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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 001-12223
UNIVISION COMMUNICATIONS INC.
INCORPORATED IN DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 95-4398884
1999 AVENUE OF THE STARS, SUITE 3050
LOS ANGELES, CALIFORNIA 90067
TEL: (310) 556-7676
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Class A Common Stock, Par Value New York Stock Exchange
$.01
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
There were 46,095,726 shares of Class A Common Stock, $.01 par value,
outstanding as of February 13, 1998. The aggregate market value of the Class A
Common Stock of the Company held by non-affiliates on February 13, 1998 was
approximately $1,800,000,000. This calculation does not include the value of any
of the outstanding shares of Class P, Class T or Class V Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 13, 1998 are incorporated by reference into Part
III hereof.
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TABLE OF CONTENTS
GLOSSARY .................................................................................................. 2
PART I
Item 1. Business............................................................................... 4
The Hispanic Audience in the United States............................................. 5
Hispanic Audience Research............................................................. 6
Ratings................................................................................ 7
The Network............................................................................ 9
Galavision Network..................................................................... 12
Programming............................................................................ 12
Program License Agreements............................................................. 13
The O&Os............................................................................... 15
Advertising............................................................................ 18
Marketing.............................................................................. 19
Competition............................................................................ 19
Material Patents, Trademarks, Licenses, Franchises and Concessions..................... 20
Employees.............................................................................. 20
Federal Regulation and New Technologies................................................ 21
Item 2. Properties............................................................................. 26
Item 3. Legal Proceedings...................................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders.................................... 26
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 28
Item 6. Selected Financial Data................................................................ 29
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................. 31
Item 8. Financial Statements and Supplementary Data............................................ 39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures............................................................................ 39
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 40
Item 11. Executive Compensation................................................................. 40
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 40
Item 13. Certain Relationships and Related Transactions......................................... 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 41
1
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS REPORT REGARDING THE
OPERATIONS OF THE UNIVISION AFFILIATES IS PRESENTED AS OF DECEMBER 31, 1997, AND
REFLECTS THE TWO-FOR-ONE STOCK SPLIT EFFECTED BY THE COMPANY ON JANUARY 12,
1998.
GLOSSARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT.
The following terms are used in this report to refer to the companies and
operations indicated:
"Acquisition" means the December 1992 acquisition of the Network and UTG
(excluding the Chicago Houston, Sacramento and Bakersfield O&Os) by Perenchio,
Televisa and Venevision.
"Affiliated Stations" means the 10 full-power and 17 low-power television
stations with which the Company has Affiliation Agreements.
"Affiliation Agreements" means the affiliation agreements between the
Company and each Affiliated Station and Cable Affiliate.
"Agreement Concerning Production and Acquisition of Programs" means the cost
sharing agreement among the Network, Televisa and Venevision (which was
terminated as part of the Reorganization).
"Broadcast Affiliates" means the O&Os and the Affiliated Stations.
"Broadcast Cash Flow" means earnings before corporate charges, interest,
taxes, depreciation and amortization.
"Cable Affiliates" means the approximately 835 cable television systems with
which Univision has Affiliation Agreements. These cable television systems
retransmit the Network satellite signal and are not located in DMAs where the
Company has full-power Broadcast Affiliates.
"Combined Net Time Sales" means time sales of both UTG and the Network from
broadcasting, including barter and trade and television subscription revenues,
less advertising commissions, certain special event revenues, music license
fees, outside affiliate compensation and taxes other than withholding taxes.
"DMA" means a designated market area.
"DRI Study" means the Company-commissioned study published by the
econometric firm DRI/ McGraw Hill in 1995.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Entravision" means Entravision Communications Company, LLC, which owns 10
of the Company's Affiliated Stations.
"Galavision" means the Galavision Spanish-language general entertainment
basic cable network, a wholly-owned subsidiary of the Company.
"Hispanic" means all persons in the U.S. of Hispanic descent or origin.
"Hispanic Households" means all U.S. households with a head of household who
is of Hispanic descent or origin, regardless of the language spoken in the
household.
"Network" or "UNLP" means the Univision Spanish-language television network
owned by the Company and one of the Company's subsidiaries; the Network is a
partnership that prior to the Reorganization was controlled by the Principal
Stockholders.
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"New Bank Facility" means the Company's new credit agreement dated September
26, 1996, which provides for aggregate commitments of up to $600 million and
imposes financial and other restrictions on the Company.
"Nielsen" means Nielsen Media Research which publishes television ratings,
audience share and demographic information.
"Old Bank Facility" means UTG's old bank credit agreement that was
terminated as part of the Reorganization.
"O&Os" means the 13 full-power and eight low-power television stations owned
and operated by the Company.
"Offering" means the sale of 18,791,000 shares of Class A Common Stock by
the Company in its initial public offering consummated on October 2, 1996.
"PCI" means Perenchio Communications, Inc. which changed its name to
Univision Communications Inc. in June 1996.
"Perenchio" means A. Jerrold Perenchio and his affiliates.
"Principal Stockholders" means Perenchio, Televisa and Venevision.
"Program License Agreements" means the amended and restated program license
agreements between the Company and Televisa and the Company and Venevision
(which became effective as part of the Reorganization).
"PTIH" means PTI Holdings, Inc., a subsidiary of the Company.
"Reorganization" means the reorganization of the Company immediately prior
to the closing of the Offering.
"Sponsor Loans" means the loans made to the Company by Televisa and
Venevision each quarter from the Acquisition through the Reorganization.
"Televisa" means Grupo Televisa, S.A. de C.V. and its affiliates.
"Univision" or the "Company" means Univision Communications Inc. ("UCI") and
its wholly-owned subsidiaries, after giving effect to the Reorganization.
"Univision Affiliates" means the Broadcast Affiliates and the Cable
Affiliates.
"UTG" means Univision Television Group, Inc., the Company's subsidiary that
owns and operates the O&Os.
"UNHP" means The Univision Network Holding Limited Partnership, the entity
that owned substantially all of the partnership interests in the Network prior
to the Reorganization and that was liquidated as part of the Reorganization.
"Venevision" means Corporacion Venezolana de Television, C.A. and its
affiliates.
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PART I
ITEM 1. BUSINESS
Univision is the leading Spanish-language television broadcaster in the
U.S., reaching more than 92% of all Hispanic Households and having an
approximate 83% share of the U.S. Spanish-language network television audience
in 1997. The Company's Network, which is the most watched television network
(English-or Spanish-language) among Hispanic Households, provides the Univision
Affiliates with 24 hours per day of Spanish-language programming with a prime
time schedule of substantially all first run programming (i.e., no reruns)
throughout the year. As a leading, vertically-integrated television broadcaster,
Univision owned and operated 13 full-power (12 of which are affiliated with the
Univision Network) and eight low-power UHF stations as of December 31, 1997
representing approximately 80% of its Network broadcast distribution. These
full-power O&Os are located in 12 of the top 15 DMAs in terms of numbers of
Hispanic Households-Los Angeles, New York, Miami, San Francisco, Chicago,
Houston, San Antonio, Dallas, Fresno, Phoenix, Sacramento and Albuquerque. As of
December 31, 1997, the Company had Affiliation Agreements with an additional 10
full-power and 17 low-power Affiliated Stations and approximately 835 Cable
Affiliates. Each of the Company's full-power O&Os and Affiliated Stations ranks
first in Spanish-language television viewership in its DMA. The Company also
owns Galavision, a Spanish-language cable network that had approximately 2.5
million Hispanic subscribers, representing approximately 57% of all Hispanic
Households that subscribed to cable television in 1997.
The Company believes that the breadth and diversity of its programming
provides it with a competitive advantage over both Spanish-language broadcasters
and English-language broadcasters in appealing to Hispanic viewers. The
Company's programming is similar to that of major English-language networks and
includes NOVELAS (long-term mini-series), national and local newscasts, variety
shows, children's programming, mini-series, musical specials, movies, sporting
events and public affairs programs. The Televisa Program License Agreement
provides the Company with long-term access to first-rate programming produced by
Televisa. Televisa-produced NOVELAS are popular throughout the world and are
among the Company's highest rated programs. Univision also produces a variety of
programs specifically tailored to meet the tastes, preferences and information
needs of the Hispanic audience, including national and local news and the highly
successful programs SABADO GIGANTE, CRISTINA AND PRIMER IMPACTO. The Company's
newest program, a three-hour morning show, DESPIERTA AMERICA--"Wake Up
America"--broadcasts news, talk and current events nationally, Monday through
Friday from 7:00 to 10:00 a.m. The Company has also televised World Cup Soccer
since 1978, including the widely watched 1994 World Cup, and in 1996 began
televising the Sunday "Game of the Week" for Major League Soccer. In early 1997,
the Company reached an agreement to broadcast all 64 games of the next World
Cup, to be played in France in the summer of 1998. On October 31, 1997, the
Company entered into a non-binding letter of intent with Home Shopping Network,
Inc. to form a joint venture to create and operate a live Spanish-language
television shopping business intended for distribution in the United States,
Latin America, Portugal and Spain. The terms of a definitive agreement are being
negotiated, and the United States business is expected to begin operations in
the first half of 1998.
In 1992, Perenchio, Televisa and Venevision formed the Company and UNHP,
which acquired UTG and the Network, respectively, in the Acquisition. Mr.
Perenchio has over 25 years of experience in the U.S. media and communications
industry and has been the chief executive officer or owner of a number of
successful entities, including Chartwell Artists, Tandem Productions, Inc.,
Embassy Communications and Loews Theaters. Mr. Perenchio also owned and operated
Spanish-language television stations in Los Angeles and New York from 1975 to
1986. Televisa, which is the world's largest producer of Spanish-language
television programs, is the leading media and entertainment company in Mexico
with an approximate 75% share of Mexico's viewing audience. Venevision is
Venezuela's leading television network with an approximate 57% share of its
viewing audience.
4
Since the Acquisition, the Company's operating performance has improved
significantly with net revenues and EBITDA increasing to $459.7 million and
$163.1 million, respectively, for the year ended December 31, 1997, representing
compound annual growth rates of 17% and 30%, respectively, from the 1992
operating results of the Company and its predecessor. In addition, from November
1992 to November 1997 the Company increased its audience share of
Spanish-language network television viewing from 57% to 83% and increased its
share of the 20 most widely watched programs among Hispanic Households from 30%
to 100%.
Univision attributes its success to several factors, including emphasis on
popular, high quality programming produced by Televisa and Univision,
contracting with Nielsen to develop more accurate, credible rating systems to
measure Hispanic audience viewership, increasing acceptance by advertisers of
Spanish-language television, continued growth of the Hispanic audience and the
strengthening of its management team with executives and sales managers with
extensive English-language television and advertising experience.
