Univision Networks Unit Ad Revenue Drops 40 Percent as Second Quarter Hits Pandemic Bottom

Univision Communications CEO Vincent Sadusky - H 2018
Courtesy of Univision Communications

The Spanish-language media giant, led by CEO Vincent Sadusky, says the third quarter trends are "meaningfully better" and it expects "record" political advertising this year.

Spanish-language media giant Univision Communications, which earlier this year agreed to sell a majority stake to an investor group led by former Viacom CFO Wade Davis, reported lower second-quarter financials amid the novel coronavirus pandemic.

In its earnings update on Monday, the company, which previously said it was targeting $125 million in cost reductions, confirmed its forecast that advertising would materially weaken from the first quarter due to further postponements of live sports and lower demand from advertisers.

It had also said that the cost cuts would result in a restructuring charge of approximately $15 million in the second quarter and “possible other restructuring charges throughout the remainder of 2020." On Monday, the final charge for the quarter was confirmed as amounting to $14.4 million. The firm also reiterated that additional restructuring charges "may be required" through the rest of the year.

Univision swung to a second-quarter loss from continuing operations of $27.3 million, compared with a year-ago profit of $92.0 million. Quarterly adjusted operating income before depreciation and amortization (OIBDA), another profitability metric, fell 9 percent to $242.8 million.

Second-quarter revenue declined 24 percent to $531 million, with its media networks unit recording a 40 percent advertising decline to $210.0 million. Media networks core advertising revenue, which adjusts for political and
advocacy, including the 2020 election, decreased 42 percent to $198.9 million. "The decrease was due
to declines in our networks and local television businesses due to live sports cancellations and lower volume
commitments due to COVID-19," the company said. 

Media networks unit non-advertising revenue, including carriage fees and content licensing, was virtually unchanged at $292.4 million in the latest period as subscriber fees grew 3 percent, "primarily due to double-digit rate increases associated with the renewal of distributor contracts partially offset by subscriber losses.” Content licensing and other revenue dropped “due to the timing of delivery."

Quarterly direct operating expenses related to programming, excluding variable program license fees, fell 62 percent to $64.1 million. “The decrease was primarily due to decreases in sports programming costs of $93.2 million due to the cancellation or deferral of live sports in the quarter, decreases in news programming costs of $7.1 million and decreases in entertainment programming costs of $4.6 million,” the company said.

"This quarter’s ratings momentum, illustrated by the Univision Network as the #1 network regardless of language among adults 18-34 in primetime for a record 10 consecutive weeks and our Spanish-language viewing share at twice that of our closest Spanish-language competitor, demonstrate that Univision is the #1 destination for Hispanics during the COVID-19 pandemic," said Univision CEO Vincent Sadusky. "Our digital platforms similarly saw record high traffic."

He added: "While we are not immune to the economic fallout from COVID-19, with a solid pipeline of entertainment content, with Liga MX’s regular season now underway and with the UEFA Champions League Tournament about to begin, we hope to have turned a corner from the worst of the pandemic’s economic impact. In addition, despite the economic
headwinds, we have accessed the capital markets and our successful series of debt refinancings have strengthened our
balance sheet and validated our optimism."

Mexican TV giant Televisa, with which Univision has a content deal, owns a minority stake in the company.

Sadusky on the quarterly earnings call on Monday said that third-quarter advertising trends are "meaningfully better" than in the second quarter, giving the firm confidence that the latter would mark the bottom of the ad decline. Each month since March has seen improving trends, with the third quarter looking down 15 percent-20 percent, depending on whether political ads are included or not, his team shared. Executives also said various marketing categories have shown improving spending trends, including film studios.

The company added that it expects a company "record" for political advertising this year given the presidential election.

Asked about potential asset sales, management said on the call that it sees "significant" value in such non-core assets as spectrum, radio towers and real estate holdings, which could be sold over time. It also mentioned the potential sale of small tertiary market TV stations.

Asked about upside to Univision's direct-to-consumer business, Sadusky said there was "real opportunity" for the company to focus on the streaming front and "develop a solid strategy." But he said that strategy would be unveiled  once the sale closes as "Wade has been very involved with that at Viacom" and has a playbook for this that is likely to come into play in the future.