Adversaries are now amigos

Televisa will net millions more from Univision as part of settlement

It was an ending more fitting for a suburban drama than a telenovela. After years of bickering, Univision and Televisa on Thursday patched things up and decided to continue their loveless marriage.

Mexican media giant Televisa and Univision, the U.S.' leading Spanish-language broadcaster, announced a settlement in their legal dispute over royalty payments that is expected to net almost $600 million to Televisa.

The move came two weeks into the companies' trial in Los Angeles federal court, in which Televisa tried to sever ties with its U.S. partner. The case now will be dismissed.

The settlement will keep Televisa's programming, including its top-rated telenovelas, on Univision through the end of the companies' existing contract in 2017. However, their program license agreement now has been amended to include increased royalty payments.

Under the settlement, Televisa will receive $65 million a year in free advertising for its commercial ventures, or $585 million over the remaining nine years of the contract. Additionally, some programs, previously excluded from the royalty payment agreement, now will be included.

Televisa filed a lawsuit in 2005 and demanded $118 million in back payments, accusing Univision of underpaying royalties and hiding ad revenue by blocking Televisa's auditors from examining its records. A few months later, Televisa claimed Univision was in material breach of contract and requested to be released from their agreement altogether.

In his opening remarks at the trial, Univision lead attorney John Keker countered by saying Televisa was trying to make mountains out of "accounting molehills," insisting that Univision had already paid $21.5 million in disputed royalties.

As part of the settlement, Univision agreed to pay Televisa $25 million in cash. With the $21.5 million already paid, Univision owns another $3.5 million to Televisa.

Additionally, Televisa is gaining access to Univision's books.

"There will no longer be gray areas in royalty payments," a Televisa source said.

The settlement was reached shortly before Televisa chairman Emilio Azcarraga Jean was to take the stand Thursday morning, but that was not the motivation for taking the out-of-court deal, Televisa lawyer Marshall Grossman said.

"When your adversary comes to you and offers everything you were suing for plus a half-billion dollars of free advertising, it doesn't matter whether it comes on the first or last day of trial, you take it," he said. "The settlement is more than what we asked for in the litigation, other than the termination of the agreement."

He noted that the trial was going very well for the Mexican media conglomerate.

"We interviewed one juror and he told us he was absolutely committed to the Televisa terms of the case," he said.

Still outstanding is the issue of U.S. Internet rights to Televisa programming. Televisa and Univision are set to head back to court in March over that if they don't reach a settlement before then.

The legal scuffle had huge potential implications for both parties and the Spanish-language media landscape in the U.S. Had the court ruled in favor of the Mexican broadcaster, Univision would have lost its biggest content supplier. Meanwhile, Televisa would have been forced to find other distribution outlets, like Univision rival Telemundo, or find financial backers to launch its own Spanish-language network.

The settlement will create a financial burden for Univision's new owners.

At the trial, Univision had described Televisa's legal actions as scare tactics to keep away potential buyers from bidding for Univision when it was put up for sale in 2006. Televisa was considered the leading candidate to acquire Univision but was outbid by a group including Saban Capital Group.

Analysts see the settlement as a win-win.

"The most important thing is that this doesn't change the nature of either company," Miami-based media consultant Julio Rumbaut said.

Miller Tabak analyst David Joyce called the settlement "the best solution for all parties involved," he said. "If it wasn't reached, it would have been a long, messy process."

Joyce also upgraded shares of Univision's largest affiliate group Entravision from "neutral" to "buy."

John Hecht in Mexico City and Georg Szalai in New York contributed to this report.
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