Grupo Televisa SAB (TV) 2017 Q3 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa Third Quarter 2017 Conference Call.

Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything we discuss in today's call and in the earnings release.

I will now turn the call over to Mr. Alfonso de Angoitia, Executive Vice President of Grupo Televisa. Please go ahead, sir.

Thank you, Jessica. Good morning, everyone, and thanks for joining us today. With me are Salvi, Isaac, Adolfo and Alex.

Let me start by addressing yesterday's release regarding our announcement of changes in senior management at Televisa. I am very privileged to have been named Co-CEO of Grupo Televisa, together with my long-time colleague and friend Bernardo Gomez. Emilio will continue to lead as Executive Chairman of the Board and will be deeply focused on refining and directing our long-term vision. This change will become effective January 1, 2018. We're very thankful to Emilio and to the board for the trust they have placed in us.

Bernardo and I have been working at Televisa for over 20 years, and under the leadership of Emilio, we have collaborated hand-in-hand in the transformation of Televisa from a traditional media company to a diversified content production and distribution company and one of the fastest-growing telecom companies in Mexico. We are taking on these new responsibilities during a rapidly-changing competitive environment. Take my word that we will remain deeply committed to pursuing opportunities that create value for Televisa and for our shareholders.

In addition to these changes, effective immediately, Salvi Folch will become Vice President of Strategic Planning and his role will be assumed by Carlos Ferreiro as Vice President of Finance and Antonio Lara as Vice President of Administration. All 3 of them are valued members of the company and we look forward to them continuing their good work in their new roles.

Today, we have an unmatched set of assets in content and in distribution, both industries that are facing dramatic changes and are presenting us with very unique challenges as well as opportunities. The new management structure, together with the changes in the leadership of the Content division earlier in the year, is aimed at analyzing and executing on these opportunities faster than ever.

Now moving on to our financial results. The third quarter has been another challenging and disappointing quarter for us. The unfortunate earthquake of September 19 did not help either. It affected each of our businesses in different ways.

During the quarter, consolidated revenues declined by 3.8% and operating segment income by 6.4%. On the other hand, we continued to make very good progress from an operating point of view, particularly in Content and in Cable.

In Content, unfortunately, the recent ratings increase continues to work against us when it comes to selling advertising, given that prices have been fixed on a per spot basis for the majority of our inventory. In spite of this, we keep pushing for further ratings increases and the steps taken to improve our flagship, Las Estrellas, will soon be implemented in our other networks.

In Cable, the enterprise business, which represents 16% of our Cable segment, posted a decline in revenues as a result of some operating challenges. But we're restructuring this operation to turn it around. However, trends in our residential cable business continue to improve and the outlook is very favorable. We are very proud of what management in our Cable division has achieved.

In Sky, we continue to be affected by the above-average growth in subscribers last year as a result of the analog shutdown, as this has limited the growth in the present year. In addition, we have had experienced softness in our Central American business. On the other hand, Sky's business in Mexico is very healthy and operating segment income reached new records.

Now let me address the financial results in Content, then Isaac will discuss the progress made in our new Content strategy. We will follow with a discussion of our Cable and DTH segments, and at the end, we'll be happy to take your questions.

During the quarter, prime time ratings of Channel 2 continued their positive trend. On average, they were 26% higher than those reached during the third quarter of last year. As we explained last quarter, advertising sold in the upfront under the former management team was priced on a per spot basis according to prior year's ratings and under a structure that granted our customers sufficient flexibility to obtain the lowest cost per rating point. As a result, clients are achieving their target audience volumes with a smaller investment in advertising. For that reason, Advertising revenues were down by 8.4%, similar to the performance of this line of revenue for the first 2 quarters of the year. Of course, we are disappointed with this result.

I shall also mention that Advertising revenues were impacted by the September 19 earthquake. In order to maintain a nonstop coverage of this unfortunate event, we ran our flagship network without commercial interruptions for 3 consecutive days following this event. As we announced in our last earnings call, we are working on changing the pricing mechanism of our Advertising inventory. We're currently negotiating our 2018 upfront and the changes in the structure of our advertising sales business is a pillar of the negotiations with our customers.

