20-F 1 d340412d20f.htm FORM 20-F FORM 20-F

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

 

     ¨   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

     þ   ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011

OR

 

     ¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

     ¨   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                    

FOR THE TRANSITION PERIOD FROM                     TO                     

COMMISSION FILE NUMBER 1-12610

Grupo Televisa, S.A.B.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

United Mexican States

(Jurisdiction of incorporation or organization)

Av. Vasco de Quiroga No. 2000

Colonia Santa Fe

01210 Mexico, D.F.

Mexico

(Address of principal executive offices)

Joaquín Balcárcel Santa Cruz

Grupo Televisa, S.A.B.

Av. Vasco de Quiroga No. 2000

Colonia Santa Fe

01210 Mexico, D.F.

Telephone: (011-52) (55) 5261-2433

Facsimile: (011-52) (55) 5261-2465

E-mail: jbalcarcel@televisa.com.mx

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

A Shares, without par value (“A Shares”)   New York Stock Exchange (for listing purposes only)
B Shares, without par value (“B Shares”)   New York Stock Exchange (for listing purposes only)
L Shares, without par value (“L Shares”)   New York Stock Exchange (for listing purposes only)

Dividend Preferred Shares, without par value (“D Shares”)
Global Depositary Shares (“GDSs”), each representing five
Ordinary Participation Certificates

(Certificados de Participación Ordinarios) (“CPOs”)

 

New York Stock Exchange (for listing purposes only)

New York Stock Exchange

CPOs, each representing twenty-five A Shares, twenty-two
B Shares, thirty-five L Shares and thirty-five D Shares
  New York Stock Exchange (for listing purposes only)

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None.

The number of outstanding shares of each of the issuer’s classes of capital

or common stock as of December 31, 2011 was:

112,609,536,590 A Shares

52,190,863,647 B Shares

83,030,861,216 L Shares

83,030,861,216 D Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ¨  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x                 Accelerated filer  ¨                 Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨ International Financial Reporting Standards as issued by the International Accounting Standards   Board  ¨  Other  x

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17 ¨  Item 18 x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x

 

 

 


Part I

  

Item 1.

 

Identity of Directors, Senior Management and Advisers

     4   

Item 2.

 

Offer Statistics and Expected Timetable

     4   

Item 3.

 

Key Information

     4   
 

Selected Financial Data

     4   
 

Dividends

     7   
 

Exchange Rate Information

     8   
 

Risk Factors

     9   
 

Forward-Looking Statements

     19   

Item 4.

 

Information on the Company

     20   
 

History and Development of the Company

     20   
 

Capital Expenditures

     20   
 

Business Overview

     21   

Item 5.

 

Operating and Financial Review and Prospects

     57   
 

Preparation of Financial Statements

     57   
 

Results of Operations

     57   

Item 6.

 

Directors, Senior Management and Employees

     83   

Item 7.

 

Major Stockholders and Related Party Transactions

     94   
 

The Major Stockholders

     95   
 

Related Party Transactions

     96   

Item 8.

 

Financial Information

     97   

Item 9.

 

The Offer and Listing

     98   
 

Trading History of CPOs and GDSs

     98   
 

Trading on the Mexican Stock Exchange

     99   

Item 10.

 

Additional Information

     102   
 

Mexican Securities Market Law

     102   
 

Bylaws

     103   
 

Enforceability of Civil Liabilities

     112   
 

Material Contracts

     112   
 

Legal Proceedings

     114   
 

Exchange Controls

     114   
 

Taxation

     114   
 

Documents on Display

     119   

Item 11.

 

Quantitative and Qualitative Disclosures About Market Risk

     119   

Item 12.

 

Description of Securities Other than Equity Securities

     123   

Part II

  

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

     124   

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

     124   

Item 15.

 

Controls and Procedures

     124   

Item 16.A.

 

Audit Committee Financial Expert

     125   

Item 16.B.

 

Code of Ethics

     125   

Item 16.C.

 

Principal Accountant Fees and Services

     125   

Item 16.D.

 

Exemptions from the Listing Standards for Audit Committees

     126   

Item 16.E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     126   

Item 16.F.

 

Change in Registrant’s Certifying Accountant

     128   

Item 16.G.

 

Corporate Governance

     128   

Item 16.H.

 

Mine Safety Disclosure

     129   

Part III

  

Item 17.

 

Financial Statements

     129   

Item 18.

 

Financial Statements

     129   

Item 19.

 

Exhibits

     130   

 

2


We publish our financial statements in accordance with Mexican Financial Reporting Standards (Normas de Información Financiera), or Mexican FRS, which differ in some significant respects from generally accepted accounting principles in the United States, or U.S. GAAP, and accounting procedures adopted in other countries.

Unless otherwise indicated, (i) information included in this annual report is as of December 31, 2011 and (ii) references to “Ps.” or “Pesos” in this annual report are to Mexican Pesos and references to “Dollars,” “U.S. Dollars,” “U.S. dollars,” “$,” or “U.S.$” are to United States dollars.

In this annual report, “we,” “us,” “our” or “Company” refer to Grupo Televisa, S.A.B. and, where the context requires, its consolidated entities. “Group” refers to Grupo Televisa, S.A.B. and its consolidated entities.

 

3


Part I

 

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

Not applicable.

 

Item 3. Key Information

Selected Financial Data

The following tables present our selected consolidated financial information as of and for each of the periods indicated. This information is qualified in its entirety by reference to, and should be read together with, our audited consolidated year-end financial statements. The following data for each of the years ended December 31, 2007, 2008, 2009, 2010 and 2011 has been derived from our audited consolidated year-end financial statements, including the consolidated balance sheets as of December 31, 2010 and 2011, the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years ended December 31, 2009, 2010 and 2011, and the accompanying notes appearing elsewhere in this annual report. Beginning on January 1, 2008, we discontinued recognizing the effects of inflation in our consolidated financial statements in accordance with Mexican FRS. Accordingly, our financial information through December 31, 2007 is stated in Mexican Pesos in purchasing power as of December 31, 2007. The financial information as of and for the years ended December 31, 2008, 2009, 2010 and 2011 is not directly comparable to prior periods due to the recognition of inflation effects in financial information in prior periods. Our financial information for the years ended December 31, 2008, 2009, 2010 and 2011 maintained the inflation adjustments recognized in prior years in our consolidated stockholders’ equity, and the inflation-adjusted amounts for nonmonetary assets and liabilities at December 31, 2007 became the accounting basis for those assets and liabilities beginning on January 1, 2008 and for subsequent periods. This data should also be read together with “Operating and Financial Review and Prospects”.

In the first quarter of 2009, the Mexican Bank and Securities Commission, or Comisión Nacional Bancaria y de Valores, or CNBV, issued regulations for listed companies in Mexico requiring the adoption of International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, to report comparative financial information for periods beginning no later than January 1, 2012. We have already completed a plan to comply with these regulations and started reporting our consolidated financial statements in accordance with IFRS in the first quarter of 2012. Beginning on January 1, 2012, we discontinued using Mexican FRS and adopted IFRS as issued by the IASB for financial reporting purposes. Accordingly, our consolidated financial statements as of December 31, 2012, and for the year ending on that date, will be presented on a comparative basis in accordance with IFRS. Mexican FRS differs in certain respects from IFRS. Information relating to the nature and effect of certain differences between Mexican FRS and IFRS as they relate to the initial adoption of IFRS in our consolidated stockholders’ equity as of January 1, 2011, the transition date, and December 31, 2011, is presented in Note 23 to our consolidated year-end financial statements.

The exchange rate used in translating Pesos into U.S. Dollars for calculating the convenience translations included in the following tables is determined by reference to the interbank free market exchange rate, or the Interbank Rate, as reported by Banco Nacional de México, S.A., or Banamex, as of December 31, 2011, which was Ps.13.9785 per U.S. Dollar. This annual report contains translations of certain Peso amounts into U.S. Dollars at specified rates solely for the convenience of the reader. The exchange rate translations contained in this annual report should not be construed as representations that the Peso amounts actually represent the U.S. Dollar amounts presented or that they could be converted into U.S. Dollars at the rate indicated.

Our consolidated year-end financial statements have been prepared in accordance with Mexican FRS, which differ in some significant respects from U.S. GAAP. Note 24 to our consolidated year-end financial statements provides a description of the relevant differences between Mexican FRS, the accounting and reporting standards used in Mexico as of December 31, 2011, and U.S. GAAP as they relate to us, and a reconciliation to U.S. GAAP of net income and other items for the years ended December 31, 2009, 2010 and 2011 and stockholders’ equity at December 31, 2010 and 2011. Any reconciliation to U.S. GAAP may reveal certain differences between our stockholders’ equity and net income as reported under Mexican FRS and U.S. GAAP.

 

4


     Year Ended December 31,  
     2007      2008      2009      2010      2011      2011  
     (Millions of Pesos or millions of U.S. Dollars)(1)  

(Mexican FRS)

                 

Income Statement Data:

                 

Net sales

   Ps . 41,562       Ps . 47,972       Ps . 52,353       Ps . 57,857       Ps . 62,582       U.S.$ 4,477   

Operating income

     14,481         15,128         15,157         15,583         16,822         1,203   

Integral cost of financing, net(2)

     410         831         2,973         3,029         4,143         296   

Consolidated net income

     9,018         8,731         6,583         8,516         8,180         585   

Controlling interest net income

     8,082         7,804         6,007         7,683         6,890         493   

Controlling interest net income per CPO(3)

     2.84         2.77         2.14         2.75         2.45         —     

Weighted-average number of shares outstanding (in millions)(3)(4)

     333,653         329,580         329,304         326,850         329,463         —     

Cash dividend per CPO(3)

     1.50         0.75         3.10         —           0.35         —     

Shares outstanding (in millions, at year end)(4)

     329,960         328,393         327,231         325,023         330,862         —     

(U.S. GAAP)(5)

                 

Income Statement Data:

                 

Net sales

   Ps . 41,562       Ps . 47,972       Ps . 52,353       Ps . 57,857       Ps . 62,582       U.S.$ 4,477   

Operating income

     14,322         14,492         13,008         14,531         16,400         1,173   

Consolidated net income

     9,167         9,049         5,561         8,623         6,911         494   

Net income attributable to the non-controlling interest

     934         919         575         833         1,291         92   

Net income attributable to the controlling interest

     8,233         8,130         4,986         7,790         5,621         402   

Net income attributable to the controlling interest per CPO(3)

     2.86         2.89         1.77         2.79         2.00         —     

Weighted-average number of shares outstanding (in millions)(3)(4)

     333,653         329,580         329,304         326,850         329,463         —     

Shares outstanding (in millions, at year end)(4)

     329,960         328,393         327,231         325,023         330,862         —     

(Mexican FRS)

                 

Balance Sheet Data (end of year):

                 

Cash and cash equivalents

   Ps . 25,480       Ps . 33,583       Ps . 29,941       Ps . 20,943       Ps . 16,276       U.S.$ 1,164   

Temporary investments

     1,825         8,321         8,902         10,447         5,423         388   

Total assets

     98,703         122,852         126,568         136,471         155,061         11,093   

Current portion of long-term debt and other notes payable(6)

     489         2,270         1,433         1,469         1,170         84   

Long-term debt, net of current portion(7)

     25,307         36,631         41,983         46,496         55,657         3,982   

Customer deposits and advances

     19,810         18,688         20,913         19,083         21,386         1,530   

Capital stock issued

     10,268         10,061         10,020         10,020         10,239         732   

Total stockholders’ equity (including non-controlling interest)

     40,650         47,252         44,472         51,858         58,856         4,210   

(U.S. GAAP)(5)

                 

Balance Sheet Data (end of year):

                 

Cash and cash equivalents

   Ps . 25,480       Ps . 33,583       Ps . 29,941       Ps . 20,943       Ps . 16,276       U.S.$ 1,164   

Temporary investments

     1,825         8,321         8,902         10,447         5,423         388   

Total assets

     103,728         127,966         131,344         136,563         155,285         11,109   

Current portion of long-term debt and other notes payable(6)

     489         2,270         1,433         1,469         1,170         84   

Long-term debt, net of current portion(7)

     25,307         36,631         41,983         46,496         55,657         3,982   

Customer deposits and advances

     19,810         18,688         20,913         19,083         21,386         1,530   

Controlling interest stockholders’ equity

     36,580         41,539         37,357         44,283         50,111         3,585   

Total stockholders’ equity (including non-controlling interest)

     40,235         46,808         43,696         51,112         57,344         4,102   

 

5


     Year Ended December 31,  
     2007     2008     2009     2010     2011     2011  
     (Millions of Pesos or millions of U.S. Dollars)(1)  

(Mexican FRS)

            

Cash Flow Data(15):

            

Net cash provided by operating activities

   Ps. —        Ps. 22,258      Ps. 15,136      Ps. 16,865      Ps. 22,855      U.S.$ 1,635   

