Rajagopal. Marketing Dynamics: Theory and Practice
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Marketing Dynamics: Theory and Practice
REFERENCES
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Case 6.1
PENETRATING MEDIA MARKET ACROSS THE BOUNDARIES: THE STRATEGY
OF AZTECA AMERICA
6
“…….. One by one, the men of extravagant vision and exaggerated showmanship
have been toppled from the upper ranks of the world’s media giants. This trooping of
grey faces into the unruly media world marks a distinct change of mood. Talk of
“vision”, “synergy” or “new paradigms” is out; the daily grind of evaluating and
improving operating performance is paramount. The need to return to the basics of
the business….”
Peter Chernin, The News Corporation
TV Azteca is one of the world’s two largest producers of Spanish-language television
programming. It operates two national television networks through 554 transmitters across the
country: the family-driven Azteca 13 and the youth-focused Azteca 7, covering 97% and 95% of
Mexican households, respectively. TV Azteca also operates two international networks: Azteca
International, which reaches 13 countries in Central and South America; and Azteca America,
the fastest growing Hispanic television network in the United States, covering more than 70%
of the US Hispanic population. In 2003, TV Azteca celebrated its tenth anniversary. TV Azteca’s
mission is to create shareholder value by producing and distributing the best Spanish-language
television content in the world. In 2002, the company produced 8,110 hours of television
programming in proven formats-popular stories/soaps, entertainment, sports, reality shows and
newscasts. The quality of TV Azteca’s programming is evidenced by its steadily growing share
of the Mexican audience and its equal success abroad. TV Azteca’s most successful popular
stories/soaps, which are distributed to about 90 countries, now capture 60% audience share in
the Philippines, and 30% in Spain.
6 The case has been developed by Rajagopal, Professor of Marketing, Business Division, ITESM-CCM,
Mexico City Campus, Mexico City 14380 DF ( E-mail : rajagopal@itesm.mx )
This case has been written as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation of the company.
Author acknowledges the academic contribution of Mr Jorge Arturo Rodriguez N, student of the
course on Advanced Selling System and marketing executive of Television Azteca, Mexico; Gabriela
Gomez, Angelica Ramirez and Angela Segura of the above course in conducting the investigation
and presenting the case as a part fulfilment of the course in the January-April 2003 trimester of
Graduate Program of ITESM-CCM.
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INTERNATIONAL TREND OF TELEVISION INDUSTRY
Fourth Estate has been growing very fast and the print and television industry has been regarded as
the pivot of contemporary business economics. The television media entertainment companies have
increased manifold in two broad categories-TV channels and cable operating companies across the
countries with intense competition. In the May sweeps, Nielsen’s numbers showed that for the first
time, more folks were watching cable TV in prime time than were tuned to the four largest networks.
The cable guys increased their audience to 49%, while viewership for the major four US television
companies - ABC, CBS, Fox, and NBC slipped to just 47% of the overall audience.
7
Entertainment
companies therefore, need certain qualities like readiness to take big risks, laser-quick reactions to
fickle changes of taste, and a supreme confidence in their own gut instincts—all virtue. “Show
business doesn’t attract leaders, who know how to listen properly or leave people alone,” comments
Roger Fransecky, head of the Apogee Group, which advises many media bosses. “But when you
manage creative people, you must intrude carefully.” The HBO company shows that it is possible
even for a vast corporation to retain an edgy creative outfit that achieves both critical and commercial
success.
8
The secret has been twofold: the creation of a small boutique-like identity within a huge
corporate institution; and the granting of creative independence within a tightly controlled operation.
The television industry in US seems to be promising as the advertising recovery has been observed
at fast pace. The results look promising, with U.S. ad sales projected to rise 5.3% in 2003, more than
double the prior year’s 2.6% hike.
9
Despite the slump in overall ad spending, agencies that target
Hispanic consumers are scrambling to keep up with ever-growing campaigns.
A large number of advertisement buyers are moaning that advertising budgets for the big guys,
including auto makers and financial institutions, are being slashed by as much as 20%. The free-
spending dot-coms are no longer in business, the ad folks say, so fewer dollars are chasing TV
commercials. “It is an ad recession,” says Andrew Donchin, senior vice-president of Carat USA, an
advertising agency whose clients include New Line Cinema, Midas Muffler, and RadioShack. He
predicts the amount being bought in the upfront season will be off 6% to 10%. Hispanic Americans
constitute a bigger, more widely dispersed, and more affluent market. The survey showed that the
number of U.S. Hispanics grew by 58% in the past decade, to 35.3 million. Moreover, Hispanics’
buying power increased 118%, to $ 452 billion, from 1990 and 2001, according to the University of
Georgia’s Selig Center for Economic Growth. That far outpaced the 68% growth in non-Hispanic
buying power, to $ 6.6 trillion.
