Televisa makes a pure play broadband transition in the Mexican market
Grupo Televisa SAB’s recently announced decision to merge its content unit with Univision will create a Spanish-language content giant and leave a very different company by the name of Televisa in Mexico: a heavily targeted pay-TV and broadband operation seeking to expand its national market share.
The announced $ 4.8 billion transaction with Univision is expected to create the largest producer of Spanish-language media content in the world, with operations in the United States – the largest Spanish-language market by value – and Mexico – the Most populous Spanish-speaking country in the world.
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The deal will also make Televisa a much more streamlined pay and broadband company that will be positioned to expand its reach in its home market of Mexico, where it is already a major player.
Televisa is the leading provider in the Mexican pay-TV market, serving 64.5% of the market in the third quarter of 2020, according to IFT, the Mexican telecommunications regulator. It is also the country’s second-largest fixed-line Internet service provider, with 25% of the market, behind the local América Móvil unit, Telmex.
On the call to discuss the merger with Univision, Televisa co-CEO Alfonso de Angoitia said, “We see a huge opportunity in terms of growth in the broadband market in Mexico. The opportunity is still there. There is still a low penetration of broadband. . “
A growing share of income
Televisa is best known for its Spanish-language television channels and programming, with licensing rights agreements in dozens of countries for its popular soap operas and shows. However, for several years now, its content division has lost its prominent place in the company’s revenue share in favor of its pay-TV and broadband business primarily to Mexico.
Televisa’s content division has grown from being the company’s largest revenue-generating unit in 2015, with 38.1% of the pie, to second, with a 31.2% revenue share at the end of 2020. During the same period, the cable division, which includes izzi-branded hybrid coaxial fiber, or HFC, as well as pay-TV and fiber-optic broadband operations, grew from 31.6% to 43.5 % of turnover, underlining the company’s growing attention to this sector.
Sky’s separate division, which includes the company’s premium direct-to-home streaming service in Mexico and Central America and which began providing fixed wireless broadband connectivity in 2018, has consistently remained above 20% share and closed 2020 with a 21.2% stake. Counting for both the Cable and Sky divisions, Televisa’s broadband and multi-channel operations represent 64.7% of its total revenue.
The “other businesses” unit, which includes live sporting events, casinos and other operations, accounts for an additional 4.1% of the company’s revenue and will also remain under the Televisa umbrella following the content merger with Univision.
With a five-year CAGR of 3.4% from 2015 to 2020, cable is the only division of Televisa to experience an increase in revenue in US dollars since 2015. Sky recorded a decline of 3.1%, mainly due to the loss of DTH momentum in the Latin America region as well as the depreciation of the currency. Content had a negative CAGR of 6.8% over the same five-year period. The smaller unit of the other businesses experienced a larger contraction of 17.2% during the period, mostly affected by the suspension of live events, public places and sports tournaments during the pandemic.
All in all, Televisa’s remaining units as a result of the deal with Univision produced 68.8% of the company’s revenue in 2020, excluding internal inter-unit operations.
Fixed broadband at the head
Televisa’s decision to focus on the broadband side of the business matches a trend identified by Kagan in the region where broadband subscriptions are leading in terms of growth and pay TV is lagging behind in corporate decisions. most customers’ purchase. The broadband market in Latin America and the Caribbean is expected to grow 5.6% in 2021, much faster than the 0.3% expected for the multi-channel segment during the year. For Mexico, Kagan estimates that the multi-channel residential market could grow 1.8% by the end of 2021, while the broadband market is expected to grow 6.8%.
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In the case of Televisa, the company ended 2020 with 6.1 million broadband customers including all of the technology platforms it offers – HFCs, fiber to the home and fixed wireless broadband. Broadband customers have grown 98.8% since 2015, translating into a CAGR of 14.7%.
In contrast, the company’s multi-channel business, offered via DTH, HFC and IPTV, grew 3.7% in those same five years at a CAGR of 0.7%.
“After a period of transition… we will focus primarily on our Mexican connectivity and content distribution business,” de Angoitia added in the call. “After the transaction, we will continue to develop and expand our industry-leading telecommunications business in Mexico, offering the best high-speed Internet access and providing high-quality programming as a content aggregator.
A better financial profile
Televisa’s De Angoitia said the proceeds from the content unit transaction would be used primarily to reduce the company’s debt, but did not disclose how much of the $ 3.0 billion in cash it owed receive would be assigned for this purpose. He did mention, however, that he expects the company’s net leverage ratio, or net debt to EBITDA, to fall below 2 times its 2020 EBITDA of $ 1.77 billion. At the end of 2020, that ratio stood at 2.65x, according to financial data from S&P Global Market Intelligence for Televisa.
De Angoitia also stated that “our high-speed Internet network and our best-in-class content distribution platforms will generate revenues and EBITDA of over $ 3.5 billion and $ 1.3 billion, respectively. So we see a huge opportunity in terms of growth in the broadband market. in Mexico. ”The company’s cable, Sky and other business units generated combined revenue of $ 3.36 billion in 2020.
In terms of capital spending, the company has focused most of its resources on its cable and broadband business over the past several years. In 2019, 68.1% of the company’s $ 992.2 million in investments went to its cable division, while 21.1% went to its Sky division. In 2020, the company invested $ 939.4 million, of which 70.5% went to cable and 26.6% to Sky.