In our Licensing and Syndication business, royalties from Univision reached US$80 million and total revenues from this business looked were in line with last year's. Finally, Network Subscription revenue declined by 17% and as in the prior 3 quarters, is mostly explained by the fact that a cable competitor is no longer carrying our pay TV networks. This is the last quarter with the difficult comparison.

In terms of costs and expenses in the Content division, they were down by 2.2% when compared to last year and operating segment income margin reached close to 39%.

I will now turn it over to Isaac for a discussion of the progress we have made with respect to the operational changes in the Content division.

Thank you, Alfonso. Good morning to everyone. As Alfonso mentioned, we continue seeing growth in ratings during prime time on our flagship network, Las Estrellas, also referred to as Channel 2.

During the third quarter, and according to Nielsen, ratings were up 26% when compared to the same quarter last year, and 50% up from fourth quarter of 2016. Our greater attention to programming and marketing has allowed us to strengthen prime time. This can be seen in our 9:30 p.m. time slot, which has grown to 2015 levels, with hit after hit, from Estela Carrillo to La Piloto to the most recently Hoy voy a cambiar, which coincidentally, was the strongest launch for Televisa in 2 years, starting off with an audience of 4.3 million households for the day of its premier.

In addition, we started broadening our attention to other segments, as well as to weekend, with the goal of consolidating our engagement with the audience. Already with a couple of changes to the weekends programming, we have grown total week audiences by 43% from the last quarter of 2016. This has been a key achievement, since it allows us to further promote our shows throughout the week with a larger audience.

Another proof of the strength and continued potential of Las Estrellas is the fact that for the last 13 weeks we have delivered a larger audience in prime time than the combined audiences of the entire universe space of pay TV networks, excluding our own networks. While we are confident in our ongoing success, there is still further work to do. And as with any media company, we will expect some volatility in ratings. The competition is getting more aggressive investing in higher value productions and attempting to counter-program our offerings.

Fortunately, with the new management team in place, we have worked and completed a 3-year strategic plan and now have started to put it into practice. This involves a comprehensive portfolio strategy aimed at clearly profiling our other free-to-air networks and our pay-TV network. And we'll focus on creating offerings that are complementary and additive, both from an audience and a commercial perspective. In our pay-TV business, we will now concentrate on developing 5 of our most successful networks further. We will still retain and monetize the current 14 networks with a clear commercial and audience vision in order to position them as must-carry networks domestically and internationally. This way, we can best allocate our resources to core assets that can grow to their maximum potential and diversify our participation of core brands across multiple revenue streams.

With differentiated brands, with clear value propositions for their audiences, they can also participate in the live event and digital worlds as extensions to their linear networks. We want to proactively anticipate any dramatic change in audience consumption behavior.

As we continue to make improvements across different aspects of the business to better position Televisa and its core assets for the future, some initiatives will take longer to gain ground. These include digital and premium content initiatives. But we have a clear line of sight of the opportunities and we are maintaining focus while the landscape continues to shift. We will continue to look broadly for opportunities to both strengthen our position and accelerate our transition. As we assess these opportunities, know that we will be rigorous and disciplined, and we'll be guided by our strategy and ability to execute and our overarching commitment to create shareholder value.

Thank you, Isaac. Now I'll turn it over to Adolfo, CEO of our Cable operations.

Thank you, Alfonso. Good morning. During the quarter, our residential or MSO business continued with a positive trend in net additions for all 3 services. Revenue growth in this segment was 5.3% and operating segment income reached by 43%. In the aggregate, we added close to 200,000 revenue-generating units or RGUs. This is the fastest pace of growth over the last 5 quarters. In data, net additions were 145,000, the most additions of the last 7 quarters. This result is particularly taking into account the earthquake of September 19. Of the cities where we operate, Mexico City and its surrounding areas, Cuernavaca, Cuautla and Yautepec were the most affected.

In addition to the impact during the third quarter, we lose somewhere between 15,000 RGUs and 20,000 RGUs in the fourth quarter, specifically as a result of these earthquakes. In spite of this, as you have seen in the 3 most recent quarters, we have very good momentum and we expect this trend in positive net adds to continue.

