A TV Network Worth Watching
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As suggested by its ticker symbol, Grupo Televisa (NYSE: TV) is a TV network, actually, much more than that. The company owns some of the most valuable Spanish language media assets in the world, and it has a rock solid competitive positioning in Mexico. With a lucrative business including broadcasting, content generation and pay television among others, this media company has plenty to offer to long term investors.
Televisa has the lion's share in the Mexican TV market. The company owns four out of the ten TV stations authorized by the government to operate in Mexico City, as well as many repeater stations which retransmit its programming all over the rest of the country. In comparison, the company's biggest competitor, TV Azteca, owns only two of the stations transmitting from Mexico City.
The company has an extraordinary 70% of the prime time audience on an average weekday in Mexico, so advertisers don´t have much choice, they need to go through Televisa if they want to reach a mass TV audience in the country. This positioning is not only very valuable when dealing with competitors, but also when Televisa has to negotiate with clients or even suppliers.
Televisa has a 59% stake in Sky Television, a direct satellite pay TV service which reaches more than 3.6 million subscribers and is growing rapidly. Adding its participation in three cable TV companies, Televisa reaches more than 50% of the Mexican audience in pay TV.
The company is facing competition in that market from DISH Mexico, which entered the market in 2008 offering low prices and targeting customers with low disposable incomes. Televisa responded to the challenge by lowering its own prices, and it has been successful at keeping total sales growing in spite of the competition, although revenue per user has naturally fallen after the price cuts.
Televisa also produces Spanish language soup operas, called telenovelas, which are very popular and exported to countries like the US, China and Brazil. Through an agreement with Univision, Televisa collects royalties for this content in the US. Televisa made a 1.2 billion investment in Univision during 2010 which gives Televisa a 5% stake in the business in addition to debentures which can be converted into another 30% and options for an extra 5% equity stake in Univision.
Over the years Televisa has been able to translate its dominant market position into growing revenues, and healthy profit margins. Even during years like 2008 and 2009 which were really problematic for the media industry due to declining advertising spending all over the world, the company delivered increasing sales and stable profitability.
From a valuation point of view, Televisa is more expensive than other companies in the industry like Time Warner (NYSE: TWX), Viacom (NASDAQ: VIAB) and Discovery Communications (NASDAQ: DISCA). But Televisa certainly deserves a premium based on its outstanding competitive position, so this higher P/E multiple seems justified.
Shares of Televisa can be volatile, and US investors would be exposed to the effects of a fluctuating Mexican Peso on the company´s results. Over the long term, however, the company´s strength should translate into attractive returns for shareholders. This Mexican media empire looks like an interesting proposition, so stay tuned.
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