Univision, Televisa square off in trial
Telenovela programming under threat in five-year-old suitIn a trial that could change the landscape of Hispanic television in the U.S., broadcasting giant Univision Communications Inc. squares off Tuesday against the supplier of its popular telenovelas, Grupo Televisa SA.
The courtroom battle, brewing since 2005, has taken on the tinge of a romantic drama. Televisa is playing the role of the spurned suitor seeking justice, while Univision is trying to keep a financially successful, if unhappy, marriage intact.
Televisa, the dominant Mexican producer of Spanish-language dramas, alleges that Univision wrongly excluded certain programs from the deal that called for Univision to share its advertising revenue with Televisa, even from shows that weren't made by Televisa. The 25-year agreement was set to continue through 2017.
As the charges and countercharges escalated over the years, the dispute has evolved to threaten Univision's bedrock of programming -- the three hours of Televisa-made soap operas that air five nights a week such as "Las Tontas No Van Al Cielo" ("Dumb Women Don't Go to Heaven") -- and have cemented Univision at No. 1 among U.S. Hispanic audiences.
If Televisa's arguments -- that Univision committed a material breach of contract -- are proved at the jury trial starting Tuesday, the company intends to cut its ties and take its programming elsewhere.
Such a move could cripple New York-based Univision, which has $10.8 billion in debt, much of it created in 2006 in a private-equity firm leveraged buyout, at a time when even advertising for the growing Hispanic market is slumping.
"If Televisa wins, overnight it changes the Spanish-language television landscape as we know it today," said Jose Cancela, a Coral Gables, Fla.-based marketing consultant and author of "The Power of Business en Espanol."
"This source of programming that Televisa provides gives Univision a dominant position in the marketplace," Cancela said. "If they were to lose that or it unravels, it has a huge implication for their financial circumstances."
When the lawsuit was first filed in 2005, it was just about recouping payments Mexico City-based Televisa said it was owed. But Televisa raised the legal stakes by alleging a material breach of contract, which would allow it to cancel the deal entirely.
Televisa made this move around the time Univision declared that it was for sale in February 2006. At the time, Televisa owned 11% of Univision and was trying to take it over. Univision argued that Televisa's breach-of-contract claim was designed to scare off other suitors, a poison pill that would leave potential Univision buyers with a hollowed prime-time lineup.
Ultimately, Televisa failed in its takeover bid and had to sell its stake to a group of private equity firms and billionaire Haim Saban, which acquired Univision for $12.3 billion.
But Televisa pressed on with its suit, seeing greater value in shopping its content elsewhere in the United States than the roughly $140 million, or around 12% of Univision's total ad sales, that it collects from Univision annually.
Entangled in the corporate legal feud is also the generational struggle of the media mogul family of Emilio Azcarraga Viduaretta, the founder of the company that became Televisa.
His son Emilio Azcarraga Milmo, "El Tigre," locked the company into the quarter-century deal with Univision's then chief executive, Andrew Jerrold Perenchio. But when the second Emilio Azcarraga died in 1997, passing on the family's control to the third, Emilio Azcarraga Jean, relations between the companies soured.
In 2005, Azcarraga resigned from Univision's board to protest Perenchio's decision to pick the company's next president without consulting him.
"Perenchio never really accepted Emilio Jr.," Cancela said. "Perenchio's attitude was, 'I signed this with your dad, and you're stuck with it."'
Univision, now led by CEO Joe Uva, claims that the alleged breaches in the contract, even if they are proven, are not "so dominant or pervasive as to frustrate the purpose" of the deal, thereby not crossing the threshold for a "material breach" set by Judge Philip Gutierrez.
Televisa claims it is owed $118 million from Univision; Univision has paid $18 million of it under protest. About $80 million of the damages sought are over unsold commercial spots that were then used by Univision subsidiaries, which Univision argues are not part of the revenue-sharing plan.
Televisa lawyer Marshall Grossman argues that the "bad faith which permeates the relationship," including stonewalling by Univision accountants, is enough to justify the termination of the contract.
The prospect of appeals means it could take another year or two for the matter to be settled, meaning any shock to Univision and its programming lineup might be blunted for now.
"This lawsuit is almost five years old. So Univision has had plenty of opportunity to continue to develop and make alternative arrangements," Grossman said. "If it's wounded, in our judgment, it's self-inflicted."