

Even with stringent government regulations, political revenue provides broadcasters in Mexico a small lift in election years. However, political advertising totals on broadcast TV are not reported by the major groups in Mexico, making it difficult to track.

In 2015, the Mexican government awarded licenses to two new national broadcast networks to encourage competition in the sector dominated by Televisa and TV Azteca. Grupo Radio Centro SAB de CV, Mexico's biggest radio broadcaster, received one license. The second license was awarded to Grupo Empresarial Ángeles SA de CV's Grupo Imagen, which owns Mexican newspaper Excelsior, radio stations and some regional TV channels.

Mexico's radio and television industries are overseen by federal antitrust laws as well as conditions and measures imposed by the IFT and Comisión Federal de Competencia Económica, Mexico's antitrust commission. These authorities issue approval to do business with broadcasters, which includes advertising.

Both Televisa and TV Azteca saw government spending on TV dip significantly in 2019 after President López Obrador took office at the end of 2018. On the third-quarter earnings call, Televisa co-CEO Alfonso de Angoitia said he expects government advertising to be down about 50% over the course of 2019.

There are many concerns for broadcast TV in Mexico as viewing habits of audiences are changing. Cord cutting and new over-the-top platforms have led to a migration to digital, albeit at a slower pace than U.S. broadcast TV. In addition, satellite TV has remained strong in Mexico, with a heavy draw from sports content. Perhaps the biggest factor driving broadcast TV concerns is the uncertainty from both public and private sector advertisers, which may or may not see a return on investment if economic conditions do not improve.

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New Kagan Report: State of Mexican TV broadcast sector

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