Net cash used in investing activities

     —          (12,884     (11,052     (27,274     (25,093     (1,795

Net cash (used in) provided by financing activities

     —          (1,886     (7,641     1,435        (2,543     (182

Increase (decrease) in cash and cash equivalents

     —          7,620        (3,663     (9,018     (4,676     (335

(U.S. GAAP)(5)

            

Cash Flow Data:

            

Net cash provided by operating activities

     12,107        19,851        12,328        13,862        18,778        1,343   

Net cash (used in) provided by financing activities

     (1,395     522        (4,833     4,439        3,446        247   

Net cash used in investing activities

     (294     (12,884     (11,052     (27,274     (25,093     (1,795

Increase (decrease) in cash and cash equivalents

     10,418        7,488        (3,558     (8,973     (2,869     (205

(Mexican FRS)

            

Other Financial Information:

            

Capital expenditures(8)

   Ps. 3,878      Ps. 6,627      Ps. 6,531      Ps. 12,494      Ps. 11,057      U.S.$ 791   

Other Data (unaudited):

            

Average prime time audience share (TV broadcasting)(9)

     69.0     71.2     69.8     68.0     66.9     —     

Average prime time rating (TV broadcasting)(9)

     33.4        35.2        34.8        32.8        32.5        —     

Magazine circulation (millions of copies)(10)

     165        174        153        138        132        —     

Number of employees (at year end)

     17,800        22,500        24,300        24,700        26,300        —     

Number of Sky subscribers (in thousands at year end)(11)

     1,585        1,760        1,960        3,044        4,008        —     

Number of Cablevisión RGUs (in thousands at year end)(12)

     695        844        1,016        1,159        1,387        —     

Number of Cablemás RGUs (in thousands at year end)(12)(13)

     —          1,170        1,348        1,562        1,818        —     

Number of TVI RGUs (in thousands at year end)(12)(14)

     —          —          425        555        694        —     

Notes to Selected Consolidated Financial Information:

 

(1) Except per Certificado de Participación Ordinario, or CPO, average audience share, average rating, magazine circulation, employee, subscriber and Revenue Generating Units, or RGUs. Amounts in Mexican Pesos for the year ended December 31, 2007 are stated in Mexican Pesos in purchasing power as of December 31, 2007, in accordance with Mexican FRS. Beginning on January 1, 2008, we discontinued recognizing the effects of inflation in our financial information in accordance with Mexican FRS.

 

(2) Includes interest expense, interest income, foreign exchange gain or loss, net, and through December 31, 2007, gain or loss from monetary position. See Note 18 to our consolidated year-end financial statements.

 

(3) For further analysis of net income per CPO (as well as corresponding amounts per A Share not traded as CPOs), see Note 20 (for the calculation under Mexican FRS) and Note 24 (for the calculation under U.S. GAAP) to our consolidated year-end financial statements. In April and December 2009, our stockholders approved the payment of a dividend of Ps.1.75 and Ps.1.35 per CPO, respectively. No dividend payment was approved by our stockholders during 2010. In April 2011, our stockholders approved the payment of a dividend of Ps.0.35 per CPO.

 

(4)

As of December 31, 2007, 2008, 2009, 2010 and 2011 we had four classes of common stock: A Shares, B Shares, D Shares and L Shares. Our shares are publicly traded in Mexico, primarily in the form of CPOs, each CPO representing 117 shares

 

6


  comprised of 25 A Shares, 22 B Shares, 35 D Shares and 35 L Shares; and in the United States in the form of Global Depositary Shares, or GDSs, each GDS representing 5 CPOs. The number of CPOs and shares issued and outstanding for financial reporting purposes under Mexican FRS and U.S. GAAP is different than the number of CPOs issued and outstanding for legal purposes, because under Mexican FRS and U.S. GAAP shares owned by subsidiaries and/or the trusts created to implement our Stock Purchase Plan and our Long-Term Retention Plan are not considered outstanding for financial reporting purposes. As of December 31, 2011, for legal purposes, there were approximately 2,573.9 million CPOs issued and outstanding, each of which was represented by 25 A Shares, 22 B Shares, 35 D Shares and 35 L Shares, and an additional number of approximately 58,926.6 million A Shares and 2,357.2 million B Shares (not in the form of CPO units). See Note 12 to our consolidated year-end financial statements.

 

(5) See Note 24 to our consolidated year-end financial statements.

 

(6) See Note 8 to our consolidated year-end financial statements.

 

(7) See “Operating and Financial Review and Prospects — Results of Operations — Liquidity, Foreign Exchange and Capital Resources — Indebtedness” and Note 8 to our consolidated year-end financial statements.

 

(8) Capital expenditures are those investments made by us in property, plant and equipment, which U.S. Dollar equivalent amounts set forth in “Information on the Company — Capital Expenditures” are translated into Mexican Pesos at the year-end exchange rate for convenience purposes only. The aggregate amount of capital expenditures in Mexican Pesos does not indicate the actual amounts accounted for in our consolidated financial statements.

 

(9) “Average prime time audience share” for a period refers to the average daily prime time audience share for all of our networks and stations during that period, and “average prime time rating” for a period refers to the average daily rating for all of our networks and stations during that period, each rating point representing one percent of all television households. As used in this annual report, “prime time” in Mexico is 4:00 p.m. to 11:00 p.m., seven days a week, and “weekday prime time” is 7:00 p.m. to 11:00 p.m., Monday through Friday. Data for all periods reflects the average prime time audience share and ratings nationwide as published by the Mexican subsidiary of the Brazilian Institute of Statistics and Public Opinion, or Instituto Brasileño de Opinión Pública y Estadística, or IBOPE. The Mexican subsidiary of IBOPE is referred to as IBOPE AGB Mexico in this annual report. For further information regarding audience share and ratings information and IBOPE AGB Mexico, see “Information on the Company — Business Overview — Television — Television Broadcasting”.

 

(10) The figures set forth in this line item represent total circulation of magazines that we publish independently and through joint ventures and other arrangements and do not represent magazines distributed on behalf of third parties.

 

(11) Sky commenced operations in Mexico in 1996, and in Central America and the Dominican Republic in 2007. The figures set forth in this line item represent the total number of gross active residential and commercial subscribers for Innova, S. de R.L. de C.V., or Innova, at the end of each year presented. For a description of Innova’s business and results of operations and financial condition, see “Information on the Company — Business Overview — DTH Ventures”.

 

(12) An RGU is defined as an individual service subscriber who generates recurring revenue under each service provided by Empresas Cablevisión, S.A.B. de C.V., or Cablevisión, Cablemás, S.A. de C.V., or Cablemás, and Televisión Internacional, S.A. de C.V., or TVI, (pay television, or pay-TV, broadband internet and digital telephony). For example, a single subscriber paying for cable television, broadband internet and digital telephony services represents three RGUs. We believe it is appropriate to use the number of RGUs as a performance measure for Cablevisión, Cablemás and TVI given that these businesses provide other services in addition to pay-TV. See “Operating and Financial Review and Prospects — Results of Operations — Total Segment Results — Cable and Telecom” and “Information on the Company — Business Overview — Cable and Telecom”.

 

(13) Beginning June 2008, we started to consolidate Cablemás, a significant cable operator in Mexico, operating in 50 cities.

 

(14) Beginning October 2009, we started to consolidate TVI, a leading provider of triple-play services in northern Mexico.

 

(15) Through December 31, 2007, under Mexican FRS, the changes in financial position for operating, financing and investing activities, were presented through the statements of changes in financial position. On January 1, 2008, Mexican FRS NIF B-2, “Statement of Cash Flows” became effective on a prospective basis. Therefore, we have included the statement of cash flows for the years ended December 31, 2008, 2009, 2010 and 2011. Due to the adoption of Mexican FRS NIF B-2, “Statement of Cash Flows”, the 2008, 2009, 2010 and 2011 information is not directly comparable to 2007 and prior years. The criteria for determining net cash provided by, or used in, operating, investing and financing activities under the new Mexican FRS NIF B-2, “Statement of Cash Flows” is different from that used in prior years.

Dividends

Decisions regarding the payment and amount of dividends are subject to approval by holders of a majority of the A Shares and B Shares voting together, generally, but not necessarily, on the recommendation of the Board of Directors, as well as a majority of the A Shares voting separately. Emilio Azcárraga Jean indirectly controls the voting of the majority of the A Shares and, as a result of such control, both the amount and the payment of dividends require his affirmative vote. See “Major Stockholders and Related Party Transactions — The Major Stockholders”.

 

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The amounts in this section are presented in nominal historical figures and therefore have not been restated in constant currency units due to a change in Mexican FRS whereby beginning on January 1, 2008 we discontinued recognizing the effects of inflation on our results. On March 25, 2004, our Board of Directors approved a dividend policy under which we currently intend to pay an annual regular dividend of Ps.0.35 per CPO. On April 27, 2007, at a general stockholders’ meeting, our stockholders approved a cash distribution to stockholders for up to Ps.4,401 million, which includes the payment of an extraordinary dividend of Ps.1.10 per CPO, which is in addition to our ordinary dividend of Ps.0.35 per CPO, for a total dividend of Ps.1.45 per CPO, equivalent to Ps.0.01239316239 per share. On April 30, 2008, at a general stockholders’ meeting, our stockholders approved a cash distribution to stockholders for up to Ps.2,276.3 million, which includes the payment of an extraordinary dividend of Ps.0.40 per CPO, which is in addition to our ordinary dividend of Ps.0.35 per CPO, for a total dividend of Ps.0.75 per CPO, equivalent to Ps.0.00641025641 per share. On April 30, 2009, at a general stockholders’ meeting, our stockholders approved a cash distribution to stockholders of up to Ps.5,204.6 million, which includes the payment of an extraordinary dividend of Ps.1.40 per CPO, which is in addition to our ordinary dividend of Ps.0.35 per CPO, for a total dividend of Ps.1.75 per CPO, equivalent to Ps.0.014957264957 per share. In addition to the dividend payment approved by our stockholders on April 30, 2009, and based on a proposal by our Board of Directors, on December 10, 2009, at a general stockholders’ meeting, our stockholders approved a cash distribution to stockholders for up to Ps.4.0 billion, which includes the payment of an extraordinary dividend of Ps.1.0 per CPO, which is in addition to our ordinary dividend of Ps.0.35 per CPO, for a total dividend of Ps.1.35 per CPO, equivalent to Ps.0.011538461538 per share. The dividend payment approved on December 10, 2009 would have generally been paid in April 2010. We did not make a payment of any additional dividends during 2010. On April 29, 2011, at a general stockholders’ meeting, our stockholders approved a cash distribution to stockholders for up to Ps.1,036.7 million, which represents the payment of our ordinary dividend of Ps.0.35 per CPO, equivalent to Ps.0.002991452991 per share. On April 27, 2012, at a general stockholders’ meeting, our stockholders approved a cash distribution to stockholders for up to Ps.1,097.8 million, which represents the payment of our ordinary dividend of Ps.0.35 per CPO, equivalent to Ps.0.002991452991 per share. This dividend will be paid in May 2012. All of the recommendations of the Board of Directors related to the payment and amount of dividends were voted on and approved at the applicable general stockholders’ meetings.

Exchange Rate Information

Since 1991, Mexico has had a free market for foreign exchange and, since 1994, the Mexican government has allowed the Peso to float freely against the U.S. Dollar. There can be no assurance that the government will maintain its current policies with regard to the Peso or that the Peso will not depreciate or appreciate significantly in the future.

The following table sets forth, for the periods indicated, the high, low, average and period end Mexican Official FIX Rate, or FIX Rate, published by the Mexican Central Bank, expressed in Pesos per U.S. Dollar. The rates have not been restated in constant currency units and therefore represent nominal historical figures.

 

Period

   High      Low      Average(1)      Period End  

2007

     11.2676         10.6639         10.9274         10.9157   

2008

     13.9183         9.9180         11.1455         13.8325   

2009

     15.3650         12.5969         13.4983         13.0659   

2010

     13.1819         12.1575         12.6287         12.3496   

2011

     14.2443         11.5023         12.4301         13.9476   

November

     14.2443         13.3852         13.6993         13.6100   

December

     13.9904         13.4786         13.7689         13.9476   

2012 (through April 23, 2012)

     13.9342         12.6299         13.0071         13.2087   

January

     13.9342         12.9325         13.4178         13.0077   

February

     12.8900         12.6472         12.7831         12.7891   

March

     12.9777         12.6299         12.7567         12.8093   

April (through April 23, 2012)

     13.2288         12.7317         13.0572         13.2087   

 

(1) Annual average rates reflect the average of the daily exchange rate during the relevant period.

The above rates may differ from the actual rates used in the preparation of the financial statements and the other financial information appearing in this Form 20-F.