10
Advertisers take little solace in the fact that they get “make goods”
— free ads in other parts of the network schedule to compensate for ratings below what the networks
promised. That’s one reason why advertisers have been lapping up cable TV in recent years, increasing
their upfront spending by 24%, to $ 5 billion, for prime-time spots on cable in 2000. People still pay for
cable because they get better reception, but without ads cable probably wouldn’t be very profitable.
7 Nielsen Universal Estimates, 2002 quoted in Get Set for Nights.., Business Week, May 29, 2002
8 How to Manage the Dream Factory, The Economist (print edition), Jan 16th 2003
9 Business Week, December 30, 2002
10 Aixa M. Pascual and Gerry Khermouch : No Ad Recession for Hispanic Marketers, Business Week,
February 19, 2002
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The e-business portals, internet search engines and virtual entertainment shops have been becoming
the potential threats to the TV companies in fetching earning from advertising agencies. The positive
reinforcement of traditional media and online media consumption reflects both the power of cross
media marketing, and the fact that the Internet is a logical channel for TV/Print/Radio prompted
transactions.
Mergers and acquisitions in the media industry seems likely to accelerate following a US court
decision removing the rule prohibiting media companies from owning cable systems and local
broadcasters in the same market. More than 100 media companies around the world have upward of
$1 billion in revenues, and the entertainment and media businesses are still fragmented compared
with other industries such as pharmaceuticals and aerospace.
11
COMPANY BACKGROUND AND TIME LINE
Azteca America is the wholly-owned subsidiary of TV Azteca’s Spanish-language broadcasting
network for the US Hispanic market. The network supplies the best of TV Azteca’s programming
content to U.S. affiliates from different top Hispanic genres –popular stories/soaps, news, sports and
entertainment, talk shows, etc.- 24 hours a day, seven days a week as well as network and national
spot sales. The Azteca America Network’s current affiliates include KAZA-TV (Channel 54) in Los
Angeles, CA; KUVR-TV (Channel 68) in Reno, NV; KTNC-TV (Channel 42) which covers the
markets of San Francisco, Oakland, San Jose, Sacramento, Stockton and Modesto, CA; KAZH-TV
(Channel 57) in Houston, TX. Each affiliate directs its efforts on local market sales and distribution.
Azteca America Network also holds an equity interest in some of its strategic affiliates; that helps to
ensure a seamless interaction with, and knowledge of, local markets. Through these affiliates, Azteca
America can now bring its programming to roughly 28% of the U.S. Hispanic audience, estimated to
be in excess of 35 million. Azteca America will continue pursuing affiliations, acquisitions and lease-
management agreements in order to grow its coverage of the US Hispanic market. To date, audience
results, in the key markets it has entered, have been encouraging. Azteca America supplies the best
of TV Azteca’s programming content to U.S. affiliates from different genres
TV Azteca, the second private TV network of importance in Mexico in November 1997, made
an offer to acquire Telemundo, an important television network in the Hispanic US market. But
Telemundo was sold to a company formed by Sony, Liberty, Bastión and Apollo for 776 US million
dollars. By April 1998, in Las Vegas, Ricardo B. Salinas Pliego, the owner of TV Azteca and Salinas
Group, met Harry Pappas, from the Pappas Telecasting Group. They signed a proposal document to
conform a new company and create a Spanish Network Television for the USA. TV Azteca, along
with Pappas Telecasting Group, further proposed to acquire Telemundo during mid 1999, which
could not be materialized. Therefore, the new society organized by TV Azteca and the Pappa’s
Group decided to continue on planning the launch of the new Spanish Television Network. In March,
1999, the TV Azteca signed an agreement with Echostar that allowed this company to broadcast
Mexico’s channel 13 signal in the USA. Thus, the first image of TV Azteca arrived in USA and
11 Media Mergers: The Wave Rolls On, The McKinsey Quarterly, No.2, 2002
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people began to recognize the new signal. This partnership deal has set the gateway for expansion of
the media and entertainment industry across boundaries. The deal reflected that the TV Azteca
would get in exchange of the new channel’s telecast of programs, a 20% of the new company’s
capital. The marketing of new programs, generating sales through advertisement are the principal
resources for generating capital in the new company, which was named as Azteca America. Mr.