The Company acquired full-power stations in two important markets, Chicago
and Houston, in 1994 and one important market in 1997, Sacramento, and has used
its management expertise, programming and brand identity to substantially
improve the Company's performance in Chicago and Houston. The Company has also
purchased a station in Bakersfield, California but does not intend to convert it
to a Univision Affiliate in the near term. In addition, the Company has
purchased a $10.0 million convertible promissory note from Entravision that is
convertible into an approximate 25% equity interest in Entravision. Entravision
owns 10 of the Affiliated Stations, and has an agreement to acquire another. The
11 stations would represent approximately 14% of the Network's broadcast
distribution. To complement and capitalize on the Company's existing business
and management strengths, the Company expects to explore both Spanish-language
television and other media acquisition opportunities.
THE HISPANIC AUDIENCE IN THE UNITED STATES
Management believes that Spanish-language television, in general, and the
Company, in particular, have benefited and will continue to benefit from a
number of factors, including projected Hispanic population growth, high
Spanish-language retention among Hispanics, increasing Hispanic buying power and
greater advertiser spending on Spanish-language media.
HISPANIC POPULATION GROWTH AND CONCENTRATION. The Company's audience
consists almost exclusively of Hispanics, one of the most rapidly growing
segments of the U.S. population. The 1998 Hispanic population is estimated to be
30.5 million (11.3% of the total U.S. population), an increase of 28.7% from
23.7 million (9.5% of the total U.S. population) in 1990. The overall Hispanic
population is growing at approximately five times the rate of the non-Hispanic
U.S. population and is expected to grow to 32.3 million and 42.4 million (11.7%
and 14.1% of the total U.S. population) in 2000 and 2010, respectively.
Approximately 50% of all Hispanics are located in the seven U.S. cities with the
largest Hispanic populations, and Univision owns a station in each of these
cities.
SPANISH LANGUAGE USE. Approximately 68% of all Hispanics, regardless of
income or educational level, speak Spanish at home. This percentage is expected
to remain relatively constant through 2010. Consequently the number of Hispanics
speaking Spanish in the home is expected to increase significantly in the
foreseeable future. As shown in the chart below, the number of Hispanics who
speak Spanish in the home is expected to grow from 16.2 million in 1990 to 22.1
million in 2000 and 27.8 million in 2010. The Company believes that the strong
Spanish-language retention among Hispanics indicates that the Spanish-language
media has been and will continue to be an important source of news, sports and
entertainment for Hispanics.
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
POPULATION SPEAK SPANISH AT HOME
1980 15.6 10.6
1985 19.3 13.2
1990 23.7 16.2
1995 27.4 18.6
2000 32.4 22.1
2005 37.2 24.9
2010 42.4 27.8
GREATER HISPANIC BUYING POWER. The Hispanic population represents estimated
total consumer expenditures of $380 billion in 1998 (6.6% of the total U.S.
consumer expenditures), an increase of 76.4% since 1990. Hispanics are expected
to account for $443 billion (7.0% of the U.S. total consumer expenditures) by
2000, and $940 billion (8.9% of the U.S. total consumer expenditures) by 2010,
far outpacing the expected growth in total U.S. consumer expenditures.
In addition to the anticipated growth of the Hispanic population, the
Hispanic audience has several other characteristics that the Company believes
make it attractive to advertisers. The Company believes the larger size
(averaging 3.6 persons per household compared to the general public's average of
2.6 persons per household) and younger age of Hispanic Households leads
Hispanics to spend more per household on many categories of goods. The average
Hispanic Household spends 28.0% more per year on food at home, 100.2% more on
children's clothing, 35.1% more on footwear, 11.4% more on phone services, and
23.1% more on laundry and household cleaning products than the average
non-Hispanic household. Hispanics are expected to continue to account for a
disproportionate share of growth in spending nationwide in many important
consumer categories as the Hispanic population and its disposable income
continue to grow. These factors make Hispanics an attractive target audience for
many major U.S. advertisers.
INCREASED SPANISH-LANGUAGE ADVERTISING. According to published sources,
$1.4 billion of total advertising expenditures were directed towards
Spanish-language media in 1997, representing an annual compound growth rate of
18% since 1993. Of these amounts, approximately 55% of the $1.4 billion in
advertising expenditures in 1997 targeting Hispanics was directed towards
Spanish-language television advertising. The Company believes that major
advertisers have found that Spanish-language television advertising is a more
cost-effective means to target the growing Hispanic audience than
English-language broadcast media. See "--Advertising."
HISPANIC AUDIENCE RESEARCH
Univision, like all television stations and networks, derives its revenues
primarily from selling advertising time. See "--Advertising." The relative
advertising rates charged by competing stations within a DMA depend primarily on
four factors: (i) the station's ratings (households and/or people viewing its
programs as a percentage of total television households and/or people in the
viewing area); (ii) audience share (households and/or people viewing its
programs as a percentage of households and/or people actually watching
television at a specific time); (iii) the time of day the advertising will run;
and (iv) the demographic qualities of a program's viewers (primarily age and
gender).
Prior to November 1992, there were no Hispanic audience television rating
services comparable to those measuring television viewership in the general U.S.
population. Beginning in 1992, Nielsen, pursuant to a contract with the Company,
began delivering Nielsen ratings measuring Hispanic viewership both at the
Network and local DMA levels. Because these Nielsen ratings provide advertisers
with a more accurate and reliable measure of Hispanic audience television
viewership, they have been important in allowing the
6
Company to demonstrate to advertisers its ability to reach the Hispanic
audience. The Company believes that continued use of accurate, reliable ratings
will allow it to further increase its advertising rates and narrow the gap which
has historically existed between its audience share and its share of advertising
revenues. In addition, the Company has made significant investments in
experienced sales managers and account executives and has provided its sales
professionals with state-of-the-art research tools to continue to attract major
advertisers.
The various rating services purchased from Nielsen are described below:
NIELSEN HISPANIC TELEVISION INDEX (NHTI). The NHTI service, which began in
November 1992, measures national network viewing in Hispanic Households. NHTI is
the Network's primary sales tool since it demonstrates Univision's significant
success in attracting Hispanic viewership against both English-and
Spanish-language competition. NHTI is stratified by language usage so that
Spanish-dominant, bilingual, and English-dominant Hispanic Households are
represented in the sample in the same proportion that exists among Hispanic
Households generally.
NIELSEN HISPANIC STATION INDEX (NHSI). The NHSI service is similar to the
NHTI, except that NHSI measures Hispanic Household viewing at the local market
level. Like NHTI, each NHSI sample also reflects the varying levels of language
usage by Hispanics in each DMA in order to more accurately reflect the Hispanic
Household population in the relevant DMA. The NHSI service was implemented
beginning with Los Angeles in November 1992 and was phased in at the Company's
other full-power O&Os by November 1994.
NHSI and NHTI only measure the audience viewing of Hispanic Households, that
is, households where the head of the household is of Hispanic descent or origin.
Although the NHSI and NHTI reflect improvements over previous measurement
indices, the Company believes they still under-report the number of viewers
watching Univision programs because the Company has viewers who do not live in
Hispanic Households.
NIELSEN STATION INDEX (NSI). The NSI service measures local station viewing
of all households in a specific DMA. The Company buys NSI in all of the DMAs in
which its full-power O&Os are located in order to effectively position its
viewing against both English- and Spanish-language competitors. While Hispanic
Households are present in proportion to their percentage of total households
within a DMA in NSI, this rating service is not language stratified and
generally under-represents Spanish-speaking households. As a result, the Company
believes that NSI typically under-reports viewing of Spanish-language
television. Despite this limitation, NSI demonstrates that many full-power
Broadcast Affiliates achieve total market ratings that are fully comparable with
their English-language counterparts, with two of the full-power O&Os ranking as
the top station in their respective DMAs. See "--The O&Os."
RATINGS
Since the beginning of the NHTI service in November 1992, Univision has
consistently ranked first in prime time among all Hispanic adults. In addition,
Univision has successfully increased its audience ratings compared to both
Telemundo and the English-language broadcast networks. Spanish-language
television prime time is from 7 p.m. to 11 p.m., Eastern and Pacific Standard
Times, Sunday through Saturday. English-language television prime time is from 8
p.m. to 11 p.m., Eastern and Pacific Standard Times, Monday through Saturday and
7 p.m. to 11 p.m., Eastern and Pacific Standard Times, Sunday. The following
table shows that Univision prime time audience ratings, Sunday through Saturday,
among
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Hispanic adults aged 18 to 49, the age segment most targeted by advertisers,
have increased compared to the other networks:
NHTI PRIME TIME RATINGS AMONG HISPANIC ADULTS AGED 18 TO 49
NETWORK 1993 1994 1995 1996 1997
- ------------------------------------------- --------- --------- --------- --------- ---------
Univision.................................. 6.6 8.6 9.6 9.0 10.1
ABC........................................ 3.8 3.3 3.1 2.7 2.3
CBS........................................ 2.9 2.2 1.8 1.7 1.5
FOX........................................ 4.0 3.6 3.4 3.2 2.9
NBC........................................ 3.3 2.7 2.9 3.2 2.5
Telemundo.................................. 4.1 3.1 2.6 2.1 1.6
Univision share............................ 26.7% 36.6% 41.0% 41.1% 48.3%
A further indication of Univision's growing strength against Telemundo and
its English-language competitors is its improved performance among bilingual
Hispanics. As the table below indicates, since 1993 the Network advanced from
fifth place to first place in prime time audience ratings, Sunday through
Saturday, among bilingual Hispanic adults aged 18 to 49:
NHTI PRIME TIME RATINGS AMONG BILINGUAL HISPANIC ADULTS AGED 18 TO 49
NETWORK 1993 1994 1995 1996 1997
- ------------------------------------------- --------- --------- --------- --------- ---------
Univision.................................. 3.7 6.4 7.5 6.7 6.7
ABC........................................ 5.0 4.6 3.7 3.1 2.4
CBS........................................ 4.0 2.9 2.1 1.9 1.6
FOX........................................ 5.0 4.4 3.8 3.7 3.5
NBC........................................ 4.9 3.6 3.2 4.0 2.7
Telemundo.................................. 2.6 1.9 1.3 1.1 1.0
Univision share............................ 14.7% 26.9% 34.7% 32.7% 37.4%
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In addition, as shown in the following table, the Company has increased its
share of the 20 most widely watched programs among all Hispanic Households from
30% in November 1992 to 100% in November 1997:
THE 20 MOST WIDELY WATCHED PROGRAMS
AMONG HISPANIC HOUSEHOLDS BY NETWORK
PROGRAM NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER
RANK 1992 1993 1994 1995 1996 1997
- --------------------------- ------------ ------------ ------------ ------------ ------------ ------------
1 ABC FOX UVN(a) UVN UVN UVN
2 UVN UVN UVN UVN UVN UVN
3 FOX FOX UVN UVN UVN UVN
4 UVN UVN UVN UVN UVN UVN
5 FOX FOX UVN UVN UVN UVN
6 FOX UVN UVN UVN UVN UVN
7 FOX UVN UVN UVN UVN UVN
8 ABC FOX UVN UVN UVN UVN
9 FOX FOX UVN UVN UVN UVN
10 UVN FOX UVN UVN UVN UVN
11 ABC FOX FOX UVN UVN UVN
12 FOX UVN FOX UVN UVN UVN
13 UVN NBC UVN UVN UVN UVN
14 UVN FOX UVN UVN UVN UVN
15 UVN NBC UVN NBC UVN UVN
16 NBC FOX UVN UVN UVN UVN
17 FOX FOX UVN UVN UVN UVN
18 ABC ABC FOX UVN ABC UVN
19 TEL(b) FOX FOX UVN UVN UVN
20 FOX FOX FOX FOX FOX UVN
------------ ------------ ------------ ------------ ------------ ------------
Univision share 30% 25% 75% 90% 90% 100%
- ------------------------
Source: NHTI
(a) Univision
(b) Telemundo
THE NETWORK
The Network is the leading Spanish-language television network in the U.S.
