THE MEXICAN OPEN TV MARKET
Most households have a television. At the end of 2015, 94% of households had Open TV and there was an average of two television sets per household according to the IFT’s First National Survey of Audiovisual Content Consumption. The survey also showed that 44% of households had a pay TV signal (62% at the end of Q316). 81% of people that owned a television watched open TV channels.
Open TV draws the biggest audiences in Mexico. In 2015, open TV had a 56.7% share of the total audience according to IFT, much more than pay TV’s 29.7% and 13.6% for “Other Devices”.
Open TV programs are more popular than pay TV programs. In 2015, the most popular open TV programs watched in Mexico were TELEVISA’s Canal 2 (“Las Estrellas”), Azteca 13, Azteca 7, TELEVISA’s Canal 5 and TELEVISA’s Gala TV according to the IFT’s 2016 Second Quarter Statistics Report. However, what is more interesting is that the five most watch pay TV channels include four open TV channels: Las Estrellas, TELEVISA, Azteca 13, Azteca 7, and TELEVISA’s Canal 5 followed by Fox.
Soccer matches are very popular, especially the classic ones. According to HR Media Weekly 47, during the 2016 opening season, 15.8 million people (out of a total of 19.9 million inhabitants in Mexico City and the metropolitan area) tuned into the matches at least once through open TV. 1.3 million of them watched at least 10 of the 88 matches that were broadcast. The most watched soccer teams are América, Cruz Azul, Atlas, Necaxa, Morelia, Veracruz, Tijuana, Monterrey, UNAM, and Tigres.
The October 26, 2016 match between América and Guadalajara was broadcast by six open TV and pay TV channels. It was seen by 5.3 million people in the Mexico City and the metropolitan area alone, according to week 42 of HR Media Weekly. Audience share was 50% in the case of Las Estrellas, 43% for Azteca 7, 5% for ESPN 2, 2% for UNIVISION, 0.2% for TDN, and virtually 0% for TVC Deportes.
The soccer final was one of the most watched programs in Mexico. During the week December 19 to 25, 2016, the return game between America and Tigres generated a rating (defined as the percentage of households that watch the equivalent of the total duration of the program; each rating point represents 57,480 households) of 24.4%, followed by the away match with 15.6%, the Azteca soap opera “Rosario Tijeras” with 13.9%, “Vino el Amor” on Canal de las Estrellas with 13.0%, and Azteca 13’s “Hechos Noche,” according to HR Media.
Open TV dominated during “Reality Shows”. Almost 11 million people in Mexico City and the metropolitan area saw at least one of the 16 chapters of Master Chef México on Channel 13, according to HR Media Weekly week 50. 3.1 million of them saw the Sunday 18th final. Furthermore, more than 12 million people in Mexico City and the metropolitan area watched a chapter of “La Isla: La Revancha”, 1.8 million of which watched the final.
Television series and soaps continue to attract large audiences when there are no special events. In the absence of football matches or other special events, the soap “Vino El Amor” on Las Estrellas was the most popular program in the week December 26 to 31, 2016 with a 13.6% rating according to HR Media. It did better than “Tres Veces Ana” on Las Estrellas with 11.8%, Azteca’s “Rosario Tijeras” with 10.4%, “Despertar Contigo” on las Estrellas with 9.8% and Azteca’s “Hechos Noche” with 9.2%.
TELEVISA and TV AZTECA are the only open TV companies that have had nationwide coverage in recent years. We estimate that its main signals reach most of Mexico and they therefore receive the bulk of open TV advertising spending.
Imagen TV Launch. Grupo Empresarial Ángeles, which owns the open TV channel Imagen TV, Excelsior newspaper and Grupo Imagen, won the tender for a new open TV with 123 channels in 2015. Imagen TV launched the nationwide operations on October 17, 2016.
New Open TV auction. Furthermore, the government launched another auction of 148 open TV channels at the end of last year. However, these channels will not be sold as a package, making it difficult to create another nationwide network. TELEVISA and TV AZTECA could participate in this process if they observe 12 Mhz spectrum concentration limits.
Open TV captures most of Mexico’s advertising spending in Mexico. Open TV remained the main medium in Mexico contributing 50% of total advertising spending in 2015. This number was far greater than the internet with 16% and pay TV and radio with 8% each.
We expect open TV to remain the main advertising medium for the foreseeable future. We expect advertising spending to grow at an annual average rate of 6% in 2017-2022. For open TV, we forecast an annual average rate of 6%, for pay TV 9% and internet 10%. This means that open TV will capture 49% of total advertising spending in 2022, far more than the internet with 21%, followed by pay TV with 10%, and radio with 7%.
LOW PAY TV AND OTT PENETRATION
Pay TV penetration is much lower than in the US. At the end of Q316, there were 20.5 million pay TV subscribers in Mexico with a total household penetration of 62% according to the IFT’s 2016 Third Quarter Statistics Report. That number included 11.9 satellite TV users, and 8.6 million cable TV users. .
Minimum penetration of OTT services. There were 6.3 million users of Internet TV service providers (“Over the Top”) at the end of Q32106, according to the Competitive Intelligence Unit. We estimate that penetration was just 5.3% of the total population and 7.2% of the total 87.3 million broad band connections (15.7 million broadband and fixed and 71.6 million wireless broadband) in the country.
Strong growth potential for pay TV and OTT services. We expect pay TV to reach 31 million users by the end of 2022, with average annual growth of 6% in the period 2017-2022. Furthermore, we estimate that the number of OTT service users could reach 19 million by 2022, or 15% of the 129 million wideband connections (24 million fixed and 105 million mobile) forecasted for the end of that year. This assumes that the number of mobile subscribers grows at an annual average rate of 2.5%, slightly above population growth, and that Smartphone penetration reaches 81% of total mobile phones.
Therefore, the open TV industry is not threatened by OTT services. We expect OTT services to stymie pay TV growth in the medium term, as it is cheaper, as is currently the case in the US. Open TV will benefit from this situation, as it is free for viewers.
OPEN TV IS THE MOST EFFECTIVE AND ECONOMIC MEDIUM IN MEXICO
Calculation of cost per thousand (CPM). This is a very effective measure, as it compares the spot price of different advertising mediums adjusted for the audience (millions of people) that watches the program.
Pay TV has a higher cost per rating point during prime time. We estimate that the pay TV cost per thousand was P$709 during prime time from 9pm to 11p in the case of the program that drew the largest audience. We used information from Signum Research’s most recent special report on open TV, and assumed that the industry raised prices in line with inflation in 2015 and 2016, which is consistent with IFT published indexes. This confirms that pay TV is still much more expensive than open TV.