Prospects bright for Mexican ad revenue in 98

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MEXICO CITY -- Mexico's two major broadcasters have released strong third quarter results and analysts say the outlook is bright for ad revenue growth next year. In the meantime, however, the two rivals will be squaring up to compete for new advertisers in the months before Christmas.

TV Azteca's report, in line with analysts' expectations, was its first since the number two broadcaster went public in August. The media company reported a profit of $51 million, up 94% from a year ago. Revenue rose 55% to $112 million.

"The quarter was quite encouraging," says Pablo Riveroll, an analyst at Merrill Lynch. Azteca executives told analysts that it is negotiating a 25% increase in real terms to its rating-tied ad rates, Riveroll says, noting that Televisa has said it is raising rates by 30% in nominal terms.

Those increases bode well for higher ad revenue at both companies next year, he says.

Televisa's quarterly revenue rose just 2.6% to $428 million, with a net profit of $165 million versus a small loss a year ago.

"It's important to note that Televisa is benefiting from a strong ad market and the successful implementing of its cost-cutting program," says Niraj Gupta, an analyst at Schroeder.

Televisa does not break out broadcast television ad revenue from export revenue. However, one analyst estimates that for the third quarter, the TV ad pie distribution is roughly the same as it has been all year, with Televisa at about 65% and Azteca with 33%.

Though political campaign advertising will be virtually non-existent next year and private pension plan ads have dropped off considerably, analysts believe TV ad spend will grow at a healthy pace next year, driven largely by continued economic improvement.

The soccer World Cup next summer should provide a major boost as well. Azteca estimates the competition could bring another $100 million into the ad pie, analysts say.

Azteca's quarterly margins declined, which was attributed to the ramp-up in production costs as it chases more ratings to increase its share of TV ad spend. Even so, analysts don't believe Azteca can increase its share by much more than one to two points in 1998, though Riveroll estimates its share will climb to 37%.

Televisa is also improving its competitive position, says Gupta, with higher ratings than a year ago. "Azteca has a hit show but one show does not a schedule make," he says. Azteca has highlighted the success of its show, "Mirada de Mujer," as the highest-rated program in Mexico, but statistics from ratings agency Ibope do not support its assertion.

Copyright October 1997, Crain Communications Inc.

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