Televisa takes on Univision


UPDATED 10:43 AM PST, March 19

Top-rated Spanish-language television broadcaster Univision is in danger of losing the bulk of its primetime programming because of an ongoing fight with its largest content provider.

Mexican media titan Televisa is attempting to sever its 16-year-old exclusive license agreement with the U.S. broadcaster in a dispute about royalty payments. A 3-year-old lawsuit between the parties is set for a trial next month in Los Angeles federal court.

If Televisa makes its case, Univision could lose 15 of its 20 hours of primetime programming per week, including its entire 7-10 p.m. weeknight telenovela block.

With a bitter history between the companies that plays like a plot from one of Televisa's telenovelas, sources said the possibility of a pretrial settlement, or post-trial reconciliation, could be slim.

"I would be willing to bet my last dollar that the one option that will not be exercised is the negotiation of a new program license agreement with Univision," said Marshall Grossman, an attorney for the Santa Monica law firm Bingham McCutchen, which represents Televisa. "This is a relationship that has been irreparably damaged. I don't see a voluntary long-term relationship between these two companies, regardless of how much money Univision provides to Televisa. It's not as if Televisa is facing a cash crisis."

The dispute stems from a 1992 agreement that gave Univision the exclusive right to air Televisa programming in the U.S. for 25 years. Since then, Univision's primetime audience has nearly tripled, with net revenues growing from $210 million in 1993 to $1.6 billion in 2006. Televisa's annual royalties likewise shot up, with net revenues going from $15 million to $130 million during the same period.

But Televisa contends their contribution has been woefully undervalued. The company provides the bulk of Univision's current primetime content, including telenovelas "Yo amo a Juan Querendon," "Pasion" and "Al Diablo con los Guapos." Univision also airs Televisa content on its lower-rated sister networks, Telefutura and Galavision. By one estimate, Televisa content brings in 40% of Univision's advertising revenue.

Televisa filed a lawsuit in 2005 accusing Univision of underpaying royalties and hiding advertising revenue, demanding $118 million in back payments. A few months later, Televisa claimed Univision was in material breach of contract and requested to be released from their agreement altogether. A judge recently dismissed Univision's request to dismiss the breach claim, allowing the case to proceed.

Univision said they already have paid Televisa $20 million in back payments and there's nothing in Televisa's claims that are grounds for a material breach of contract.

Part of the problem for Univision is that Televisa's ambitions in the U.S. are greater than its current content-provider role.

Televisa is one of the largest media companies in the Spanish-speaking world and unsuccessfully tried to buy Univision in 2006.

Should the court break Univison's exclusivity deal, Televisa would be free to shop its programs to competitors -- including NBC Universal's Telemundo, which has been the perpetual distant runner-up in the Spanish-language ratings race to Univision. On Monday, Televisa stuck an unrelated agreement with Telemundo to air its shows in Mexico.

Miami-based Hispanic media consultant Julio Rumbaut said a more likely scenario is that Televisa would try to find a private backer to launch its own network.

"If they're able to break from the programming license agreement, they will not negotiate for the highest bidder but take that currency and negotiate an substantial equity position in a new entity," he said.

Univision pointed out that Televisa didn't claim a material breach of contract until Univision went up for sale, and paints the complaint as born from Televisa's frustrated ambition rather than any actual wrongdoing.

Univision general counsel Doug Kranwinkle said he remains open to a settlement, but doubts one is necessary for the case to have a favorable outcome.

"We have seen nothing in this case that would make us think a jury could come back with a finding of material breach," he said. "I don't think there's any possibility that Televisa will not be providing us with its programming through 2017."