In the past, the Mexican economy has had balance of payment deficits and decreases in foreign exchange reserves. While the Mexican government does not currently restrict the ability of Mexican or foreign persons or entities to convert Pesos to U.S. Dollars, we cannot assure you that the Mexican government will not institute

 

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restrictive exchange control policies in the future, as has occurred from time to time in the past. To the extent that the Mexican government institutes restrictive exchange control policies in the future, our ability to transfer or to convert Pesos into U.S. Dollars and other currencies for the purpose of making timely payments of interest and principal of indebtedness, as well as to obtain foreign programming and other goods, would be adversely affected. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Currency Fluctuations or the Devaluation and Depreciation of the Peso Could Limit the Ability of Our Company and Others to Convert Pesos into U.S. Dollars or Other Currencies, Which Could Adversely Affect Our Business, Financial Condition or Results of Operations”.

On April  23, 2012 the FIX Rate was Ps.13.2087 per U.S.$1.00.

Risk Factors

The following is a discussion of risks associated with our company and an investment in our securities. Some of the risks of investing in our securities are general risks associated with doing business in Mexico. Other risks are specific to our business. The discussion below contains information, among other things, about the Mexican government and the Mexican economy obtained from official statements of the Mexican government as well as other public sources. We have not independently verified this information. Any of the following risks, if they actually occur, could materially and adversely affect our business, financial condition, results of operations or the price of our securities.

Risk Factors Related to Mexico

Economic and Political Developments in Mexico May Adversely Affect Our Business

Most of our operations and assets are located in Mexico. As a result, our financial condition, results of operations and business may be affected by the general condition of the Mexican economy, the devaluation or appreciation of the Peso as compared to the U.S. Dollar, Mexican inflation, interest rates, regulation, taxation, social instability and other political, social and economic developments in or affecting Mexico over which we have no control.

Mexico Has Experienced Adverse Economic Conditions, Which Could Have a Negative Impact on Our Results of Operations and Financial Condition

Mexico has historically experienced uneven periods of economic growth. Mexican gross domestic product, or GDP, decreased by 6.2% in 2009, increased by 5.5% in 2010, and increased by 3.9% in 2011. Mexican GDP growth surpassed Mexican government forecasts in 2011 and, according to Mexican government forecasts, Mexican GDP is expected to increase by approximately 3.5% in 2012. We cannot assure you that these estimates and forecasts will prove to be accurate.

Mexico was adversely affected by the global economic crisis that started in the summer of 2007. The country’s main economic indicators were negatively affected, including a rise in unemployment, decline of interest rates, higher inflation and a depreciation of the Peso against the U.S. Dollar. This global economic downturn and/or any future economic downturn, including downturns in the United States, Europe and Asia, could affect our financial condition and results of operations. For example, demand for advertising may decrease both because consumers may reduce expenditures for our advertisers’ products and because advertisers may reduce advertising expenditures and demand for publications, cable television, direct-to-home, or DTH, satellite services, pay-per-view programming, telecommunications services and other services and products may decrease because consumers may find it difficult to pay for these services and products.

Developments in Other Emerging Market Countries or in the U.S. and Other Developed Economies May Adversely Affect the Mexican Economy, the Market Value of Our Securities and Our Results of Operations

The market value of securities of Mexican companies, the social, economic and political situation in Mexico and our financial condition and results of operations are, to varying degrees, affected by economic and market conditions in other emerging market countries and in the United States and other developed economies. Although economic conditions in other emerging market countries and in the United States and other developed economies may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value or trading price of securities of Mexican issuers, including our securities, or on our business.

Our operations, including the demand for our products or services, and the price of our securities, have also historically been adversely affected by increases in interest rates in the United States and elsewhere. Economic downturns in the United States often have a significant adverse effect on the Mexican economy and other economies globally, which in turn, could affect our financial condition and results of operations.

 

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Our profitability is affected by numerous factors, including changes in viewing preferences, priorities of advertisers and reductions in advertisers’ budgets. Historically, advertising in most forms of media has correlated positively with the general condition of the economy and thus, is subject to the risks that arise from adverse changes in domestic and global economic conditions, consumer confidence and spending. The demand for our products and services in Mexico, the U.S. and in the other countries in which we operate may be adversely affected by the tightening of credit markets and economic downturns. As a global media company, we depend on the demand from customers in Mexico, the U.S. and the other countries in which we operate, and reduced consumer spending that falls short of our projections could adversely impact our revenues and profitability.

Uncertainty in Global Financial Markets Could Adversely Affect Our Financing Costs and Exposure to Our Customers and Counterparties

The global financial markets continue to be uncertain, and many companies have limited access to funding. This risk has been exacerbated by concerns over the higher levels of public debt, wider fiscal deficit and recent credit rating downgrades on public debt of European countries such as the Republic of Ireland, Greece, Portugal, Italy, France and Spain and the United States credit rating downgrade announced in August 2011, as well as credit deterioration of the U.S. economy. It is uncertain how long the effects of this global financial stress in the markets will persist and what impact it will have on the global economy in general, or the economies in which we operate, in particular, and whether slowing economic growth in any such countries could result in decreased consumer spending affecting our products and services. If access to credit tightens further and borrowing costs rise, our borrowing costs could be adversely affected. Difficult financial markets may also adversely affect some of our customers. In addition, we enter into derivative transactions with large financial institutions, including contracts to hedge our exposure to interest rates and foreign exchange, and we could be affected by severe financial difficulties faced by our counterparties.

Currency Fluctuations or the Devaluation and Depreciation of the Peso Could Limit the Ability of Our Company and Others to Convert Pesos into U.S. Dollars or Other Currencies, Which Could Adversely Affect Our Business, Financial Condition or Results of Operations

A significant portion of our indebtedness and a significant amount of our costs are U.S. Dollar-denominated, while our revenues are primarily Peso-denominated. As a result, decreases in the value of the Peso against the U.S. Dollar could cause us to incur foreign exchange losses, which would reduce our net income.

Severe devaluation or depreciation of the Peso may also result in governmental intervention, or disruption of international foreign exchange markets. This may limit our ability to transfer or convert Pesos into U.S. Dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness and adversely affect our ability to obtain foreign programming and other imported goods. The Mexican economy has suffered current account balance of payment deficits and shortages in foreign exchange reserves in the past. While the Mexican government does not currently restrict, and for more than 15 years has not restricted, the right or ability of Mexican or foreign persons or entities to convert Pesos into U.S. Dollars or to transfer other currencies outside of Mexico, there can be no assurance that the Mexican government will not institute restrictive exchange control policies in the future. To the extent that the Mexican government institutes restrictive exchange control policies in the future, our ability to transfer or convert Pesos into U.S. Dollars or other currencies for the purpose of making timely payments of interest and principal on indebtedness, as well as to obtain imported goods would be adversely affected. Devaluation or depreciation of the Peso against the U.S. Dollar or other currencies may also adversely affect U.S. Dollar or other currency prices for our debt securities or the cost of imported goods.

High Inflation Rates in Mexico May Decrease Demand for Our Services While Increasing Our Costs

Mexico historically has experienced high levels of inflation, although the rates have been lower for more than a decade. The annual rate of inflation, as measured by changes in the Mexican National Consumer Price Index, or NCPI, was 3.6% in 2009, 4.4% in 2010, 3.8% in 2011 and is projected to be 3.8% in 2012. An adverse change in the Mexican economy may have a negative impact on price stability and result in higher inflation than its main trading partners, including the United States. High inflation rates can adversely affect our business and results of operations in the following ways:

 

   

inflation can adversely affect consumer purchasing power, thereby adversely affecting consumer and advertiser demand for our services and products; and

 

   

to the extent inflation exceeds our price increases, our prices and revenues will be adversely affected in “real” terms.

 

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High Interest Rates in Mexico Could Increase Our Financing Costs

Mexico historically has had, and may continue to have, high real and nominal interest rates. The interest rates on 28-day Mexican government treasury securities averaged 5.5%, 4.4% and 4.2% for 2009, 2010 and 2011, respectively. High interest rates in Mexico could increase our financing costs and thereby impair our financial condition, results of operations and cash flow.

Political Events in Mexico Could Affect Mexican Economic Policy and Our Business, Financial Condition and Results of Operations

The Mexican Federal Congress is not controlled by any specific political party. Therefore, Mexico’s President Felipe Calderón Hinojosa and his party, the Partido Acción Nacional, or the PAN, have faced opposition in Congress during the first five and a half years of his term. In addition, Governors and Local Congresses elections in various states of Mexico, as well as Presidential and Federal Congress elections, among other offices, are scheduled to take place in July 2012. The electoral process could lead to friction among political parties and the executive branch officers, which could cause political and economic instability. During election years, Mexico historically has experienced an atmosphere of uncertainty, probable economic restraint in the field of private investment and political and social tension.

Moreover, changes in laws and regulations, public policies and government programs may occur in the future. Such changes may have a material adverse effect on the Mexican economic, social and political situation, which in turn, may adversely affect our business, financial condition and results of operations.

In July 2009, new members were elected to the Cámara de Diputados, or the Chamber of Representatives, local Congress of some states, and Governors of six states, among other offices. As a result of these elections, the Partido Revolucionario Institucional or PRI, acquired a significant majority in the Chamber of Representatives. The lack of party alignment between the Chamber of Representatives and the President resulted in deadlock and prevented the timely implementation of political and economic reforms, which in turn could have a material adverse effect on Mexican economic policy. It is also possible that political uncertainty may adversely affect Mexico’s economic situation. The new members of Congress have focused on important legal reforms, which have not been and may not be approved, including labor reforms, among others. See “— Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”. The effects on the social and political situation in Mexico could adversely affect the Mexican economy, including the stability of its currency. We cannot ascertain, at this time, how any material adverse effect on Mexican economic policy, Mexico’s economic situation, the stability of Mexico’s currency or market conditions may affect our business or the price of our securities.

Mexico has Experienced a Period of Increased Criminal Activity and Such Activities Could Adversely Affect Our Financing Costs and Exposure to Our Customers and Counterparties

During recent years, Mexico has experienced a period of increased criminal activity and violence, primarily due to organized crime. These activities, their escalation and the violence associated with them could have a negative impact on the business environment in which we operate, and therefore on our financial condition and results of operations.

Mexican Antitrust Laws May Limit Our Ability to Expand Through Acquisitions or Joint Ventures

Mexico’s Ley Federal de Competencia Económica, or Mexico’s Federal Antitrust Law, and related regulations may affect some of our activities, including our ability to introduce new products and services, enter into new or complementary businesses or joint ventures and complete acquisitions. See “Information on the Company — Business Overview — Investments — Alvafig”.

In addition, Mexico’s Federal Antitrust Law and related regulations or conditions imposed by the Comisión Federal de Competencia, CFC, or Mexican Antitrust Commission, may adversely affect our ability to determine the rates we charge for our services and products or the manner in which we provide our products or services. Approval of the Mexican Antitrust Commission is required for us to acquire certain businesses or enter into certain joint ventures. There can be no assurance that in the future the Mexican Antitrust Commission will authorize certain acquisitions or joint ventures related to our businesses, the denial of which may adversely affect our business strategy, financial condition and results of operations. Although, in such event, we would be entitled to pursue the various remedies provided by law, including administrative or judicial procedures, there can be no assurance that the outcome of such procedures would be favorable to us.

The Mexican Antitrust Commission may also impose conditions and fines that could adversely affect some of our activities, our business strategy, our financial condition and results of operations. See “— Imposition of Fines by Regulators and Other Authorities Could Adversely Affect Our Financial Condition and Results of Operations”.

 

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See “Information on the Company — Business Overview — Regulation — Mexican Antitrust Law”.

Imposition of Fines by Regulators and Other Authorities Could Adversely Affect Our Financial Condition and Results of Operations

A significant portion of our business, activities and investments occur in heavily regulated sectors. Recently, Mexican regulators and other authorities, including tax authorities, have increased their supervision and the frequency and amounts of fines and assessments have increased significantly. Although we intend to defend our positions vigorously when procedures are brought or fines are imposed by authorities, there can be no assurance that we will be successful in such defense. Accordingly, we may in the future be required to pay fines and assessments that could be significant in amount, which could materially and adversely affect our financial condition and results of operations.

Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue

Our business, activities and investments are subject to various Mexican federal, state and local statutes, rules, regulations, policies and procedures which are subject to change, and are affected by the actions of various Mexican federal, state and local government authorities. In that regard, existing laws and regulations, including among others, tax and social security laws, could be amended, the manner in which laws and regulations are enforced or interpreted could change, and new laws or regulations could be adopted. Such changes could materially adversely affect our operations and our revenue.