From its operations center in Miami, the Network provides the Univision
Affiliates via satellite with 24 hours of Spanish-language programming per
broadcast day with a prime time schedule of substantially all first-run
programming (i.e., no re-runs) throughout the year. The operations center also
provides extensive production facilities for the Network's news and
entertainment programming.
The Network produces and acquires programs, makes those programs available
to the Univision Affiliates, sells network advertising and represents the
Broadcast Affiliates in the sale of national spot advertising. Each Broadcast
Affiliate has a right of first refusal in its DMA to use the Network's
programming. The full-power Broadcast Affiliates together reach approximately
5.7 million, or approximately 74%, of Hispanic Households. The low-power
Broadcast Affiliates (including translators) together reach approximately
586,000, or approximately 8%, of Hispanic Households. The Cable Affiliates reach
approximately 870,000, or approximately 11%, of Hispanic Households. Through the
Company's ownership of the O&Os, it controls approximately 80% of the Network's
broadcast distribution.
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AFFILIATION AGREEMENTS. Each Univision Affiliate has the right to preempt
(i.e., to decline to broadcast at all or at the time scheduled by the Network),
without prior Network permission, any and all Network programming that it deems
unsatisfactory, unsuitable or contrary to the public interest or to substitute
programming it believes is of greater local interest, provided that the Network
consents to any rescheduling of preempted programming. If a Univision Affiliate
preempts a Network program and no suitable substitute broadcast time is mutually
agreed upon, the Network is permitted to offer the program to any other
television station or cable service in the DMA served by such Univision
Affiliate.
Each Affiliation Agreement grants the Univision Affiliate the right of first
refusal to the Network's entire program schedule. The Affiliation Agreements
generally provide that 50% of all advertising time be retained by the Network
for Network advertising and the other 50% of the time be allocated to the
Univision Affiliate for local and national spot advertising. However, this
allocation may be modified at the Company's discretion.
The Affiliated Stations retain 100% of all local advertising revenues, and
the Network retains 100% of Network advertising revenues. The Network acts as
the representative of the Univision Affiliates for national spot sales and
receives a commission of 15% of net revenues after agency commission in return
for such services from its Affiliated Stations.
The Network from time to time may enter into Affiliation Agreements with
additional stations in new DMAs based upon its perception of the market for
Spanish-language television and the Hispanic market in the station's DMA.
CABLE AFFILIATES. The Network has historically used Cable Affiliates to
reach communities which could not support a Broadcast Affiliate because of the
relatively small number of Hispanic Households. Cable Affiliation Agreements may
cover an individual system operator or a multiple system operator. Cable
Affiliation Agreements are for the most part non-exclusive, thereby giving the
Network the right to license all forms of distribution in cable markets. Cable
Affiliates generally receive the Network's programming for a fee based on the
number of subscribers. The Network retains 100% of the allocation of Network
advertising revenues attributable to Cable Affiliates and provides certain Cable
Affiliates with two minutes of local advertising time per hour. Cable Affiliates
retain 100% of local and national advertising revenues. However, the Company
represents certain cable affiliates in national spot sales for varying fees. See
"--Federal Regulation and New Technologies."
UNIVISION AFFILIATE COVERAGE AND RANK. The table below sets forth certain
information with respect to the Univision Affiliates' coverage and rank.
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UNIVISION AFFILIATES' COVERAGE AND RANK AMONG HISPANIC HOUSEHOLDS
HISPANIC HOUSEHOLDS NATIONWIDE
COVERED(B) HISPANIC HOUSEHOLDS SPANISH-LANGUAGE
DMA(A) STATION (IN THOUSANDS) COVERED(B) TELEVISION RANK(C)
- ---------------------------------------- ---------- --------------------- ------------------- -----------------------
FULL-POWER O&OS
Los Angeles (1)....................... KMEX 1,351 17.5% 1
New York (2).......................... WXTV 1,023 13.2 1
Miami (3)............................. WLTV 451 5.8 1
San Francisco (4)..................... KDTV 301 3.9 1
Chicago (5)........................... WGBO 293 3.8 1
San Antonio (6)....................... KWEX 283 3.7 1
Houston (7)........................... KXLN 278 3.4 1
Dallas/Ft. Worth (9).................. KUVN 188 2.4 1
Albuquerque (10)...................... KLUZ 181 2.3 1
Phoenix (11).......................... KTVW 169 2.2 1
Fresno (14)........................... KFTV 160 2.1 1
Sacramento (15)....................... KUVS 154 2.0 1
----- ------
Total full-power O&Os............... 4,832 62.3
FULL-POWER AFFILIATED STATIONS
McAllen/Brownsville (8)(e)............ KNVO 190 2.5 1
El Paso (13)(e)....................... KINT 162 2.1 1
Denver (16)(e)........................ KCEC 122 1.6 1
Corpus Christi (19)(d)................ KORO 93 1.2 1
Boston (20)........................... WUNI 89 1.2 1
Salinas/Monterey (25)(e).............. KSMS 51 0.7 1
Las Vegas (27)(e)..................... KINC 49 0.6 1
Laredo (29)(e)........................ KLDO 45 0.6 1
Sta Barbara-Sta Maria-San Luis Obispo
(32)(f)............................. KTAS 17 0.2 1
Yuma/El Centro (33)(e)................ KVYE 39 0.5 1
----- ------
Total full-power Affiliated
Stations.......................... 857 11.2
CABLE AFFILIATES (g).................... 870 11.2
LOW-POWER BROADCAST AFFILIATES(h)....... 586 7.6
----- ------
TOTAL UNIVISION AFFILIATES.............. 7,145 92.3%
----- ------
----- ------
- ------------------------
(a) Numbers in parentheses represent Hispanic DMA rank by number of Hispanic
Households.
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1998.
(c) Rank within the DMA by number of viewing Hispanic Households. Sources: NHSI
and NSI, November 1997.
(d) Entravision has an agreement to acquire.
(e) Owned by Entravision.
(f) Source: Company estimate of Hispanic Households covered by Univision
Affiliate in Santa Barbara DMA based on Nielsen Cable On-Line Data Exchange
estimates for network satellite direct coverage households in the market.
This market has approximately 40,000 Hispanic Households, but the Univision
signal does not reach all of them due to geographic barriers.
(g) Source: Company estimate derived from Nielsen Cable On-Line Data Exchange,
January 1998.
(h) Source: Company estimate derived from Nielsen Media Research, Black and
Hispanic DMA Market and Demographic Rank, January 1998.
11
GALAVISION NETWORK
Galavision is the leading U.S. Spanish-language general entertainment basic
cable television network, reaching approximately 8.6 million subscribers, of
whom 2.5 million are Hispanic. According to Nielsen, Galavision reaches over 57%
of all Hispanic Households that subscribe to cable. The Company programs
Galavision so that Galavision and the Network generally do not run the same type
of show simultaneously. For example, while the Network is running a NOVELA,
Galavision may run sports or news. As a result of this counter-programming, many
Spanish-language television viewers have a choice of two Univision networks at
any one time. Additionally, Univision cross-promotes the Galavision service five
times daily.
Galavision is the only Spanish-language cable service subscribing to
Nielsen. Nielsen uses a subset of the NHTI sample to produce the Nielsen
Hispanic Home Video Index, which reports viewing of Galavision in Hispanic
Households with cable. The Company believes that its use of Nielsen to measure
Galavision's ratings assists the Company in obtaining advertisers for the cable
network and in selecting programs that meet its audience's taste. Twenty-four of
the top 25 Univision advertisers advertise on Galavision.
PROGRAMMING
The Company directs its programming toward its young, family-oriented
audience. It begins daily with DESPIERTA AMERICA and talk and information shows,
Monday through Friday, followed by novelas. In the late afternoon and early
evening, the Network offers a talk show, a news-magazine and national news, in
addition to local news provided by the O&Os. Weekend daytime programming begins
with children's programming, followed by sports, variety, teen lifestyle shows
and movies. During prime time, Univision airs novelas, variety shows, a talk
show, comedies, news magazines, lifestyle shows, as well as specials and movies.
Prime time is followed by late news and a late night talk show. Overnight
programming consists primarily of repeats of programming aired earlier in the
day.
Approximately eight hours of programming per weekday, including a
substantial portion of weekday prime time, are currently programmed with novelas
supplied primarily by Televisa. Although novelas have been compared to daytime
soap operas on ABC, NBC or CBS, the differences are significant. Novelas,
originally developed as serialized books, have a beginning, middle and end,
generally run five days per week, and conclude four to eight months after they
begin. Novelas also have a much broader audience appeal than soap operas,
delivering audiences that contain large numbers of men, children and teens in
addition to women.
The Hispanic population is primarily young and family-oriented. Univision's
programming has changed dramatically over the past five years in order to
attract and retain this audience. The Company's success in attracting a young
audience is demonstrated by a 23% increase in NHTI audience among Hispanic
adults aged 18 to 34, Sunday through Saturday 9 a.m. to midnight, from December
1992 through December 1997.
In 1995, Univision began to air the Spanish-language version of Sesame
Street, coproduced by Televisa in cooperation with Children's Television
Workshop. Plaza Sesamo now airs two hours per week. The Company's broadcasting
of educational children's programming, including Plaza Sesamo, meets the FCC
requirement of airing three hours of weekly educational programming.
