Univision Closer to Cable Network Deal

Univision Communications Inc., the nation’s dominant Spanish-language television programmer, is nearing a deal to purchase Gems International Television, a Florida-based cable network currently valued at about $130 million.

Three other companies remain in the bidding for the 6-year-old Spanish-language women’s-oriented network, which reaches more than 6 million households in the United States and another 6 million-plus in Latin America. Negotiations for the network--jointly owned by Cox Communications of Atlanta and Empresas 1BC of Venezuela--are described as “very fluid” by sources close to the talks, which are expected to conclude in less than two weeks. Wall Street analyst Matthew J. Harrigan characterized Gems’ $130-million valuation as conservative.

Univision has emerged as the favorite in recent weeks after the Cisneros Television Group--a division of the Venezuelan-based Cisneros Group of Companies, one of the world’s largest privately held media conglomerates--dropped out of the competition last month.

If consummated, the purchase would give the Los Angeles-based company a near monopoly on Spanish-language television in the United States. It already owns Univision, the country’s top Spanish-language broadcast TV network, and Galavision, the No. 1 Spanish-language cable channel with a subscriber base of more than 10 million households. (Galavision’s viewership will grow another 5 million next month when it becomes available to DirectTV subscribers.)

Officials at Univision and Cisneros refused to comment on the sale publicly, citing the delicate nature of the talks, but privately confirmed the broad outline of the negotiations. Gems and Cox executives also declined comment.

If Univision wins the bidding war for Gems, it will almost certainly remake the cable outlet’s lineup. Currently, Univision employs a “flanker” strategy with Galavision, its main cable channel, offering youth-oriented bilingual fare and sports programming that complements, but does not compete with, the prime-time telenovelas, talk shows and news programs on Univision.

One option reportedly under consideration would make Gems a movie channel, exploiting Univision’s deep library of Spanish-language film classics and providing an additional outlet for the company’s fledgling movie-production division, which is expected to complete 10 to 12 films per year beginning in the fall.

Gems was founded in 1993 by former Telemundo executive Gary McBride as the only Spanish-language cable network for women, programmed for upscale, educated Latinas who were drawn to its mix of variety shows, comedies, talk and fashion programs and entertainment newsmagazines as well as reruns of popular novelas from throughout Latin America. Recently the network also added outdoor adventure programs and women’s professional basketball.

But its growth has been stunted by an inability to win carriage from more than just a fraction of the nation’s cable providers. As a result, the network this winter began implementing an aggressive distribution strategy using low-power television stations located in the heart of Latino communities in markets such as Sacramento, Bakersfield, San Francisco and San Antonio to circumvent cable operators who refused to make space available.

Gems executives have also been seeking a strategic partner for some time. The network was nearly sold in February to Hearst Entertainment, which owns Lifetime Television and has programming agreements with Gems. Plans reportedly called for Hearst to target Gems’ primarily female audience by making the network a Spanish-language cable version of its popular women’s magazine Cosmopolitan. But Hearst abruptly broke off talks when word of an impending deal leaked out, according to several executives familiar with the negotiations.

Uncertainty over the network’s future is said to have dampened morale at the company’s tidy corporate headquarters, hidden deep inside an industrial complex in the Miami suburb of Miramar. As a result, Gems President McBride has struggled to keep secret conversations with other suitors, such as CBS TeleNoticas, a 24-hour Spanish-language cable news channel.

Univision can certainly afford to acquire Gems. The company, which teetered on the brink of bankruptcy less than seven years ago, has recorded 10 consecutive quarters of sustained growth since its original public offering. Executives expect to surpass $1 billion in gross revenues before the end of next year; net revenues last year were a record $577.1 million.

“If anything, they’re overcapitalized,” says Harrigan of J.P. Morgan Securities.

But as the nation’s Latino population continues to grow--it’s expanding six times faster than the general population--Univision has concluded that two channels aren’t enough to offer the choice for everyone all the time, according to one executive of the company.

“Galavision and Univision are not enough for 31 million Latinos,” said the executive, who requested anonymity. “We know it’s a strategic play for us.”

In addition to ownership of the fourth-largest Spanish-language TV channel in the nation, the Gems deal would also give Univision a second analog cable position.

“Given their dominant position in the market, this is the best way to get more eyeballs on the screen,” Harrigan says. “They have so much programming . . . that shelf space in their hands is worth more than it is in anyone else’s hands. The final price [for Gems] can be a compelling price to Univision [but] would look expensive to anyone else.”

All this would leave the 12-year-old Telemundo network as the only national Spanish-language television company of any significance outside Univision’s control. Telemundo currently draws about 8% of the Spanish-language broadcast television audience nationwide compared to Univision’s 92% share, according to Nielsen Media Research.

A Telemundo spokesman said the Sony-owned property was aware that Gems had been seeking a partner but decided not to make a play for it.

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“Given their dominant position in the market, this is the best way to get more eyeballs on the screen. They have so much programming . . . that shelf space in their hands is worth more than it is in anyone else’s hands. The final price [for Gems] can be a compelling price to Univision [but] would look expensive to anyone else.”

MATTHEW J. HARRIGAN, Wall Street analyst