Certain amendments to the existing Ley Federal de Radio y Televisión, or Radio and Television Law, and the Ley Federal de Telecomunicaciones, or Telecommunications Law, have been enacted. In May 2006, several members of the Senate of the Mexican Federal Congress filed a complaint before the Supreme Court of Justice of Mexico, seeking a declaration that such amendments were unconstitutional and therefore null and void. This complaint was resolved by the Supreme Court of Justice in June 2007, declaring several provisions of the amendments to the Radio and Television Law and to the Telecommunications Law unconstitutional and therefore null and void. Among the provisions declared as unconstitutional by the Supreme Court of Justice are the ones referred to in former Article 28 of the Radio and Television Law, pursuant to which holders of concessions had the ability to request authorization to provide additional telecommunications services within the same spectrum covered by a current concession without having to participate in a public bid to offer such services pursuant to a concession and Article 16 of the Radio and Television Law, pursuant to which concessions were granted for a fixed term of 20 years with the possibility to renew such concessions by obtaining from the Secretaría de Comunicaciones y Transportes, or SCT, a certification of compliance with the obligations under the concession. As a result of the Supreme Court of Justice’s ruling, once the transition to digital television and digital radio broadcasting is completed, if we want to provide additional telecommunications services within the same spectrum granted for digital television or digital radio broadcasting, respectively, we will have to follow the provisions of Article 24 of the Telecommunications Law to obtain the concession therefor. Also, there is uncertainty as to how radio and television concessions will be renewed in the future, since the Supreme Court of Justice’s ruling has resulted in requiring that the renewal of the concessions be subject to a public bid process, with a right of preference over other participating bidders given to the incumbent concessionaire. Additionally, some members of the Mexican Federal Congress have expressed their intent to propose a new Radio and Television Law, which could affect, among other things, the framework for granting or renewing concessions.

In September 2010, Mexico’s President Felipe Calderon Hinojosa, published through the SCT in the Diario Oficial de la Federación, or the Official Gazette of the Federation, a decree establishing the actions to be taken to expedite the transition to digital television and digital radio broadcasting, which intends to end analog broadcasting at some point between 2011 and 2015 (referred to in this annual report as the 2010 Decree).

The 2010 Decree modifies the policy published by the SCT in July 2004 which established procedures and set forth other applicable provisions for the transition to digital television. The constitutionality of the 2010 Decree has been challenged before the Supreme Court of Justice of Mexico by the Mexican Federal Congress, alleging that Mexico’s President Felipe Calderon Hinojosa, pursuant to the Radio and Television Law, overstepped his authority when issuing the 2010 Decree, and that the 2010 Decree therefore is unconstitutional. In November 2011, the Supreme Court of Justice of Mexico dismissed the constitutional challenge brought by the Mexican Federal Congress, confirming the validity of the 2010 Decree. In early 2012, the Comisión Federal de Telecomunicaciones, or Federal Telecommunications Commission, or Cofetel, has made public its intent to issue amendments to the the policies necessary to carry out the transition to digital television and radio broadcasting. As a result, it is not possible to determine with certainty the impact or effect that the digital transition will have on our business and results of operations.

In 2007, the Mexican Federal Congress passed an amendment to the Political Constitution of the United Mexican States, or Mexican Constitution, pursuant to which, among other things, the Federal Electoral Institute (Instituto Federal Electoral, or IFE) has, during certain periods, the exclusive right to manage and use the Official Television Broadcast Time and the Official Radio Broadcast Time (jointly referred to in this annual report as Official Broadcast Time). For a description of Official Television Broadcast Time and Official Radio Broadcast Time, see “Information on the Company — Business Overview — Business Strategy — Maintaining our Leading Position in the Mexican Television Market — Advertising Sales Plan” and “Information on the Company — Business Overview — Other Businesses — Radio Stations”. The IFE has the exclusive right to use the Official Broadcast Time for its own purposes and for the use of political parties in Mexico (as provided in the Mexican Constitution) for self promotion and, when applicable, to promote their electoral campaigns during election day, pre-campaign and campaign periods (referred to in this annual report as the Constitutional Amendment).

 

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The IFE and the political parties must comply with certain requirements included in the Constitutional Amendment for the use of Official Broadcast Time. During federal electoral periods, the IFE will be granted, per the Constitutional Amendment, 48 minutes per day in each radio station and television channel, to be used during pre-campaign periods in two and up to three minutes per broadcast hour in each radio station and television channel, of which all the political parties will be jointly entitled to use one minute per broadcast hour. During campaign periods, at least 85% of the 48 minutes per day shall be allocated among the political parties, and the remaining 15% may be used by the IFE for its own purposes. During non-electoral periods, the IFE will be assigned with up to 12% of the Official Broadcast Time, half of which shall be allocated among the political parties. In the event that local elections are held simultaneously with federal elections, the broadcast time granted to the IFE shall be used for the federal and the local elections. During any other local electoral periods, the allocation of broadcast time will be made pursuant to the criteria established by the Constitutional Amendment and as such criteria are reflected in applicable law.

In addition to the foregoing, pursuant to the Constitutional Amendment, political parties are prohibited from purchasing or acquiring advertising time, directly or through third parties, from radio or television stations; likewise, third parties shall not acquire advertising time from radio or television stations for the broadcasting of advertisements which may influence the electoral preferences of Mexican citizens, nor in favor or against political parties or candidates to offices elected by popular vote.

We believe we have been operating our business in compliance with the provisions of the Constitutional Amendment; however, we have filed legal actions contesting certain provisions of the Constitutional Amendment.

At this time, the Constitutional Amendment has not had an impact on the results of our radio and television businesses, however we are unable to predict what impact or effect, if any, the Constitutional Amendment may have on our operating results in the future. A decrease in paid advertising of the nature described above could lead to a decrease in our television or radio revenues. At this time, only three out of a total of ten legal actions brought by the Company against the Constitutional Amendment have been resolved. In two of these cases, the action was dismissed by the judge; in the third case, the action was denied. We cannot predict the outcome of the remaining seven legal actions brought by the Company against the Constitutional Amendment.

Article 15-A of the Ley del Seguro Social, or the Social Security Law, could materially adversely affect our financial condition and results of operations. Such Article 15-A, amended in July 2009, provides that a company that obtains third party personnel services from personnel services providers and which receives such personnel services on any of the company’s premises is jointly bound to comply with the obligations related to social security that have to be fulfilled by such personnel services providers for the benefit of their respective employees. Such Article 15-A, as amended, also establishes the obligation that the Company send a list to the Instituto Mexicano del Seguro Social, or the Social Security Mexican Institute, of all agreements entered into with personnel services providers.

In December 2009, the Mexican Government enacted certain amendments and changes to the Mexican tax laws related to income tax, value added tax and excise tax that became effective as of January 1, 2010. The main provisions of these amendments and changes are as follows: (i) the corporate income tax rate was increased from 28% to 30% for the years 2010 through 2012, and will be reduced to 29% and 28% in 2013 and 2014, respectively; (ii) under certain circumstances, the deferred income tax benefit derived from tax consolidation of a parent company and its subsidiaries is limited to a period of five years; therefore, the resulting deferred income tax has to be paid starting in the sixth year following the fiscal year in which the deferred income tax benefit was received; (iii) the payment of this tax has to be made in installments of 25% in the first and second year, 20% in the third year and 15% in the fourth and fifth year; (iv) taxpayers paid in 2010 the first installment of the cumulative amount of the deferred tax benefits determined as of December 31, 2004; (v) revenues from telecommunications and pay-TV services (except access to Internet services, interconnection services between public networks of telecommunications and public telephone services) became subject to a 3% excise tax; (vi) the excise tax rate on gaming (including bets and drawings) was increased from 20% to 30%; and (vii) the general value added tax rate was increased from 15% to 16%, and the rate on the border region was increased from 10% to 11%. We believe that the provisions for the tax consolidation regime have a retroactive application and we are therefore challenging the constitutionality of these provisions.

 

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Risk Factors Related to Our Major Stockholders

Emilio Azcárraga Jean has Substantial Influence Over Our Management and the Interests of Mr. Azcárraga Jean may Differ from Those of Other Stockholders

We have four classes of common stock: A Shares, B Shares, D Shares, and L Shares. Until June 17, 2009, approximately 45.6% of the outstanding A Shares, 2.7% of the outstanding B Shares, 2.8% of the outstanding D Shares and 2.8% of the outstanding L Shares of the Company were held through a trust, or the Stockholder Trust, including shares in the form of CPOs. On June 17, 2009, the Stockholder Trust was terminated and the shares and CPOs which were formerly held through such trust, were delivered to the corresponding beneficiaries. The largest beneficiary of the Stockholder Trust was a trust for the benefit of Emilio Azcárraga Jean, or the Azcárraga Trust. Such trust currently holds 43.0% of the outstanding A shares, 0.1% of the outstanding B shares, 0.1% of the outstanding D shares and 0.1% of the outstanding L shares of the Company. As a result, Emilio Azcárraga Jean controlled until June 17, 2009, the voting of the shares held through the Stockholder Trust, and currently controls the vote of such shares through the Azcárraga Trust. The A Shares held through the Azcárraga Trust constitute a majority of the A Shares whose holders are entitled to vote because non-Mexican holders of CPOs and GDSs are not permitted by law to vote the underlying A Shares. Accordingly, and so long as non-Mexicans own more than a minimal number of A Shares, Emilio Azcárraga Jean will have the ability to direct the election of 11 out of 20 members of our Board of Directors, as well as prevent certain actions by the stockholders, including dividend payments, mergers, spin-offs, changes in corporate purpose, changes of nationality and amendments to the anti-takeover provisions of our bylaws. See “Major Stockholders and Related Party Transactions — The Major Stockholders”.

As Controlling Stockholder, Emilio Azcárraga Jean Will Have the Ability to Limit Our Ability to Raise Capital, Which Would Require Us to Seek Other Financing Arrangements

Emilio Azcárraga Jean has the voting power to prevent us from raising money through equity offerings. Mr. Azcárraga Jean has informed us that if we conduct a primary sale of our equity, he would consider exercising his pre-emptive rights to purchase a sufficient number of additional A Shares in order to maintain such power. In the event that Mr. Azcárraga Jean is unwilling to subscribe for additional shares and/or prevents us from raising money through equity offerings, we would need to raise money through a combination of debt or other forms of financing, which we may not obtain, or if so, possibly not on favorable terms.

Risk Factors Related to Our Business

The Operation of Our Business May Be Terminated or Interrupted if the Mexican Government Does Not Renew or Revokes Our Broadcast or Other Concessions

Under Mexican law, we need concessions from the SCT to broadcast our programming over our television and radio stations, cable and DTH satellite systems and to provide telephony services. In July 2004, in connection with the adoption of a release issued by the SCT for the transition to digital television, all of our television concessions were renewed until 2021. The expiration dates for the concessions for our radio stations range from 2015 to 2020, after the recent renewal of three concessions. (See “— Risk Factors Related to Mexico — Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”). The expiration dates of our Cable and Telecommunications concessions range from 2013 to 2039 and our DTH concessions expire in 2020 and 2026. The expiration dates for the concessions for our telephone services range from 2018 to 2026. Cablevisión obtained a telecommunications concession, which expires in 2029, and its concession to transmit an over-the-air ultra-high frequency, or UHF, restricted television service through channel 46 which expired on November 17, 2010 (the “Channel 46 Concession”). We filed for a renewal of the Channel 46 Concession and in February 2010 the SCT notified Cablevisión that it would not be renewed; however, we are contesting the resolution of the SCT. In the past, the SCT has typically renewed the concessions of those concessionaires that comply with the requisite procedures set forth for renewal under Mexican law and on the respective concession title; however, in connection with our television and radio concessions, there is uncertainty as to how radio and television concessions will be renewed in the future, since the Supreme Court ruling has resulted in requiring the renewal of the concessions to be subject to a public bid process, with a right of preference over other participating bidders given to the incumbent concessionaire.

Under Mexican law, we need a permit, or Gaming Permit, from the Secretaría de Gobernación, or Mexican Ministry of the Interior, to operate our gaming business. The operation of our gaming business may be terminated or interrupted if the Mexican Government does not renew or revokes our Gaming Permit. The Gaming Permit was granted to us on May 25, 2005 and the expiration date is May 24, 2030. We are unable to predict if we will obtain a renewal of the Gaming Permit.

 

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See “— Risk Factors Related to Mexico — Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”.

We Face Competition in Each of Our Markets That We Expect Will Intensify

We face competition in all of our businesses, including television advertising and other media businesses, as well as our strategic investments and joint ventures. In particular, we face substantial competition from TV Azteca, S.A. de C.V., or TV Azteca. See “Information on the Company — Business Overview — Television — Television Industry in Mexico” and “Information on the Company — Business Overview — Television — Television Broadcasting”. In addition, the entertainment and communications industries in which we operate are changing rapidly because of evolving distribution technologies, including online and digital networks. Our principal competitors in the gaming industry are Codere S.A., or Codere, Corporación Interamericana de Entretenimiento, S.A.B. de C.V., or CIE, and Grupo Caliente S.A. de C.V., or Grupo Caliente.