Luis Echarte took over as CEO of the company to meet the challenge thereof.
Pappas group proposed to acquire some television stations in the principal Hispanic markets in
America on the basis of financial credibility of the company. In June 2001, the original agreements
came into force that envisaged that the TV Azteca would own the company while Pappas group
would retain the property of the television stations. In order to establish the alliances with the television
stations, the company decided that every station would be able to receive the transmission signals of
Azteca America under the agreement of revenue sharing of 50 percent from each party. Finally,
Azteca America commissioned its transmission in Los Angeles and California during December
2001. Later the transmission was extended to Reno and Navada areas also. In May –June 2002, the
first non-Pappa’s group television stations were merged into the network of Azteca.
HISPANIC MARKET IN THE US
US Hispanic Market is an important market. If it could be compared with a country, it would represent
the largest economy in Latin America with over $560 billion in purchasing power and over 38 million
people at the close of 2001. This market is huge, both in terms of population and economic power.
The largest minority group in the US is also the fastest growing one. Between 1990 and 2000, the
Hispanic population increased by 58%, about eight times the average growth of the rest of the US
population. Within this period, Hispanics accounted for 40% of total US Hispanic growth. The rest of
the growth is explained by immigration factors. The Hispanic population is also highly metropolitan,
an easy group to reach – if you
speak the language, and know
the culture. Of the population, 15
cities concentrate two thirds of
all Hispanics, and 25 cities
represent more than three
quarters. Of the top 15 and 25
cities, Azteca America has a
coverage of eight and seven,
respectively. The major
Hispanic markets in USA are
exhibited in Box 1.
Demography of the Hispanic
population has a phenomenal
standing in US. Hispanic
households are younger in age
and larger in number. The typical
Box 1: Major Hispanic markets in USA
Ten Largest Hispanic Business Ten Largest Hispanic Business
Markets in the U.S. Markets in Texas
Los Angeles, CA Houston
New York, NY San Antonio
Houston, TX El Paso
Miami, FL Dallas
San Antonio, TX Corpus Christi
El Paso, TX Laredo
Dallas / Fort Worth, TX Austin
Hialeah, FL Brownsville
Chicago,IL McAllen
San Diego, CA Forth Worth
Source: U.S. Department of Commerce 1990 Census Report.
1992 Economic Census, and 1994 Census Project Survey.
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Hispanic household is roughly 40% larger than the average US household. According to 2000 census
data, 36% of Hispanic were under 18 years old, versus 24% for Caucasians. The median age of
Hispanics is 26 years, versus 38 years for Caucasians and 30 years for African-Americans. The
typical Hispanic household has nearly twice as many children under age 18, and 50% fewer persons
over 65 years old compared to average US households.
Established Hispanic markets like New York, Los Angeles, Miami, and Chicago are still posting
the largest absolute gains in Hispanics. But the fastest growth is happening in what the Pew Study
calls “New Latino Destinations” - markets like Atlanta, Orlando, and Broward County (Ft. Lauderdale
PMSA). In fact, an astonishing 61 of the top 100 markets fell into this category: i.e., markets with a
relatively small base of Hispanics, but explosive growth between 1990 and 2000. Some of the other
61 “New Latino Destinations” with the most dramatic increases in Hispanic share are:
- Bergen-Passaic, NJ PMSA (11% Hispanics in 1990 to 17% in 2000)
- Fort Worth-Arlington, TX PMSA (11% to 18%)
- Las Vegas, NV MSA (10% to 21%)
- Nassau-Suffolk, NY PMSA (6% to 10%)
- New Haven, CT PMSA (6% to 10%)
- Salt Lake City, UT MSA (6% to 11%)
- Raleigh-Durham, NC MSA (1% to 6%)
- Springfield, MA MSA (8% to 13%)
- Washington, D.C. PMSA (5% to 9%)
- West Palm Beach, FL MSA (8% to 12%)
These newer markets often pose special challenges for advertisers and publishers since,
accompanying this growth in Hispanic population. Here again, South Florida illustrates the point.
Whereas Miami-Dade’s Hispanic market has traditionally been mainly Cuban (although this has
declined dramatically from 91% Cuban in 1970 to 53% in 2000), Broward County is a new kind of
market with no clear dominant Hispanic group: Puerto Ricans (21%) and Cubans (20%) account
for a roughly equal share. But political and economic unrest has led to the fastest growth of
population coming from South America: Argentina, Colombia, and Venezuela in recent years.
