Grupo Televisa SAB (TV) 2002 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Grupo Televisa Second Quarter Teleconference. If you have not yet received the press release, please call Einhorn, at the Abernathy McGregor Group, at 212-371-5999. During the presentation, all participants will be in the listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. As a reminder, this conference is being recorded Thursday, July 25, 2002. Before we begin, I would like to draw your attention to page 14 of the press release, which explains the use of forward-looking statements. Please familiarize yourself with this section as it also applies to everything discussed in this conference call. Now, I will turn the call over to Grupo Televisa's Chief Financial Officer, Alfonso de Angoitia. Please go ahead sir.

Thank you. Good morning and welcome to Grupo Televisa's conference call to discuss the results for the second quarter 2002. With me today is , our corporate vice president of television and Alberto , our head of investor relations. First, I am going to take you through our financial results for the quarter. Then I will review the outlook for the third quarter of 2002. Afterwards, will discuss our operating results related to the divisions associated with television content. When is finished, we will be happy to take your questions. The results for the quarter were positively affected by the World Cup. Consolidated net sales amounted to 5.2 billion pesos in the quarter which is an increase of 10% compared to the second quarter last year. The increase in sales is attributed to 353 million pesos of revenue from the World Cup and a partial improvement of the advertising market.

Television revenues grew 13% year over year largely due to revenues from the World Cup. Without this event, television revenues would have grown 1% indicating that the advertising market has stabilized. The spot market represented 17.8% of television revenues which is inline with our internal forecast. We believe that the gradual recovery of the economy, the increased options of our strong programming schedule and the strategic changes that Pepe will mention later will encourage clients to increase their advertising expenditures sequentially. Moreover, we were able to control costs while gaining audience share. Cost of sales decrease .5% without World Cup in the television broadcasting division.

EBITDA in our broadcasting division amounted close to 1.3 billion pesos, a 17% increase over last year and EBITDA margin increased to 39%. Regarding publishing and radio, these divisions are still feeling the strain of a weak economy while at the same time undergoing a reconstruction process. As part of our reorganization of radio business, we will repurpose our stations and at the same time reduce head count and other expenses in the coming months. Today we have the right partners and managers in order to achieve our goals.

In our continued effort to turn around our underperforming assets, we have followed strict cost controls and reviewed our business strategies. our Internet division, has reduced losses in the quarter by 60%. We have achieved this by creating economies of scale and synergies with other divisions. Our consolidated EBITDA for the quarter increased 12% to 1.4 billion pesos from 1.2 billion pesos last year and our consolidated EBITDA margin for the quarter increased to 27.5%.

Restructuring and non-recurring charges amounted to 373 million pesos in the second quarter of 2002. They principally relate to charges taken in connection with personal layoffs in our broadcasting and cable television division that amounted to 64 million pesos as well as non-recurring charges in connection with a write-off of exclusive rights, letters for soccer players in the amount of 156 million pesos. Additionally during the second quarter of 2002, we recorded an extraordinary charge in related expenses for an aggregate amount of 153 million pesos. This amount relates to the draw down by Direct TV under a letter of credit that we posted in connection with our rights to broadcast the World Cup. Direct TV claims that we violated these arrangements. Their argument to make use of these proceeds are totally wrong. We are in the process of bringing appropriate proceedings to recover the amount drawn under the letter of credit and to seek damages from Direct TV resulting from their actions. We are strongly taking this action because we believe this is not an appropriate or ethical way in which to conduct business or to generate revenue.

Net income for the quarter amounted to 1.2 billion pesos as compared to 250 million pesos the last year's quarter. This increase reflects the gains of our transaction with Univision regarding the sale of our music recording business. The gains of this transaction amounted to 1.1 billion pesos. As of June 30, 2002 we maintained cash on hand in the amount of 675 million. Our credit ratios remain strong. Our debt to EBITDA leverage is 2.4 times and our EBITDA to interest coverage is 4.7 times.

Given the recent fluctuations in the exchange rate, integral cost of financing increased to 216 million pesos during the second quarter of 2002 from 45 million pesos during 2001 comparable period, mainly due to the 10.4 percent depreciation of the Mexican peso as compared to the US dollar versus the 4.4 appreciation in the same period last year. Before moving on to guidance, I would like to review the details of the acquisition of 50 percent additional stake in two publishing distribution companies in Chile and Argentina. We invested approximately $3.6 million in the companies that have by far the dominant position in their respective markets. This acquisition will enable us to consolidate our operations and put a stronger emphasis in distributing our magazines in those countries.