In 1997, the Company derived approximately 39% and 7.2% of its gross
advertising sales from programs produced by Televisa and Venevision,
respectively, under the Program License Agreements. Programming supplied by
Televisa and Venevision under the Program License Agreements and programs
produced by the Company currently represent in the aggregate approximately 92%
of the Network's non-repeat broadcast hours. The remainder primarily consists of
movies acquired from independent third-party suppliers. Three of the Company's
own productions, Sabado Gigante, a variety show hosted by Mario Kreutzberger,
Primer Impacto, a news magazine program, and Cristina, a talk show hosted by
Cristina
12
Saralegui, are among its most successful programs in terms of advertising
revenues generated. Approximately 37.6% and 40.5% of the Company's gross
advertising sales in 1996 and 1997, respectively, were generated by programs it
produced.
Univision news programming is generally produced either at the Network
facility in Miami or the local stations. The Network produces an early evening
network newscast seven days per week and a late network newscast, Monday through
Friday. All full-power O&Os produce local newscasts that reflect the communities
they serve. A national public affairs program, Temas y Debates, is also produced
weekly by the Network in Washington, D.C.
The Company produces a Sunday afternoon sports anthology show and a Sunday
night sports wrap-up show. Live sports programming primarily consists of boxing
and soccer. The 1994 World Cup soccer coverage broadcast by Univision garnered
the Company's highest sports ratings. In 1996 the Company began televising the
Sunday "Game of the Week" for Major League Soccer. In early 1997 the Company
reached an agreement to broadcast all 64 games of the next World Cup to be
played in France in the summer of 1998.
The Company and Televisa are continuing to explore the cooperative
production of NON-NOVELA programming, including but not limited to levels of
production and financial commitments of each party.
PROGRAM LICENSE AGREEMENTS
Through the Program License Agreements, Univision has the first right until
December 2017 to air in the U.S. all Spanish-language programming produced by or
for Televisa and Venevision (with certain exceptions). The Program License
Agreements provide the Network and Galavision with access to programming to fill
up to 100% of their program schedules. Televisa and Venevision programming
represented approximately 43.0% and 13.0%, respectively, of the Network's
non-repeat broadcast hours in 1997. In 1997, the Company derived approximately
39% and 7.2% of its gross advertising sales from programs produced by Televisa
and Venevision, respectively, under the Program License Agreements.
The Program License Agreements allow the Company long-term access to
Televisa and Venevision programs and the ability to terminate unsuccessful
programs and replace them with other Televisa and Venevision programs without
paying for the episodes that are not broadcast. Accordingly, the Company has
more programs available to it and greater programming flexibility than any of
its competitors. This program availability and flexibility have permitted the
Company to adjust programming to best meet the tastes of its viewers.
Under the Program License Agreements, Univision may license programming from
Televisa and Venevision that, when added to (i) local programs produced by the
O&Os and used on the Network, (ii) any programs produced by Univision and (iii)
any programs purchased by Univision other than from Televisa and Venevision,
will be sufficient (when including an estimated six hours of repeat broadcasting
in the case of the Venevision agreement) to fill a twenty-four hour per day,
seven day per week time schedule for each of the Network and Galavision.
The Company's Televisa and Venevision options are prior to all third
parties' rights to obtain Televisa and Venevision produced programming for
broadcast in the U.S. Generally, Univision also has a right of first refusal to
acquire any program for which Univision did not exercise its option before
Televisa or Venevision can license such program to any third party. Any program
for which Univision elects not to exercise its right of first refusal may be
licensed to third parties for not more than one run over a period of one year
(with one rerun in the case of NOVELAS). Thereafter, such program must be made
available to Univision under the terms described above. To the extent that
Televisa or Venevision uses, or licenses a third party to use, its programming
in the United States in accordance with the terms of the Program License
Agreements, the Company would compete against such entity.
13
Televisa and Venevision programs available to Univision are defined under
the Program License Agreements as all programs produced by or for each of them
in the Spanish-language or with Spanish subtitles other than programs for which
they do not own U.S. broadcast rights or as to which third parties have a right
to a portion of the revenues from U.S. broadcasts ("Co-produced Programs").
Televisa and Venevision have also agreed through their affiliates to use their
best efforts to coordinate with Univision to permit Univision to acquire U.S.
Spanish-language rights to certain Co-produced Programs and to special events
produced by others, sporting events, political conventions, election coverage,
parades, pageants and variety shows.
In consideration of access to the programming of Televisa and Venevision,
the Company pays Televisa and Venevision aggregate royalties based upon Combined
Net Time Sales. The royalties (net of certain cost sharing reimbursements which
ceased upon completion of the Reorganization) were 13.4%, 9.9% and 9.4% of
combined net revenues for the years ended December 31, 1997, 1996 and 1995,
respectively. Aggregate royalties to Televisa and Venevision were 13.5% of
Combined Net Time Sales in 1997, and have increased to 15.0% of Combined Net
Time Sales for 1998 and all years thereafter. The program royalty percentage
based on net revenues and Combined Net Time Sales differ because net revenue
includes certain revenues that are not subject to the Program License
Agreements. The Network is obligated to pay such aggregate royalties to Televisa
and Venevision each year throughout the term regardless of the amount of
Televisa and Venevision programming used by the Company.
The Program License Agreements are between affiliates of the Company,
Televisa and Venevision and the performance of their affiliates has been
unconditionally guaranteed by the Company, Televisa and Venevision,
respectively. Pursuant to their respective guarantees, Televisa has agreed to
use commercially reasonable efforts to continue to produce programs available to
the Network at least to the same extent in terms of quality and quantity as in
calendar years 1989, 1990 and 1991 and Venevision has agreed to use commercially
reasonable efforts to produce or acquire programming sufficient to enable its
affiliate to provide at least nine hours per day of programs to the Network to
satisfy such affiliate's obligations under its Program License Agreement.
The Company believes that the Venevision affiliate has not been fulfilling
its programming obligations, and that Venevision has not used commercially
reasonable efforts to enable the affiliate to do so. The full amount of
aggregate royalties have been paid. Venevision continues to believe that
Venevision and its affiliate have complied with their obligations to the
Company.
The Company has attempted to resolve this dispute through negotiations with
Venevision but they have not been successful. Thus, the Company has notified
Venevision of its intention to enforce its rights under the agreements by all
appropriate means including, if necessary, legal action, if Venevision continues
to fail to cause its affiliate to make available the programming the Company
believes the affiliate is obligated to provide. There can be no assurance, if
the Company were to commence such legal action or pursue other legal remedies,
that it would prevail.
In addition, Televisa has agreed with several partners, each of whom has
substantial assets, to develop and operate a direct broadcast satellite ("DBS")
venture, which will have a variety of program services, including program
services supplied by Televisa. Televisa is required to offer the Company the
opportunity to acquire a 50% economic interest in Televisa's interest in the
joint venture to the extent it relates to United States Spanish-language
broadcasting. While the Company believes that it will be offered such an
interest, the Company has not received any indication as to what the business
terms relating to such interest would be. Accordingly, the Company is not in a
position to state whether it would accept such an offer. If the venture secures
a significant viewership among Hispanic Households, it could have a material
adverse effect on Univision's financial condition and results of operations,
even if Univision decides to acquire this 50% economic interest.
Televisa asserts that the terms and conditions of its Program License
Agreement with Univision allow it, under certain circumstances, to provide any
DBS venture uplinking in Mexico for distribution in the
14
United States with Televisa program services which contain programs to which
Univision believes it has an exclusive first option in the United States.
Univision disagrees with Televisa's assertion and has notified Televisa of its
intention to enforce its rights by all appropriate means including, if
necessary, legal action, if Televisa provides such programs to any such DBS
venture. There can be no assurance that Televisa will desist from providing such
programming to its or other DBS ventures, or, if Televisa were not to desist,
that Univision would prevail in court.
THE O&OS
The Company owned and operated 13 full-power O&Os as of December 31, 1997,
12 of which broadcast Network programming, produce local news and other
programming of local importance, cover special events and may acquire programs
from other suppliers. The Company's Bakersfield full-power station is a UPN
affiliate. The Company acquired its Sacramento Affiliated Station in March 1997.
Each of the full-power Network-affiliated O&Os is the leading Spanish-language
television station in its DMA.
A full-power O&O's ability to compete in terms of NSI ratings with the
English-language stations in a particular market is a function of the level of
Spanish-language use in the DMA which is affected in part by Hispanic Household
density. In DMAs where households that speak Spanish at least 50% of the time
exceed 15% of all households in the DMA, the full-power O&Os, in general, have
audience delivery comparable with the leading English-language network
affiliated stations in that DMA. In a DMA where the households that speak
Spanish at least 50% of the time is between 10% and 15% of all households in
that DMA, the full-power O&Os, in general, have audience delivery comparable
with the leading independent stations in the DMA. In a DMA where households that
speak Spanish at least 50% of the time is between 5% and 10% of all households
in that DMA, the full-power O&Os, in general, have audience delivery comparable
with the lower rated independent stations in the DMA. As shown on the following
table, two of the full-power O&Os owned by the Company as of November 30, 1997
rank as the top station in their respective DMAs.
FULL-POWER O&OS' COVERAGE AND RANK AMONG HISPANICS
UNIVISION SHARE
1998 HISPANIC 1998 HISPANIC HISPANIC SPANISH- OF SPANISH-
DMA RANK (BY NUMBER POPULATION (IN HOUSEHOLDS (IN HOUSEHOLD LANGUAGE LANGUAGE
DMA OF HISPANICS)(A)(B) THOUSANDS)(B) THOUSANDS)(B) DENSITY(C) USE(D) VIEWING(E)
- -------------------------- --------------------- --------------- --------------- ----------- ----------- ---------------
Los Angeles............... 1 5,465 1,351 27.0% 20.0% 68%(g)
New York.................. 2 3,190 1,023 15.1 11.7 79
Miami..................... 3 1,295 451 32.5 28.6 81
San Francisco............. 4 1,072 301 13.1 7.5 73
Chicago................... 5 1,069 293 9.3 7.4 80
Houston................... 6 977 278 17.1 11.5 86
San Antonio............... 7 928 283 43.7 23.5 84
Dallas/Ft. Worth.......... 9 669 188 9.9 6.6 88
Fresno.................... 11 609 160 32.3 22.5 84
Phoenix................... 12 586 169 13.1 8.0 94
Sacramento................ 14 541 154 13.7 7.8 100
Albuquerque............... 15 540 181 32.3 15.6 100
ADULTS 18 TO 49
TOTAL AUDIENCE
DMA MARKET RANK(F)
- -------------------------- -----------------
Los Angeles............... 4
New York.................. 7
Miami..................... 1
San Francisco............. 6
Chicago................... 7
Houston................... 7
San Antonio............... 5
Dallas/Ft. Worth.......... 7
Fresno.................... 1
Phoenix................... 6
Sacramento................ 7
Albuquerque............... 6
- --------------------------
(a) The other DMAs ranked among the top fifteen by number of Hispanic persons
are McAllen/Brownsville (8th), San Diego (10th) and El Paso (13th).
