TvyVideo devotes the following paragraphs to some of the macroeconomic predictions of Latin American countries before inquiring into the prospects of our industry in general.
Economic environment
This year could not have been worse in terms of the external shocks that hit the global economy. The war in Iraq and the conflict in the Middle East, the epidemic of atypical pneumonia in Asia and the recurrent political instability in our region, have postponed the reactivation of the world economy after the recession that in one way or another has affected us all since 2000 or earlier.
But for the first time in a long time, the International Monetary Fund (IMF) is reasonably optimistic that the global economy will soon return to normal growth, according to Kenneth Rogoff, an economic adviser and director of the IMF's Research Department. At the Press Conference on September 18, dedicated to the new edition of the World Economic Outlook, Rogoff pointed out that immediate geopolitical uncertainty has diminished, that the aftermath of the bursting of the stock market bubble is disappearing, and that the gigantic stimulus put in place after the slowdown is beginning to be felt. But growth will not be uniform: in the United States and emerging Asian economies, the only thing uncertain is the duration of the rebound, while Europe is struggling to recover, and Japan, despite clear improvements, has not been able to dispel the clouds.
Rogoff declared that "most Europeans who want to see an economic recovery, they must do so on television." Meanwhile, Latin America appears to be experiencing a recovery thanks to strong exports, although domestic demand remains weak.
According to the IMF, the incipient recovery presents a very uneven growth between the different regions of the continent and political instability seriously affects this recovery in certain countries.
The factors reflecting the recovery range from an increase in exports – helped by improved global demand and a substantial devaluation in many currencies – to an increase in risk disposition and expectations for structural changes.
"The recovery, however, is still fragile," the IMF insists in its quarterly report last September. Many risk factors can reverse this trend in several countries and generate contagion in others – although some countries with favorable investment grade, such as Chile and Mexico, seem less vulnerable.
Reviewing the situation of some individual countries reported by the IMF, we find that in Argentina economic activity (including industrial production and construction) is recovering from a very low floor. Inflation remains low and the trade balance has a highly positive balance. Market indicators have remained stable with a substantial appreciation of the peso throughout 2003.
In Brazil, according to the Fund, political optimism has helped build confidence at the economic level and the real has strengthened this year. However, the growth of the economy is still incipient and the country is structurally vulnerable due to its high dependence on debt markets.
Venezuela, on the other hand, presents a radically different perspective. The recovery in oil production is not enough to alleviate a reduction in domestic product of 17% this year and almost 9% the previous year. Political instability affects as much as the need for structural measures to help restore confidence in the non-oil sector. The other Andean countries also face political instability and the demand to reduce economic vulnerability.
According to the IMF, Chile and Mexico have successfully managed to remain immune to the difficulties faced by the rest of the Latin American countries during the last two years. The IMF expects Mexico to recover a good pace of growth due to improvements in economic conditions in the United States. For its part, in Chile, a recovery in domestic demand is anticipated thanks to the good macroeconomic indices in general.
Source: International Monetary Fund: World Economic Outlook, September 2003
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Everyone looks north (and why not the neighbor?)
Traditionally, the television and video industry in Latin America has lived off domestic markets. There are few – although very remarkable – cases in which the export of products has been the productive engine of an organization in this industry. In some cases – perhaps more numerous but no less important – exports constitute an extra income that allows organizations to be more profitable after having covered the costs in the domestic market.
The economic context presented by the IMF shows domestic markets with great depression in almost all our countries, which forces a rethinking of traditional ways of working. Television and video companies that want to be profitable must look outside, or work for the domestic market with a very low cost structure. Both cases require a workflow review.
Arnault Lannuzel, NSO's Manager for South America at Thomson's Grass Valley, described the situation in the region very appropriately: "During the years 2002 and 2003 the region suffered an unprecedented crisis, with increasing pressure on television stations to upgrade their facilities and produce programs to suit viewers. In the field of programming, this generated heavy investments in programs such as reality shows for some and expensive soap opera productions for others. This has been done for the purpose of getting most of an ever-decreasing advertising 'cake'."
Lannuzel argues that a few, among the largest players in the region, will continue to export local productions to foreign markets to counteract the fall of their economies. "Today, programming producers are struggling to export their programs, not only to the traditional Hispanic-American market, but also to new prospects. Unfortunately, despite great efforts on the part of many broadcasters, the biggest challenge remains to maintain their profitability by the end of 2003."
However, according to the macroeconomic indices indicated by the IMF, and the greater activity observed in industry fairs, such as the recent Caper, Lannuzel recognizes that as the economies of Brazil and Argentina recover and stabilize their exchange rate policy thus creating a positive environment, television stations are more willing to invest and positive signs of this trend can already be seen.