Guidance for the third quarter of 2002 is detailed in the press release. At this time, we are projecting the television revenues will increase in the range of two to three percent compared to last year, considering the stabilization of the advertising market. Regarding costs, as we have done in the past, we will adjust ourselves if market conditions are adverse in order to maintain our guidance. We expect costs to be marginally stable in 2002 compared with last year, excluding costs and expenses associated to the World Cup. Once again, we demonstrated that even in an uncertain economic environment, we are able to differentiate ourselves with superior and higher quality content. For six consecutive quarters, we have met our guidance to the market and delivered solid results. Now, I will turn the call over to Pepe.

Thank you. Good morning everyone. I will begin by running through the highlights in our television division and then I will move on to pay television. During the second quarter and the first half of the year, we shall see a strong and sustained performance in our ratings and audience share. What is more, we have produced significant growth in key demographics clients in channel five and nine. We continue to be committed to expanding the market as we have demonstrated this quarter by actually increasing the average number of televisions in use during prime time, due in large part on the success of our reality programming. We have achieved this role through our strategy of maintaining the optional balance among revenues, ratings and costs throughout the organization. I am very pleased to report that Televisa produced tremendous overall ratings and audience share numbers, our best in nearly three years. Let me break down our results. From sign-on to sign-off, Monday through Friday, our audience share increased from 74 percent in the first quarter to 78 percent in the second quarter. In weekday prime time from 7:00 to 11:00 p.m., our audience share increased from 69 percent to 76 percent in the same period. Channel two continues to dominate the Mexican television. Our channel continues to the most watched programs in the country, which are . During the second quarter, we concluded two very successful novellas, and , which ended in the last month with an average of 41 and 42 percent audience share respectively. And our 9:00 p.m. novella, has received an average of more than 40 percent share in the last month. Because of its initial success, last week we launched our half-hour comedy program in the 10:00 p.m. weekday slot and shifted our news program a half-hour later. With the of comedians, these programs regenerated high revenue the first time we air it and preliminary, we showed our ratings and audience share are 120 percent higher than the newscast. The rationale behind this move is twofold.

Diversifying our prime time programming and increasing our prime time revenues by moving in a strong revenue-generating product. Even though we moved the newscast from time slot, it has not lost any rating points. This due to the loyalty of which viewers given the credibility our new division has achieved.

Channel five has positioned itself as the most innovative television channel in Mexico. With a combination of our corporate visuality shows, keep American series of blockbuster movies, we have transformed channel five into the hit channel for the 18 to 34 demographic in less than one year. I'd like to point out that in the second quarter channel five had an average of 24 cents audience share in prime time. This is 60% more than our competitors like channel 13. The gains in share have not got our viewer-ship in Televisa's other channels.

Big Brother has already established itself as a successful franchise in Mexican television. The first Big Brother pulled in very impressive numbers and we received 20 million US dollars in revenues. Despite initial controversy with show costs, over 100 clients sponsored the show of which 20% were newcomers to television.

Nomination and vision nights came to be a phenomenon in Mexico with families and friends gathering to watch competition in this show. This night produce an average of 27 rating points and over 42% audience share. In the final show we maintain a consistent 58% average audience share over the entire four-hour period with a peak of 66%.

Once again, this quarter we proved that Televisa is the best sports option in Mexico. During the quarter, Japan World Cup, we achieve 70% audience share of the Cup's audience reflecting our dominant position in the broadcasting of major sporting events.

Our programming prime time was the most watched sports program in Mexico during the World Cup achieving the highest numbers of spots viewers during the event. During the transmission of the games played by the Mexican national soccer team, Mexican viewers rated Televisa the number one television option garnering 60% more viewers than the competition largely due to the populating of our experienced commentators.

We believe that our consistent delivery week by week of quality and profitable programming will enhance viewer loyalty and add value to our television franchise. The gains in ratings and audience share as well as our discipline day-to-day operation, we've positioned us for a strong 2003 upfront sales and we have demonstrated to our clients that we can meet their needs, improve their sales and marketing objectives.

