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The Dinero Dynamos

3/13/2005 7:00 PM Eastern

At first blush, the challenges seem steep for the myriad of Hispanic channels vying for advertising dollars. Sure, Madison Avenue has taken note of the booming population growth and buying power among Hispanics. But the 75 or more channels aiming for Latino viewers in the U.S. far outnumber the available capacity on cable and satellite platforms. And because most are still battling for significant distribution, only six are currently tracked by Nielsen Media Research.

Yet executives at several Hispanic networks say ad revenues are doing just fine, thank you very much.

According to the networks — which fall into three categories, newly launched, emerging and long-established — 20% to 30% revenue growth for 2004 over 2003 is not uncommon. Three-year-old Azteca America says it was up 35% last year. CNN en Español reports 30% growth for 2004 — nearly double its expectations. And looking out longer term, Fox Sports en Español claims 1,500% growth over the past five years. Newbie SíTV, launched in 2004, boasts a 250% ad spurt over the last year.

Don’t write these numbers off as a nowhere-to-go-but-up bloom. Consider Telemundo. The network reports 31% upfront increases for the 2004/2005 season.

Univision Communications Inc. officials couldn’t be reached for this story. But Guzman & Co. senior equity analyst Philip Remek notes significant double-digit increases for Univision’s trio of networks, even though they reported weak fourth-quarter scatter sales.

“Univision’s internal growth for the fourth quarter was up 4.4%, with a 10.7% increase in television revenue growth for [fiscal year] 2004,” Guzman says, “Its ratings are higher, and its viewers — particularly for TeleFutura — are growing.” By comparison, advertising expenditure across all media rose 6.3% last year, according to Nielsen Monitor Plus.

“Hispanic networks are seeing significant increases every year,” says Laura Marella, former media director and now chief growth officer of new business for Los Angeles-based ad agency Casanova Pendrill.

“I see upfront increases of up to 15%,” Marella says. “Hispanic networks only got into it in 1996 and 1997. Now, 70% of the money spent on Hispanic networks is done in the upfront, while scatter dollars [tend to be] new dollars coming into that market.”

Leon Potasinki, senior vice president of marketing services at ad agency La Agencia de Orci, says, “Whether it’s Azteca, CNN en Español, Fox Sports, Mun 2, SíTV, they are all successful because the marketplace still has more room to grow.

“Hispanic-network and cable-revenue growth are outpacing general-market television because new advertisers want in, and long-time advertisers already supporting Hispanic television are spending more,” he adds.

According to the Association of Hispanic Advertising Agencies, hefty double-digit increases from 2002 to 2003 for both print and TV were common among the top 20 advertisers ranked by Hispanic spending — from 20.9 % for Sears, Roebuck and Co. and 24.9 % for AT&T Corp. to 100% for Americatel Corp. and 66.6 % for Bally Total Fitness — in their most recent tabulations.

Marella says pharmaceutical companies, once “nonexistent” on Hispanic networks, “are now among the fastest growing.” Financial services firms have stepped up, so have interactive services like Priceline.com and movie houses, she says. “There will always be advertisers who intentionally don’t — but really very few.”

“I think all of them will catch on,” says Monica Gadsby, managing director of Tapestry, the Hispanic arm of ad agency Starcom MediaVest Group.

Among the converted is General Motors Corp., which has become Azteca America’s biggest sponsor of soccer. The automaker now provides product placement during halftime of Azteca’s coverage of eight Mexican League soccer teams.

Azteca America president Carlos de la Garza insists its unique Mexican-American demographic is what’s driving advertisers like Procter & Gamble Co., The Allstate Corp., Marshalls and Colgate-Palmolive Co. to the network. “Sixty-five percent of all Latino-Americans are Mexican,” de la Garza says.

Meanwhile, Telemundo recently announced deals with Home Depot to sponsor its first shelter show, which debuted in February. And Lowe’s will sponsor a new do-it-yourself program Lo Dejo en Tus Manos (Leave it in Your Hands).

“We are creating value for our advertisers,” says Steve Mandala, executive vice president of network sales at Telemundo and its sister service Mun2. “We not only have spot advertising, but we have brands integrated into our show content. We’ve been doing that for a lot of years, only now we work hand in hand with [Telemundo parent] NBC Universal.”

According to Mandala, growth areas for Telemundo include movies, new car purchases and pharmaceuticals, a niche, he says, that is “still lagging far behind, but with a large opportunity to grow.

“This year, Mun2 increased its number of advertisers by 20%,” Mandala says.

Fox Sports in Español has had its own ad success. “We had 14 advertisers in 1999,” says Tom Maney, senior vice president of ad sales at the network. “We now have 80, including all aspects of high-end stuff: automotive, domestic and import; insurance, including Allstate; consumer electronics [stores] such as Best Buy and Radio Shack; financial services like Visa and MasterCard; wireless products from Cingular and Verizon. Plus, there’s been tremendous growth in [fast-food restaurants]: McDonalds, Burger King, Dominos.”

