Televisa Is Refining Its Business, but a Restructuring of the Mexican Broadband Sector Is Needed

Director

Michael Hodel

Not much is going well for Televisa, and the road ahead looks difficult. The firm is focused primarily on Mexican telecom, a highly competitive market that would benefit greatly from consolidation. The firm also holds a minority interest in TelevisaUnivision, the largest Spanish-language media company globally but a small player versus streaming giants like Netflix. We expect Televisa to continue to refine its portfolio as it finds opportunities to improve its competitive position or realize value for shareholders. Still, it doesn’t entirely control the path forward, which will likely cause continued volatility in financial performance and the stock price. 

Televisa used cash flow from its TV broadcasting enterprise to become a major player in Mexico's telecom market, providing broadband, television, and phone services via a handful of subsidiaries under a single brand, Izzi. The firm’s networks can reach nearly 20 million homes, or about half of the Mexican population. However, competition in this market is unusually fierce by global standards. With Televisa, Megacable, and Total Play expanding aggressively over the past couple of years and America Movil upgrading its far-reaching phone network to fiber, three or four players serve many locations across the country. This competition has created pricing pressure and left each firm with too few customers to earn attractive returns on capital. The market needs to consolidate, but only Televisa appears willing and able. 

The TelevisaUnivision venture is a powerhouse in Spanish-language media, putting it in a much stronger position than US media peers like Paramount and NBCUniversal. Still, the firm is also wrestling with the shift from traditional television to streaming. The nascent ViX service has shown promise, reaching 40 million customers monthly, but it remains small versus global rivals in Mexico and the United States. If the streaming business proves less profitable than traditional television, TelevisaUnivision could easily struggle under its large debt load to generate value for Televisa shareholders.

Business Strategy & Outlook

Televisa’s cable business doesn’t hold the same competitive strengths as its US and Canadian peers. Its media joint venture TelevisaUnivision is a dominant player in the Spanish-language market, but it increasingly competes with global giants like Netflix for attention. In aggregate, we no longer believe Televisa possesses an economic moat.

Televisa’s cable business, its most important segment, now reaches nearly 20 million homes and businesses, covering about half of Mexico’s population. Using the same technology as cable peers in the US, Televisa’s networks provide ample capacity to deliver robust broadband speeds while also offering television and phone services. In many parts of Mexico, the firm has historically competed only against America Movil’s inferior legacy phone network. A decade ago, America Movil claimed 75% of the Mexican broadband market versus Televisa’s 10%. By the end of 2020, Televisa had lifted its nationwide share to nearly 27%, with 31% of the homes in its territory using its broadband service. 

Unfortunately for Televisa, America Movil’s indolent network investment and the growth potential of the Mexican broadband market attracted competition. Total Play, a subsidiary of Mexican conglomerate Grupo Salinas, has grown from a niche player to a scaled provider, reaching 17.5 million locations with a fiber-to-the-home network. Cable peer Megacable turned fiercely aggressive in 2021, announcing ambitious network expansion and upgrade plans. Over the past two years, that firm has grown its network footprint by 60% to reach 15.4 million homes and businesses. It plans to reach another 2 million additional locations over the next few years. This activity spurred Movil to action, and the Mexican telecom giant is now deploying fiber across the country.

Few telecom markets globally have proved capable of supporting three broadband providers, let alone four, in a given area. Driving an acceptable return on network investment requires a healthy mix of customer penetration and pricing discipline, which tends to break down when too many players chase customers in each location. Looking at government data, all four of these firms will serve municipal districts covering about one fourth of the Mexican population when Megacable’s expansion plans wrap up. 

The net result of this competitive fervor is that price competition has been fierce in Mexico over the past several years. Average revenue per customer at Televisa has increased less than 3% since 2020, while typical consumer prices in Mexico have surged more than 20%. The firm’s cable segment margins have trended lower over this period as a result. At the same time, the percentage of households connected to Televisa’s networks that take its services has declined, likely reflecting customer losses in older areas and relatively poor performance in the areas the firm has built out more recently. 