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1998 estimates. In deriving its figures, Nielsen only counts
persons present in Hispanic Households.
(c) Percentage of total households that are Hispanic Households. Source: Nielsen
Media Research, Black & Hispanic DMA Market and Demographic Rank, January
1998.
15
(d) Represents the percentage of all households in a DMA where the Spanish
language is spoken at least 50% of the time by adults. Source: Nielsen
Enumeration Study 1996, which sets forth demographic attributes of Hispanic
population.
(e) Source: NHSI, adults 18 to 49, November 1997, Sunday to Saturday, 9 a.m. to
12 midnight.
(f) Source: NSI, adults 18 to 49, November 1997, Sunday to Saturday, 9 a.m. to
12 midnight.
(g) The Los Angeles market has three full-power Spanish-language television
stations.
The following table shows the total audience share and the percentage of
total market revenues garnered by each of the O&Os owned by the Company as of
December 31, 1997. As reflected in the table, none of the O&Os currently
receives its proportionate share of advertising revenues commensurate with its
audience share. The Company believes that the continued utilization of reliable
rating services and the addition of salespeople with English-language television
and advertising expertise will further enable the Company to demonstrate to
advertisers its ability to reach the Hispanic audience, thereby allowing the
Company to narrow the gap between its share of advertising revenues and its
audience share.
O&OS' SHARE OF TOTAL MARKET REVENUES AND AUDIENCE
O&O SHARE OF
TOTAL TELEVISION SUN-SAT/7 A.M.-
MARKET REVENUE(A) O&O SHARE OF TOTAL 1 A.M. TOTAL
DMA (IN THOUSANDS) MARKET REVENUE AUDIENCE(B)
- ----------------------------------------- ----------------- ------------------- -------------------
Los Angeles.............................. $ 1,469,800 7% 12%
New York................................. 1,412,700 2 6
Chicago.................................. 883,800 2 6
San Francisco............................ 612,600 2 6
Dallas................................... 496,300 2 7
Miami.................................... 429,300 12 17
Houston.................................. 428,100 5 11
Phoenix.................................. 306,400 3 9
Sacramento............................... 205,300 2 6
San Antonio.............................. 144,300 7 10
Albuquerque.............................. 89,500 3 5
Fresno................................... 70,600 8 26
- ------------------------
(a) BIA's Investing in Television in 1997.
(b) Source: NSI, adults 18 to 49, February, May, November 1997 average in market
share of commercial broadcast stations.
Set forth below is information, including ratings and performance
information based on most recently available data, for the Company's top six
O&Os.
LOS ANGELES. The Los Angeles DMA has the largest Hispanic population in the
U.S., estimated by Nielsen to be 5.5 million people as of the beginning of 1998,
and is the second largest U.S. television market overall. Between 1980 and 1990,
the Hispanic population of Los Angeles grew approximately seven times faster
than its non-Hispanic population. According to the U.S. Census Bureau, 78% of
Hispanics in Los Angeles are of Mexican origin. The Hispanic population in Los
Angeles represents 37% of that DMA's total population and 21% of the total U.S.
Hispanic population.
The Los Angeles DMA has three Spanish-language, full-power UHF television
stations. In November 1997, the Company's Los Angeles O&O, Univision-KMEX,
posted a 68% share of the viewers tuned to Spanish-language television from 9
a.m. to midnight Sunday through Saturday, while Telemundo-- KVEA posted a 19%
share and KWHY (which only broadcasts in Spanish from 3 p.m. to 11 p.m. and is
provided certain programming from Televisa) posted a 13% share. Compared to all
general market television stations in the November 1997 NSI Report, KMEX was
second in adults aged 18 to 34 ratings,
16
ranked fourth in adults aged 18 to 49 ratings and was seventh in households in
the Los Angeles DMA Sunday through Saturday 9 a.m. to midnight. A total of 16
commercial television stations currently operate in the Los Angeles DMA. Some of
these stations simulcast their news programs and certain entertainment programs
in both English and Spanish. In addition, Nielsen estimates that cable
penetration among Hispanic Households in the Los Angeles DMA is 51%.
NEW YORK. The New York DMA has the second largest Hispanic population in
the U.S., estimated by Nielsen to be 3.2 million people at the beginning of
1998, and is the largest U.S. television market overall. The New York Hispanic
community tends to be more fragmented into groups from many different Latin
American countries, including Puerto Rico, Cuba, the Dominican Republic and
Mexico, who have settled in different neighborhoods in the DMA. This
fragmentation distinguishes the New York market from Los Angeles and Miami where
the Hispanic population is predominantly Mexican and Cuban, respectively. The
Hispanic population in New York represents 18% of that DMA's total population
and 12% of the total U.S Hispanic population.
In November 1997, Univision-WXTV was the leading Spanish-language station
with a 79% share of the audience watching Spanish-language television (9 a.m. to
midnight, Sunday through Saturday). While Univision--WXTV broadcasts full time
in Spanish, Telemundo--WNJU broadcasts only 15 hours per day in Spanish Monday
through Friday, and less on the weekend. The remainder of time on Telemundo--
WNJU is used for paid programming and programs in a variety of other languages.
Compared to general market television stations in the November 1997 NSI Report,
WXTV ranked seventh in the New York market in adults aged 18 to 49, Sunday
through Saturday, 9 a.m. to midnight.
A total of 14 commercial television stations service the New York DMA.
According to Nielsen, cable penetration among Hispanic Households in the New
York DMA is approximately 58%.
MIAMI. The Miami DMA has the third largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.3 million people as of the beginning of 1998, and
is the sixteenth largest U.S. television market overall. According to the Census
Bureau, 56% of Hispanics in Miami are of Cuban origin. The Hispanic population
in Miami represents 37% of that DMA's total population and 5% of the total U.S.
Hispanic population.
In November 1997, the Company's Miami O&O, Univision--WLTV, had an 81% share
of the audience watching Spanish-language television from 9 a.m. to midnight,
Sunday through Saturday. Compared to all general market television stations in
the November 1997 NSI Report, WLTV was in first place in adults aged 18 to 49
and adults aged 18 to 34 ratings, while placing second in households in the
Miami market Sunday through Saturday, 9 a.m. to midnight. WLTV is fully
competitive with all English-language stations in the Miami DMA in all major
dayparts.
A total of 14 commercial television stations service the Miami DMA. In
addition to Univision-- WLTV and Telemundo--WSCV, three other television
stations show some Spanish-language programming. According to Nielsen, cable
penetration among Hispanic Households in Miami is approximately 64%.
SAN FRANCISCO. The San Francisco DMA has the fourth largest Hispanic
population in the U.S. estimated by Nielsen to be 1.1 million people as of the
beginning of 1998; and is the fifth largest television market overall. According
to the U.S. Census Bureau, 68% of the Hispanics in San Francisco are of Mexican
origin. The Hispanic population of San Francisco represents 18% of the DMA's
total population and 4% of the total U.S. Hispanic population.
In November 1997 the Company's San Francisco O&O, Univision-KDTV, had a 73%
share of the audience watching Spanish-language television from 9 a.m. to
midnight Sunday through Saturday. KDTV has one Spanish-language competitor,
Telemundo--KSTS. Compared to all general market television stations in the San
Francisco DMA in the November 1997 NSI report KDTV ranked 5th among adults
17
aged 18-34 and 6th in adults aged 18-49. KDTV is fully competitive with certain
English-language stations in delivering young adult demographics in the San
Francisco DMA. A total of 16 commercial television stations service the San
Francisco DMA. According to Nielsen the cable penetration among Hispanic
Households in San Francisco is approximately 65%.
CHICAGO. The Chicago DMA has the fifth largest Hispanic population in the
U.S., estimated by Nielsen to be 1.1 million people at the beginning of 1998,
and is the third largest U.S. television market overall. The Hispanic population
in Chicago represents 13% of that DMA's population and 4% of the total U.S.
Hispanic population.
In 1994, the Company acquired an English-language independent television
station, WGBO, which it converted to a Spanish-language format on January 1,
1995. In November 1997, Univision-WGBO posted a 80% share of the audience
watching Spanish-language television 9 a.m. to midnight, Sunday through
Saturday. WGBO has one Spanish-language competitor, Telemundo-WSNS. Compared to
all general market television stations in the Chicago DMA in the November 1997
NSI report, WGBO ranked seventh. WGBO is fully competitive with certain
English-language stations in the delivery of young demographics in the Chicago
DMA, particularly adults aged 18 to 34. A total of 13 television stations
service the Chicago DMA. According to Nielsen, cable penetration among Hispanic
Households in Chicago is approximately 47%.
HOUSTON. Houston has the sixth largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.0 million people, and is the eleventh largest U.S.
television market overall. The Hispanic population in Houston represents 22% of
that DMA's total population and 4% of the total U.S. Hispanic population.
In 1994, the Company acquired its Affiliated Station, KXLN, in Houston. In
November 1997, Univision-KXLN posted an 86% share of the audience watching
Spanish-language television 9 a.m. to midnight, Sunday through Saturday. KXLN
has one Spanish-language competitor, the Telemundo affiliate KTMD. In November
1997, KXLN was ranked fifth in the delivery of adults aged 18 to 34 and seventh
in adults aged 18 to 49, Sunday through Saturday, 9 a.m. to midnight.
A total of 14 commercial television stations service the Houston DMA.
According to Nielsen, cable penetration among Hispanic Households in Houston is
approximately 39%.
The Company exercises its "must carry" rights in each DMA in which it
operates a full-power O&O.
Univision's eight low-power O&Os are located in Philadelphia, Hartford,
Austin, Bakersfield, Tucson, Santa Rosa, Albuquerque and Fort Worth. A low-power
station is a low-power broadcast facility that may originate programming and
commercial matter but that often transmits programming received from elsewhere
(including via satellite). The low-power O&Os, in the aggregate, accounted for
approximately 1% of the Company's net revenues in 1997 and approximately 3.0% of
the Network broadcast distribution.