The telecommunications industry in Mexico has become highly competitive and we face significant competition. Cable operators, who were already authorized to provide bidirectional data and internet broadband services and who have been recently authorized by the Mexican government to also provide voice services, including Voice over Internet Protocol, or VoIP, pose a risk to us. As the cable operators’ telephony income may be seen as incremental revenue, the price reduction and the vast coverage may prevent us from growing.

In October 2006, the Mexican federal government enacted a new set of regulations known as Convergence Regulations, or Acuerdo de Convergencia de Servicios Fijos de Telefonía Local y Televisión y/o Audio Restringidos que se Proporcionan a Través de Redes Públicas Alámbricas e Inalámbricas. The Convergence Regulations allow certain concessionaires of telecommunications services to provide other services not included in their original concessions. Cable television providers have been allowed to provide internet and telephone services if certain requirements and conditions are met. In addition, telephone operators, such as Teléfonos de México, S.A.B. de C.V., or Telmex, may be allowed to provide cable television services if certain requirements and conditions are met. We believe that we may face significant competition from new entrants providing telephony services or cable television services, including cable television providers and telephone operators. See “Information on the Company — Business Overview — Cable and Telecom”.

At the end of 2008, DISH, a competitor in the DTH market, launched its services in Mexico.

At the beginning of 2009, TV Azteca began offering HiTV, a television service which consists of the transmission of digital television channels through the technology known as Digital Terrestrial Television, or DTT, in Mexico City and its metropolitan area using the radioelectric spectrum in the mirror concessions granted to them pursuant to the release issued by the SCT for the transition to digital television. HiTV currently offers approximately 21 channels and charges for the decoder box, a fact which we believe constitutes a pay-TV service. The Supreme Court of Justice of Mexico is currently reviewing the legality of this service since the mirror concessions should be used to replicate the analog channel signals. We are uncertain as to how this service may affect our pay-TV business in the event it is considered legal. In addition, the decoder box that TV Azteca is utilizing to allow viewers to access its HiTV channels also allows the viewers access to our digital over-the-air networks without our permission.

Our future success will be affected by these changes, which we cannot predict. Consolidation in the entertainment, telecommunications and broadcast industries could further intensify competitive pressures. As the pay-TV market in Mexico matures, we expect to face competition from an increasing number of sources, including emerging technologies that provide new services to pay-TV customers and require us to make significant capital expenditures in new technologies and exclusive content. Developments may limit our access to new distribution channels and exclusive content, may require us to make significant capital expenditures in order to have access to new digital and other distribution channels or may create additional competitive pressures on some or all of our businesses.

The Seasonal Nature of Our Business Affects Our Revenue and a Significant Reduction in Fourth Quarter Net Sales Could Impact Our Results of Operations

Our business reflects seasonal patterns of advertising expenditures, which is common in the television broadcast industry, as well as cyclical patterns in periodic events such as the World Cup, the Olympic Games and political elections. We typically recognize a disproportionately large percentage of our television broadcasting advertising net sales in the fourth quarter in connection with the holiday shopping season. For example, in 2009, 2010 and 2011 we recognized 31.3%, 30.3% and 31.7%, respectively, of our net sales in the fourth quarter of the year. Accordingly, a significant reduction in fourth quarter advertising revenue could adversely affect our business, financial condition and results of operations.

 

15


DIRECTV Has Certain Governance and Veto Rights Over Some Operations of Innova

We own a 58.7% interest in Innova, our DTH venture in Mexico, Central America and the Dominican Republic. The balance of Innova’s equity is indirectly owned by The DIRECTV Group, Inc., or DIRECTV, through its subsidiaries DTH (Mexico) Investment, LTD, DIRECTV Latin America Holdings, Inc., or DIRECTV Holdings, and DIRECTV Latin America LLC, or DTVLA. Although we hold a majority of Innova’s equity and designate a majority of the members of Innova’s Board of Directors, DIRECTV has certain governance and veto rights in Innova, including the right to block certain transactions between us and Innova.

Loss of Transmission or Loss of the Use of Satellite Transponders Could Cause a Business Interruption in Innova, Which Would Adversely Affect Our Net Income

Media and telecom companies, including Innova, rely on satellite transmissions to conduct their day-to-day business. Any unforeseen and sudden loss of transmission or non-performance of the satellite for Innova can cause huge losses to Innova’s business. The unforeseen loss of transmission may be caused due to the satellite’s loss of the orbital slot or the reduction in the satellite’s functional life.

The size of the business interruption impact for Innova in the case of a satellite loss exceeds the insurance we have acquired to cover this risk. In order to reduce the possibility of financial consequences resulting from an unforeseen loss of transmission, Innova entered into an agreement to launch a backup satellite jointly with Sky Brasil Servicos Ltda., or Sky Brasil, which was launched in the first quarter of 2010. In addition, the amount of redundant amplifiers was recently increased to 33.3% in the IS-16 (as compared to the current level of 16.6% in the IS-9 satellite) in order to avoid the risk of a sudden loss of transmission. We cannot predict the extent of losses to Innova in the case of current or new satellite loss or the effectiveness of any alternative strategy.

Any Incidents Affecting Our Network and Information Systems or Other Technologies Could Have an Adverse Impact on Our Business, Reputation and Results of Operations

Our business operations rely heavily on network and information systems and other technology systems. Incidents affecting these systems, including cyber-attacks, viruses, other destructive or disruptive software or activities, process breakdowns, outages, or accidental release of information, could result in a disruption of our operations, improper disclosure of personal data or other privileged or confidential information, or unauthorized access to our digital content or any other type of intellectual property. Any such incident could cause damage to our reputation and may require us to expend substantial resources to remedy the situation and could therefore have a material adverse effect on our business and results of operations. In addition, there can be no assurance that any efforts we make to prevent these incidents will be successful in avoiding harm to our business.

The Results of Operations of Broadcasting Media Partners, Inc. and GSF Telecom Holdings, S.A.P.I. de C.V., May Affect Our Results of Operations and the Value of Our Investments in Those Companies

In December 2010, we made a substantial investment in Broadcasting Media Partners, Inc., or BMP, the parent company of Univision Communications, Inc., or Univision. However, we do not control and do not consolidate the results of BMP. Most of our investment in BMP is currently held in the form of convertible debentures. Our conversion of the debentures into shares of common stock of BMP is subject to certain conditions, and any delay in such conversion could materially affect the value of the debentures. After the conversion, we will remain a minority equity holder of BMP. The results of operations of BMP and Univision may affect the value of our investment in BMP and our results of operations. The business, financial condition and results of operations of Univision could be materially and adversely affected by risks including, but not limited to: (i) failure to service debt, (ii) cancellation, reductions or postponements of advertising, (iii) possible strikes or other union job actions, (iv) changes in the rules and regulations of the U.S. Federal Communications Commission, or FCC, (v) an increase in the cost of, and decrease in the supply or quality of, programming, (vi) an increase in the preference among Hispanics for English-language programming, (vii) competitive pressures from other broadcasters and other entertainment and news media and (viii) the impact of new technologies.

In April 2011, we made a substantial investment for the acquisition of equity and convertible debentures issued by GSF Telecom Holdings, S.A.P.I. de C.V., or GSF, which indirectly owns 100% of the outstanding shares of Grupo Iusacell, S.A. de C.V., or Iusacell. However, we do not control and do not consolidate the results of GSF. Most of our investment in GSF is currently held in the form of debentures mandatorily convertible into shares of stock of GSF. The conversion of the GSF convertible debentures is subject to approvals by the Mexican Antitrust Commission. After the mandatory conversion, we will still not be a majority owner of GSF and will share governance rights with the other owner. The results of operations of GSF and Iusacell may affect the value of our investment in GSF and our results of operations. The business, financial condition and results of operations of Iusacell could be materially and adversely affected by risks including, but not limited to: (i) technology becoming

 

16


obsolete, (ii) the inability to renew concessions and existing arrangements for roaming and other services, (iii) litigation being resolved against Iusacell, (iv) the dependence on revenues from subsidiaries to repay debt, (v) the loss of subscribers as a result of changes in the telecommunications industry and (vi) changes in the regulatory environment.

On February 2, 2012, we were notified of the resolution by which the Mexican Antitrust Commission did not approve the conversion of the debentures into equity. On March 15, 2012 we filed an appeal before the Mexican Antitrust Commission requesting that it reverse its resolution and authorize the conversion. The appeal is currently under review by the authority, which has a deadline of 60 business days to issue a new resolution. In addition to the appeal, we will assess and pursue potential remedies provided by law, which may include, without limitation, other administrative or judiciary procedures. No assurance can be given that the result of the appeal or of any other proceedings will be favorable to us. If conversion of these debentures into shares of common stock of GSF is not approved by the Mexican Antitrust Commission and other potential remedies provided by law are not effective for such conversion, we may be required to write down the carrying value of our investment in these debentures.

There can be no assurance that the results of operations of BMP, GSF and their respective subsidiaries will be sufficient to maintain or increase the value of our investments in such companies, or that such results will not materially and adversely affect our results of operations. See “— Risk Factors Related to Mexico — Mexican Antitrust Laws May Limit Our Ability to Expand Through Acquisitions or Joint Ventures”.

Risk Factors Related to Our Securities

Any Actions Stockholders May Wish to Bring Concerning Our Bylaws or the CPO Trust Must Be Brought in a Mexican Court

Our bylaws provide that a stockholder must bring any legal actions concerning our bylaws in courts located in Mexico City. The trust agreement governing the CPOs provides that a stockholder must bring any legal actions concerning the trust agreement in courts located in Mexico City. All parties to the trust agreement governing the CPOs, including the holders of CPOs, have agreed to submit these disputes only to Mexican courts.

Non-Mexicans May Not Hold A Shares, B Shares or D Shares Directly and Must Have Them Held in a Trust at All Times

Non-Mexicans may not directly own A Shares, B Shares or D Shares, but may hold them indirectly through a CPO trust, which will control the voting of the A Shares and B Shares. Under the terms of the CPO Trust, a non-Mexican holder of CPOs or GDSs may instruct the CPO Trustee to request that we issue and deliver certificates representing each of the shares underlying its CPOs so that the CPO Trustee may sell, to a third party entitled to hold the shares, all of these shares and deliver to the holder any proceeds derived from the sale.

Non-Mexican Holders of Our Securities Forfeit Their Securities if They Invoke the Protection of Their Government

Pursuant to Mexican law, our bylaws provide that non-Mexican holders of CPOs and GDSs may not ask their government to interpose a claim against the Mexican government regarding their rights as stockholders. If non-Mexican holders of CPOs and GDSs violate this provision of our bylaws, they will automatically forfeit the A Shares, B Shares, L Shares and D Shares underlying their CPOs and GDSs to the Mexican government.

Non-Mexican Holders of Our Securities Have Limited Voting Rights

Non-Mexican holders of GDSs are not entitled to vote the A Shares, B Shares and D Shares underlying their securities. The L Shares underlying GDSs, the only series of our Shares that can be voted by non-Mexican holders of GDSs, have limited voting rights. These limited voting rights include the right to elect two directors and limited rights to vote on extraordinary corporate actions, including the delisting of the L Shares and other actions which are adverse to the holders of the L Shares. For a brief description of the circumstances under which holders of L Shares are entitled to vote, see “Additional Information — Bylaws — Voting Rights and Stockholders’ Meetings”.

Our Antitakeover Protections May Deter Potential Acquirors and May Depress Our Stock Price

Certain provisions of our bylaws could make it substantially more difficult for a third party to acquire control of us. These provisions in our bylaws may discourage certain types of transactions involving the acquisition of our securities. These provisions may also limit our stockholders’ ability to approve transactions that may be in their best interests and discourage transactions in which our stockholders might otherwise receive a premium for their Shares over the then current market price, and could possibly adversely affect the trading volume in our equity securities. As a result, these provisions may adversely affect the market price of our securities. Holders of our securities who acquire Shares in violation of these provisions will not be able to vote, or receive dividends, distributions or other rights in respect of these securities and would be obligated to pay us a penalty. For a description of these provisions, see “Additional Information — Bylaws — Antitakeover Protections”.