The Mexican broadband market is in desperate need of consolidation. Televisa proposed a merger with Megacable in late 2022, but its smaller rival rejected the offer. 

TelevisaUnivision, Televisa’s second most important asset, holds a deep Spanish-language content library, extensive content production capabilities, and broad network reach across the US and Mexico. The firm produces nearly 90,000 hours of content per year, a massive amount that includes entertainment, news, and sports primarily produced very efficiently in Mexico. For context, Netflix produces around 3,500 hours annually across the globe. TelevisaUnivision distributes content through broadcast and cable networks in the US and Mexico and on its streaming service ViX, launched in 2022. About two thirds of revenue is generated in the US with most of the remainder in Mexico.

Revenue at TelevisaUnivision has grown steadily recently, bucking broader industry trends, but costs have also increased to support ViX. EBITDA has declined recently as a result, but the firm’s margin remains above 30%, far superior to nearly every other major media firm. However, the traditional broadcast and cable network business still generates most of the firm’s revenue, which creates a challenge as the pay-TV customer base in the US shrinks. In Mexico, broadcast networks remain dominant, and the pay-TV business is still growing, but we expect the same transition to occur there as has taken place in other parts of the world. 

As global entertainment giants like Netflix, Warner Bros. Discovery, and Disney push more content, including some locally produced, directly to Latin American households, competition for customer attention will likely continue to increase. According to Nielsen, streaming content is rapidly gaining ground in Mexico and now accounts for more than 20% of video consumption. YouTube and Netflix account for the bulk of streaming viewing, but HBO, Disney+, and Amazon Prime also have meaningful share. While TelevisaUnivision says more than 40 million customers use ViX monthly, the streaming service’s shows have yet to show up in Nielsen’s streaming rankings in the US or Mexico. 

We expect TelevisaUnivision will need to step up content investment in the coming years to maintain its relationship with viewers, pressuring margins and returns on capital. At the same time, the firm’s large debt load creates a material risk of value destruction if the transition to streaming falters in the coming years.

Televisa also owns a majority stake in Sky, a satellite television and broadband provider in Mexico. Like its US satellite peers, Sky can deliver services very efficiently with a variable operating cost structure, but its offerings are increasingly inferior to those available over a terrestrial broadband connection. As a result, the business is steeply declining, with its customer base 20% smaller today than two years ago. We believe Sky management is adjusting to the competitive pressures it faces, taking a more targeted approach to marketing and distribution while limiting incremental investment. Still, we expect Sky will struggle to earn acceptable returns on capital.

None

Economic Moat

Grupo Televisa, S.A.B.

Grupo Televisa SAB engages in the provision of media products and services. It operates through the following segments: Content, Sky, Cable, and Other Businesses. The Content segment includes advertising, network subscription revenue and licensing and syndication. The Sky segment includes direct-to-home satellite television system. The Cable segment offers video, high-speed data and voice services to residential and commercial customers, including small- and medium-sized businesses and hotels; and provides telecommunications services, including voice, data, and managed services, to domestic and international carriers and to enterprise, corporate, and government customers. The Other Businesses segment comprises of publishing, gaming, soccer, radio, feature-film distribution, and publishing distribution activities. The company was founded in 1930 and is headquartered in Mexico City, Mexico.

Earnings data Q1 2024

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AT&T

Mexican broadcaster Televisa said on Wednesday it reached an agreement with AT&T for its stake in satellite TV unit Sky Mexico, giving Televisa full control of the firm.

Mexican broadcaster Televisa buys out AT&T for control of Sky satellite TV unit

Grupo Televisa is an undervalued media company with a diverse business model and high barriers to entry. The company focuses on producing Spanish-speaking content and has a large global audience and reach. The cable and Sky segments make up a significant portion of Grupo Televisa's revenue, while other businesses have been spun off into Ollamani.

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