Turning briefly now to big television services, I want to take this opportunity to again welcome two new appointees. In May, to cover a sea of cablevision and to cover a sea of . Both our cable and services achieved higher levels of productivity this quarter despite the special tax on telecommunications that went into effect at the beginning of the year. Cablevision's sales increased 10.8% in the second quarter compared to the same period last year. And EBITDA margins reached 25% despite our reduction of approximately 5,000 subscribers from last March. The average revenue per user in our Digital service averaged a little more than 41 dollars compared to 17 dollars in the basic service.

Our direct to home service in holds three-quarters of the Mexican market, as measured by the numbers of active subscribers, despite very significant competition and the new tax on telecommunications. And operational results have positioned the company as not only the top satellite company in Mexico, but also the number four overall media company in our country. Despite a 6000 subscriber decrease in active subscriber base due to our slowdown in the economy, the new telecomm tax and the lack of programming, net revenues increased 12.3 percent to a record 919 million pesos compared to the same period last year. EBITDA for the quarter increased 33.2 percent to 273 million pesos for the same period last year. As a result, our . Gross active subscribers totaled 695,000. Once more demonstrated that unique content is a solid driver of growth and revenue. In the past quarter, just in our exclusive boxing matches and the soccer matches played in the Cup, we had over 220,000 subscribers this event. This is more than 30 percent of our subscriber base our pay per view service for sports content. Now, we will be glad to take your questions.

Thank you ladies and gentlemen if you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. One moment please for the first question. Your first question comes from Whitney Johnson, from Merrill Lynch. Please proceed with your question.

Thank you. Two questions this morning. First of all, could you review for us, Alfonso, what percentage of your revenue comes from Channel Two and what percentage from Channel Five, and what percentage of the programming on Channel Two and Channel Five, respectively is self-produced as opposed to purchased, and second question is if you can just give us a rundown of what your total live entertainment revenue was for the quarter and the margin on that revenue?

Good morning Whitney. This is Pepe.

Hi Pepe.

Well first of all, Channel Two's programming is about, a little bit over 90, between 90 and 95 percent of Channel Two's programming is produced by our company. In Channel Five, probably the same, but the other way. Now that we are co-producing the reality shows, this changes, but not much because in broadcast television, all we are airing from reality shows is a half-hour, between a half hour and one hour from Monday through Friday and we have a special that goes one hour Saturdays and sometimes, depending on our programming strategies, we go from two to three hours Sundays, but in some ways, most of the programming is, it is a product that we buy from third parties and like I said, in Channel Two, between 90 and 95 percent is ours.

As to your other two questions, Whitney, Channel Two represents in this quarter about 63 percent of the sales of television broadcasting and Channel Five 27 percent. As to the other question, live entertainment during the quarter was very small still, so we do not consider this to be material this quarter. I mean the numbers are very small.

Is it roughly in line with last quarter Alfonso?

Roughly in line yes.

Okay terrific. Thank you.

Our next question comes from Renee Timtel with Deutsche Bank. Please go ahead.

Good morning gentlemen. A couple of questions. First of all, out of the 35 million dollars in revenues from the World Cup, how much do you consider to be incremental revenues?

It's very difficult to say how much is incremental because you have to make assessment as to how much the clients would have invested or how much the clients would have advertised without the World Cup. So we're considering that, the 353 as extraordinary revenue for the quarter.

Okay. Second question. You reported this revenues from 1.1 billion pesos from the sale of to Univision and here you're saying that you consider the Univision's stock at 38 dollars, now today it's a 24. Are you going to be recognizing a similar loss?

Well as you can see in our balance sheet, we have taken the investment in Univision as a whole including the six million shares we received as part of the purchase price of Phonovisa at book value plus goodwill on top of the book value, so that's how we record those shares in the investment of Televisa and Univision.

Okay. So this means you're not going to be marking to market the Univision shares then?

No because it's a long term investment so we don't mark to market every quarter.

Okay. And one last question on the controversy with Direct TV. What specifically is the argument that prompted them to cash in on the credit letter?

Yeah. I would like to give you more detail to this thing that happened. After very long negotiations, we bought the rights for the World Cup for nine million dollars from Direct TV. Since Direct TV competes with Sky in Mexico or it would be better to say that they think that they compete with us in Mexico, they asked for a letter of credit to guarantee that no World Cup content would be shown on Sky. This excluded the provision of our newscasts on Sky which could include World Cup excerpts. Direct TV draw down on the letter of credit in what we believe to be in bad taste. In order to collect the ten million dollars, Direct TV bought the rights for the two World Cups for 400 million dollars and as I mentioned, we bought the rights for nine million dollars and Televisa got paid the same amount.