South Americans account for more than a third (34%) of Broward Hispanics.
12
The purchasing
power of Hispanic population has more than doubled from $223 billion in 1990, and has grown by
18% since 2000, alone ($491 billion). Hispanic buying power is growing at a much more rapid pace
than buying power of either total non-Hispanic or any other racial or ethnic group. In 2002, the ten
states with the highest aggregate Hispanic buying power are exhibited in Box 2. Hispanic market
trends have shown the fast-growing consumers’ purchasing power. It is estimated that this figure
represents a 144% growth over the 1990 value, which is 2.1 times the non-Hispanic growth rate.
In 1999, annual expenditures for Hispanic households averaged US $29,333, which was 15.8%
12 CarlosPelay : Hispanic Market Growth: Dispersion and Diversity, Media Economics Group,
HispanicAd.com, September 4, 2002
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Marketing Dynamics: Theory and Practice
lower than the general population’s. And their expenditures in some categories is higher than
average. Hispanics spent 12.3% of their income on food at home, as compared to the general
market which spends only 8.3%. Hispanics spend US$102.6 at the grocery store per week, or
23.9% more than the general market does. This buying power could build the competitive edge for
companies that successfully harness this market.
EXPANSION IN HISPANIC AMERICAN REGIONS
Azteca America had planned to launch
the new Network by October 2000, with
the signal broadcasted in Miami, Hous-
ton, Corpus Christi, Las Vegas and
Laredo, although the official announce-
ment would be done by April 2001. In
July 2001, Azteca America starts broad-
casting in Los Angeles, CA. through
KAZA’s Channel 54.
“We’re very excited about the oppor-
tunity that this operation will bring to
our distribution network. This is an im-
portant step for us as we continue to build our dynamic network and brand equity. The scale
of our commitment to Hispanic viewers is further demonstrated by this major opportunity,”
said Luis J. Echarte, CEO of Azteca America.
Azteca America, which will also be responsible for promotional activities, will provide programming
to the Los Angeles station 24 hours daily and manage the sales team that will be responsible for local
and national spot sales. By December 2001, Reno and Nevada were included. Eventually 25% of
Pappas’ Houston and San Francisco stations were bought by TV Azteca and in January, 2002 this
two stations started broadcasting the Azteca America’s programming too. In May and June, 2002,
the first non-Pappas Group TV Stations became part of Azteca America’s Network: The Salt Lake
City, a Univision former station, Orlando, which began broadcasting from Universal Studios, Las
Vegas and Santa Barbara. The network of Azteca America in USA serving the Hispanic population
is exhibited in Figure1.
Affiliation process with other regional channels further persuaded by the Azteca America during
the above reference period in getting stations like Albuquerque, Austin and Palm Springs. In November
2002, the Aza Gazette , the magazine that updates the information on the Azteca America’s
entertainment activities in the Hispanic market of the America, was launched. The Aza Gazette has
the also the focus of maintaining the corporate information of Azteca America’s partners involved
and informed in reference to their growth, success, and achievements. By December, stations like
New York, Miami, Fresno, Bakersfield, Wichita and West Palm Beach get incorporated to the Network.
By this time Azteca America had a 53% of the Hispanic Population Coverage in the US and it started
to be considered as a real Television Network since then. In January, 2003, the last acquisitions were
Box 6.2: Hispanic buying power: top ten cities
in USA in 2002
( In US Billion Dollars)
California ($170.7 billion) Texas ($93.7b)
Florida ($52.4b) New York ($48.1b)
Illinois (25.6b) New Jersey ($22.3b)
Arizona ($17.5b) Colorado ($13.0b)
Georgia ($11.3b) New Mexico ($11.0b)
Source : Carlos Pelay, Hispanic Magazine Monitor,
Media Economics Group, July 24, 2002
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Marketing Dynamics: Theory and Practice
consumed passively, yet on the Internet, the users have to actively select an advertisement. This
changes the way advertisers generate and re-train customers. To persuade visitors to revisit and
spend time on the web site the advertisers must fulfill real customer needs on continuous basis. This
requires clear objectives and targeting. Informative quality content, advertisement with interesting
entertainment or direct sales possibilities can add value to the customer. In terms of advertising
economics, the Internet can already compete with existing media, both in response as measured by
click-through and in exposure as measured by cost per thousand. Moreover the economics of internet
provide better effects when a target consumer segment is defined.