A few weeks ago, precisely, Televisa Internacional announced that it has changed its name to Televisa Estudios. The name goes much further. Behind the change there is a whole product strategy to penetrate more international markets (especially the Hispanic market of the United States but also others of the South of America). And behind the product strategy (which includes the development of formats, co-productions, comprehensive promotional solutions, artistic resources, video and DVD and licenses and merchandising), there is a technological base and a production structure in accordance with the company's mission.
It should be noted, however, that the first media organization to glimpse this process was perhaps the Brazilian Globo, which for some years moved its production and post-production operations to the Jacarepaguá production center, near Rio de Janeiro. ProJac, as it is commonly known, has more than 1,300,000 square meters and produces more than 4,000 annual hours of programs that are seen in 130 countries around the world.
A more recent case of reconversion – or rethinking – is that of Telefé, in Argentina, which has just launched its Telefé Servicios division, in order to develop new markets for its products taking advantage of its technological infrastructure, perhaps oversized for the Argentine domestic market.
The products of the television and video industry (call them fiction programs, documentaries, newscasts, live shows, sports, commercials, corporate videos, event videos, or less tangible as a program format, merchandising rights or licenses), are goods that do not occupy a place in an inventory and whose life span can vary between zero and infinity. The cost of producing a tradable good on the market does not determine its price. The cost conditions the possibility of its producer to survive in that market. The price, on the other hand, is determined by the market itself, by the desirability of the product and its quality.
Paradoxes and opportunities of technology
The producer of television and video products is faced with the paradox of having to lower their production costs and, at the same time, offer better quality products that can compete in the international market. Luckily, new technology offerings are getting closer and closer to solving the paradox by becoming surprising opportunities.
This is a glaring phenomenon in the market, as Fernando del Granado, regional marketing manager at Apple Computer, Inc., puts it: "We see a lot of interest in new forms or solutions with a lot of capacity but that are extremely more affordable than what has traditionally been expected to see in this market." Del Granado refers specifically to the interest that the market has shown in the Final Cut Pro solution, an editing tool that, according to Apple, for low cost displaces more expensive systems that were previously necessary or fundamental to obtain professional quality in the industry. "A new wave indicates that it is no longer necessary to invest large sums of money in order to have the most professional quality possible. This is evidenced by the use of Final Cut Pro, even by producers of films that cost many millions of dollars. And even more, the power of this solution with Apple's new G5 hardware really matches and in some cases exceeds the performance of editing suites that cost three or four times as much."
Technological improvements and the increased power of lower-cost video solutions remove many barriers to entering local programming markets. "Just like 15 years ago, when we saw that the publishing and production of the printed graphic market was expanded not only in large publishing houses but also to small companies thanks to desktop publishing, I think we will see something similar in the video and television market," continues Del Granado. Surely more producers and directors will enter the field since they can generate extremely professional quality but without the high cost that had previously prohibited them."
However, the secret of the quality of the productions lies not only in the technological capacity but also in the adoption of workflows consistent with the expected quality. Today, you can produce on DV for a local news program. The quality that viewers expect has to be consistent with the cost structure of the program, both in technology and human resources. If not, it's out of the market. However, it is also not advisable to marry a format of only acceptable quality when a future is glimpsed where video formats will offer much higher standards.
According to Arnault Lannuzel, the greatest guidelines for future technological investments in 2004 and beyond will definitely be access to innovative multi-format SD/HD technologies, which improve the quality of programmes while reducing costs and labour.
"The short-term impact of media profitability is becoming a critical factor in purchasing decision-making," Lannuzel said. Stations will select manufacturers that represent a partner rather than a simple supplier. This involves 1) technical and operational advice on planning and design, 2) affordable integration capacity through the offer of better cost-benefit products, and 3) financing alternatives."
Lannuzel states that the latter point is particularly applicable to the Brazilian market, where many issuers invested heavily in the purchase of share capital in 2003. This resulted in the creation of medium and long-term debts, which stopped technological investments due to lack of financing. "As a result of this new requirement, a restructuring of the market offer to the stations could be expected in the near future. As an illustration, Thomson works closely with its customers in the search for comprehensive solutions."
But the truth is that television stations and video producers demand systems and technologies of high cost-benefit ratio, compact, reliable and with a high degree of scalability to ensure future growth. Systems and technologies that allow them to tackle projects that can be exported but that do not involve an escalation of prices that would leave them out of the market.
"There is a growing demand from foreign markets for HD production, which is expected to produce an interest in multi-format, HD-ready products at all levels within the audiovisual production and post-production chain," confirms the Thomson Grass Valley executive. In anticipation of these changes, we have made significant investments in research and development over the past two years to successfully meet this challenge, for the benefit of our Latin American customers."
The emphasis on scalability towards more advanced formats is confirmed by Fernando del Granado: "I believe that improvements and greater power of lower-cost video solutions compared to more expensive equipment will continue to be seen. The Final Cut Pro solution, previously indicated, is so scalable that a company can work from DV format and, without changing its work platform, make HD productions in the same way."
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