As you can imagine, I am sure that they are under tremendous pressure since they paid 400 million dollars. They claim that our general everyday newscasts were transmitted on Sky with World Cup content and that they were not general news programs but World Cup programs. So they basically are saying that we transformed our newscast into programs that had to do with the World Cup and were not general news programs. We believe that they are completely wrong. We will start legal action both in Mexico and in the US to recover that amount plus damages and we will also bring additional claims against Direct TV in the US.

All right. Thank you very much.

Our next question comes from Matthew Kupett with UBS Warburg. Please go ahead with your question.

Yes, good morning, Alfonso, Pepe. I have two questions. First, what is the cash impact for the change in tax slows? Because we saw an increase in deferred income tax when you implied that there would be change in cash tax for 2002, 2003 from our projections. Could you quantify the impact? And the second question is, does the 15 million dollar of non-recurring charge with Direct TV, does it include any of the nine million costs that you paid Direct TV were included there or everything was part of the costs of goods sold there? And what was the operating income margin for the World Cup? It seems that it's pretty high around 50%. Is it the case? Thank you.

Yes operating, I mean as to the last question operating margin for the World Cup is higher than 50%. Then as to your second question, the letter of credit expense 153 million pesos is aside from the cost of the nine million for the rights. And aside from the 170 million pesos of total costs and expenses relating to the World Cup. And now relating to the first question Matt, can you repeat it because I didn't get it?

Yes. I have the impression that with the change of tax flow you will be paying less cash tax in 2002. Could you quantify more or less what will be the amount you will be saving?

Well you can start to see because of the effect in the deferred taxes of the reduction in the rate, you can that effect in our income statement this quarter. And you will see an approximate amount in the following quarters. I mean, more or less the same amount as this time.

So it would be more or less of 20 million dollar of less spending on the tax compared to before?

You know, I haven't figured that out exactly. What I can tell you is that this quarter you can see the effect in the income statement and that has to do with the reduction in the rate as a result of the tax reform in Mexico and that has to do of course with the deferred tax so that's the effect in this quarter and I haven't quantified what this will mean for us during the year.

Okay. Thank you very much Alfonso.

Our next question comes from Chris Rikuso with Bear Stearns. Please go ahead.

Good morning guys. I have a couple of questions. Some of them are actually just accounting related. I wonder if you could give me the figure for monetary correction on advance obligations that was built into revenues this quarter. Also if you could give us a breakdown of your other expense that came below the operating line. And I wonder if you could explain to us what the costs are that are built into TV licensing. I see that you imply roughly a TV licensing Ebitda margin I believe as something like 18% which is actually below your consolidated margin. I'm still a little bit confused about this because television exports are supposed to be just pure margin. Now I understand there are allocation issues in terms of expenses, but what exactly goes into the expense portion of your TV licensing?

Hi Chris. In response to the first question, monetary correction in respect to the deposits, it's 68 million pesos for the quarter. Now the other expense line item, let me give you the breakdown. Amortization of goodwill is 124 million pesos. Payment of fines, obsolete equipment and other things is 35 million pesos. Legal and financial services fees is 28 million pesos. VAT that we finance to clients and was not paid in previous years in non-trade accounts is 28 million pesos. Contributions to the Televisa Foundation was 12 million pesos. Sale of fixed assets was 20 million pesos. And amortization of satellite transponder expenses was 16 million pesos.

Thank you and ...

As to your last question, the cost of television broadcasting is 30 percent of the cost of production of the programs that we export.

Okay so there are no marketing... I assume there are marketing and sales costs built in as well.

Yeah but I mean in terms of cost of sales, it is 30 percent of the cost of the production of the programming that we export.

Okay thank you.

Our next question comes from Charles , with J. P. Morgan. Please go ahead.

Yes good morning. In the television broadcasting area, I just wonder if you could give us what were spot sales versus up front and also, you know, what kind of growth you saw in your local sales?

It is basically , about percent of our sales were from .

18 percent?

Yeah from spot market.

What about local sales?

Local sales, we were flat basically. We felt that the local market was pretty flat throughout Mexico, mostly in the large cities, while , Monterrey, Tijuana, etc. We did not feel any improvement in the local market.

Okay your guy is certainly guiding toward 33 percent year over year increase in local sales. Do you have, you know, an explanation why there is such an apparent difference in performance there?