TV-advertising market encompasses both the product markets and the market for TV programs.
It is argued that the TV industry has several idiosyncratic characteristics that need to be modeled,
and show that the strategic interaction in this industry differs from other industries in many respects.
It has been found that a move from a TV monopoly to a TV duopoly may reduce both the total
number of viewers and the total amount of TV advertising. A softening of price competition in each
product market results in more investment in programming, higher price per advertising slot, and
more advertising. A reduction in the number of firms in each product market may have the opposite
effect, if the price competition in the product market is sufficiently soft initially. It may be observed
that even small asymmetries between product markets can cause large asymmetries with respect to
which producers buy advertising on TV.
13
“Probably in a year we pruned to raise; in another one, to lower, but the great opportunity for
us is to give a jump to the United States”, said Luis Echarte, president and CEO of Azteca
America.
TV Azteca has 40% of the televising
market in Mexico. The existing production
does not cost much to take the best successes
there. The Association of Hispanic Agencies
of Publicity (AHAA) has estimated that the
total the advertising cost to the
announcements in Spanish would be 3.2 %
of the total advertising costs. The
performance of TV Azteca in terms of
production of programs during 1998-2002 is
exhibited in Figure 2. It is committed to
provide programs to the American company
until 2017, in exchange for 15% of
shareholder. TV Azteca paid to Pappas
Telecasting Group $116 million dollars to buy 25% of three stations and to form a television network
that would affiliate more local TV stations, as stated before. After affiliating 17 stations affiliated, the
13 Nilssen, T, Sorgard, L.: TV Advertising, Programming Investments, and Product-Market Oligopoly,
Norwegian School of Economics and Business Administration, Working Paper # 6, 2000, pp 1-46
Figure 2 Production of programs by TV Azteca
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277
size of the National Group would be big enough to sell advertising campaigns hopefully by 2004
according to Echarte, the President and CEO of Azteca America. But reaching only 56 percent of
the population Azteca America is far from competing with Univision that reaches at 97% from the
Hispanics with a rating of between 77% and 84%, and 120 advertisers.
Plan of Azteca is to gain 20% of the market in four years. Ingrid Smart, President of the AHAA
describes the goal as “aggressive”. NBC, the new owner of Telemundo, second television transmitter
of the Hispanic market, have money to invest. Also three other chains of Spanish language by cable
television exist and about 10 or 15 independent channels exist in the market.
Traditional advertising-break consists of a number of short video sequences (commercial-spots)
that have been inserted in the broadcast stream from the transmission point. Every single household
within the broadcast footprint watches the same spots, in the same sequence at the same time.
Media planners acknowledge the fact that a large percentage of the viewers do not belong to their
target group. Showing irrelevant advertising to people that may neither be interested in the suggested
offerings, nor be of interest to the advertiser, has become the norm in the broadcasting and advertising
industry. However, successful in financing the media industry, the traditional mass communication
model of advertising is growing inadequate to provide a relevant experience to television viewers.
Television advertising is irritating to a lot of people-research has shown that as much as 30% of
people zap during the advertising-break.
For many years production companies have specialized in syndicating “generic” or “tagged”
television commercials for specific businesses such as automobile dealers, banks, etc. There
have always been two major problems with these syndicated commercials. One, they always
have a non-localized “canned” look; and two; the production and marketing expenses have kept
prices high and unaffordable. Product placement, advertising seamlessly integrated into movie
or television productions, is a common way of partially financing media projects. So is product
licensing, where television programs and movies are vehicles for marketing products associated
with them. Cross-marketing, a growing phenomenon, has made media advertising to children
particularly insidious.
SALES FORCE DEPLOYMENT OF THE COMPANY
Sales Force is conformed by 3 persons in the US. They have to prospect, visit and close sales of
the prospective clients for advertising in the Network channel. On the other hand, in Mexico, TV
Azteca’s Sales Department has more structured sales strategy. There is a Manager and a Sales
Representative in charge of prospecting possible clients to advertise in the US Hispanic market,
usually to clients that are already clients of TV Azteca having products that might be advertised
and sold in the US market. Most of the few firms that have closed some of their advertising budget
to do it, are worldwide companies which have products in the US as well as Mexico, and have the
distribution coverage as well. The organization of sales force of the company is exhibited in Figure
3. The Manager is supported by the entire Sales Force of TV Azteca., which is divided into two
divisions: National Sales and Local Sales. National Sales is formed by 40 persons, distributed as
follows: