Cable television in Latin America (First installment)

Latin America is a conglomerate of economic and cultural situations so diverse that pay television has developed very unevenly. While countries such as Argentina, Chile and Brazil experienced greater growth in recent years, entrepreneurs in Mexico continue to consider that the impact of the devaluation of the peso has affected them considerably. While many are confident of recovery, they agree that next year will be difficult for those who run the cable business in the country. Venezuela is going through a very similar situation today.

One of the leading cable TV providers, Scientific Atlanta (S-A) has doubled its revenue in Latin America in the last three years. Sales have been evenly distributed among set-top boxes, distribution equipment and amplifiers. Most of S-A's business comes from Mexico and Argentina, although there is still a lot of market to gain. In Argentina it is clear that cable television is a business that grows faster than telephony. Cable TV subscribers are increasing by 22% a year while telephony is growing at 12% a year.

S-A's competitor, General Instrument Corp., has similar success. The company doubled its revenue in Latin America in the previous two years, with sales spread over approximately 60% for set-top boxes and equipment and 40% for distribution equipment.

If anyone still doubts the immense upward potential of the cable market in Latin America, they should look more closely at the figures of the latest audience research requested by LACTAP (Association of the 16 most important cable TV networks and 12 more companies that negotiate in the region), conducted by Audits&Surveys: The media and markets of Latin America.

The study included the main countries taking into account the size of their population or purchasing power. These sample sizes, although small, present strong data that the distribution of satellite and multichannel cable television in Central and South America is a business that came of age. A total of 5,767 interviews were conducted. The universe included in the study reaches 274 million people, 90% of the total population of the region, estimated at 305 million people.

Among the results affecting the pay-TV industry it is worth mentioning the following:

• 98% of households in the areas covered by the studio have TV, with a penetration level of 92%. 12% of respondents reported that they had some cable connection (9.8 million) and an additional 4% (3 million) reported that they received multichannel signals through other systems. A multichannel home was defined as one that receives other television signals in addition to those of free-to-air TV through different sources: cable, satellite, microwave. Twelve million households with multi-channel reception receive at least one of the 26 international cable channels.

• Most multichannel homes are connected by cable. In Mexico, the number of residences with this system is approximately 2.5 million, representing 26% of the total number of households with cable TV in Latin America. Countries like Venezuela and Colombia are still heavily influenced by the satellite footprint of U.S. Argentina, with higher incomes, with higher monthly cost. It contributes 40% of the total cable in the region. In Colombia, with lower incomes, satellite reception predominates, more economical.

• Cable penetration is highest in homes with children and large families.

• On average, the reported cost for all systems is $13 per month. Wired households, however, pay a monthly average of $15.60, while those receiving satellite signals pay an average of $4.

• At the top of the most watched channels is HBO Olé. It is followed by Carton Networks, The Discovery Channel América Latina, Cinemax, ESPN, MTV Latino, TNT, ECO, CNN International, Cinecanal, Fox, Canal de Noticia (not specified) and USA Network.

• News programs are at the top of preferences in the category of program genre. The percentage of news reaches 67%. It is followed, in that order, by music 55%, sports 54%, comedies 53%, telenovelas 51%, documentaries 46%, classic films 43%, and game programs 43%.

A question that arises in the face of the insistence of telephone companies to enter the business and the perspective of old and new competitors: free-to-air reception TV, satellites (DTH), wireless systems (MMDS-UHF) and online services (Internet-Web), is what future awaits cable television?

Cable operators will have to direct much of their capital to convert fiber optic networks, accelerating the convergence of telephone and television services. In this way, in addition to the programming channels, new services, such as data transmission, will be possible. What is clear is that both telephony and television, online services and computing, will cease to be isolated entities, each offering a service. In the future they will share them.

If the expansion and privatization process of several Latin American telephone companies continues, in a short time they will be able to offer video services, competing with the current cable and wireless systems (MMDS and UHF). Of course, this development will not be uniform, since countries such as Colombia, Brazil and Peru, to name a few, have very reduced telephone services that will not be able to meet the demand. In the case of Chile, Argentina, Ecuador, much progress has already been made in the process seeking to offer multiple services.

The imminent appearance of direct satellite TV will force cable television to reassess its situation and to face differently the relationship with the user, who will have the option to choose.

Very surely at the close of this edition there will already be new news about the definitive date of initiation of the two most important DTH programs for Latin America.

Galaxy Latin America: partnership of Hughes Communications of the USA (subsidiary of General Motors) with the groups of MVS Multivisión of Mexico, Organización Diego Cisneros of Venezuela and TVA (Televisión Abril) of Brazil. The Galaxy that duplicates the DTH technology developed in the United States, has budgeted the launch of the G III R satellite for December 15, starting the service immediately for the partner countries, Mexico, Venezuela and Brazil. 45 days later it will be increased to Argentina and Chile and before the end of 1996 it will be in Colombia, Peru and Ecuador.

Galavisión: Consortium between News Corp., Brazil's Globo, Mexico's Televisa and PanAmSat, is facing the fact that Galaxy enters the market first (which so far seems very likely). According to the latest reports, News Corp., is in talks with Televisa about the incorporation of a new Mexican partner in the project. One possibility could be Clemente Serna, who is still working on his DTH Medcom project for Mexico, with an unknown North American partner.

Despite all expectations, DTH or DBS still has many issues to solve. Those who promote satellite television projects do not present them as competition to terrestrial systems, but as an alternative for those regions where it is not economical to lay networks or offer signals over the air. However, such an attitude would mean giving up some of the most attractive segments of the market. In addition, there is a high percentage of current cable users unhappy with the service willing to change. Hence, one of the factors most feared by cable operators is that DTH manages to obtain superior transmission quality, without signal cuts and failures, so frequent in the terrestrial system.

But DTH also has weaknesses: it offers incompatible technologies, forcing the user who wants to hire two different DTH services, to buy two antennas and two decoders. In addition, there are those who believe that the purchasing power of the population of Latin America will not easily adopt a system that involves acquiring equipment of 700 dollars. However, it is expected that over time this price will decrease.

Both the production, programming and distribution companies will benefit the most from this process of change. Currently cable systems offer on average 20 to 40 channels, while satellite systems promise to go on the market with 120 or 150 channels. There is no doubt that tons of programs of various genres will be needed to meet the demand.

Perhaps cable television's most powerful tool is local and regional programming. In fact, because the countries of the region differ so much from each other, seeking and developing specially designed regional content is an essential strategy for entrepreneurs.

The viewer wants to see their own reality reflected on the screen. DTH systems will have difficulty going beyond national channels, and these will not be able to handle local issues, it will be up to pay-TV systems and local free-to-air TV to collect material of interest in the area.