You said 3.3 percent or 33?

No they said 33 percent versus last year.

33?

That is what they are guiding towards, yeah.

Well that is a fantastic number. I will congratulate them.

Okay thank you.

Our next question comes from Chris , with Capital. Please go ahead with your question.

Yes good morning. I just have a few questions regarding . First of all, I just wanted to, I guess, make sure I understand. In terms of the World Cup soccer coverage, there was none at all on Sky, even the programming that was on Televisa, you know, over the air channels, was not broadcast on Sky?

That is correct.

Okay and when... I know, obviously, you know, total net subscribers were down and there are a few reasons there. I mean, in terms of the cancellations regarding the re-pointing of the satellite dishes; I assume that is over now and we will not have a return from that going forward?

Yeah you are right. That is done. Basically, it was a very painful thing to change the satellite dishes in 700,000 homes. As you could see, we experienced a tough quarter for Sky. Sky lost 6000 subscribers in the second quarter. I think that has to do with several factors. This includes a macro economic environment and as you mentioned, the final stage of the process that involved the re-pointing of the antenna. We also increased the prices in the average of 12.5 percent as a result of the special tax imposed by Mexican Congress, which hit our subscriber base, but as you said, also, most importantly, Sky did not have the rights to the World Cup, which is a big thing in Mexico and subscribers reacted to all of this.

Right. So with the, you know, World Cup effect and the cancellations for re-pointing the satellite dish effects are sort of gone now. I guess, what was turned in the second quarter and first half of the year and what do you expect it to be in the second half of the year?

Well, we do not disclose our turn. We have not done it. So it is very difficult to say. It is very difficult to say at this point if we are going to lose more subscribers in the next quarter due to the effect of the World Cup. However, I would like to point out that financially, Sky had impressive numbers during the second quarter. Its sales increased 12.3 percent when compared to last year and EBITDA grew 33.2 percent and we reached an EBITDA margin of 30 percent in the quarter, which is a fantastic number. From now on, we expect to recapture subscribers with exclusive programming that will have.

We will have exclusive soccer rights, Big Brother, VIP, and the new reality show, . These together with the Televisa content will be the drivers for growth. has maintained the 75 percent market share of the business in Mexico, even with those difficulties that I mentioned, especially not having any content that had to do with the World Cup. is EBITDA positive and had the lowest turn of any platform in Latin America and the highest . So I would like to say that Televisa is very happy with this investment in and we continue to be fully committed to its success.

That is great and I think you have done a great job there. Just a couple more questions. When do you expect it to be free cash flow positive?

I think, according to the original business plan that will happen in about four years.

In about four years from now?

No, according to the business plan, it is in year 2004, not four years.

Okay and has anything that has happened over the last, say, six months or so, changed that in your opinion?

No I think this will happen in 2004.

Okay and just one more question - what were capital expenditures for Sky in the second quarter?

Hold on a second. Total cap ex during the quarter was about $7 million.

Okay thank you very much.

Ladies and gentlemen, as a reminder, to register for a question, please press the one four. Our next question comes from Nancy , with . Please go ahead with your question.

Good morning guys. I have two questions. The first one is related to this new show with a top comedian, . It was marketed in Mexico that he is taking the channel from 10:00 to 10:30. The question is does that mean that he is paying you for the airtime and he... or his company advertises directly with the clients instead of you?

No you have to understand that that is a comedy show and we have to do some marketing strategies to pull audience and that is basically it. I mean. I think that he is buying the time from Televisa as a position... positioning this as an independent channel is just a marketing gimmick.

Okay perfect. So...

But do not tell anybody, okay?

So I mean, there is no change in the way you market normally in any other channel?

Not at all. No.

Okay perfect. And the second question is relating to discontinued operations. You recorded 1.1 million pesos and the question is how much of that is really cash flow and how much is only accounting?

No that has to do with the disposition of . I mean it is all the line items that have to do with are included within that.

Okay. But, I mean, how much of that would you say, it was really cash flow on the operation? Because I mean, you sold Phonovisa, but how much of that, I mean, you register ...

Let me touch on that point because it's a question that a lot of people have asked. The purchase price of Phonovisa amounted to 2.3 billion pesos. The book value of that company was 442 million pesos and the after tax profit was 1.3 million pesos. Additionally as part of the purchase price, Univision bought 100 million pesos of advertising from Phonovisa for Phonovisa products in unsold television inventory. We also had expenses in connection with that contraction in the amount of 45 million pesos including bankers, auditors, lawyers, etc. The profit also is reduced by the losses that Phonovisa has had from January until April of this year in the amount of 33 million pesos. All this resulting in a net profit of 1.1 billion that you mentioned.

Okay. Perfect. Thank you very much.

Our next question comes from Daniel Parker with Bear Stearns. Please go ahead with your question.

Good morning guys. Two questions for you. First, can you tell us again the margin for the World Cup because in the release it suggests the cost of sales amount for the World Cup was 175 million pesos. I'm assuming that was excluding SG & A costs related. If you were to include that, what was the total Ebitda margin on World Cup?

Yes. Total sales were 353 million pesos. And total costs and expenses were 170 million. So the margin was 51.8%.

So that includes programming, transmission and SG &A? Everything?

It includes everything, the rights, programming, transmission, production, SG & A, everything.

Okay. And the second question is I noticed that you talked about higher bad debt provisions within the television broadcasting division. Is that obviously within exports, I assume that's to other countries and Asia or Central America. But are you also recognizing higher bad debt provisions to your broadcast advertiser or to your paid TV affiliates?

No. In Mexico bad debt is immaterial. This has to do with Latin America and what I mentioned is that throughout the years we finance sometimes VAT for clients which is a very small amount. The accumulated amount is 28 million pesos. So basically that's VAT that we're financing to clients and the clients in the past years have not paid, so I mean, it's a very small amount. It doesn't have to do anything with the sales of advertising or television. This year or the year before so we feel very comfortable with those sales and with the receivables.

Okay. Thanks.

Our next question comes from Dan Kakowski with Schroders. Please go ahead.

With the stock price where it is at the moment and the current relatively strong state of your balance sheet, are you considering making share buy back?

Yes we're considering that. Now as to the use of free cash flow, let me touch on that point because it has also been a question that a lot of people have asked. We believe that in this environment, many opportunities will come up. Therefore, I think our priority will be to make investments that generate value to our shareholders and that will allow us to grow both in Mexico and outside of Mexico. As we have done in the past, we're not going to make investments which are diluted for our shareholders. Our second priority if those investments do not materialize will be to repurchase stock and/or pay a dividend. We are exploring this possibility; however, in this environment, we would like to keep the cash to take advantage of opportunities. We feel very comfortable with our debt levels. As I mentioned debt to EBITDA is 2.4 times. Net debt to EBITDA is 0.9 times and EBITDA to interest is 4.7 times. So we would not be planning on paying down debt.

Okay thank you.

Our next question comes from Vivian , with UBS Global Asset Management. Please proceed with your question.

First can you give me some idea about the advertising revenue shares for the quarter between your company and also your rival, and second of all what is the utilization rate for the prime time and non prime time time. And also, for TV broadcasting, I think you mentioned that due to the World Cup, of course, the EBITDA margin has increased, but if we exclude the World Cup effect, what are the cost of sales in production for the programming or the TV broadcasting actually kind of increased more than the sales, if we do not talk about World Cup. And my last question, I think, you talk about number of subscribers in your cable television business and also the direct to home business. It seems the number of subscribers in cable television actually increased, but for the DTH company, you decline, so do you see any kind of a composition effect between your two different subsidiaries here and whether we are going to see some deteriorating effect like this going forward?

Yeah, the last question, I think when you are looking at the cable vision numbers, we are comparing the second quarter of this year with the second quarter of 2001 and if you compare those numbers, there was an increase in terms of subscribers. However, if you compare cablevision's number for the second quarter of this year to the first quarter, we lost about 5000 subscribers. We have touched on the DTH and performance. Cablevision also experienced a rough quarter. As I mentioned, we lost 5000 subscribers. This was also a result of several factors, which included the price increase that we had of an average of 23 percent for the basic service and ten percent for the digital that we implemented in the first quarter, which was a consequence, as well as in the case of of the special ten percent tax imposed by the Mexican Congress. In terms of cablevision, the macro economic environment has also effected the vision.

On the cost side and this affected cable vision a lot, we bought the rights for the World Cup for 20 million pesos. We believe that it was the right decision since the World Cup is so important in Mexico and not having it would have had a further impact on the subscriber base. We see that the purchase of those rights, the World Cup rights, as a necessary extraordinary event. Considering this quarter results, which were effected by that one-time cost of the World Cup and looking at that, we have announced a cost reduction program, which will include savings of around 14 million pesos on an annualized basis. So this will allow us to achieve higher margins this year. We have started to see encouraging signs in July. Our subscriber base is picking up. We expect to show growth throughout the rest of the year. So in the case of cablevision, we are seeing good signs. In the case of DTH, it's unclear for us as I mentioned before whether Sky would lose some additional subscribers the third quarter because of the World Cup effect.

Now your position rate between prime time and un-prime, it's about from sign on to sign off we have a utilization rate of approximately 43% in the quarter and in prime time we have about 61% of utilization rate. Now based on your other question about what percent of the market we have and what percent have. We definitely don't know how much were their sales in this quarter but I can tell you that we are inline with our expectations of sales as well as with our guidance that we have been making public for you guys from the beginning of the year.

Now as to your other question, I mean, if you were to exclude the 170 million dollars of total costs and expenses related to the World Cup, costs of television broadcasting went down .5% which is I think a big accomplishment because that includes absorbing the total costs of producing and transmitting Big Brother which is a program that is a 24 hour production.

Okay. And the other quick question, I mean, you mentioned about the acquisitions in Chili and Argentina for the magazine business. I know this number is very material at the moment, but I just want to know, what is your strategy in terms of the business expansion going forward? I mean, why do you look at Argentina and Chili in the magazine business and to do this acquisition? I mean, do you have any other more intentions in this specific industry like publishing?

This is position distribution. We looked at this as a big opportunity. We bought this company because of its operations in Chili, not because of Argentina. In Chili this company we already own 50% of the company and our partner there was selling the rest of the, big opportunity because we bought it for three million dollars and just in Chili this company has 96% market share of the distribution of magazines. In Argentina it's also a dominant distributor of magazines so it makes a lot of sense for us to buy it for three million dollars since controlling distribution makes a lot of sense for the magazine business.

Okay. Thank you.

Our next question comes from Gene Charles LeMartin. Please go ahead with your follow-up question.

Yeah. I want to go back to the topic of acquisitions. In the past, my understanding was that you were looking at US radio as a potential area of growth. Now assuming that the acquisition of broadcasting by Univision does close, that should be kind of off limits for you. Where do you see areas of potential acquisitions in the near to medium term and does that include potentially Brazil following the market opening?

Yes. We're exploring several possibilities. Basically in our industry in the US, the agreement with Univision would not prevent us from buying radio companies in the US, however, we're not planning to do anything that is diluted for our shareholders and at this point considering the evaluations of those companies, as I mentioned as of this date we would not be planning to buy radio. Brazil presents itself as an opportunity for us and we're exploring several opportunities there.

What about live entertainment? Is that an area where you, in the US potentially you would be looking at more acquisitions?

Yes as you know we bought , we own 50% of the other with clear channels. It's a company that dominates the Chicago area and it's expanding throughout the US. If another opportunity such as presents itself, we would definitely consider it.

Are you making losses so far in live entertainment? I know your main competitor in Mexico is claiming that you're probably unprofitable at this stage.

I think is a startup and it will take some time for it to become profitable. I think that that company is moving very fast and this year we'll have a lot of shows in Mexico and through in the US, so we see growth there. As I mentioned before, the numbers are still not material because of its size and relevant in respect to the rest of the segments of Televisa. But we believe that there will be growth both in the US and in Mexico. It's very hard to say, I mean, I think that towards the end of the year this segment will be profitable.

Besides that, is giving paid television services as well as our broadcast channels good content, it's content that is very attractive for our clients.

Okay. And finally, actually, when you mentioned potential in your industry in the US, what exactly are you referring to when you're saying that? I mean, I'm assuming television, but what could you potentially buy?

What I'm saying is that aside from television, because basically strategic wise we have an alliance with Univision as part of the transaction that we closed in December of last year, so it's aside from television, we're exploring opportunities in the rest of our segments, in magazines, in magazine distribution, in live entertainment, radio as I said. If an opportunity comes up and it's not hugely diluted for our shareholders, as those opportunities are today, we would also explore it so it's within the media sector that we're exploring opportunities in all its segments.

Okay. Thank you very much.

Our next question comes from Whitney Johnson. Please go ahead with your follow-up question.