On the other hand, the enterprise business is our wholesale telecom operation and it represents close to 16% of revenue of our Cable division. Revenue in this segment during the quarter was 14% lower than last year. Our enterprise business faces a number of challenges. Among them, we have seen a reduction in the number of new government contracts out for tender and an intense competition that has resulted in the reduction of the rates to be charged. We are taking the steps necessary to turn around this business. Revenue for our combined MSO and enterprise business grew by 2.1% and operating segment income grew by 2.3%. From a margin perspective, we reached 42.3%, in line with our guidance.

Let me now close by emphasizing that the market dynamics for further growth in residential data customers are very favorable for us. The migration of DSL data customers from their copper cable service to coaxial cable and fiber continues. According to the regulator in Mexico, as of the first quarter, DSL data customers accounted for 47% of total fixed data customers in the country. This figure is down from 66% just 3 years before. Over this period of time, coaxial cable has gone from 24% to 35% of fixed data customers. Similarly, the share of fiber is expanding at the expense of DSL and it now represents close to 15% of the total.

In the U.S., this migration has been happening for a while and has allowed cable operators to capture close to 95% of high-speed data consumers today. Our primary technology for delivery of fixed data is coaxial and fiber. Therefore, the pool of DSL data customers available to us is very large. As people demand faster speeds and thanks to our extensive investments in better technology, the migration of customers will continue to place cable operators like us at an advantage.

In addition, the overall market continues to grow. We estimate that penetration of fixed data services in the country is approximately 50%, up from 42% 4 years ago. We currently service 3.6 million data customers, a fraction of the more than 13 million households that we reach with our network. The outlook for this business is very favorable, so we are positive on the business going forward for the next years.

Thank you.

Thanks, Adolfo. Now let me turn it over to Alex for a discussion of Sky.

Thank you, Alfonso. As Alfonso mentioned, Sky continued to be affected by difficult comps, resulting from the analogue shutdown. As we have mentioned in the past, during the first half of 2016, we recorded extraordinarily high gross additions due to this event. These resulted in strong revenue growth throughout 2016, particularly in VeTV, our prepaid package, making a very difficult year-over-year top line comparison. Despite this difficult comparison, our combined traditional and VeTV subscription revenues in Mexico grew in the third quarter compared to last year. This was offset, however, by a decline in revenues from Central America. As a result, overall revenue declined 1.1% compared to the previous year.

Our gross additions remain healthy. However, the extraordinarily high gross additions recorded during the analogue shutdown last year has increased the number of cancellations putting significant pressure in 2017 net add figures. In addition, the earthquake had an impact in our ability to sell and install new customers for almost a full week in the areas most affected. In spite of this, we closed the quarter with 8,015,000 subs, 89,000 higher than the same quarter of last year and marginally higher than the second quarter of this year.

The analog shutdown of last year is likely to continue having an impact on our net additions for the balance of the year. But we expect the trends in our business to normalize by 2018, when we have the World Cup.

In the meantime, we are being as disciplined as ever in our cost and expense management. As a result, operating segment income grew by 5% during the quarter and margins reached 49%, the highest on record for a third quarter. We have continued to take actions to increase gross additions, improve the recharge rate and decrease churn in both VeTV and our traditional business. We are optimistic about the future of our business.

In 2018, Sky will be the only platform that will carry 100% of the World Cup games, and almost 40% of them will be aired exclusively by Sky.

Thank you, Alex. In closing, we are working day and night to turn our improving operating metrics into top line growth, and we'll continue to make the necessary changes in the way we operate to strengthen our competitive position and create shareholders value.

As Isaac explained, our audience trends are favorable. The changes being implemented in our Content division are transformational. There is no question that we have more competition for viewers and this competition is becoming more intense. In this environment, we need not only to adapt, but to lead the change. We have been the leading producer of Spanish-language content in the world for many years and we intend to continue being so for a very long time. We are deeply focused on monetizing the value of our Content properly.

In Cable, the capital has already been deployed to take the lead in the growing demand for true high-speed data with top-of-the-line service. In addition, our 5 cable assets have already been substantially integrated. The inevitable disruption caused by this initiative has already been eliminated. We're well on track to continue improving our pace of growth in net additions.

