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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, 1998
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 CLASS ON WHICH REGISTERED
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Class A Common Stock, Par Value $.01 New York Stock Exchange
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 62,184,801 shares of Class A Common Stock, $.01 par value,
outstanding as of January 29, 1999. The aggregate market value of the Class A
Common Stock of the Company held by non-affiliates on January 29, 1999 was
approximately $2,760,000,000. 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
Stockholders to be held May 25, 1999 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...................................................................... 7
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...................................................................................... 29
Item 3. Legal Proceedings............................................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders............................................. 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 31
Item 6. Selected Financial Data......................................................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................... 43
Item 8. Financial Statements and Supplementary Data..................................................... 43
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........... 43
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 43
Item 11. Executive Compensation.......................................................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 44
Item 13. Certain Relationships and Related Transactions.................................................. 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 45
1
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 18 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, the special
bonus award, depreciation and amortization.
"Cable Affiliates" means the approximately 939 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 UTG, the Network and
Galavision 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.
"Corporate Charges" means corporate costs that would be duplicated and
therefore eliminated if the Company were acquired by another broadcasting
company.
"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 and non-recurring charges, such as the special bonus award.
"Entravision" means Entravision Communications Company, LLC, which owns 14
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
wholly-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.
2
"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.
3
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 85% share of the U.S. Spanish-language network television audience
through December 1998. 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, 1998 representing approximately 79% 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, San Antonio, Houston, Dallas, Phoenix, Albuquerque,
Fresno and Sacramento. As of December 31, 1998, the Company had Affiliation
Agreements with an additional 10 full-power and 18 low-power Affiliated Stations
and approximately 939 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 2.7 million Hispanic subscribers, representing approximately
59% of all Hispanic Households that subscribed to cable television in 1998.
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
morning show that began airing in April 1997, DESPIERTA AMERICA--"Wake Up
America"--broadcasts news, talk and current events nationally, Monday through
Friday from 7:00 a.m. to 10:00 a.m. The Company has also televised World Cup
Soccer since 1978, including all 64 games of the widely watched 1998 World Cup.
Since 1996, the Company has been televising the Sunday "Game of the Week" for
Major League Soccer. On March 30, 1998, a joint venture between the Company and
Home Shopping Network began broadcasting a Spanish-language television shopping
program in the United States. The program is currently broadcast for three hours
a day on Galavision from 11 a.m. to 2 p.m. The Company and Televisa have an
agreement to each produce three thirteen-week new non-NOVELA programs. Both
Univision and Televisa are required to use commercially reasonable efforts to
complete the production of their respective three programs so that such programs
were available to commence airing no later than October 31, 1998. The Company is
currently broadcasting its three required programs and two of Televisa's
required programs. Televisa's third required program is scheduled for production
in the first quarter of 1999 and is scheduled to air in the first half of 1999.
Since the Acquisition, the Company's operating performance has improved
significantly with net revenues and EBITDA increasing to $577.1 million and
$195.6 million, respectively, for the year ended December 31, 1998, representing
compound annual growth rates of 19% and 28%, respectively, from the 1992
operating results of the Company and its predecessor. In addition, from November
1992 to November 1998 the Company increased its audience share of
Spanish-language network television viewing from 57% to 86% and increased its
share of the 20 most widely watched programs among Hispanic Households from 30%
to 95%.
4
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 recognition by advertisers of
the effectiveness 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.
On October 30, 1998, the Company entered into an agreement with Entravision
for the sale of the FCC broadcast license and all the assets of station KLUZ,
Channel 41, Albuquerque, New Mexico. Under the terms of the agreement, the
Company will receive as consideration $1,000,000 in cash and an option to
acquire an additional 2% equity interest in Entravision. The Federal
Communications Commission ("FCC") has approved the transaction and the Company
expects to close on the sale of the station at the end of the first quarter of
1999. In August 1998, the Company acquired a film library from the Million
Dollar Video Corporation for approximately $11,500,000, including legal fees. 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 1999 Hispanic population is estimated to be
31.5 million (11.5% of the total U.S. population), an increase of 32.5% 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 32.4 million and 42.4 million (11.8%
and 14.2% 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.
5
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPANISH LANGUAGE USE
Hispanic Population in
Millions
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
Source: Standard & Poor's DRI
GREATER HISPANIC BUYING POWER. The Hispanic population represents estimated
total consumer expenditures of $411 billion in 1999 (6.8% of the total U.S.
consumer expenditures), an increase of 90.5% since 1990. Hispanics are expected
to account for $443 billion (7.0% of the U.S. total consumer expenditures) by
2000, and $940 billion (9.0% 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 3.5 persons per household compared to the general public's average of
2.5 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% more on
children's clothing, 35.0% more on footwear, 11.4% more on phone services, and
23.2% 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,
$1.7 billion of total advertising expenditures were directed towards
Spanish-language media in 1998, representing an annual compound growth rate of
19% since 1993. Of these amounts, approximately 58% of the $1.7 billion in
advertising expenditures in 1998 targeting Hispanics were 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."
6
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).
Nielsen ratings at both the Network and local DMA levels provide advertisers
with an accurate and reliable measure of Hispanic audience television viewership
and have been important in allowing the 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 contracted from Nielsen are described below:
NIELSEN HISPANIC TELEVISION INDEX (NHTI). The NHTI service 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.
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 the
Spanish-language and the English-language broadcast networks. Spanish-language
7
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 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 1998
- ------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
Univision.................................................... 6.6 8.6 9.6 9.0 10.1 10.2
ABC.......................................................... 3.8 3.3 3.1 2.7 2.3 2.0
CBS.......................................................... 2.9 2.2 1.8 1.7 1.5 1.3
FOX.......................................................... 4.0 3.6 3.4 3.2 2.9 2.7
NBC.......................................................... 3.3 2.7 2.9 3.2 2.5 2.3
Telemundo.................................................... 4.1 3.1 2.6 2.1 1.6 1.5
Univision share.............................................. 26.7% 36.6% 41.0% 41.1% 48.3% 51.0%
A further indication of Univision's growing strength against its
Spanish-language and 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 1998
- ------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
Univision.................................................... 3.7 6.4 7.5 6.7 6.7 7.9
ABC.......................................................... 5.0 4.6 3.7 3.1 2.4 2.1
CBS.......................................................... 4.0 2.9 2.1 1.9 1.6 1.5
FOX.......................................................... 5.0 4.4 3.8 3.7 3.5 2.8
NBC.......................................................... 4.9 3.6 3.2 4.0 2.7 2.4
Telemundo.................................................... 2.6 1.9 1.3 1.1 1.0 1.0
Univision share.............................................. 14.7% 26.9% 34.7% 32.7% 37.4% 44.6%
8
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 95% in November 1998:
THE 20 MOST WIDELY WATCHED PROGRAMS
AMONG HISPANIC HOUSEHOLDS BY NETWORK
PROGRAM NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER
RANK 1992 1993 1994 1995 1996 1997 1998
- ---------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1 ABC FOX UVN(a) UVN UVN UVN UVN
2 UVN UVN UVN UVN UVN UVN UVN
3 FOX FOX UVN UVN UVN UVN UVN
4 UVN UVN UVN UVN UVN UVN UVN
5 FOX FOX UVN UVN UVN UVN UVN
6 FOX UVN UVN UVN UVN UVN UVN
7 FOX UVN UVN UVN UVN UVN UVN
8 ABC FOX UVN UVN UVN UVN UVN
9 FOX FOX UVN UVN UVN UVN UVN
10 UVN FOX UVN UVN UVN UVN UVN
11 ABC FOX FOX UVN UVN UVN UVN
12 FOX UVN FOX UVN UVN UVN UVN
13 UVN NBC UVN UVN UVN UVN UVN
14 UVN FOX UVN UVN UVN UVN UVN
15 UVN NBC UVN NBC UVN UVN UVN
16 NBC FOX UVN UVN UVN UVN UVN
17 FOX FOX UVN UVN UVN UVN UVN
18 ABC ABC FOX UVN ABC UVN FOX
19 TEL(b) FOX FOX UVN UVN UVN UVN
20 FOX FOX FOX FOX FOX UVN UVN
----- ----- ----- ----- ----- ----- -----
Univision share 30% 25% 75% 90% 90% 100% 95%
- --------------------------
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 production facilities for the Network's news and entertainment
programming.
The Network produces and acquires programs, makes those programs available
to the Univision Affiliates and sells network advertising. The full-power O&Os
and Broadcast Affiliates together reach approximately 6.0 million, or
approximately 73%, of Hispanic Households. The low-power O&Os and Broadcast
Affiliates (including translators) together reach approximately 655,000, or
approximately 8%, of Hispanic Households. The Cable Affiliates reach
approximately 846,000, or approximately 10%, of Hispanic Households.
Through the Company's ownership of the O&Os, it controls approximately 79%
of the Network's broadcast distribution.
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
9
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 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.
10
UNIVISION AFFILIATES' COVERAGE AND RANK AMONG HISPANIC HOUSEHOLDS
UNIVISION AFFILIATES'
NATIONWIDE RANK AMONG
HISPANIC HOUSEHOLDS SPANISH-LANGUAGE
DMA(A) STATION COVERED(B) TELEVISION STATIONS(C)(D)
- ------------------------------ --------- HISPANIC HOUSEHOLDS ----------------------- ---------------------------------
COVERED(B)
---------------------
(IN THOUSANDS)
Los Angeles(1).............. KMEX 1,444 17.5% 1(c)
New York(2)................. WXTV 1,004 12.2 1(c)
Miami(3).................... WLTV 469 5.7 1(c)
San Francisco(4)............ KDTV 330 4.0 1(c)
Chicago(5).................. WGBO 314 3.8 1(c)
San Antonio(6).............. KWEX 305 3.7 1(c)
Houston(7).................. KXLN 305 3.7 1(c)
Dallas/Ft. Worth(8)......... KUVN 210 2.5 1(c)
Phoenix(10)................. KTVW 186 2.3 1(c)
Albuquerque(11)(f).......... KLUZ 185 2.2 1(c)
Fresno(14).................. KFTV 169 2.0 1(c)
Sacramento(15).............. KUVS 163 2.0 1(c)
----- ---
FULL-POWER O&OS
Total full-power O&Os..... 5,084 61.6
FULL-POWER AFFILIATED STATIONS
McAllen/Brownsville(9)(e)... KNVO 199 2.4 1(c)
El Paso(13)(e).............. KINT 169 2.0 1(c)
Denver(16)(e)............... KCEC 131 1.6 1(d)
Corpus Christi(18)(e)....... KORO 98 1.2 1(d)
Boston(23).................. WUNI 87 1.0 1(d)
Las Vegas(25)(e)............ KINC 65 0.8 1(d)
Salinas/Monterey(26)(e)..... KSMS 57 0.7 1(d)
Laredo(30)(e)............... KLDO 47 0.6 1(d)
Yuma/El Centro(35)(e)....... KVYE 41 0.5 1(d)
Sta Barbara--Sta Maria-- San
Luis Obispo(34)(g)........ KTAS 40 0.5 1(d)
----- ---
Total full-power
Affiliated Stations..... 934 11.3
CABLE AFFILIATES(h)........... 846 10.2
DBS Systems(i)................ 98 1.2
LOW-POWER BROADCAST
AFFILIATES(j)............... 654 7.9
----- ---
TOTAL UNIVISION AFFILIATES.... 7,616 92.2%
----- ---
----- ---
- ------------------------
(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 1999.
(c) Rank among the Spanish television stations in the DMA. Source NHSI November
1998. Su-Sa/7a.m-1a.m.
(d) Rank among the Spanish television stations in the DMA. Source NSI November
1998. Su-Sa/7a.m-1a.m.
(e) Owned by Entravision.
(f) Entravision has entered into an agreement to acquire this station from the
Company.
11
(g) 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.
(h) Source: Company estimate derived from Nielsen Cable On-Line Data Exchange,
January 1999.
(i) Source: Nielsen Media Research
(j) Source: Company estimate derived from Nielsen Media Research, Black and
Hispanic DMA Market and Demographic Rank, January 1999.
GALAVISION NETWORK
Galavision is the leading U.S. Spanish-language general entertainment basic
cable television network, reaching approximately 10.0 million subscribers, of
whom 2.7 million are Hispanic. According to Nielsen, Galavision reaches over 59%
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-two of
the top 25 Univision advertisers advertise on Galavision.
On March 30, 1998, a joint venture between the Company and Home Shopping
Network LLC began broadcasting a Spanish-language television shopping program in
the United States on the Galavision network. The program is currently broadcast
for three hours a day from 11 a.m. to 2 p.m.
PROGRAMMING
The Company directs its programming primarily 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 53% increase in NHTI audience among Hispanic
adults aged 18 to 34, Sunday through Saturday 7 a.m. to 1 a.m., from December
1992 through December 1998.
12
Since 1995, Univision has aired 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 1998, the Company derived approximately 35% and 7% 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 93%
of the Network's non-repeat broadcast hours. The remainder primarily consists of
movies owned by the Company or 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 Saralegui, are among its most successful programs
in terms of advertising revenues generated. All programs produced by the Network
accounted for approximately 40.5% and 44%, respectively, of the Company's gross
advertising sales in 1997 and 1998.
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.
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 1998 World Cup soccer coverage broadcast by Univision garnered
one of the Company's highest sports ratings. Since 1996, the Company has been
televising the Sunday "Game of the Week" for Major League Soccer.
The Company and Televisa have an agreement to each produce three
thirteen-week new non-NOVELA programs. Both Univision and Televisa are required
to use commercially reasonable efforts to complete the production of their
respective three programs so that such programs were available to commence
airing no later than October 31, 1998. The Company is currently broadcasting its
three required programs and two of Televisa's required programs. Televisa's
third required program is scheduled for production in the first quarter of 1999
and is scheduled to air in the first half of 1999.
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). 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 77% share of
Mexico's viewing audience during 1998. Venevision is Venezuela's leading
television network with an approximate 58% share of its viewing audience during
1998. 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 37% and 13%, respectively,
of the Network's non-repeat broadcast hours in 1998.
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 has 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,
13
(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.
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. 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.
14
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 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, 1998,
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. UTG 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
Company's Bakersfield full-power station is a UPN affiliate. 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 25, 1998
rank as the top station in their respective DMAs.
15
FULL-POWER O&OS' COVERAGE AND RANK AMONG HISPANICS
UNIVISION
1999 HISPANIC 1999 HISPANIC SHARE
DMA RANK HOUSEHOLDS POPULATION HISPANIC SPANISH- OF SPANISH- ADULTS 18 TO 49
(BY HISPANIC (IN (IN HOUSEHOLD LANGUAGE LANGUAGE TOTAL AUDIENCE
DMA HOUSEHOLDS)(A)(B) THOUSANDS)(B) THOUSANDS)(B) DENSITY(C) USE(D) VIEWING(E) RANK(F)
- -------------- ------------------- --------------- --------------- ----------- ----------- ------------- -----------------
Los Angeles... 1 1,444 5,782 28.1% 20.5% 69%(g) 4
New York...... 2 1,004 3,132 14.7 10.9 83 7
Miami......... 3 469 1,337 33.0 29.1 89(h) 1
San
Francisco... 4 330 1,166 13.9 8.2 83 6
Chicago....... 5 314 1,137 9.9 7.7 86 7
San Antonio... 6 305 986 45.7 23.3 91 5
Houston....... 7 305 1,059 18.3 12.1 90 2
Dallas/Ft.
Worth....... 8 210 740 10.7 7.0 90 7
Phoenix....... 10 186 639 13.8 8.3 96 7
Albuquerque... 11 185 545 32.6 16.0 100 5
Fresno........ 14 169 637 33.7 22.9 93 1
Sacramento.... 15 163 569 14.4 8.1 100 6
- ------------------------
(a) The other DMAs ranked among the top fifteen by number of Hispanic Households
are McAllen/ Brownsville (9th), San Diego (12th) and El Paso (13th).
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1999 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
1999.
(d) Represents where the Spanish language is spoken at least 50% of the time by
adults (includes Spanish Dominant and Bilingual) as a percent of the total
DMA Households. Source: Nielsen Enumeration Study 1999, which sets forth
demographic attributes of Hispanic population.
(e) Source: NHSI, adults 18 to 49, November 1998, Sunday to Saturday, 7 a.m. to
1 a.m.
(f) Source: NSI, adults 18 to 49, November 1998, Sunday to Saturday, 7 a.m. to 1
a.m.
(g) The Los Angeles market has three full-power Spanish-language television
stations.
(h) The Miami market has four Spanish-language television 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 5.8 million people as of the beginning of 1999,
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 38% of that DMA's total population and 20% of the total U.S.
Hispanic population.
The Los Angeles DMA has three Spanish-language, full-power UHF television
stations. In November 1998, the Company's Los Angeles O&O, Univision-KMEX,
posted a 69% share of the viewers tuned to Spanish-language television from 7
a.m. to 1 a.m. Sunday through Saturday, while Telemundo-KVEA
16
posted a 18% share and KWHY (which only broadcasts in Spanish from 3 p.m. to 11
p.m.) posted a 13% share. Compared to all general market television stations in
the November 1998 NSI Report, KMEX was second in adults aged 18 to 34 ratings,
as well as third in adults aged 18 to 49 ratings and was sixth in households in
the Los Angeles DMA Sunday through Saturday 7 a.m. to 1 a.m. 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 49%.
NEW YORK. The New York DMA has the second largest Hispanic population in
the U.S., estimated by Nielsen to be 3.1 million people at the beginning of
1999, 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 17% of that DMA's total population
and 11% of the total U.S Hispanic population.
In November 1998, Univision-WXTV was the leading Spanish-language station
with a 83% share of the audience watching Spanish-language television (7 a.m. to
1 a.m. 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 all general market television stations in the November 1998 NSI
Report, WXTV ranked fifth in adults aged 18 to 34 ratings and ranked fourth in
adults aged 18 to 49, Sunday through Saturday, 7 a.m. to 1 a.m. 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
67%.
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 1999, 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 1998, the Company's Miami O&O, Univision--WLTV, had an 89% share
of the audience watching Spanish-language television from 7 a.m. to 1 a.m.,
Sunday through Saturday. Compared to all general market television stations in
the November 1998 NSI Report, WLTV was in first place in adults aged 18 to 49
and adults aged 18 to 34 ratings, and adults aged 25 to 54 ratings and placed
first in households in the Miami market Sunday through Saturday, 7 a.m. to 1
a.m.. 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
68%.
SAN FRANCISCO. The San Francisco DMA has the fourth largest Hispanic
population in the U.S. estimated by Nielsen to be 1.2 million people as of the
beginning of 1999; 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 19% of the DMA's
total population and 4% of the total U.S. Hispanic population.
In November 1998 the Company's San Francisco O&O, Univision-KDTV, had an 83%
share of the audience watching Spanish-language television from 7 a.m. to 1 a.m.
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 1998 NSI report KDTV ranked sixth among adults
aged 18-34
17
and sixth 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 66%.
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 1999,
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 1998, Univision-WGBO posted an 86% share of the audience
watching Spanish-language television 7 a.m. to 1 a.m., 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 1998 NSI
report, WGBO ranked sixth among adults 18-34 and seventh among adults 18-49.
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 48%.
HOUSTON. Houston has the sixth largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.1 million people as of the beginning of 1999, and
is the eleventh largest U.S. television market overall. The Hispanic population
in Houston represents 24% 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 1998, Univision-KXLN posted a 90% share of the audience watching
Spanish-language television 7 a.m. to 1 a.m., Sunday through Saturday. KXLN has
one Spanish-language competitor, the Telemundo affiliate KTMD. Compared to all
general market television stations in the Houston DMA in the November 1998 NSI
Report, KXLN was ranked first in the delivery of adults aged 18 to 34 and second
in adults aged 18 to 49, Sunday through Saturday, 7 a.m. to 1 a.m. A total of 14
commercial television stations service the Houston DMA. According to Nielsen,
cable penetration among Hispanic Households in Houston is approximately 40%.
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 1998 and approximately 3.0% of
the Network broadcast distribution.
ADVERTISING
The Company's top 10 advertisers for 1998 were Procter & Gamble, AT&T,
McDonald's, Sears, MCI Communications, Anheuser Busch, General Motors, Ford
Division, Coca Cola and Johnson & Johnson, 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 98.2% of Univision's gross revenues
for 1998 and approximately 98.5% for 1997 consisted of Network, national spot,
local and Galavision advertising revenues.
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 extensive general market television and advertising expertise
will further
18
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.
NETWORK ADVERTISING. Network advertising revenues represented 51.1% and
49.2% of the Company's gross revenues in 1998 and 1997, 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.
SPOT ADVERTISING. National spot advertising represents time sold to
national and regional advertisers based outside a station's DMA. National spot
advertising revenues represented 17.6% and 18.3% of the Company's gross revenues
for 1998 and 1997, 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 29.5% and 31.0% of the Company's gross revenues for 1998 and 1997,
respectively.
MARKETING
The Company increased by 90% the number of its marketing professionals from
146 at December 31, 1994 to 277 at December 31, 1998, including approximately 56
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
19
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
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, 1998, Telemundo
served 64 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 August 1998, a venture formed by Apollo Investment
Fund III L.P., Bastion Capital Fund L.P., the Sony Pictures Entertainment unit
of Sony Corp. and Liberty Media Corporation acquired 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, 1998, the Company employed approximately 1,700 full-time
employees. At December 31, 1998, approximately 12% of the Company's employees,
located in 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. The Los Angeles O&O has two collective bargaining
agreements, one expired in January 1999 and is currently being negotiated and
the other agreement expires March 31, 2000. The New York O&O has two
20
collective bargaining agreements which expire May 31, and December 31, 1999 and
is currently negotiating one new collective bargaining agreement. In May 1998,
the San Francisco O&O completed negotiations on its collective bargaining
agreement which expires in May 2002.
Management believes that its relations with its non-union and union
employees, as well as with the union representatives, are good.
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.
