Univision Swings to Fourth-Quarter Profit, Discloses $27.1M Price Tag for Onion Stake

Randy Falco P

The Spanish-language media giant, led by CEO Randy Falco, also says its Fusion network venture is growing "nicely," but wouldn't discuss reports that Disney is looking for an exit.

Univision Communications on Tuesday said it swung to a fourth-quarter profit amid lower impairment losses and lower interest expenses and other items.

Its quarterly revenue edged up only slightly, as higher subscriber fees and a gain in content licensing revenue was mostly offset by lower "other" revenue "primarily due to revenue associated with special events in 2014 that did not reoccur in 2015 and other contractual revenue decreases." Its programming costs increased as content companies across the industry continue to spend more on shows they hope will draw a bigger audience.

The Spanish-language media giant, which is planning an IPO, also disclosed on its earnings conference call details of its recent acquisition of a stake in the company behind satirical news outlet The Onion. Management said it paid $27.1 million for a 40.5 percent stake.

The stake in The Onion was a "complementary" extension that helped the company expand its reach and scale in multi-cultural millennial audiences, as have Univision's stakes in the El Rey and Fusion networks, Univision president and CEO Randy Falco explained on the call.

Management also got a question on the Fusion network joint venture with Walt Disney. CFO Francisco Lopez-Balboa said Fusion, which targets millennials, was "growing nicely," but wouldn't discuss "rumors that you may read in the press." Wall Street chatter has said that Disney was looking to sell its 50 percent stake to Univision amid losses at Fusion. Sources have told THR that Univision, which is in charge of Fusion content, feels it could better control the further growth of the network if it had full ownership and took over sales and distribution from Disney.

Univision on Tuesday posted earnings of $8.8 million for the fourth quarter, compared with a year-ago loss of $136.2 million. Quarterly operating earnings of $90.3 million compared with a year-ago loss of $88.2 million. Adjusted operating income before depreciation and amortization (OIBDA), another profitability metric, rose 2.7 percent to $335.2 million.

Quarterly revenue climbed 1.1 percent to $735.9 million. Advertising revenue edged up just 0.1 percent to $502.2 million amid lower political and advocacy advertising, while subscriber fee and content licensing revenue on a combined basis rose 3.4 percent to $233.7 million. Subscriber fee revenue was the key driver, with an increase of 8.5 percent to $183.2 million, primarily due to contractual rate increases and additional distribution of the Univision Deportes network.

Direct operating expenses related to programming, excluding variable program license fees, increased 9.3 percent to $133.5
million in the latest quarter. The company said that was "primarily due to an increase in entertainment programming costs of $8.3
million and an increase in other programming costs of $3.1 million."

The firm's media networks unit posted an adjusted OIBDA gain of 4 percent, with revenue up 2.8 percent. But radio OIBDA dropped 13 percent as revenue fell 12.2 percent, driven by lower advertising and contractual revenue.

Univision, whose chairman is Haim Saban, operates such assets as broadcast networks Univision Network and UniMas, formerly Telefutura, as well as cable channel Galavision and sports network Univision Deportes

The company filed for an IPO last summer, but its plans to go public have been delayed amid Wall Street jitters related to cord-cutting, audience fragmentation and other challenges faced by the TV industry. The company's private equity owners have been looking at ways to exit their investment. Univision has been privately held since a $12 billion buyout in 2007 by Thomas H. Lee Partners, Providence Equity Partners, Madison Dearborn Partners, TPG Capital and Saban Capital Group. The IPO wasn't discussed on the earnings call.

"We expanded our total unduplicated average monthly audience reach to 49 million media consumers across platforms – a 9 percent increase over the same period last year,” said Univision president and CEO Randy Falco. “As the most trusted brand in Hispanic America, we remain focused on delivering a Univision branded experience to our audience across our multiple platforms,
including our strengthened cable portfolio and new direct-to-consumer offerings such as Univision Now."

He added: "As we look ahead, we are focused on continuing to drive innovation and enhance our distribution platform as we inform, entertain and empower a young, dynamic multicultural community that has increasing political and economic influence.”

On Tuesday's earnings conference call, Falco predicted 2016 would be "another great year for Univision," citing the elections as one key event that will see Hispanics and multi-cultural millennials gravitate toward the company.

Falco also touted successful investments in news and entertainment content, such as music competition La Banda (The Band), created by Simon Cowell and produced by Ricky Martin. It premiered in September with judges Martin, Laura Pausini and Alejandro Sanz and has been renewed for season two.

All this helps ensure that Univision has must-see content, which is key amid the growth of "skinny" pay TV bundles and over-the-top services, Falco said. Univision has "transformed ourselves into a dynamic cross-platform media company," he said.

Asked about ad market trends, Falco said momentum was "fairly robust" in the network scatter ad market in the fourth quarter, and that momentum has continued. "Qualitatively, it feels pretty good," he added.

Media networks ad revenue is pacing up in the first quarter in the mid-single-digit percentage range, with the network pacing stronger than local TV stations, management said.

Asked about pay TV consolidation, Falco said he was "always concerned" about it, given the risk that distributors could use their increased leverage in carriage renewal talks. He expressed optimism about a carriage deal renewal with AT&T, which has acquired satellite TV giant DirecTV, in the near future. "We are certainly optimistic that we will be able to come to a fair deal," he said. "AT&T seems to be saying all the right things."