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Mexico City • TV Azteca, the underdog that shook up Mexico's television industry more than two decades ago, is now the one being challenged as new broadcasters prepare to enter the market.
Billionaire Ricardo Salinas purchased the state-owned broadcaster in 1993 to compete with Grupo Televisa, and today the company reaches three out of 10 Mexican TV viewers with soap operas and musical talent shows. After years of Azteca and Televisa dominating the TV industry, Mexico's regulator is now accelerating plans to auction off two new broadcast networks by March.
While shared rights to the World Cup boosted Azteca's advertising revenue this year, the company will now have to compete with more networks to attract marketers and acquire rights for TV shows, leading to lower ad rates and less content to purchase.
Barclays projects Azteca's sales growth will slow to 1.6 percent and 1 percent in the next two years, down from an estimated 7.9 percent jump this year. Azteca depended on advertisers for about 91 percent of its revenue last year.
Azteca "will be impacted more if these two new channels are successful," said Gilberto Garcia, a Mexico City-based analyst with Barclays. "The company hasn't signaled a radical change in strategy, and in Mexico, there's a relative shortage of content up for grabs."
Azteca's stock had fallen 15 percent this year since Mexico's telecommunications regulator approved new rules to boost competition, including the auction of two national broadcast networks.
The auction is designed to give viewers more options on the TV dial, born out of President Enrique Pena Nieto's push to increase competition in the highly-concentrated industry. Televisa, run by billionaire Emilio Azcarraga, has loomed over Mexico's media landscape for half a century and draws about 70 percent of the country's TV viewers.
Mexico's Federal Telecommunications Institute, known as IFT, said last month that it plans to select winning bidders for the new networks by the end of March, instead of the end of June as originally planned. At least five parties have expressed interest in participating in the auction, the IFT said last month, declining to provide more information.
Billionaire German Larrea, who controls Mexico's biggest mining company, resigned from Televisa's board last month to avoid a potential conflict of interest because he intends to participate in the auction.
In addition to the new networks being introduced, Televisa and Azteca have also been forced by regulators to offer up their two most popular channels to cable and satellite operators for free. That's made advertising income even more crucial to the network owners.
"The pressure will depend on how soon these operators can bring in new content, how far they can reach and how much that content pleases the Mexican audience," said Alexis Milo, chief Mexico economist at Deutsche Bank AG and the former commissioner of Mexico's Federal Telecommunications Commission.
Televisa, as the largest maker of Spanish content in the world, has a strong grip on the advertising market, Barclays's Garcia said. The company produced 90,500 hours of shows, movies and telenovelas in 2012 and exported 92,877 hours of it overseas.
Salinas' operator depends more on third-party material, producing 70 percent of the content for its channel 13 and only 29 percent for channel 7.
Once the two new channels are fully operational, buying the rights to popular content may get more competitive, according to Garcia. That could mean more bidders vying for prime-time hits such as Avenida Brasil, the telenovela that tells the story of a young woman exacting revenge on her gold-digging stepmother. Azteca acquired the telenovela from Brazil's Globo Comunicacao & Participacoes.
Roberto Romagnoli, TV Azteca's Entertainment Director, said the channel's production capacity and quality of content means the company is prepared for the new rivals.
"Nowadays we have global chains seeking us to co- produce," he said in a brief interview at an event last week at Azteca Novelas' headquarters in Southern Mexico City, surrounded by studio sets filled with props like phone booths and bed frames. "Mexico is one of the best markets to make television."
Azteca is in favor of competition and always has been, according to an e-mailed statement from the company. Since starting to broadcast more than two decades ago, consolidation has given Azteca the confidence to compete with more players, according to the statement.
A press official for Televisa declined to comment.
Televisa's other advantage is that it has the most pay-TV subscribers in the nation. Its recent acquisition of Cablecom SA added at least 840,000 new video customers to the 8.9 million subscribers it already serves through cable and satellite units.
Salinas has been investing in other countries to hedge against Mexico's push for more competition. Azteca is finalizing the deployment of a nationwide fiber-optic network to offer telecommunications, banking and retail services in Colombia, and was awarded a similar contract in Peru at the end of last year.
More players in over-the-air TV will encourage companies to compete in new ways, IFT's President Gabriel Contreras said at an event in Mexico City last week. For example, Salinas last year acquired Blockbuster Mexico, which could promote other branches of his empire, including Azteca's original video content and the Totalmovie pay-per-view movie system.
The success of the two new channels — and resulting impact on Azteca — may also hinge on the success of Mexico's push to switch consumer to digital transmissions, Deutsche Bank's Milo said. The new networks will only be distributed digitally, meaning they will reach a smaller audience than Televisa and Azteca until the transition is complete.
The government is giving away free high-definition televisions to low-income households to speed the switch, which it expects to complete by the end of next year.
While Azteca has the most to lose, IFT's Contreras has been more focused on the benefits to TV viewers of having more competition in the industry.
"Right now we have such a concentrated market in over-the- air TV," Contreras said. "What will this generate? Better competition for content and better business models. I see no adverse effect."