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 therefor. 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). These 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(d)
Albuquerque--Santa Fe.......................................................... K48AM(a) 10/01/06
Austin......................................................................... K30CE(a) 8/01/06(b)
Bakersfield.................................................................... KUVI 12/01/06
Bakersfield.................................................................... KABE-LP(a) 12/01/06(b)
Chicago........................................................................ WGBO 12/01/05
Dallas/Fort Worth.............................................................. KUVN 8/01/06
Dallas/Fort Worth.............................................................. KUVN-LP(a) 8/01/06
Fresno--Visalia................................................................ KFTV 12/01/06
Hartford & New Haven........................................................... W47AD(a) 4/01/99(b)(d)
Houston........................................................................ KXLN 8/01/06
Los Angeles.................................................................... KMEX 12/01/06
Miami--Fort Lauderdale......................................................... WLTV 2/01/05
New York....................................................................... WXTV 6/01/99(d)
Philadelphia................................................................... WXTV-LP(a) 8/01/99(c)
Phoenix........................................................................ KTVW 10/01/06
Sacramento--Stockton--Modesto.................................................. KUVS 12/01/06
San Antonio.................................................................... KWEX 8/01/06
San Francisco--Oakland--San Jose............................................... KDTV-LP(a) 12/01/06(b)
San Francisco--Oakland--San Jose............................................... KDTV 12/01/06
Tucson (Nogales)............................................................... KUVE-LP(a) 10/18/98(b)
- ------------------------
(a) Low-power O&O.
(b) This station is subject to displacement from its channel upon the
commencement of operations of a digital broadcast station. An application
has been filed for permanent authority to operate on an alternate channel;
however, one or more other parties have filed similar applications which
conflict with the station's displacement application. This matter is
pending.
(c) The Philadelphia station has been displaced from its channel by the
commencement of operations of a digital broadcast station and is operating
on Channel 28 pursuant to a special temporary authorization.
(d) Renewal applications are pending.
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 of its 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 (including entities organized under the laws of a foreign country),
foreign governments, or the representatives of either (each a "Foreign
Interest"). A licensee may not be organized under the laws of a foreign country.
Any company that directly or indirectly controls a broadcast licensee may not
have more than 25% of its capital stock owned or voted by Foreign Interests if
the FCC finds that the public interest
22
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 licensee that
is controlled by a company whose foreign-held capital stock exceeds such 25%
benchmark. The FCC has rarely made such an affirmative finding. The FCC has
issued interpretations of existing law under which these restrictions in
modified form apply to other forms of business organizations, including
partnerships. As presently organized, the Company complies with the FCC's
foreign ownership 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 has 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, including whether to alter the "UHF
discount," 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 power 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 power 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 power 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 has conformed its "dual network rule" with the Telecom Act. Under
this new rule, 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.
23
The Telecom Act also modified the general prohibitions on network-cable
cross-ownership so as to permit television networks to own cable systems.
The statutory prohibition against television station/cable system
cross-ownership is repealed in the Telecom Act, but the FCC's parallel
cross-ownership rule remains in place. The television station/daily newspaper
cross-ownership prohibition in the FCC rules was not repealed by the Telecom
Act. The FCC, however, is conducting a proceeding regarding waivers of that
restriction.
FCC rules also preclude the grant of applications for station acquisitions
that would result in the creation of new radio-television combinations in the
same market under common ownership, or the sale of such a combination to a
single party, subject to the availability of a waiver. Under FCC policy, waiver
applications that involve radio-television station combinations in the top 50 TV
markets where there would be at least 30 separately owned, operated and
controlled broadcast licensees after the proposed combination will generally be
favorably received. At present, the FCC imposes no limits on the number of radio
stations that may be directly or indirectly owned nationally by a single entity.
In addition, under its "cross-interest" policy, the FCC considers certain
"meaningful" relationships among competing media outlets in the same market,
even if the ownership rules do not specifically prohibit the relationship. Under
this policy, the FCC may consider significant nonattributable equity or debt
interests in a media outlet combined with an attributable interest in another
media outlet in the same market, joint ventures, and common key employees among
competitors. The cross-interest policy does not necessarily prohibit all of
these interests, but requires that the FCC consider whether, in a particular
market, the "meaningful" relationships between competitors could have a
significant adverse effect upon economic competition and program diversity.
A number of television stations have entered into local marketing agreements
("LMAs"). While these agreements may take varying forms, pursuant to a typical
LMA, separately owned and licensed television stations agree to enter into
cooperative arrangements of varying sorts, subject to compliance with the
requirements of antitrust laws and with the FCC's rules and policies. Under
these types of arrangements, separately owned stations agree to function
cooperatively in terms of programming, advertising sales, etc., subject to the
requirement that the licensee of each station maintain independent control over
the programming and operations of its own station. One typical type of LMA is a
programming agreement between two separately owned television stations serving a
common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during such program segments. At present, FCC rules
permit television station LMAs, and the licensee of a television station
brokering time on another television station is not considered to have an
attributable interest in the brokered station. However, in connection with its
ongoing rulemaking proceeding regarding the television duopoly rule, the FCC has
proposed to adopt rules providing that the licensee of a television station
which brokers more than 15% of the time on another television station serving
the same market would be deemed to have an attributable interest in the brokered
station for purposes of the national and local multiple ownership rules.