Yes Alphonso, can you just clarify something? You mentioned just a moment ago that the costs of television broadcasting were down .5% and that they were actually absorbing the costs of Big Brother. My understanding was that because it was a 50/50 joint venture with that you were posting those costs below the operating line. Can you just clarify what your accounting treatment on the Big Brother expenses or the joint venture with is?

Yes Whitney. Thank you for asking that question because it's again a doubt that a lot of people have. We cannot disclose the details of the joint venture agreement with , however, what I can tell you is that we pay them a license fee in respect of the production of the reality shows and Televisa keeps the product on an exclusive basis for over there in paid television segments. This means that the television business is kept 100% by Televisa and all the costs of Big Brother are within the cost of sales of television broadcasting. As you know, the first production with Big Brother, this program resulted in sales of 209 million pesos with a total cost of 99 million pesos. These costs include all the royalties and fees paid to regarding the production of the show. The 50-50 Televisa joint venture shares businesses other than television, such as records that we produced in respect to the show, the telephone calls that have to do with the voting that takes place during the show, merchandizing and other things. So basically, within the cost of sales of television broadcasting, you see the total cost of producing Big Brother.

Okay. Now, just one other question. Your ratings, obviously, were very strong in the quarter and yet, your spend year on year was up only one percent. Why do you think that on those stronger ratings are not translating into higher ad spend?

Well we definitely think the economic environment has not been very good for us, but as we told you, we are seeing long-term and we are positioning ourselves for the up front, for 2003. We do not... there is not much money out in the market to bring on, let us say, the same growth of ratings with the same growth of sales, but as I said, our strategy is very clear that we are positioning ourselves very, very strong for the up front of 2003.

Okay and one final question. Can you just give us an update on your cap ex expectations for both 2002 and 2003?

Yes. As to 2003, we have not completed that, so I could... I mean, I think in the fourth quarter, we will be able to share that with you. In terms of cap ex for 2002, we are sticking to what we said before, which is that maintenance and acquisition of equipment for Televisa will be around $100 million. Cablevision will be around $40 million. will be around also $40 million and multi country will be $25 million.

Okay terrific thank you.

We do have time for one final question. That question will come from Chris . Please go ahead with your follow-up question.

Hi good morning again, gentlemen. Just a couple of quick questions. If you can give us an outlook for the spot market, and also, not to test your patience, but I believe you mentioned utilization rates. Can you go over the utilization rates again versus last year, and also, if you have the time, perhaps, you can tell us how your reality programming is doing versus recent offering, and then finally, if I can just sneak in one more question, do you guys think you will ever switch towards guaranteeing ratings, which would quite probably help you the ratings success of something like Big Brother, in the spot market, which I think right now, you have not been able to do simply because of the rigidity of your pricing plan?

Well, Chris, let me start by the comparison against the last quarter. You want a comparison of utilization rates against 2001 or against last quarter?

Against last year, excuse me.

Okay, would you hold on that and let me get that information, but that is.. I can answer another question. Right now, we are in the process of working on our new strategy of sales for 2003 so it is early to tell you what the strategies will follow. I can tell you that clients like what we are doing and we are bringing the demos that the clients are looking for, so we will take care of giving you the best results of those ratings and we are working on that. About our reality, about the question about the reality show in , we definitely. We do not think that is a reality show, by the way, but again I mean, we concentrate on doing the best with our productions and if they do any kind of shows, we'll see the results on the screen in the ratings, so I mean, we are prepared to compete in any programming and we definitely know that we do a lot better programming and productions and the results are there.

But your reality programming at least initially when TZA came out with something similar to that seemed to still have quite a lead in terms of your ratings, has that been maintained?

Well I mean, I can tell you that again we have a product to compete against any reality program that we have in front and what is doing and we'll have to find a way that they don't grow in ratings in the shows. We were strategies of programming, I mean, I cannot tell you more because of the strategy plan, but we are ready to compete and to handle the market share that we have.

Okay. So what is your outlook for the spot market and if you could ...

To the spot market, I think it continues to be soft as a result of microeconomic situation in Mexico. However as I mentioned, we believe that it has stabilized. What I can tell you is that, I mean, what we're projecting is that television revenues will increase two to three percent when compared to last year in the third quarter.

Right. Okay. And your utilization rates. Thanks. Thanks for your patience guys.

I'd like to turn the call back to Mr. Angoitia. Please go ahead sir with your conclusions.

Okay. Well Chris, let me finalize this and we'll call you with the utilization rate. Well, thank you very much and we'll see you next quarter.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.