ADVERTISING
ADVERTISING. The Company's top 10 advertisers for 1997 were Procter &
Gamble, MCI Communications, McDonald's, AT&T, Sears, Ford, Anheuser Busch,
Colgate-Palmolive, Miller Brewing Co., and Burger King, most of which have
substantially increased advertising commitments to the Company since the
Acquisition. Since 1994, no single advertiser has accounted for more than 10% of
the Company's gross advertising revenues. Approximately 98.5% of Univision's
gross revenues for 1997 and 1996 consisted of Network, national spot and local
advertising revenues.
NETWORK ADVERTISING. Network advertising revenues represented 49.2% and
50.6% of the Company's gross revenues in 1997 and 1996, respectively. The
Company attracts advertising expenditures from diverse industries, with
advertising for food and beverages, personal care products, automobiles, other
household goods and telephone services representing the majority of Network
advertising.
18
SPOT ADVERTISING. National spot advertising represents time sold to
national and regional advertisers based outside a station's DMA. National spot
advertising revenues represented 18.3% and 15.6% of the Company's gross revenues
for 1997 and 1996, respectively. National spot advertising primarily comes from
new advertisers wishing to test a market and advertisers who are regional
retailers and manufacturers without national distribution. To a lesser degree,
national spot advertising comes from advertisers who have the need to enhance
network advertising in a given market. National spot advertising is the means by
which most new national and regional advertisers begin marketing to Hispanics.
LOCAL ADVERTISING. Local advertising revenues are generated by both local
merchants and service providers and regional and national businesses and
advertising agencies located in a particular DMA. Local advertising revenues
represented 31.0% and 32.3% of the Company's gross revenues for 1997 and 1996,
respectively.
MARKETING
The Company increased by 70% the number of its marketing professionals from
146 at December 31, 1994 to 248 at December 31, 1997, including approximately 49
employees hired in connection with the acquisition of the Chicago, Sacramento,
Houston, Bakersfield O&Os and Galavision. The Company's account executives are
divided into three groups: Network sales; national spot sales; and local sales.
The account executives responsible for Network sales target and negotiate with
accounts that advertise nationally. The national spot sales force represents
Broadcast Affiliates for all sales placed from outside their respective DMAs.
The local sales force represents an O&O for all sales placed from within its
DMA.
In addition, the Company's sales department utilizes research, including
both ratings and demographic information analyzed by the Company's research
department, to negotiate sales contracts as well as target major national
advertisers that are not purchasing advertising time or who are under-purchasing
advertising time on Spanish-language television.
The Company maintains Network and national sales offices in Atlanta,
Chicago, Dallas, Detroit, Irvine (California), Los Angeles, Miami, New York, San
Antonio and San Francisco.
COMPETITION
The broadcasting and cable business is highly competitive. Competition for
advertising revenues is based on the size of the market that the particular
medium can reach, the cost of such advertising and the effectiveness of such
medium. The Company believes that it is competitive in the size of market it
reaches and the cost and effectiveness of advertising time it sells.
The Company competes for viewers and revenues with other Spanish-language
and English-language television stations and networks, including the four
principal English-language television networks, ABC, CBS, NBC and Fox, and in
certain cities, UPN and WB. Certain of these English-language networks and
others have begun producing Spanish-language programming and simulcasting
certain programming in English and Spanish. Several cable broadcasters have
recently commenced or announced their intention to commence, Spanish-language
services as well. The Company also competes for viewers and revenues with
independent television stations, other video media, suppliers of cable
television programs, direct broadcast systems (including two which were started
in 1996 for broadcast outside the United States and in which Televisa and
Venevision have substantial interests), newspapers, magazines, radio and other
forms of entertainment and advertising. The Univision Affiliates located near
the Mexican border also compete for viewers with television stations operated in
Mexico, many of which are affiliated with a Televisa network and owned by
Televisa.
The Company's Restated Certificate of Incorporation allows the Company to
engage in all media related business. However, neither Televisa nor Venevision
will be required to offer opportunities to the Company other than those
involving Spanish-language television broadcasting or a Spanish-language
19
television network in the United States. Consequently, the Company could compete
directly with Televisa and Venevision, two of its Principal Stockholders, in
other media and languages. Televisa currently publishes and distributes
Spanish-language publications and sells Spanish-language recorded music in the
United States.
Telemundo is the Company's largest competitor that broadcasts
Spanish-language television programming. As of December 31, 1997, Telemundo
served 60 markets in the United States as well as the Puerto Rican market, and
reached approximately 85% of all Hispanic Households. In most of the Company's
DMAs, the Univision Affiliate competes directly with a station owned by or
affiliated with Telemundo. In November 1997, a venture formed by affiliates of
Apollo Management L.P., Bastion Capital Fund, and their strategic partners, the
Sony Pictures Entertainment unit of Sony Corp. and Liberty Media Group, reported
that it had entered into a definitive agreement to acquire Telemundo. The
Company cannot predict the effect of such acquisition on Telemundo's competitive
position vis-a-vis the Company.
Televisa has agreed with several partners, each of whom has substantial
assets, to develop and operate a DBS venture, which will have a variety of
program services, including program services supplied by Televisa. Televisa is
required to offer the Company the opportunity to acquire a 50% economic interest
in Televisa's interest in the joint venture to the extent it relates to United
States Spanish-language broadcasting. While the Company believes that it will be
offered such an interest, the Company has not received any indication as to what
the business terms relating to such interest would be. Accordingly, the Company
is not in a position to state whether it would accept such an offer. If the
venture secures a significant viewership among Hispanic Households, it could
have a material adverse effect on Univision's financial condition and results of
operations, even if Univision decides to acquire this 50% economic interest.
The rules and policies of the FCC also encourage increased competition among
different electronic communications media. As a result of rapidly developing
technology, the Company may experience increased competition from other free or
pay systems by which information and entertainment are delivered to consumers,
such as direct broadcast satellite and video dial tone services.
MATERIAL PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, trade
names and service marks, including its logos in its advertising and promotions.
The Company believes the strength of its trademarks, trade names and service
marks are important to its business and intends to continue to protect and
promote its marks as appropriate. The Company does not hold or depend upon any
material patent, government license, franchise or concession, except the
licenses granted by the FCC to the O&Os.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 1,500 full-time
employees. At December 31, 1997, approximately 13% of the Company's employees,
located at Chicago, Los Angeles, San Francisco and New York were represented by
unions.
The collective bargaining agreements covering the union employees expire at
the Chicago O&O in 2000 and at the Los Angeles O&O starting in 1999. The New
York O&O has two collective bargaining agreements which expire in 1999 and is
currently negotiating one new collective bargaining agreement. Negotiations for
the San Francisco O&O collective bargaining agreement have not yet been
concluded.
Management believes that its relations with its non-union and union
employees, as well as with the union representatives, are good.
20
FEDERAL REGULATION AND NEW TECHNOLOGIES
The ownership, operation and sale of TV stations, including those licensed
to subsidiaries of the Company, are subject to the jurisdiction of the FCC under
authority granted it pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). Matters subject to FCC oversight include, but are not
limited to, the assignment of frequency bands for broadcast television; the
approval of a TV station's frequency, location and operating power; the
issuance, renewal, revocation or modification of a TV station's FCC license; the
approval of changes in the ownership or control of a TV station's licensee; the
regulation of equipment used by TV stations; and the adoption and implementation
of regulations and policies concerning the ownership, operation and employment
practices of TV stations. The FCC has the power to impose penalties, including
fines or license revocations, upon a licensee of a TV station for violations of
the FCC's rules and regulations.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. However, broadcast station licensees continue to
be required to present programming that is responsive to local community
problems, needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming often
will be considered by the FCC when it evaluates license renewal applications of
a licensee, although such complaints may be filed at any time and generally may
be considered by the FCC at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, programming directed to children, obscene and indecent
broadcasts and technical operations, including limits on radio frequency
radiation. In addition, most broadcast licensees, including the Company's
licensees, must develop and implement affirmative action programs designed to
promote equal employment opportunities and must submit reports to the FCC with
respect to these matters on an annual basis and in connection with a license
renewal application.
LICENSE RENEWAL. Under new FCC rules adopted in January 1997 to implement
the Telecom Act, television station licenses generally will be issued for an
initial period of eight years, subject to renewal upon application therefore.
The FCC will ordinarily renew broadcast licenses for the maximum eight -year
term (subject to short-term renewals in certain circumstances, such as those
involving serious violations of FCC rules by the licensee). The changes apply to
all license renewals granted after the date the new rules were adopted
(regardless of when the renewal application was filed), as well as retroactively
to licenses for which the renewal application was filed on or after October 1,
1995 if the renewal was granted prior to the date the new rules were adopted.
With respect to broadcast renewal applications filed after May 1, 1995, the
FCC adopted new rules on April 12, 1996 to implement certain statutory changes
effected by the Telecom Act. Under these new rules, no person may submit a
competing application for the frequency licensed to the renewal applicant unless
and until the FCC has determined that the incumbent is not qualified to continue
to hold the license. However, during a certain period while the renewal
application is still pending, petitions to deny the renewal application may be
filed with the FCC. In recent years, representatives of various community groups
and others often have filed petitions to deny renewal applications of broadcast
stations. The FCC will grant the renewal application and dismiss the petitions
to deny if it determines that the licensee meets statutory renewal standards
based on a review of the preceding license term.
21
Set forth below are the license expiration dates of each O&O:
O&O LICENSE EXPIRATION DATES
DMA STATION LICENSE EXPIRATION DATE
- ---------------------------------------------------------------------------- ------------------- ---------------
Albuquerque--Santa Fe....................................................... KLUZ 10/01/98
Albuquerque--Santa Fe....................................................... K48AM(a) 10/01/98
Austin...................................................................... K30CE(a) 10/01/98
Bakersfield................................................................. KUVI 12/01/98
Bakersfield................................................................. KABE-LP(a) 4/01/98
Chicago..................................................................... WGBO 12/01/05
Dallas/Fort Worth........................................................... KUVN 8/01/98
Dallas/Fort Worth........................................................... KUVN-LP(a) 10/01/98
Fresno--Visalia............................................................. KFTV 12/01/98
Hartford & New Haven........................................................ W47AD(a) 6/01/98
Houston..................................................................... KXLN 8/01/98
Los Angeles................................................................. KMEX 12/01/98
Miami--Fort Lauderdale...................................................... WLTV 2/01/05
New York.................................................................... WXTV 6/01/99
Philadelphia................................................................ WXTV-LP(a) 6/01/98(b)
Phoenix..................................................................... KTVW 10/01/98
Sacramento--Stockton--Modesto............................................... KUVS 12/01/98
San Antonio................................................................. KWEX 8/01/98
San Francisco--Oakland--San Jose............................................ KDTV-LP(a) 12/01/98
San Francisco--Oakland--San Jose............................................ KDTV 12/01/98
Tucson (Nogales)............................................................ K40AC(a) 4/18/98(c)
- ------------------------
(a) Low-power O&O.