 

17


GDS Holders May Face Disadvantages When Attempting to Exercise Voting Rights as Compared to Other Holders of Our Securities

In situations where we request that The Bank of New York Mellon, the depositary for the securities underlying the GDSs, ask GDS holders for voting instructions, the holders may instruct the depositary to exercise their voting rights, if any, pertaining to the deposited securities. The depositary will attempt, to the extent practical, to arrange to deliver voting materials to these holders. We cannot assure holders of GDSs that they will receive the voting materials in time to ensure that they can instruct the depositary how to vote the deposited securities underlying their GDSs, or that the depositary will be able to forward those instructions and the appropriate proxy request to the CPO Trustee in a timely manner. For stockholders’ meetings, if the depositary does not receive voting instructions from holders of GDSs or does not forward such instructions and appropriate proxy request in a timely manner, if requested in writing from us, it will provide a proxy to a representative designated by us to exercise these voting rights. If no such written request is made by us, the depositary will not represent or vote, attempt to represent or vote any right that attaches to, or instruct the CPO Trustee to represent or vote, the shares underlying the CPOs in the relevant meeting and, as a result, the underlying shares will be voted in the manner described under “Additional Information — Bylaws — Voting Rights and Stockholders’ Meetings — Holders of CPOs”. For CPO Holders’ meetings, if the depositary does not timely receive instructions from a Mexican or non-Mexican holder of GDSs as to the exercise of voting rights relating to the underlying CPOs in the relevant CPO holders’ meeting, the depositary and the custodian will take such actions as are necessary to cause such CPOs to be counted for purposes of satisfying applicable quorum requirements and, unless we in our sole discretion have given prior written notice to the depositary and the custodian to the contrary, vote them in the same manner as the majority of the CPOs are voted at the relevant CPOs holders’ meeting.

This means that holders of GDSs may not be able to exercise their right to vote and there may be nothing they can do if the deposited securities underlying their GDSs are not voted as they request.

The Interests of Our GDS Holders Will Be Diluted if We Issue New Shares and These Holders Are Unable to Exercise Preemptive Rights for Cash

Under Mexican law and our bylaws, our stockholders have preemptive rights. This means that in the event that we issue new Shares for cash, our stockholders will have a right to subscribe and pay the number of Shares of the same series necessary to maintain their existing ownership percentage in that series. U.S. holders of our GDSs cannot exercise their preemptive rights unless we register any newly issued Shares under the U.S. Securities Act of 1933, as amended, or the Securities Act, or qualify for an exemption from registration. If U.S. holders of GDSs cannot exercise their preemptive rights, the interests of these holders will be diluted in the event that we issue new Shares for cash. We intend to evaluate at the time of any offering of preemptive rights the costs and potential liabilities associated with registering any additional Shares. We cannot assure you that we will register under the Securities Act any new Shares that we issue for cash. In addition, although the Deposit Agreement provides that the depositary may, after consultation with us, sell preemptive rights in Mexico or elsewhere outside the U.S. and distribute the proceeds to holders of GDSs, under current Mexican law these sales are not possible. See “Directors, Senior Management and Employees — Stock Purchase Plan and Long-Term Retention Plan” and “Additional Information — Bylaws — Preemptive Rights”.

The Protections Afforded to Minority Stockholders in Mexico Are Different From Those in the U.S.

Under Mexican law, the protections afforded to minority stockholders are different from those in the U.S. In particular, the law concerning fiduciary duties of directors is not well developed, there is no procedure for class actions or stockholder derivative actions and there are different procedural requirements for bringing stockholder lawsuits. As a result, in practice, it may be more difficult for our minority stockholders to enforce their rights against us or our directors or major stockholders than it would be for stockholders of a U.S. company.

The Ley del Mercado de Valores, or the Mexican Securities Market Law, provides additional protection to minority stockholders, such as (i) providing stockholders of a public company representing 5% or more of the capital stock of the public company, an action for liability against the members and secretary of the Board and relevant management of the public company, and (ii) establishing additional responsibilities on the audit committee in all issues that have or may have an effect on minority stockholders and their interests in an issuer or its operations.

It May Be Difficult to Enforce Civil Liabilities Against Us or Our Directors, Executive Officers and Controlling Persons

We are organized under the laws of Mexico. Substantially all of our directors, executive officers and controlling persons reside outside the U.S., all or a significant portion of the assets of our directors, executive

 

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officers and controlling persons, and substantially all of our assets, are located outside of the U.S., and some of the parties named in this annual report also reside outside of the U.S. As a result, it may be difficult for you to effect service of process within the United States upon these persons or to enforce against them or us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the U.S. We have been advised by our Mexican counsel, Mijares, Angoitia, Cortés y Fuentes, S.C., that there is doubt as to the enforceability, in original actions in Mexican courts, of liabilities predicated solely on U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of U.S. federal securities laws.

Forward-Looking Statements

This annual report and the documents incorporated by reference into this annual report contain forward-looking statements. We may from time to time make forward-looking statements in reports to the Securities and Exchange Commission, or SEC, on Form 6-K, in annual reports to stockholders, in prospectuses, press releases and other written materials and in oral statements made by our officers, directors or employees to analysts, institutional investors, representatives of the media and others. Examples of these forward-looking statements include, but are not limited to:

 

   

projections of operating revenues, net income (loss), net income (loss) per CPO/share, capital expenditures, dividends, capital structure or other financial items or ratios;

 

   

statements of our plans, objectives or goals, including those relating to anticipated trends, competition, regulation and rates;

 

   

our current and future plans regarding our online and wireless content division, Televisa Interactive Media, or TIM;

 

   

statements concerning our current and future plans regarding our investment in the Spanish television channel Gestora de Inversiones Audiovisuales La Sexta, S.A., or La Sexta, and our investment in and other arrangements with Imagina Media Audiovisual S.L., or Imagina;

 

   

statements concerning our current and future plans regarding our arrangements with Netflix, Inc., or Netflix;

 

   

statements concerning our current and future plans regarding our investment in Grupo de Telecomunicaciones de Alta Capacidad, S.A.P.I. de C.V., or GTAC;

 

   

statements concerning our current and future plans regarding our gaming business;

 

   

statements concerning our current and future plans regarding the fixed telephony service provided by Empresas Cablevisión, S.A.B. de C.V., or Cablevisión;

 

   

statements concerning our transactions with Univision and our current and future plans regarding our investment in BMP, the parent company of Univision;

 

   

statements concerning our current and future plans regarding our investment in GSF, the controlling company of Iusacell;

 

   

statements concerning our series of transactions with DIRECTV, and News Corporation, or News Corp.;

 

   

statements concerning our transactions with NBC Universal’s Telemundo Communications Group, or Telemundo;

 

   

statements concerning our plans to build and launch a new transponder satellite;

 

   

statements about our future economic performance or statements concerning general economic, political or social conditions in the United Mexican States, or Mexico, or other countries in which we operate or have investments; and

 

   

statements or assumptions underlying these statements.

Words such as “believe”, “anticipate”, “plan”, “expect”, “intend”, “target”, “estimate”, “project”, “predict”, “forecast”, “guideline”, “may”, “should”, “will” and similar words and expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying these statements.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates

 

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and intentions expressed in these forward-looking statements. These factors, some of which are discussed under “Key Information — Risk Factors”, include economic and political conditions and government policies in Mexico or elsewhere, inflation rates, exchange rates, regulatory developments, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. You should evaluate any statements made by us in light of these important factors.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information, future developments or other factors.

 

Item 4. Information on the Company

History and Development of the Company

Grupo Televisa, S.A.B. is a sociedad anónima bursátil, or limited liability stock corporation, which was organized under the laws of Mexico in accordance with the Ley General de Sociedades Mercantiles, or Mexican Companies Law. Grupo Televisa was incorporated under Public Deed Number 30,200, dated December 19, 1990, granted before Notary Public Number 73 of Mexico City, and registered with the Public Registry of Commerce in Mexico City on Commercial Page (folio mercantil) Number 142,164. Pursuant to the terms of our estatutos sociales, or bylaws, our corporate existence continues through 2105. Our principal executive offices are located at Avenida Vasco de Quiroga, No. 2000, Colonia Santa Fe, 01210 México, D.F., México. Our telephone number at that address is (52) (55) 5261-2000.

Capital Expenditures

The table below sets forth our actual capital expenditures, permanent investments and acquisitions for the years ended December 31, 2009, 2010 and 2011 and our projected capital expenditures for the year ended December 31, 2012. For a discussion of how we intend to fund our projected capital expenditures, investments and acquisitions for 2011, as well as a more detailed description of our capital expenditures, investments and acquisitions in prior years, see “Operating and Financial Review and Prospects — Results of Operations — Liquidity, Foreign Exchange and Capital Resources — Liquidity” and “Operating and Financial Review and Prospects — Results of Operations — Liquidity, Foreign Exchange and Capital Resources — Capital Expenditures, Acquisitions and Investments, Distributions and Other Sources of Liquidity”.

 

     Year Ended December 31,(1)  
     2009
(Actual)
     2010
(Actual)
     2011
(Actual)
     2012
(Forecast)
 
     (Millions of U.S. Dollars)  

Capital expenditures(2)

   U.S.$ 499.3       U.S.$ 1,011.0       U.S.$ 791.0       U.S.$ 850.0   

La Sexta(3)

     49.0         29.2         —           —     

BMP(4)

     —           1,255.0         49.1         —     

GTAC(5)

     —           33.3         6.6         12.9   

Iusacell(6)

     —           —           1,602.5         —     

Other acquisitions and investments(7)

     10.5         —           51.4         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total capital expenditures and investments

   U.S.$     558.8       U.S.$     2,328.5       U.S.$     2,500.6       U.S.$     862.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Amounts in respect of some of the capital expenditures, investments and acquisitions we made in 2009, 2010 and 2011 were paid for in Mexican Pesos. These Mexican Peso amounts were translated into U.S. Dollars at the Interbank Rate in effect on the dates on which a given capital expenditure, investment or acquisition was made. As a result, U.S. Dollar amounts presented in the table immediately above are not comparable to: (i) data regarding capital expenditures set forth in “Key Information — Selected Financial Data”, which is presented in Mexican Pesos and, in the case of data presented in U.S. Dollars, is translated at a rate of Ps.13.9785 to one U.S. Dollar, the Interbank Rate as of December 31, 2011, and (ii) certain data regarding capital expenditures set forth under “Operating and Financial Review and Prospects — Results of Operations — Liquidity, Foreign Exchange and Capital Resources — Capital Expenditures, Acquisitions and Investments, Distributions and Other Sources of Liquidity”.

 

(2) Reflects capital expenditures for property, plant and equipment, in all periods presented. Includes U.S.$239.0 million in 2009, U.S.$438.5 million in 2010 and U.S. $406.1 million in 2011 for the expansion and improvement of our Cable and Telecom segment; U.S.$128.8 million in 2009, U.S.$436.6 million in 2010 and U.S. $241.6 million in 2011 for the expansion and improvement of our Sky segment; U.S.$17.5 million in 2009, U.S.$12.5 million in 2010 and U.S. $13.8 million in 2011 for our Gaming business; and U.S.$114.0 million in 2009, U.S.$123.4 million in 2010 and U.S. $129.5 million in 2011 for our Broadcasting Television segment and other businesses. The actual amount for 2010 includes an accrual of U.S.$111.0 million related to our investment in a new 24-transponder satellite that was launched in the first quarter of 2010, which was paid in cash in the first quarter of 2011. The forecast amount for 2012 totaling U.S.$850 million includes capital expenditures of U.S.$475 million and U.S.$250 million for the expansion and improvements of our Cable and Telecom and Sky segments, respectively, and the remaining U.S.$125 million is for our Television Broadcasting segment and other segments.

 

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(3) In 2009 we made capital contributions related to our 40.5% interest in La Sexta in the amount of U.S.$49 million (€35.7 million). In 2010, we made short-term loans related to our 40.5% in La Sexta in the principal amount of U.S.$29.2 million (€21.5 million). In the first quarter of 2011, we made a capital contribution related to our interest in La Sexta with the principal amount of the short-term loans made by us in 2010, and our interest in La Sexta increased from 40.5% to 40.8%. On December 14, 2011, we agreed to exchange our 40.8% equity interest in La Sexta for equity participations equivalent to 14.5% of the capital stock of Imagina, the indirect majority owner of La Sexta.

 

(4) In 2010, we made investments of U.S.$1,255.0 million in cash in BMP, the parent company of Univision, in exchange for a 5% equity stake of the outstanding common stock of BMP and U.S.$1,125 million aggregate principal amount of debentures due 2025 bearing interest at an annual rate of 1.5%, that are initially convertible at our option into additional shares currently equivalent to a 30% equity stake in the common stock of BMP, subject to certain conditions and regulations. In December 2011, we made an additional investment of U.S.$49.1 million in cash in common stock of BMP, the parent company of Univision, by which we increased our interest in BMP from 5% to 7.1%.

 

(5) In 2010, we made a capital contribution related to our 33.3% interest in GTAC in the amount of U.S.$4.3 million (Ps.54.7 million). Additionally, in 2010, we provided long-term financing to GTAC in the principal amount of U.S.$29.0 million (Ps.372.1 million) under a credit facility related to our interest in GTAC. In 2011, we provided financing to GTAC in connection with a long-term credit facility and our 33.3% interest in GTAC in the aggregate principal amount of Ps.87 million (U.S.$6.6 million). In 2012, we expect to provide financing to GTAC, in connection with a long-term credit facility in the aggregate principal amount of Ps.180 million (U.S.$12.9 million).