In Sky, we have the leading pay television operation in the country and in spite of intense competition from all other industry participants, we have a loyal and healthy customer base of approximately 8 million video subscribers. We need for subscriber trends and recharge rates in Sky to normalize and we expect this will happen in 2018, a year in which Sky will be the only platform transmitting all 64 matches of the soccer World Cup.

Our Other Businesses post our Other Businesses posted a decline this quarter. This is mainly explained by a decline in the revenues of our soccer business, where we had to cancel a number of key soccer matches due to the earthquake; and also as a result of a decrease in the revenues of our publishing business, which was also affected by the earthquake and the ongoing structural challenges facing that industry.

As to other aspects of our business, earlier this month, we concluded an offering of MXN 4.5 billion in local bonds due 2027. I shall also mention that CapEx is lower by 43% when compared to third quarter 2016. We remain on track to reduce our CapEx this year by close to $500 million.

Finally, on a personal note, I would like to thank Salvi for all his hard work at the company for the last 18 years. He has been a brilliant CFO and his contributions to this company has been -- have been enormous. Salvi, thank you very much for your hard work, intelligence, and especially, friendship. I'm sure that in your new role, you will continue to add value to Televisa and its shareholders.

Thank you for your attention. And now we're ready to take your questions.

(Operator Instructions) And your first question comes from the line of David Joyce from Evercore.

A couple of questions related to the impact of the earthquake. What would the advertising growth would look like had you still been selling advertising for those 3 days? Also, what would normalize Cable net adds and Sky net adds looked like other -- if you did not have that quake impact? And then secondly, how are things trending here in the fourth quarter? How should we think about the advertisers' deposits, as it's been affected by the strong ratings this year?

As to your first question, I think that those 3 days that we did not sell advertising during the days after the earthquake, it would be somewhere around MXN 100 million. And then Alex can maybe...?

In terms of Sky, the impact was very much in terms of sales and the installations. But the real impact, I think, is going to spill over into the fourth quarter in terms of potential cancellations as a result of the earthquake.

And as to the fourth quarter, I think it's slightly that it'll be suffering from the same effect like the first 3 quarters of the year, though because of the holiday season, it might pick up a bit.

And have the advertisers -- how much of their upfront deposits have they allocated so far this year? Is it -- are they on the same kind of a trend? Or have they allocated less because of the ratings?

Look, they're getting to their targets with less money, with less investment. And that has been what has happened in the 3 first quarters of the year. So basically, because of the structure which we sold advertising in the upfront last year, and being that there's a fixed price per spot, as a result of the increase in the ratings, where you see increases of more than 30% on our flagship channel, Channel 2, they're getting to their targets, basically giving us less money.

And your next question comes from the line of Rodrigo Villanueva from Merrill Lynch.

Alfonso, congratulations on the new position. And Salvi, good luck in your new endeavors. So I have a couple of questions. Can you hear me well?

We can.

So the first one is related to severance expenses. We have seen ongoing severance expenses this year. And I was wondering when are you expecting to finish with headcount reduction and as a result of these, with severance payments? That will be my first question. And the second question is related to Sky. I just want to make sure that if you gave a number regarding the potential growth in subscribers next year, when net adds normalize?

Rodrigo, as to your first question, the severance payments have to do mostly with the restructuring in our Content division, so these will continue. We haven't finished doing that. It has been a huge change in the manner in which we are producing content. So that will continue, I think, in 2018. And then as to your Sky question, Alex, can you take it?

Yes. As we explained, this year, we are being affected by the high growth of last year due to the analog shutdown. So this year, we don't expect much growth in our subscriber base. 2018, we believe things are going to be normalized. We are no longer going to have difficult comps as we have had this year, and we will continue having in the fourth quarter of this year, and we will be helped by the World Cup. So I expect next year a better behavior of our subscriber base in terms of an increase.

Yes, World Cup years are great for Sky, since they're the only platform that has the 64 games on them basically and most of them are on an exclusive basis. So they are the only platform that can offer full access to 64 games.

Understood. One last question, if I may. Do you expect the World Cup transmission to have a positive impact on advertising revenues next year?