(b) The Philadelphia station (formerly W35AB) is currently operating pursuant to
a special temporary authorization.
(c) The Tucson station is currently operating pursuant to a special temporary
authorization as K52AO.
In each case, renewal applications must be filed with the FCC at least four
months before the expiration date of the license, and any petitions to deny must
be filed at least one month prior to the expiration date. The FCC usually does
not act on renewal applications until after the expiration date, and in the
interim, the licenses remain in effect. The Company is not aware of any reason
why any license renewal applications timely filed with the FCC would not be
granted.
OWNERSHIP RESTRICTIONS. The Communications Act prohibits the assignment of
a broadcast license or the transfer of control of a broadcast license without
prior FCC approval. The Communications Act also generally prohibits a licensee
from having more than 20% of its capital stock owned or voted by foreign
nationals, foreign governments, or the representatives of either (each a
"Foreign Interest"). A licensee may not be organized under the laws of a foreign
country. Absent a grant of special authority by the FCC, any company that
directly or indirectly controls a broadcast licensee may not be organized under
the laws of a foreign country, and may not have more than 25% of its capital
stock owned or voted by foreign nationals or foreign governments or by
representatives of foreign nationals or foreign governments. Under the
Communications Act, a broadcast license may not be granted to or held by a
Foreign Interest if the FCC finds that the public interest will be served by the
refusal or revocation of such license. The FCC has interpreted this provision to
require an affirmative public interest finding before a broadcast license may be
granted to or held by any such Foreign Interest. The FCC has rarely made such an
affirmative finding.
22
As presently organized, the Company complies with these restrictions. In
particular, the Company's Restated Certificate of Incorporation contains
provisions that permit the Company to redeem any shares of capital stock other
than Class T and Class V Common Stock owned by Foreign Interests and to take
other actions necessary to ensure its compliance with the foreign ownership
restrictions of the Communications Act and related FCC rules.
The FCC's "multiple ownership" rules generally provide that a license for a
television station will not be granted if the applicant (or a party with an
"attributable interest" in the applicant) owns, or has an "attributable
interest" in, another station of the same type which covers a similar service
area. As directed by the Telecom Act, the FCC is conducting various rulemaking
proceedings to determine whether to change its attribution rules and whether to
retain, modify, or eliminate its limitations on the number of television
stations that a person or entity may own, operate, or control, or have an
"attributable interest" in, within the same television market. Under its duopoly
regulations, the FCC prohibits ownership interests in television stations with
overlapping signals of specified strengths. In November 1996, the FCC proposed
to relax this prohibition to permit, under certain conditions, common ownership
of television stations with greater signal overlap. The FCC is implementing the
proposed standard on an interim, conditional basis pending the outcome of the
rulemaking proceedings. Among the options being considered are proposals to
increase the signal strength permitted before a prohibited overlap occurs, to
permit a single entity to own two UHF television stations in the same television
market, and to permit a single entity to own one UHF and one VHF television
station in the same market. Substantially all Univision Affiliates operate in
the UHF band. Whether, or when, the FCC will adopt such changes in its
regulations is unknown.
The FCC recently conformed its national television station multiple
ownership rules with the Telecom Act. Specifically, a single entity may hold
"attributable interests" in an unlimited number of U.S. television stations
provided that those stations operate in markets containing cumulatively no more
than 35% of the television homes in the U.S. For this purpose, only 50% of the
television households in a market are counted towards the 35% national
restriction if the owned station is a UHF station (as are the O&Os). An FCC
rulemaking is under way to address how to measure audience reach, but further
analysis of the "UHF discount" is being deferred until later this year as part
of the FCC's biennial review of the broadcast rules mandated by the Telecom Act.
None of the Principal Stockholders presently holds attributable interests in any
other U.S. television stations.
The FCC's rules provide that, with certain exceptions, the power to vote or
control the vote of 5% or more of the outstanding voting stock of a licensee is
the test for determining whether an entity has an "attributable interest" in a
licensee's stations for purposes of the multiple ownership rules. However, the
FCC's rules permit certain passive institutional investors (I.E., qualifying
investment companies, insurance companies or bank trust departments) to vote or
control the vote of up to 10% of the outstanding voting stock of a broadcast
company before they will be deemed to have an "attributable interest." In March
1992, the FCC initiated a proceeding to consider, INTER ALIA proposals (i) to
increase the general "attributable interest" threshold to 10% of the outstanding
voting stock of a broadcast licensee and (ii) to increase the threshold for
certain passive institutional investors to 20%. The FCC has taken no final
action in that proceeding.
The FCC recently conformed its "dual network rule" with the Telecom Act.
Under these new rules, a broadcast licensee may affiliate with an entity that
maintains two or more networks of television broadcast stations unless such
multiple networks are composed of (i) two or more network entities meeting a
specific definition of a network as of February 8, 1996, or (ii) a network
meeting such definition and certain other English-language program distribution
services. The Network does not fall into either category.
The Telecom Act also modified the general prohibitions on network-cable
cross-ownership so as to permit television networks to own cable systems.
NETWORK AFFILIATE ISSUES. Several FCC rules impose restrictions on network
affiliation agreements. Among other things, those rules prohibit a television
station from entering into any affiliation agreements
23
that (i) require the station to clear time for network programming that the
station had previously scheduled for other use, (ii) preclude the preemption of
any network programs that the station believes are unsuitable for its audience,
or (iii) preclude the station from substituting for network programming a
program that it believes is of greater local or national importance.
In addition, the FCC is currently reviewing several of its rules governing
the relationship between broadcast television networks and their affiliates.
Specifically, the FCC is reviewing the following four rules: (i) the "right to
reject rule," which provides that affiliation arrangements between a broadcast
network and a broadcast licensee generally must permit the licensee to reject
programming provided by the network, (ii) the "time option rule," which
prohibits arrangements whereby a network reserves an option to use specified
amounts of an affiliate's broadcast time, (iii) the "exclusive affiliation
rule," which prohibits arrangements that forbid an affiliate from broadcasting
the programming of another network, and (iv) the "network territorial
exclusivity rule," which proscribes arrangements whereby a network affiliate may
prevent other stations in its community from broadcasting programming the
affiliate rejects, and arrangements that inhibit the ability of stations outside
of the affiliate's community to broadcast network programming.
The FCC's so-called "spot sale rule" prohibits a network from representing
its affiliates in the sale of non-network advertising time unless such
affiliates are owned by or under common control with the network. In late 1990,
the FCC granted a permanent waiver to the Company's predecessor permitting non-
owned and operated affiliates of the Network to be represented by the Network in
the spot sales market. In 1992, as part of its approval of the Acquisition, the
FCC granted the Company's request to extend the permanent waiver of the spot
sale rule so as to permit the Network to continue to act as a national sales
representative for each Univision Affiliate.
ADVANCED TELEVISION TECHNOLOGY. At present, U.S. television stations
broadcast signals using the "NTSC" system, named for the National Television
Systems Committee, an industry group established in 1940 to develop the first
U.S. television technical broadcast standards. The FCC in late 1996 approved a
digital television ("DTV") technical standard to be used by television
broadcasters, television set manufacturers, the computer industry and the motion
picture industry. This digital television standard will allow the simultaneous
transmission of multiple streams of digital data on the bandwidth presently used
by a normal analog channel. It will be possible to broadcast one "high
definition" channel ("HDTV") with visual and sound quality superior to
present-day television or several "standard definition" channels ("SDTV") with
digital sound and pictures of a quality slightly better than present television;
to provide interactive data services, including visual or audio transmission, or
multiple channels simultaneously; or to provide some combination of these
possibilities on the multiple channels allowed by DTV. In April 1997, the FCC
announced that it would allocate to every existing television broadcaster one
additional channel to be used for DTV during the transition between present-day
analog television and DTV. Broadcasters will not be required to pay for this new
DTV channel, but will be required to relinquish their present analog channels
when the transition to DTV is complete.
The FCC presently plans for the DTV transition period to end by 2006; at
that time, broadcasters will be required to return their present channels to the
FCC. The FCC has already begun issuing construction permits to build DTV
stations. The FCC has recently issued regulations with respect to DTV
allocations and interference criteria which are not yet final, and other aspects
of the DTV regulatory framework have not yet been established. The FCC is
expected to apply to DTV the rules applicable to analogous services in other
contexts, including those rules that require broadcasters to serve the public
interest and may seek to impose additional programming or other requirements on
DTV service. While broadcasters will not have to pay for the additional DTV
channel itself, the FCC has proposed that fees will be imposed upon broadcasters
if they choose to use the DTV channel to provide paid subscription services to
the public. Neither the Telecom Act nor the recent Supreme Court decision
upholding the "must carry" statute resolves the applicability of the "must
carry" rules to DTV; the FCC is expected to begin proceedings on this issue
soon.
24
Under certain circumstances, conversion to DTV operations may reduce a
station's geographical coverage area. In addition, the FCC's current
implementation plan would maintain the secondary status of low-power stations in
connection with its allotment of DTV channels. The FCC has acknowledged that DTV
channel allotment may involve displacement of existing low-power stations,
particularly in major television markets. Accordingly, the Company's low-power
Broadcast Affiliates may be materially adversely affected.
In addition, it is not yet clear when and to what extent DTV or other
digital technology will become available through the various media; whether and
how television broadcast stations will be able to avail themselves of or profit
by the transition to DTV; how channel, tower height and power assignments will
be configured so as to allow that transition; the extent of any potential
interference with analog channels; whether viewing audiences will make choices
among services upon the basis of such differences; whether and how quickly the
viewing public will embrace the cost of the new digital television sets and
monitors; to what extent the DTV standard will be compatible with the digital
standards adopted by cable and other multi-channel video programming services;
or whether significant additional expensive equipment will be required for
television stations to provide digital service, including HDTV and supplemental
or ancillary data transmission services. Pursuant to the Telecom Act, the FCC
must conduct a ten-year evaluation regarding public interest in advanced
television, alternative uses for the spectrum and reduction of the amount of
spectrum each licensee utilizes. Many segments of the industry are also
intensely studying these advanced technologies. There can be no assurances as to
the answers to these questions or the nature of future FCC regulation.
DIRECT BROADCAST SATELLITE SYSTEMS. There are currently in operation
several DBS systems that serve the United States, and it is anticipated that
additional systems will become operational over the next several years.