 

(6) In the second quarter of 2011, we made an investment of U.S.$37.5 million in equity and U.S.$1,565 million in convertible debt of Iusacell as described in the following sentences. Upon conversion of the debt, which is subject to the approval of the Mexican Antitrust Commission, our equity participation in Iusacell will be 50%. The convertible debt of Iusacell was divided into two tranches, the Series 1 Debentures and the Series 2 Debentures. The Series 1 Debentures are the 364,996 registered unsecured debentures of GSF, par value U.S.$1,000 each, representing in the aggregate U.S.$365.0 million, issued against the payment we made in cash on April 7, 2011. The Series 2 Debentures are the 1,200,000 registered unsecured debentures of GSF, par value U.S.$1,000 each, representing in the aggregate U.S.$1,200.0 million, which we paid in cash in multiple installments from April through October 2011. See “Key Information — Risk Factors — Risk Factors Related to Our Business — The Results of Operations of Broadcasting Media Partners, Inc. and GSF Telecom Holdings, S.A.P.I. de C.V., May Affect Our Results of Operations and the Value of Our Investments in Those Companies”.

 

(7) In 2009, we made investments in Volaris, the low-cost carrier airline in Mexico, for an aggregate amount of U.S.$5.0 million, and in other companies in which we hold a non-controlling interest for an aggregate amount of U.S.$5.5 million. In 2011, we made other permanent investments in the aggregate amount of Ps.713.6 million (U.S.$51.4 million). In the first half of 2011, we agreed with the other stockholders of Cablemás the terms for us to acquire all of their equity interest in Cablemás for an aggregate amount of U.S.$390.9 million (Ps.4,603.0 million), which was paid with cash and 24.8 million CPOs issued by us on April 29, 2011.

In March 2010, Sky reached an agreement with a subsidiary of Intelsat Corporation, or Intelsat, to lease 24 transponders on Intelsat IS-21 satellite for an estimated aggregate amount of U.S.$540 million (undiscounted), which will be mainly used for signal reception and retransmission services over the satellite’s estimated 15-year service life. IS-21 is intended to replace Intelsat IS-9 as Sky’s primary transmission satellite and is currently expected to start service in the third quarter of 2012. The lease agreement for 24 transponders on IS-21 contemplates a monthly payment of U.S.$3.0 million to be paid by Sky beginning in September 2012, and will be accounted for as a capital lease in our consolidated balance sheet.

In 2009, 2010 and 2011, we relied on a combination of operating revenues, borrowings and net proceeds from dispositions to fund our capital expenditures, acquisitions and investments. We expect to fund our capital expenditures in 2012 and potential investments and/or acquisitions going forward through a combination of cash from operations, cash on hand and/or borrowings. The amount of borrowings required to fund these cash needs in 2012 will depend upon the timing of cash payments from advertisers under our advertising sales plan.

Business Overview

Grupo Televisa, S.A.B., is the largest media company in the Spanish-speaking world based on its market capitalization and a major participant in the international entertainment business. We operate broadcast channels in Mexico and complement our network coverage through affiliated stations throughout the country. In 2011, our broadcast television channels had an average sign-on to sign-off audience share of 68.53%. We produce pay-TV channels with national and international feeds, which reach subscribers throughout Latin America, the United States, Canada, Europe and Asia Pacific. We export our programs and formats to television networks around the world. In 2011, we exported 73,165 hours of programming to approximately 56 countries, excluding the United States.

 

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We believe we are the most important Spanish-language magazine publisher in the world, as measured by circulation, with an annual circulation of approximately 132 million magazines publishing 172 titles in approximately 20 countries.

We own 58.7% of Sky, a DTH satellite television provider in Mexico, Central America and the Dominican Republic. We are also a shareholder in two Mexican cable companies, Cablevisión and Televisión Internacional, S.A. de C.V. and its subsidiaries, collectively TVI, and we have recently merged a third Mexican cable company, Cablemás, into the Company. We own 51% of Cablevisión and 50% of TVI. See “Business Strategy — Continue Building Our Pay Television Platforms — Cable”.

We also own Televisa.com as well as Esmas.com, one of the leading digital entertainment web portals in Latin America, a gaming business which includes bingo parlors, a 50% stake in a radio company that as of December 31, 2011 reached 75% of the Mexican population, a feature film production and distribution company, soccer teams and a stadium in Mexico.

We also own an unconsolidated equity stake in Ocesa Entretenimient, S.A. de C.V., or OCEN, one of the leading live entertainment companies in Mexico.

On December 14, 2011, we agreed to exchange our 40.7680% equity interest in La Sexta, a free-to-air television channel in Spain, for equity participations equivalent to 14.5% of the capital stock of Imagina, the indirect owner of the majority equity interest in La Sexta. The transaction consisted in a swap of La Sexta stock for equity participation of Imagina and involved no cash payments. The transaction closed on February 29, 2012.

In December 2010, we made a substantial investment in BMP, the parent company of Univision, the leading Spanish-language media company in the United States.

In April 2011, we made a substantial investment for the acquisition of equity and convertible debentures issued by GSF, which indirectly owns 100% of the outstanding shares of Iusacell. Iusacell is a provider of telecommunications services primarily engaged in providing mobile services throughout Mexico.

Business Strategy

We intend to leverage our position as a leading media company in the Spanish-speaking world to continue expanding our business while maintaining profitability and financial discipline. We intend to do so by maintaining our leading position in the Mexican television market, by continuing to produce high quality programming and by improving our sales and marketing efforts while maintaining high operating margins.

By leveraging all our business segments and capitalizing on their synergies to extract maximum value from our content, we also intend to continue expanding our pay-TV networks business, increasing our international programming sales worldwide and strengthening our position in the growing U.S.-Hispanic market. We also intend to continue developing and expanding Sky, our DTH platform. We will continue to strengthen our position in the cable and telecommunications industry in accordance with the consolidation of the cable market in Mexico, and we will also continue developing our publishing business and maintain our efforts to become an important player in the gaming industry.

We intend to continue to expand our business by developing new business initiatives and/or through business acquisitions and investments in Mexico, the United States and elsewhere.

Maintaining Our Leading Position in the Mexican Television Market

Continuing to Produce High Quality Programming. We aim to continue producing the type of high quality television programming that has propelled many of our programs to the top of the national ratings and audience share in Mexico. In 2010 and 2011, our networks aired 67% and 69%, respectively, of the 200 most-watched television programs in Mexico, according to IBOPE AGB Mexico. We have launched a number of initiatives in creative development, program scheduling and on-air promotion. These initiatives include improved production of our highly rated telenovelas, new comedy and game show formats and the development of reality shows and new series. We have improved our scheduling to be better aligned with viewer habits by demographic segment while improving viewer retention through more dynamic on-air graphics and pacing. We have enhanced tune-in promotion both in terms of creative content and strategic placement. In addition, we plan to continue expanding and leveraging our Spanish-language video library, rights to soccer games and other events, as well as cultural, musical and show business productions.

In April 2008, we began broadcasting more than 1,000 hours per year of NBC Universal’s Telemundo’s original programming on Channel 9. We currently, and through December 2013, pay Telemundo a fixed license fee for the

 

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broadcast of Telemundo’s programming on our Channel 9 Network. Beginning January 2014 we will pay Telemundo a license fee based on a percentage of all revenues generated from sales related to Telemundo programming. In addition, since 2010 we distribute, via Sky and Cablevisión, a new pay-TV channel in Mexico produced by Telemundo principally featuring Telemundo branded content. See “— Television — Programming — Foreign-Produced Programming”. As a result of the strategic alliance agreement entered into with Telemundo, we distribute Telemundo content in Mexico on an exclusive basis across multiple platforms including broadcast television, pay television and our emerging digital platforms. In October 2008, we entered into license agreements to distribute Telemundo’s original content through digital and wireless platforms in Mexico. As part of the agreements, Telemundo provides us with Telemundo’s original content, including its highly popular telenovelas currently broadcast on our Channel 9, on all of our digital platforms. Moreover, we also offer mobile wall papers, ring tones and text messaging services based on Telemundo branded content to mobile phone subscribers in Mexico through our mobile business unit Esmas Móvil, the leading mobile premium content provider in Mexico. The agreements complement and are part of the strategic alliance to distribute Telemundo’s original content in Mexico across multiple platforms, including broadcast television, pay-TV and emerging digital platforms.

Improving Our Sales and Marketing Efforts. Over the past few years we have improved our television broadcasting advertising sales strategy in the following ways:

(i) We have developed strategies for monetizing Televisa’s greatest asset, its content by, for example, increasing special events prices;

(ii) Although our sales force is organized in teams focusing on each of our divisions, we are working to create opportunities for our clients across our media assets;

(iii) We are emphasizing a performance-based compensation policy for sales people such that a larger portion of total compensation comprises variable incentives tied to year-end results; and

(iv) We are continuing to provide our customers with increased opportunities for product placement and branded entertainment.

Maintaining High Operating Segment Income Margins. Our television broadcasting operating segment income margins for 2010 and 2011 were 47.1% and 46.1%, respectively. We intend to continue maintaining high operating segment income margins in our content businesses by increasing revenues and controlling costs and expenses.

Advertising Sales Plan. Our sales force is organized into separate teams, each of which focuses on a particular segment of our business. We sell commercial time in two ways: upfront and scatter basis. Advertisers that elect the upfront option lock in prices for the upcoming year, regardless of future price changes. Advertisers that choose the upfront option make annual prepayments, with cash or short-term notes, and are charged the lowest rates for their commercial time, given the highest priority in schedule placement, and given a first option in advertising during special programs. Scatter advertisers, or advertisers who choose not to make upfront payments but rather advertise from time to time, risk both higher prices and lack of access to choice commercial time slots. We sell part of advertising to most of our customers on a fixed-price basis and to others at cost-per-thousand (CPT) rates. All advertisers are billed for actual minutes used; the amount billed depends on the calendar quarter, channel, and hour in which the spot is transmitted. Fixed prices are estimated based on the average rating of the time-band, and CPT clients are charged for the actual rating of the programs. Generally, we do not have commitments with advertisers to achieve a certain rating upon broadcast and, therefore, do not adjust prices if certain ratings are not met. For a description of our advertising sales plan, see “Operating and Financial Review and Prospects — Results of Operations — Total Segment Results — Advertising Rates and Sales”.

We currently sell a significant portion of our available television advertising time. We use the remaining portion of our television advertising time primarily to satisfy our legal obligation to the Mexican government to provide up to 18 minutes per day of our broadcast time between 6:00 a.m. and midnight for public service announcements and 30 minutes per day for public programming (referred to in this annual report as Official Television Broadcast Time), and our remaining available television advertising time to promote, among other things, our products. We sold approximately 57%, 63% and 54% of total available national advertising time on our networks during prime time broadcasts in 2009, 2010 and 2011, respectively, and approximately 47%, 50% and 44% of total available national advertising time during all time periods in 2009, 2010 and 2011 respectively. See “Operating and Financial Review and Prospects — Results of Operations — Total Segment Results — Television Broadcasting”.

 

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Continue Building Our Pay Television Platforms

DTH. We believe that Ku-band DTH satellite services offer an enhanced opportunity for expansion of pay television services into cable households seeking to upgrade reception of our broadcasting and in areas not currently serviced by operators of cable or multi-channel, multi-point distribution services. We own a 58.7% interest in Innova, or Sky, our venture with DIRECTV. Innova is a DTH company with services in Mexico, Central America and the Dominican Republic with approximately 4 million subscribers, of which 157,600 were commercial subscribers as of December 31, 2011.

Intelsat, our primary satellite service provider, has reported that its satellite IS-9 is estimated to have its end of life reduced to the last quarter of 2012, and that it anticipates a replacement satellite, IS-21, to start service in the third quarter of 2012.

In December 2007, Sky and Sky Brasil reached an agreement with Intelsat Corporation and Intelsat LLC to build and launch a new 24-transponder satellite, IS-16, for which service will be dedicated to Sky and Sky Brasil over the satellite’s estimated 15-year life. The satellite will provide back-up for both platforms, and will also double Sky’s current capacity. Sky plans to use this extra capacity for High Definition, or HD, and other value-added services. The satellite was manufactured by Orbital Sciences Corporation and was launched in the first quarter of 2010. For a description of our satellites, see “— Property, Plant and Equipment — Satellites”.

The key components of our DTH strategy include:

 

   

offering high quality programming, including rights to our four over-the-air broadcast channels, exclusive broadcasts of sporting events, such as the Pan American Games, selected matches of the Mexican Soccer League and the Spanish Soccer League, including La Liga and La Copa del Rey, the NFL Sunday Ticket, NBA Pass, MLB Extra Innings, the NHL, WTA, bullfighting from Spain, world equestrian games, marathons, diamond league, XFL, Carling Cup, Rolex World Cup Jumping and the largest coverage of the Mexican Baseball League (LMB);

 

   

capitalizing on our relationship with DIRECTV and local operators in terms of technology, distribution networks, infrastructure and cross-promotional opportunities;

 

   

capitalizing on the low penetration of pay-TV services in Mexico;

 

   

providing superior digital Ku-band DTH satellite services and emphasizing customer service quality;

 

   

providing competitive HD experience and expanding our programming offer; and

 

   

continuing to leverage our strengths and capabilities to develop new business opportunities and expand through acquisitions.