Yes, we do. It's a very important event, and we do. It's key for certain advertisers to be there. So that's part of the plan for -- advertising plan for next year.

And your next question comes from the line of Gregorio Tomassi from Itaú BBA.

Basically, my question is for Alfonso and Isaac. I would say it's about advertising revenue outlook. I heard Isaac saying that the strategic plan or the plan for content has been finalized and it's been implemented already. So what's the aim in terms of advertising revenue growth? And what could be -- what should we consider in this aim, given the changes in audience's behaviors? And what would be the differences you see between the Mexican market compared to the U.S. market, in which Univision plays?

Gregorio, it's a very good question. I think it's very difficult to provide you with guidance or an aim in what has to do with advertising sales for 2018. What I can tell you is that we have huge assets. I think that the audience trends are looking great. But just to give you an example as to the strength of our audiences and the strength of our channels, of our networks. With the new ratings increase, Channel 2 or Las Estrellas, provides more audiences to our advertising clients than the whole universe of pay television put together. So this means that the reach that you get with Channel 2 is unreplicated. Just imagine, a single channel gives -- providing an audience that is bigger than all the pay-TV channels put together, this is the -- I mean, all the Sony Channels, Disney Channels, Fox, et cetera, et cetera. So I think we have tremendous assets that we can monetize. It's just getting it right. And of course, delivering our advertising clients with a right message as to the strength that we're experiencing in terms of audience delivery.

I see. And if I may, Alfonso and also Isaac, when doing the plan -- and I'm not meaning, I don't need for a guidance right now, but help us think about the differences between the advertising market between Mexico and U.S.? How should we think about these 2 markets? What are the key differences? Is there any one market in which you see that the growth outlook should be higher in general? And then for Televisa and Univision, what could be those differences?

Yes, I mean, I'll let Isaac answer. What I see as a main difference between the U.S. market and our market and what has to do with the U.S. Hispanic market, is that of course, the U.S. Hispanics of second, third-generation also speak English. So they have options to -- I mean, all the Anglo content, both in the new platforms, in social media, in -- on over-the-top. So I mean there's much more competition with, I mean, that has to do with the Anglo content. So that's very specific about the United States, and that's huge competition. And then, of course, I mean, in Mexico, we're feeling strong. As I mentioned before in terms of audience delivery, in our capacity to deliver the reach that nobody else can deliver. So we feel that we're in a strong position. So now Isaac can touch on this.

Yes, Gregorio, thank you for your questions. And as you know, advertising in online and digital passed television in the U.S. in 2016. We see that happening in Mexico in 2020. Those 4 years of difference will allow us to use all the different networks that we have, which include 4 broadcast networks and 14 cable networks, and an OTT platform to build really strong brands that will live in digital and in a 360-way remaining part of the network grid in a very, very strong way. So we expect the market to be fragmented, as it is in the U.S., but we have a couple of years to build that. And as you know, in the U.S., there are many more choices, there's more broadband, more smartphones and that affects the media consumption.

And your next question comes from the line of Soomit Datta from New Street Research.

Yes, a couple of questions, please. One on the management change. Can we -- in terms of the timing, can we glean anything from that as regards to the Content discussions heading into 2018? And more broadly, can you talk at all about how customers are responding to the changing pricing model, and not in quantitative terms, but just conceptually, how are customers dealing with the new type of pricing regime which you are discussing with them? That would be helpful, please. And then secondly, just changing tack, can you give a quick update, please, on unbundling of the local loop? I think you've been conducting trials in Mexico City in September, if I'm right? And what are you thinking, moving into 2018, and specifically as regards functional separation, are you waiting? Is the plan now to wait for that process to conclude before pressing ahead? Or is there a possibility of moving ahead with the commercial launch ahead of functional separation?