The reason for this growth, according to Maney: “Because it is so cool to be Latino. Take a look at the recent Grammy Awards. You had Jennifer Lopez and Marc Anthony singing their entire duet in Spanish. That’s very indicative.”

Fox Sports, like Telemundo, has Nielsen chops. It’s had ratings since 2003 and boasts a 7.5 million-household cable and satellite reach.

“Soccer is a huge ratings draw for us,” Maney says. “Toyota, which is the event sponsor for the Copa Libertadores in Latin America, is the exclusive auto sponsor for us in the U.S.”

DIRECT-RESPONSE BOOST

The situation is quite different at CNN en Español, which is not measured by Nielsen and has far less distribution (currently 2.6 million households). According to the network, 70% to 80% of the network’s ad dollars come from direct response, generated exclusively by WorldLink.

“Direct response doesn’t need Nielsen to move product,” says Dan Casey, executive vice president of sales and marketing for WorldLink. “They’ve got telephones.”

“All Spanish language networks except Univision use direct response,” Casey says, adding even Univision will run 60-second spots that include an 800 number. It’s the percentages that vary.

Telemundo reports that only 10% of its ad revenue comes from direct response; Azteca, 12%; and CNN en Español began at 70% to 80% and is now down to 50%. Fox Sports en Español attributes 20% to direct response; Mun 2, 20%; and SiTV, 60% to 80%. La Familia, launched in 2002, and with only 400,000 subscribers, candidly reports “At this point, the vast majority of our advertising comes from direct response.”

More than likely, WorldLink plays a significant role in that. The company is the largest independent rep firm serving the Hispanic market and one of the few specializing in the sale of direct response television time. It expects billings of between $130 and $135 million gross sales in 2005 — $25 million of that coming from Hispanic-network direct response ads.

“More and more Hispanic channels are coming on the scene and need to generate more money in dayparts that aren’t selling too well,” Casey says.

But there are limits. “CNN en Español said from the start we would not accept infomercials, but would take two-minute and 60-second commercials,” says CNN en Español senior vice president Chris Crommett, who joined Casey in a phone interview, underscoring the close relationship WorldLink enjoys with its network clients.

“We have pretty stringent standards, Crommett says. “We don’t run unsubstantiated health claims or companies guaranteeing extraordinary returns on an investment. The CNN brand has a halo effect, and we needed to assure credible, reliable direct response products from the get go.”

According to Crommett, health and fitness products and financial products are doing quite well, along with Spanish-language spots for the U.S. Army and Ronco Inventions LLC. “The way to evaluate DR success is if they keep coming back,” Crommett adds. “The majority of our direct-response advertisers came in early and have stayed.”

SíTV, now in over 7 million households, and barely a year old, generates two-thirds of its ad-revenue base from direct response, but that’s “the typical cable start-up model,” according to Steve Levin, the network’s senior vice president of ad sales.

English-language SíTV grew from an advertiser base of two to 31 in a year. They include Burger King (with product placement in four shows), Colgate, GM, Geico, Honda, Tecate Beer, Wal-Mart and Suzuki, current sponsor of SíTV’s All Tricked Out auto makeover show.

Since SíTV is in English, why should an advertiser go there instead of MTV: Music Television’s Pimp My Ride?

“Because we’re totally in the culture and of the culture,” Levin responds. “Our core audience is Latino and Latina.

FREE VOD FACTOR

Access is just as critical as authenticity. Free video on demand can have both positive and negative implications for those attracting ad dollars. While some channels strike deals with cable operators to supply free VOD programming in addition to their linear services, some are getting an initial berth only in the free VOD window, which garner limited viewer attention.

SíTV has started testing free VOD carriage on Time Warner Cable’s Los Angeles system. According to Levin, “It’s an added plus to our distribution and it can be used to shoehorn us into further (carriage) deals.”

Levin says he sees no conflict for advertisers because “we’re not running the same programs on free VOD. The only way you can get original SíTV programming is through ad-supported cable,” he says.

For La Familia, free VOD is a “mixed blessing,” according to John Roos, senior vice marketing at La Familia’s owner The Inspiration Networks. “While it provides distribution, it also impacts the ability to generate full-time subscribers. New Hispanic networks like La Familia have many obstacles to overcome, and free VOD impacts the ability to generate the kind of distribution — and thus advertising — necessary for long-term growth.”

Roos notes that much of La Familia’s distribution is on tiers, “which restricts the number of households receiving La Familia.” He adds: “Advertising for Hispanic cable networks is still evolving, and it is difficult for new, emerging networks like La Familia to receive attention from agencies and advertisers.”

In a world of so many Hispanic channels, there’s little doubt that there are plenty of other networks that are trying to get their sea legs. But Casanova Pendrill’s Marella gives an assessment of the market that should make them take heart. “It’s less a question today of whether to advertise on Hispanic networks, but how,” she says.

September