The Televisa vs. Univision Litigation Settlement – Means More Than Meets The Eye.

The settlement in the drawn out Televisa vs. Univision litigation means more than meets the eye as Televisa, as a public company is interested in maximizing its growth opportunities in the US, has now adopted a rational business strategy with a greater chance of success vs the previously in place legal strategy which had a more remote chance of prevailing to gain greater benefits in the US market.

On January 23rd, the long standing Televisa vs Univision litigation came to a screeching halt as the parties announced a settlement just prior to both Televisa’s Chairman and CEO Emilio Azcarraga Jean and former Univision Chairman and CEO, Jerry Perenchio were to testify on that day and in the case of Mr. Perenchio as a witness for Univision.

The major issues do not deal with a timidity regarding taking the witness stand, but rather with the structural idiosyncrasies of each company. Televisa’s has the singular ability to produce content of unparalleled value controlling key content production elements while Univision is highly leveraged in a predicted falling ad market over the near term.

On the day before the case settled, Maureen Loftus of The Huron Consulting Group as a Televisa expert witness painstakingly quantified the financial implications of Televisa’s allegations. Later that afternoon, Univision’s attorney Elliot Peters of Keker & Van Nest did his job in very effectively cross examining and rebutting Ms. Loftus’s testimony.

Further, late that same afternoon Judge Phillip Gutierrez did not grant either Televisa’s earlier made request to have the charts produced by Ms. Loftus allowed into the jury room nor did he grant Televisa’s request to be able to have the Court hear the testimony of Univision’s expert witness, Avram Tucker of the Navigant Group (which Univision decided to no longer call to testify after Ms. Loftus cross examination.)

So apparently Televisa on the advice of its Counsel decided to settle and likely Haim Saban who leads the Univision financial sponsor group and who is well known for his masterful negotiating skills certainly under Univision’s present circumstances, reached out to Televisa to come to a settlement.

However, the real crux of the matter is that Univision has substantial repayments of debt due of $350 million in 2009, $500 million in 2011 and an $8 billion in 2014.

Univision has the coffers to make the 2009 payment, but will have a close call in 2011 assuming an estimated EBIDTA of $900 million at that time and of course has real issues as to the 2014 payment due.

Industry experts have signaled that hence in 2011 Univision will need to refinance, seek a strategic alternative or look at a bankruptcy option.

Unfortunately, Univision aside from its leverage is facing a myriad of negative market issues including a depressed advertising market and a slow down in US Hispanic media ad spending growth which was evident even prior to the economic downturn.

Televisa seems to understand its unique position as the leading content producer in the Spanish television universe and as a public company with growth desires, attainable goals and a substantial positive cash position in its balance sheet.

Additionally, Televisa’s Chairman Emilio Azcarraga Jean is relatively young and seems to have a long term perspective showing flexibility with a goal of maximizing stockholder value when necessary,

Certainly, the Amended Programming License Agreement (“PLA”) allows for both Televisa to garner larger US programming revenues and Univision to continue to operate under a very favorable cost – benefit formula for present and additional programming, but with additional pressure on its debt service capacity.

However, Univision as a historical content aggregator and distribution vehicle cannot be expected to be able to ramp up the production of an ample and constant supply of soap operas which are Univision’s prime staple historically provided exclusively by Televisa, even by the end of the PLA in 2017.

The litigation over the new media rights is scheduled to be heard in March before the same Judge in a non-jury trial. Likely the parties will settle that shortly. It can be expected that the settlement will have benefits that will accrue to Televisa as new media will gain greater value as the future ensues and which would be reflective of the corporate personalities of Televisa as a multi-generational media company and of the financial sponsors in Univision as investors with limited investment time frames.

One possibility may be that Televisa buys into or outright purchases www.univision.com the most visited portal by US Hispanic users and which would be congruent with its Mexico and global www.esmas.com strategy.

Nevertheless, the opportunity for those who are competent content producers and aggregators to effectively do so for a number of strategies and for multiple needs is a glaring market opportunity.

So the real outcome of the Televisa vs. Univision settlement is as follows:

1. Univision buys some more time to operate under favorable economics and try to protect corporate value, albeit while continuing to exert pressure on its debt service capacity.

2. Televisa likely continues on course to gain even greater economic benefits and a more significant foothold in the coveted and relevant US market.

3. The settlement in this case is a likely precursor to a settlement in the new media rights case.

4. The dynamics of the un rationalized US Hispanic television market have not changed and barring effective strategic moves by its Univision’s competitors the market remains controlled by Univision and for the time being indirectly by Univision’s key content supplier Televisa.

5. Any party interested in a participating in a future transaction must and will realize that “all roads lead to Televisa.”

Mr. Julio Rumbaut , President , Rumbaut & Company

Julio Rumbaut, President of Rumbaut & Company has operating, strategic and transactional experience in US Hispanic media as owner, founder, CEO and general manager of various media outlets and as a Senior Advisor to Univision, TV Azteca, Azteca America, General Electric and Metromedia.