Soomit, as to your first question, I think it's a big change for the advertising clients in Mexico or in the Mexican market. However, the transnational companies that are clients of ours have been buying advertising all over the world through this methodology. So in essence, of course, I mean, this limits the flexibility of clients to place the spots on our networks wherever they want. So it's less flexibility in exchange for guaranteed GRPs or TRPs. So it's a big change, but it's the way in which it is done all over the world. So I think it will be a transition, it will be a process, which they have to understand. The ones that have more international experience get it faster. So it's all about making clear that we're basically charging for what we're going to deliver. So we deliver GRPs or TRPs and we get paid for that, basically. So in general, as I mentioned, it's less flexibility in exchange for certainty as to the reach and frequency that they're looking for. That's basically what we're negotiating. It's too early to say, because we're in the process of explaining the details of the new plan to them and how these blocks or modules work, and the methodology around that. And of course, they're working with their agencies and they're working on their numbers to see how they're going to get to the targets that they have for specific products or for specific companies as a whole and what has to do with the plan. So basically, it's too early to say. We feel that it's the right way for Televisa to sell advertising, because of the power of audience generations that we have -- generation that we have. So we're going to basically push for that. I think it's also for the advantage of the advertisers, because they're getting certainty as to what TRPs and GRPs they're getting. And Alex?

Thank you, Alfonso. As to the unbundling of the local loop, we're pretty much done or finished with the family and friends stage. I don't know if we still have family or friends, but we are done with that. And -- but we are still facing and working on a number of impediments, both commercial and operational, from the incumbents. So we're still working on trying to solve and resolve those impediments before we consider rolling out on a nationwide basis the voice and data services.

And just a follow-up on the last point. Is your expectation that those impediments will not go away until the network has been functionally separated?

Not necessarily. But yes, that's a possibility.

And your next question comes from the line of Gordon Lee from BTG.

Congratulations to everybody on the new positions. I had a question which is a bit more, I guess, strategic and related to the management changes as opposed to the quarter itself. But I was wondering whether -- so far, Televisa has adjusted to the very significant challenges that it's facing in its Content division. And it seems to me that it's been -- I mean, there have been wholesale changes, but they've been sort of incrementally adopted over time. And I was wondering whether this change in the management structure and the positions opens the door for maybe a sort of deeper reassessment of what the business should look like going forward, the portfolio, what businesses do you want to be in? And which ones don't you want to be in? How do you want to own them? Who do you want to own them with? How do you allocate capital? Whether or not to return more capital to shareholders? Is this something -- is this an exercise that you're conducting as a result of this change? Or should we see more -- see it more as part of this more sort of gradualistic, incremental approach?

Gordon, yes, I think it's the first that you mentioned, we're working -- Bernardo and I are working on an integral plan. And it has to do with capital allocation. It has to do with the businesses that we believe Televisa should stay in and others that should be disposed of. So it's an integral plan. It's not doing more of the same, but it's doing things faster and moving in a strategic direction that we feel that Televisa should be in. So it's going to be, I mean, moving faster than you have seen in the past. Bernardo and I have been working hand-in-hand since 1997, when we restructured the capital of Televisa and the holding company at that point. So I think it's going to be a very good combination. And one of the important things that -- or changes that we did not operate -- this is Bernardo and I, did not operate the Content business, nor the sale of advertising directly. They -- those areas did not report to us, now they will. And as I mentioned before, we expect to move faster in the restructuring of those areas as well.

And does this sort of wholesale review, is it something that you sort of set a time line for and that you expect to sort of announce to the market at some point in the future? Or is it something that we will learn of, let's say, piecemeal gradually through time?

Yes, I think, Gordon, you know us well. And we're less about advertising things and more about doing things. So we're going to have a plan and we're going to execute on it.

And your next question comes from the line of Andre Baggio from JPMorgan.

For once, I have only 2 questions. One is related to the upfront season. I wanted -- sorry, the upfront. I wanted to understand, like what's the pricing when people pay with the -- many, with the presales? Or with the spot sales? Is it different than price per slot?

Yes, Andre. Yes, there is a difference. Of course, it depends on the market, but there's a difference between upfront and spot. Of course the spot market has always been higher than the upfront.

And related to this, the real question, let's say, aren't the spot prices already reflecting this better ratings that you're having? Because I understand that clients had a limited amount of money that they could use from the presales, which they have this access to the lower price. But now, I'll say, over the third quarter, maybe even more -- much more in the fourth quarter, clients would be using more of the spot sales, and then we could see better pricing on Televisa to reflect better the -- let's say, the new ratings that Televisa is getting?