Some television stations have entered into cooperative arrangements commonly
known as joint sales agreements ("JSAs"). While these agreements may take
varying forms, under the typical JSA, a station licensee obtains, for a fee, the
right to sell substantially all of the commercial advertising on a separately-
owned and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming. The FCC has determined that issues of joint advertising
sales should be left to enforcement by antitrust authorities, and therefore does
not generally regulate joint sales practices between stations. Currently,
stations for which a licensee sells time under a JSA are not deemed by the FCC
to be attributable interests of that licensee. However, in connection with its
ongoing rulemaking
24
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs.
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 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. Beginning in 1998, the national
spot sales team was transferred to Univision Television Group, Inc.
OTHER MATTERS. Effective January 1, 1990, the FCC reimposed syndicated
exclusivity rules and expanded the existing network non-duplication rules. The
syndicated exclusivity rules allow local broadcast stations to require that
cable television operators black out certain syndicated, non-network programming
carried on "distant signals" (i.e., signals of broadcast stations, including
so-called superstations, that serve areas substantially removed from the local
community). Under certain circumstances, the network non-duplication rule allows
local broadcast network affiliates to require that cable television operators
black out duplicative network broadcast programming carried on more distant
signals.
The FCC has adopted regulations effectively requiring television stations to
broadcast a minimum of three hours per week of programming designed to meet
specifically identifiable educational and informational needs, and interests, of
children. The FCC has also placed limits upon the amount of commercialization
during, and adjacent to, television programming intended for an audience of
children ages 12 and under. Present FCC regulations require that each television
station licensee appoint a liaison responsible for children's programming.
Information regarding children's programming and commercialization during such
programming is required to be compiled quarterly and made available to the
public. This programming information is also required to be filed with the FCC
annually.
The 1992 Cable Act requires television broadcasters to make an election to
exercise either "must-carry" or "retransmission consent" rights in connection
with the carriage of television stations by cable television systems in the
station's local market. If a broadcaster chooses to exercise its must-carry
rights, it may demand carriage on certain channels on cable systems within its
market, which, in some circumstances, may be denied. Must-carry rights are not
absolute, and their exercise is dependent on variables
25
such as the number of activated channels on and the location and size of the
cable system and the amount of duplicative programming on a broadcast station.
If a broadcaster chooses to exercise its retransmission consent rights, it may
prohibit cable systems from carrying its signal, or permit carriage under a
negotiated compensation arrangement.
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. The FCC has already
allocated to most existing television broadcasters 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 one of their 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. 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 voted to
impose fees upon broadcasters if they choose to use the DTV channel to provide
paid subscription services to the public. Neither the Telecom Act nor the
Supreme Court decision upholding the "must carry" statute resolves the
applicability of the "must carry" rules to DTV; the FCC recently began a
proceeding on this issue.
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. The Company has
already filed displacement applications seeking new channel allotments for seven
of its low-power stations, which will be at least partially displaced by DTV
channels. Some of these applications face mutually exclusive applications from
other applicants, and there is no assurance that any of these applications will
be granted by the FCC.
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; 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; or to what
extent the DTV standard will be compatible with the digital standards adopted by
cable and other multi-channel video programming 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
26
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. In November 1998,
the FCC released the text of a NOTICE OF PROPOSED RULEMAKING which seeks to
fashion a new equal employment opportunities ("EEO") rule. The FCC's former EEO
rule as it relates to affirmative action was ruled unconstitutional in 1998 by
the U.S. Court of Appeals for the District of Columbia Circuit in LUTHERAN
CHURCH--MISSOURI SYNOD v. FCC. Essentially, the FCC's NOTICE seeks to create an
"outreach efforts" rule. The NOTICE, among other things, seeks comment on
whether broadcasters and cable television system operators should be required to
use a minimum number of recruiting sources on both a nationwide and local level
when filling job vacancies, and, if so, what that minimum number should be. The
proposed EEO rule specifically states that broadcasters are not required to
consider race or gender in making hiring decisions. In addition, under the
proposed rule, the FCC will no longer compare a broadcast station's workforce to
the labor force in its community, nor will it require licensees to engage in
such comparisons. This EEO proceeding is currently pending before the FCC.