Furthermore, several Spanish-language DBS systems are underway to serve various
parts of Latin America and some of such systems are expected to have signals
which will spill over into the southern U.S. or in certain cases, cover most or
all of the continental United States. DBS systems provide programming on a
subscription basis to those who have purchased and installed a satellite signal
receiving dish and associated decoder equipment. DBS systems claim to provide
visual picture quality comparable to that found in movie theaters and aural
quality comparable to digital audio compact discs. DBS systems do not, except in
certain instances, provide the signals of traditional over-the-air broadcast
stations, and thus are generally restricted to providing the programming of
premium services such as HBO and other traditionally cable-oriented satellite
programming services. In the future, competition from DBS systems could have a
material adverse effect on the financial condition and results of operations of
the Company.
RECENT DEVELOPMENTS, PROPOSED LEGISLATION AND REGULATION. Congress and the
FCC currently have under consideration, and may in the future adopt, new laws,
regulations and policies regarding a wide variety of matters that could affect,
directly or indirectly, the operation and ownership of the Company's broadcast
properties. In addition to the changes and proposed changes noted above, such
matters include, for example, spectrum use fees, political advertising rates,
potential restrictions on the advertising of certain products (hard liquor, beer
and wine, for example), and the rules and policies to be applied in enforcing
the FCC's equal employment opportunity regulations. Other matters that could
affect the Company's broadcast properties include technological innovations and
developments generally affecting competition in the mass communications
industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the Telecom Act, or of the regulations
and policies of the FCC thereunder. Proposals for additional or revised
regulations and requirements are pending before and are being considered by
Congress and federal regulatory agencies from time to time. Management is unable
at this time to predict the outcome of any of the pending FCC rulemaking
proceedings referenced above, the outcome of any reconsideration or appellate
proceedings concerning any changes in FCC rules or policies noted above, the
possible outcome of any proposed or pending Congressional legislation, or the
impact of any of those changes on Univision's broadcast operations.
25
ITEM 2. PROPERTIES
The principal buildings owned or leased by the Company are described below:
PRINCIPAL UNIVISION PROPERTIES (1)
AGGREGATE
SIZE OF
PROPERTY IN LEASE
SQUARE FEET EXPIRATION
LOCATION (APPROXIMATE) OWNED OR LEASED DATE
- -------------------------------------------- ------------- -------------------- -----------
Miami, FL................................... 139,625 Owned/Leased(2) 12/31/00(3)
Los Angeles, CA............................. 55,604 Leased 9/30/02(3)
Teaneck, NJ................................. 47,617 Leased 7/31/12(3)
New York, NY................................ 35,814 Leased 6/30/10(3)
Secaucus, NJ................................ 29,660 Leased 6/30/09
- ------------------------
(1) For additional information see Note 6 to consolidated financial statements.
(2) Represents two separate properties, of which 112,000 square feet are owned.
(3) Option to renew available.
The Company owns or leases remote antenna space and microwave transmitter
space near each of the O&Os. Additionally, the Company leases space in public
warehouses and storage facilities, as needed, near some of the O&Os.
The Miami facility houses Network administration, operations (including the
Network's uplink facility), sales, production, news, Galavision operations and
WLTV, the Miami station. The Company broadcasts its programs to the Univision
Affiliates on three separate satellites from four transponders, one of which is
owned and three of which are leased pursuant to two lease agreements that expire
in 2011.
The Company believes that its principal properties, whether owned or leased,
are suitable and adequate for the purposes for which they are used and are
suitably maintained for such purposes. Except for the inability to renew any
leases of property on which antenna towers stand or under which the Company
leases transponders, the inability to renew any lease would not have a material
adverse effect on the Company's financial condition or results of operations
since the Company believes alternative space on reasonable terms is available in
each city.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary course
of business. Management has accrued amounts it believes are reasonable and any
amounts in excess of those accruals, either alone or in the aggregate, would not
be material to the Company. See Note 8 to Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of its Board
of Directors subject to certain employment agreements. Messrs. Cisneros, Blank
and Rodriguez have employment agreements with the Company.
26
The executive officers of the Company as of December 31, 1997 are as
follows:
NAME AGE POSITION
- ---------------------------------------------- --- ------------------------------------------------------------
A. Jerrold Perenchio.......................... 67 Chairman of the Board and Chief Executive Officer
Henry Cisneros................................ 50 President and Chief Operating Officer
George W. Blank............................... 46 Executive Vice President and Chief Financial Officer
Robert V. Cahill.............................. 66 Vice President and Secretary
Ray Rodriguez................................. 46 President and Chief Operating Officer of the Network
Mr. A. Jerrold Perenchio has been the Chairman of the Board and Chief
Executive Officer of the Company since the Acquisition in 1992. From the
consummation of the Acquisition through January 27, 1997 he was also the
Company's President. Mr. Perenchio has owned and been active in Chartwell
Partners since it was formed in 1983. Chartwell Partners is an investment firm
that is active in the media and communications industry. Mr. Perenchio has over
25 years of experience in the U.S. media and communications industry. During his
career, Mr. Perenchio has been the chief executive officer of a number of
successful entities involved in the production and syndication of television
programming and from 1975 to 1986 owned and operated Spanish-language television
stations in Los Angeles and New York. A. Jerrold Perenchio is John G.
Perenchio's father.
Mr. Henry Cisneros joined the company on January 27, 1997 and serves as the
President and Chief Operating Officer. From January 1993 through January 1997,
Mr. Cisneros was the Secretary of the U.S. Department of Housing and Urban
Development. As a member of the President's Cabinet, Secretary Cisneros was
assigned America's housing and community development portfolio. Prior to joining
the cabinet, he was Chairman of Cisneros Asset Management Company, a fixed
income money management firm operating nationally. In 1981, Mr. Cisneros became
the first Hispanic mayor of a major U.S. city when he was elected Mayor of San
Antonio, the nation's 10th largest city, where he served four terms until 1989.
Mr. Cisneros has served as President of the National League of Cities, Chairman
of the National Civic League, Deputy Chair of the Federal Reserve Bank of
Dallas, and as a board member of the Rockefeller Foundation. After an
investigation by Independent Counsel, Mr. Cisneros was accused in a federal
indictment in December 1997 of violating certain federal statutes. Mr. Cisneros
is accused of making false statements, obstructing justice, and conspiring to
mislead in connection with his appointment as Secretary of the U.S. Department
of Housing and Urban Development. Mr. Cisneros was arraigned on January 8, 1998
and pled not guilty. Mr. Cisneros has informed the Company that he will defend
himself vigorously.
Since the Acquisition in 1992, Mr. Blank has been Executive Vice President
and Chief Financial Officer of UTG and, since 1995, Chief Financial Officer of
the Network. Mr. Blank joined Hallmark Cards Incorporated in March 1987 as a
consultant. In September 1987, he became Vice President, Finance and Chief
Financial Officer of Univision Holdings, Inc., the Company's predecessor
("UHI"). In addition, from May 1992 through the Acquisition, Mr. Blank held the
position of Chief Operating Officer of UTG.
Mr. Cahill has been the Secretary and a Vice President of the Company since
the Acquisition in 1992. Mr. Cahill has been Executive Vice President and
General Counsel of Chartwell Partners, an affiliate of Perenchio, since 1985.
While at Chartwell Partners, he has also been the Vice President of various
other corporations and partnerships affiliated with Perenchio that, among other
things, engage in businesses in the media and communications industry. Mr.
Cahill has been an associate of Mr. Perenchio for 25 years.
Mr. Rodriguez has been President and Chief Operating Officer of the Network
since December 1992. In August 1990 Mr. Rodriguez joined the Network's
predecessor as Vice President and Director of Talent Relations. In September
1991, he became Senior Vice President and Operating Manager of the Network. In
May 1992, Mr. Rodriguez became President and Chief Executive Officer of UHI.
Prior to joining UHI, he owned and operated a management consulting and
production company that produced Spanish language television programs. From 1983
to 1989, he was Julio Iglesias' manager and Chief Executive Officer of that
performer's organization.
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's Class A Common Stock is listed on the New York Stock Exchange
and is traded under the symbol "UVN". The Company began trade of its Class A
Common Stock on the New York Stock Exchange on September 27, 1996.
The table below lists the high and low sales prices for the Class A Common
Stock as reported on the New York Stock Exchange for each full quarterly period
within the two most recent fiscal years.
PRICE RANGE
------------------
HIGH LOW
-------- --------
1996
Third Quarter.............................. $17 $14 3/4
Fourth Quarter............................. $20 1/8 $16 5/16
1997
First Quarter.............................. $18 11/16 $15 7/8
Second Quarter............................. $19 13/16 $16 1/4
Third Quarter.............................. $29 1/2 $19 3/8
Fourth Quarter............................. $35 11/16 $25 3/4
(b) HOLDERS
At February 13, 1998, the approximate number of stockholders of record of
the Company's Class A Common Stock was 71.
(c) CASH DIVIDENDS
No cash Common Stock dividends were distributed during 1997 by the Company.
The Company has never declared or paid dividends on its Common Stock. The New
Bank Facility restricts the payment of cash dividends on the Common Stock. In
addition to any other approval required by law, the approval of a majority of
the Class T Directors and a majority of the Class V Directors elected by
Televisa and Venevision, the holders of Class T and Class V Common Stock,
respectively, is required for the Company to pay any dividends on the Common
Stock. Since dividends are not payable on the warrants held by each of Televisa
and Venevision, such approval is unlikely so long as such warrants are held by
Televisa and Venevision. The Company currently intends to retain any earnings
for use in its business and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Future dividend policy will depend on
the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors.
28
ITEM 6. SELECTED FINANCIAL DATA
Presented below is the selected historical financial data of Univision
Communications Inc.:
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR SHARE AND PER-SHARE DATA)
1997 1996 1995 1994 1993
-------------- -------------- ------------ ------------ ------------
INCOME STATEMENT DATA (FOR THE YEARS
ENDED DECEMBER 31):
Net revenues.......................... $ 459,741 $ 244,858 $ 173,108 $ 139,007 $ 104,675
Direct operating expenses............. 159,619 58,443 30,774 24,201 21,545
Selling, general and administrative
expenses............................ 137,070 79,818 64,973 49,223 40,174
Depreciation and amortization......... 58,640 39,516 33,506 31,719 33,970
-------------- -------------- ------------ ------------ ------------
Operating income...................... 104,412 67,081 43,855 33,864 8,986
Interest expense...................... 40,147 41,691 40,222 37,246 36,896
Amortization of deferred financing
costs............................... 1,630 2,934 3,925 5,419 4,580
Non-recurring expense (reversal) of
acquired station.................... (1,059) -- 1,750 --
Minority interest in net (income) loss
of consolidated subsidiary.......... -- (1,851) 7,346 (1,202) (5,309)
-------------- -------------- ------------ ------------ ----