Yes, you're absolutely right. As you can remember, the upfront was up 10%. And as you can also remember, about 80% of our total sales are made upfront. So that limits our ability to sell the rest. However, I think that as a result of the manner and the mechanism in which we sold upfront for this year, and as a result of the ratings' dramatic increase, this has become kind of a tragedy, where as I mentioned before, our advertising clients are getting to their targets, though giving us less money. And that's why they're not spending as much or investing as much in advertising as we would like to see. So we're correcting this through the new methodology of selling for next year. And so our ability to sell in the spot market is limited because of those factors.

Perfect. And then just to finalize, with this new methodology of pricing, which depends on the ratings, and also with higher ratings, is it reasonable to expect that Televisa, because its ratings are now back to levels that's seen in the past, that revenues could also be seen going to levels that we saw in the past, like the 2018 revenues going back to at least 2016 levels? Or at least be considered like 2017 more like a one-off than anything else?

Well, what I can say is that through the new methodology of this blocks or modules, what we're trying to do is basically selling and delivering GRPs and getting paid for those GRPs. So basically in essence, it's not fixing a price per spot or per slot, which has caused the problem that we're experiencing now. But basically, doing a good deal with our advertising customers, where they're paying exactly for what they're getting.

And your next question comes from the line of Fred Mendes from Bradesco.

I have 2 questions. I mean, my first question goes in line again with the strategy of the company, and the points that Gordon mentioned. Just try to explain, I mean, how can we see Televisa in the next 3 years? I mean, are you moving more towards being, like say, a Cable company, Cable being a high representation in terms of net revenue, and then eventually using your Content in a way to differentiate yourself? Or do you -- you're trying to move in another direction? That would be my first question. Then my second question is, should we expect a lower CapEx than the guidance, considering that the first 9 months of the year you have been way below that, especially once you compare to the last year as well?

Fred, your first question, I think, we have a great combination of assets. I think that being the largest producer of content in Spanish in the world, and also having the Cable and Sky distribution venues is a fantastic combination. I think that more and more, we see that for Cable and for Sky, content is very important in terms of acquiring new subscribers and also keeping them. So the combination of assets that we have put together, we believe is great. And we believe that there are a lot of synergies between those businesses. So I think that we would like to see Televisa as an integrated media and telecommunications company. That might not be the case in the future. It depends on where value is created or enhanced for the shareholders. In the future, there might be a scenario where we don't keep everything under the same umbrella, because it doesn't make sense or because it would generate more value for our shareholders to do it otherwise. But for the time being, we believe it's the right thing to keep it that way. So going to your second question, basically, we're sticking to our guidance in terms of reducing CapEx by $500 million.

And your next question comes from the line of Rusty Johnson from Harding.

.

Yes, could you explain a little bit exactly how the path goes where an advertiser gets his eyeballs for less money? I can understand 10% in spot, but that should have -- but revenues are falling. So what is the method that they're doing is? Because you've never really seen that happen in the past, especially when your ratings rise, your revenue is falling. So what was that opportunity set? And is it unique this year?

Yes, Rusty. What has happened is that the advertising clients have flexibility in order to place the spots wherever they choose. So basically, they have been optimizing us. Since we have sold through a methodology last year which implies setting a fixed price per spot, they optimize us in the sense of finding where they can advertise at the lowest cost. So because of the ratings increase of up to to 30% on Channel 2, or the flagship channel, what they're -- I mean, they find the spots that become cheaper because the price has been fixed. So if the audience is going up, and that was not expected, and the price is fixed, of course, they're reaching their advertising goals with less money, so...

So they're basically just taking the advantage of the surge in Channel 2 at fixed prices. So there is no adjustment, and they're getting a lot more eyeballs at fixed prices? That's the effect of this -- the arbitrage. That's the only way I can see it.

They're basically arbitraging us, that's exactly what's happening, and they're optimizing us and going to slots where audiences have increased, ratings have increased. So they're giving us less money and getting to the same eyeballs that are their goals.

And there are no more questions at this time.

Well, thank you very much for participating in our call. And if you have any additional questions, we're ready to take your calls. Thank you. Goodbye.

And this concludes today's conference call. You may now disconnect.