The FCC has promulgated a number of regulations prohibiting, with certain
exceptions, advertising relating to lotteries and casinos. The U.S. Court of
Appeals for the Ninth Circuit recently ruled that the limits on casino
advertising are unconstitutional and therefore invalid. The U.S. Supreme Court
has declined to review that decision. As a result, the FCC has suspended
enforcement of the casino advertising rule in the Ninth Circuit, which includes
Washington, Oregon and Montana.
The advertising of cigarettes on broadcast stations has been banned for many
years. The broadcast advertising of smokeless tobacco products has more recently
been banned by Congress.
In late 1998, on reconsideration of its decision earlier that year regarding
requirements for closed captioning of video programming, the FCC adopted rules
requiring that 100% of all new English-language video programming be closed
captioned by January 2006, and all new Spanish-language programming be closed
captioned by January 2010. The FCC was required to develop closed captioning
rules by the Telecom Act. English and Spanish language programming first
exhibited prior to January 1, 1998, is subject to different compliance
schedules. In all cases, the FCC's new rules require programming distributors to
continue to provide captioning at substantially the same level as the average
level of captioning that they provided during the first six months of 1997, even
if that amount exceeds the benchmarks applicable under the new rules. Certain
station and programming categories are exempt from the closed captioning rules,
including stations or programming for which the captioning requirement has been
waived by the FCC after a showing of undue burden has been made.
The Telecom Act requires that any newly manufactured television set with a
picture screen of 13 inches or greater be equipped with a feature designed to
enable viewers to block all programs with a certain violence rating (the
"v-chip"). In an Order adopted March 12, 1998, the FCC required that at least
one-half of all television receiver models with screen sizes 13 inches or
greater produced after July 1, 1999
27
have the v-chip technology installed, and that all such television receivers
have v-chips by January 1, 2000. The television industry has adopted, effective
January 1, 1997, and subsequently revised, August 1, 1997, a voluntarily rating
scheme regarding violence and sexual content contained in television programs.
The March 12, 1998 order found that the industry scheme meets the standards of
the Telecom Act. The Company cannot predict whether the v-chip and a ratings
system will have any significant effect on the operations of its business.
The Satellite Home Viewer Act ("SHVA") permits satellite carriers and direct
broadcast satellite carriers to provide to certain satellite dish subscribers a
package of network affiliated stations as part of their service offering. This
service is not intended to be offered to subscribers who are capable of
receiving their local affiliates off the air through the use of conventional
rooftop antennas or who have received network affiliated stations by cable
within the past 90 days. Furthermore, the package of affiliate stations is
intended to be offered only for private home viewing, and not to commercial
establishments. The purpose of the SHVA is to facilitate the ability of viewers
in so-called "white areas" to receive broadcast network programming when they
are unable to receive such programming from a local affiliate, while protecting
local affiliates from having the programming of their network imported into
their market by satellite carriers. Satellite carriers, however, reportedly have
been offering program packages that include the package of network affiliates to
large numbers of subscribers residing in the markets of local affiliates. The
Courts, the Congress and the FCC have been asked to review the SHVA and the
practices of satellite carriers thereunder. The Company cannot predict what
changes, if any, to the SHVA or the practices of satellite carriers thereunder
may occur as a result. Nor can the Company predict whether the SHVA will be
reauthorized upon its expiration.
Under certain circumstances, broadcast stations currently are required to
provide political candidates with discounted air time in the form of lowest unit
rates. A number of changes have been proposed before Congress to mandate public
service obligations on broadcast stations such as the provision of free or
discounted air time for political candidates. The Company is unable to predict
the outcome of this debate regarding political advertising and campaign finance
reform.
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 and potential restrictions on the advertising of
certain products (for example, hard liquor, beer and wine). Other matters that
could affect the Company's broadcast properties include assignment by the FCC of
channels for additional broadcast stations or wireless cable systems, as well as
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.
28
ITEM 2. PROPERTIES
The principal buildings owned or leased by the Company are described below:
PRINCIPAL UNIVISION PROPERTIES (1)
AGGREGATE
SIZE OF
PROPERTY OWNED LEASE
IN SQUARE FEET OR EXPIRATION
LOCATION (APPROXIMATE) LEASED DATE
- ------------------------------------------ --------------- ------------------- ------------
Miami, FL................................. 174,037 Owned/Leased(2 ) 12/31/00(3)
Los Angeles, CA........................... 59,036 Leased 9/30/02(3)
Teaneck, NJ............................... 47,617 Leased 7/31/12(3)
New York, NY.............................. 44,805 Leased 6/30/10(3)
Chicago, IL............................... 24,575 Leased 1/31/09(3)
- ------------------------
(1) For additional information see Note 6 to consolidated financial statements.
(2) Represents two separate properties, of which 131,689 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