Pay Television Networks. Through our 21 pay-TV brands and 39 national and international feeds, we reached more than 29 million subscribers throughout Latin America, the United States, Canada, Europe and Asia Pacific in 2011. Our pay-TV channels include, among others, three music, four movie, seven variety and entertainment channels, and two sports channels, Televisa Deportes Network, or TDN, and TDN 2.0 (launched in January 2012), which offer 24-hour-a-day programming 365 days a year. The TDN sports content is provided pursuant to a license agreement with Barra Deportiva, S.A. de C.V., or Barra Deportiva. Barra Deportiva was incorporated in July 2009 and, at that time, we owned a 49% interest in such company. On December 20, 2011, we acquired the remaining 51% of Barra Deportiva, which, as a result, became a wholly-owned subsidiary of the Company. Our license agreement with Barra Deportiva is still in force after that transaction.

Cable. We are a shareholder in two Mexican cable companies, Cablevisión and TVI, and we have recently merged Cablemás into the Company. With a subscriber base of 727,235 cable television, or video subscribers (all of which were digital subscribers), as of December 31, 2011 and over 2.4 million homes passed as of December 31, 2011, Cablevisión, the Mexico City cable system in which we own a 51% interest, is one of the most important cable television operators in Mexico. As used in this annual report, “homes passed” refers to any residential homes or businesses that are prepared to be connected to cable television systems. For instance, each apartment located in a building that is prepared to be connected to cable television systems represents one home passed. It is generally understood that a home or business counts as a home passed when it can be connected to a cable network without additional extensions to the main transmission lines. Cablevisión’s strategy aims to increase its subscriber base, average monthly revenues per subscriber and penetration rate by:

 

   

continuing to offer high quality programming;

 

   

continuing to upgrade its existing cable network into a broadband bidirectional network;

 

   

maintaining its 100% digital service in order to stimulate new subscriptions, substantially reduce piracy and offer new value-added services;

 

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increasing the penetration of its high-speed and bidirectional internet access and other multimedia services as well as providing a platform to offer internet protocol, or IP, and telephony services;

 

   

continuing the roll out of advanced digital set-top boxes which allow the transmission of high definition programming and recording capability; and

 

   

continuing to leverage our strengths and capabilities to develop new business opportunities and expand through acquisitions.

Cablevisión has introduced a variety of new multimedia communications services over the past few years, such as interactive television and other enhanced program services, including high-speed internet access through cable modem as well as IP telephony. As of December 31, 2011, Cablevisión had 408,408 cable modem, or broadband subscribers compared to 299,157 at December 31, 2010. The growth we have experienced in Cablevisión has been driven primarily by the conversion of our system from analog to digital format. In addition, Cablevisión introduced video on demand, or VOD, services and, in May 2007, received governmental approval to introduce telephony services. In July 2007, Cablevisión began to offer IP telephony services in certain areas of Mexico City, and as of December 31, 2011, it had 251,340 IP telephone lines in service, or voice subscribers. As of December 31, 2011, Cablevisión offers the service in every area in which its network is bidirectional.

Cablemás operates in 50 cities. As of December 31, 2011, the Cablemás cable network served 1,085,173 cable television, or video subscribers, 466,827 high-speed internet, or broadband subscribers and 266,160 IP-telephony lines, or voice subscribers, with more than 3 million homes passed. In May 2008, we converted all of our convertible long term notes into 99.99% of the capital stock of Alvafig, S.A. de C.V., or Alvafig, the holding company of a 49% interest in the voting stock of Cablemás.

On April 1, 2011, we announced an agreement reached with the minority stockholder of Cablemás to obtain the 41.7% equity interest in Cablemás that we did not own. The acquisition of that equity stake resulted from a series of capital distributions, the capitalization of certain debt and receivables, and the subsequent merger of Cablemás into the Company in exchange for 24.8 million CPOs which were issued in connection with that transaction. The execution of the merger agreement between Cablemás and the Company was authorized at our stockholders’ meeting held on April 29, 2011, and regulatory approvals for the merger were obtained on February 24, 2011 and June 17, 2011.

In March 2006, our wholly-owned subsidiary, Corporativo Vasco de Quiroga, S.A. de C.V., or CVQ, acquired a 50% interest in TVI. TVI is a telecommunications company offering pay-TV, data and voice services in the metropolitan area of Monterrey and other areas in northern Mexico. As of December 31, 2011, TVI had 1.6 million homes passed, served 370,411 cable television, or video subscribers, 191,406 high-speed internet, or broadband subscribers and 132,360 telephone lines, or voice subscribers.

Our conversion of the convertible long term notes into 99.99% of the capital stock of Alvafig, and our acquisition by CVQ of a 50% interest in TVI, were authorized by the Mexican Antitrust Commission subject to compliance with certain conditions. Some of these conditions have already been met and others must continue to be complied with going forward. Such conditions include: (1) to make available, subject to certain conditions, our over-the-air channels to pay-TV operators on non-discriminatory terms (“must offer”) and (2) that our pay-TV platforms carry, upon request and subject to certain conditions, over-the-air channels operating in the same geographic zones where such pay-TV platforms provide their services (“must carry”). We believe that as of this date, such conditions have been complied with on a regular basis. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Mexican Antitrust Laws May Limit Our Ability to Expand Through Acquisitions or Joint Ventures”.

The cable market in Mexico continues to consolidate. We have and will continue to be interested in making further investments and/or acquisitions, directly or indirectly, of assets that will complement our telecommunications strategy, either through debt or equity instruments.

Expanding Our Publishing Business

With a total approximate circulation of 132 million magazines during 2011, we believe our subsidiary, Editorial Televisa, S.A. de C.V., or Editorial Televisa, is the most important Spanish-speaking publishing company in the world in number of magazines distributed. Editorial Televisa publishes 172 titles; 104 are wholly-owned and produced in-house and the 68 remaining titles are licensed from world renowned publishing houses, including Spanish language editions of some of the most prestigious brands in the world. Editorial Televisa distributes its titles to approximately 20 countries, including Mexico, the United States and countries throughout Latin America.

 

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We believe that Editorial Televisa leads at least 18 of the 20 markets in which we compete in terms of readership.

Increasing Our International Programming Sales Worldwide and Strengthening Our Position in the Growing U.S.-Hispanic Market

We license our programs to television broadcasters and pay-TV providers in the United States, Latin America, Asia, Europe and Africa. Excluding the United States, in 2011, we licensed 73,165 hours of programming in approximately 56 countries throughout the world. We intend to continue exploring ways of expanding our international programming sales.

In November 2005, the government of Spain granted a concession for a nationwide free-to-air analog television channel and two nationwide free-to-air digital television channels to La Sexta, a consortium that includes the Company. La Sexta began broadcasting in March 2006. During 2009, we made additional capital contributions to La Sexta of €35.7 million. During 2010, we made loans to La Sexta of €21.5 million, which were capitalized on January 31, 2011. On December 14, 2011, we agreed to exchange our 40.7680% equity interest in La Sexta for equity participations equivalent to 14.5% of the capital stock of Imagina, the indirect owner of the majority equity interest in La Sexta. The transaction consisted in a swap of La Sexta stock for equity participations of Imagina and involved no cash payments. The transaction was subject to certain conditions, all of which have been satisfied, and closed on February 29, 2012. As a result of the transaction, we became a shareholder of Imagina, one of the main providers of content and audiovisual services for the media and entertainment industry in Spain. Imagina was created in 2006 with the merger of Mediapro and Grupo Arbol. Imagina is a leading distributor of sports rights and is the current owner of the Spanish Soccer League distribution rights worldwide. Through Globomedia, part of the Grupo Arbol Companies, it is also a leading producer of series, dramas and comedies in Spain. Imagina is also a provider of satellite transmission services as well as “on location” production and post-production services for third parties. The terms of the agreement improve the potential for synergies between us and Imagina and opportunities to create value. The transaction also includes commercial agreements between the parties to explore collaboration in content production projects. Additionally, the transaction grants us certain rights of first refusal to acquire formats and audiovisual content, as well as transmission rights for sport events in certain territories. As part of the transaction, we named two directors of Imagina’s board, which is now composed of 12 members.

Also on December 14, 2011, in a separate transaction, La Sexta agreed to merge with Antena 3 Television, or A3TV, a publicly traded company on the Madrid Stock Exchange. A3TV is the second largest private television national network in Spain. Under the terms of the agreement, La Sexta will be merged into A3TV and La Sexta’s shareholders will receive up to a 14% equity stake in A3TV, a portion of which is conditioned on A3TV achieving certain profitability goals. This transaction is subject to certain conditions, which include obtaining all necessary regulatory approvals; however, we will not receive A3TV shares as a result of the equity exchange of our stock in La Sexta for the equity participation of Imagina described above. For a description of our arrangements with La Sexta and Imagina, see “— Investments — La Sexta and Imagina”.

The U.S.-Hispanic population, estimated to be 50.5 million, or approximately 16% of the U.S. population, according to U.S. Census estimates published in March 2011, is currently one of the fastest growing segments in the U.S. population, with the growth among Hispanics responsible for over half of the U.S. population gains between 2000 and 2010. The U.S. Census Bureau projects that the Hispanic population will be approximately 21% of the U.S. population by the year 2025. Hispanics are expected to account for U.S.$1.5 trillion of U.S. consumer spending, or 10.5% of the U.S. total disposable income, by 2015, outpacing the expected growth in total U.S. consumer expenditures.

We intend to leverage our unique and exclusive content, media assets and long-term associations with others to benefit from the growing demand for entertainment among the U.S.-Hispanic population.

We supply television programming for the U.S.-Hispanic market through Univision, the leading Spanish-language media company in the United States. In exchange for this programming, during 2009, 2010 and 2011, Univision paid us U.S.$143.0 million, U.S.$156.1 million and U.S.$224.9 million, respectively, in royalties. In December 2010, we completed a net cash investment of U.S.$1.2 billion in Univision and certain other transactions related to that investment and to the Program License Agreement, or PLA, between Televisa Internacional, S.A. de C.V. and Univision. In December 2011, we made an additional investment of U.S.$49.1 million in cash in common stock of BMP, the parent company of Univision, by which we increased our interest in BMP from 5% to 7.1%. For a description of our arrangements with Univision, see “— Univision”.

 

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Under a license agreement with Netflix, effective as of July 12, 2011, we make available to certain video-on-demand subscribers of Netflix, on a non-exclusive basis, around three thousand hours annually of telenovelas, series, and other general entertainment programming from our library for the territories of Mexico, Latin America and the Caribbean. As part of the agreement, current content will be made available to Netflix not earlier than one year after its broadcast through free-to-air television. This agreement increases our availability of programming in Latin America and the Caribbean, where Netflix launched subscription streaming at the end of 2011 and is an important first step of our plan to monetize our library of over fifty thousand hours of content via digital distribution.

Developing New Businesses and Expanding through Acquisitions

We plan to continue growing our gaming business which consists of bingo and sports books halls, and a national lottery. As of December 31, 2011, we had 20 bingo and sports books halls in operation, under the brand name “Play City”. In accordance with our permit, we plan to continue opening bingo and sports books halls. In addition, during 2007 we launched Multijuegos, an online lottery with access to a nationwide network of approximately 4,600 electronic terminals. The bingo and sports books halls and Multijuegos are operated under the Gaming Permit obtained from the Mexican Ministry of the Interior, to establish, among other things, up to 65 bingo and sports books halls and number draws throughout Mexico.

On August 30, 2009, we entered into a strategic alliance agreement with Genomma Lab Internacional, S.A.B. de C.V., or Genomma Lab, to sell and distribute personal care and over the counter pharmaceuticals in the United States and Puerto Rico. The strategic alliance operates through Televisa Consumer Products USA, or TCP, a company owned 51% by Televisa and 49% by Genomma Lab. The sale and distribution of Genomma Lab’s products is an integral part of the activities of TCP. As part of this alliance, on October 8, 2009, TCP entered into, among others, a commercial supply agreement with Genomma Lab. We make available our different media platforms in the United States and Puerto Rico to TCP, which provides Genomma Lab’s brands with significant advertising in the targeted markets corresponding to Genomma Lab’s business model. This will enable Genomma Lab to expand the extensive success of its brands beyond Mexico and Latin America by accessing a Hispanic market of approximately 50 million consumers with an estimated purchasing power of over $870 billion annually while leveraging Televisa’s reach and name recognition in the Hispanic market. The transaction closed on October 8, 2009 and we launched operations in March 2010. During 2010 and 2011, TCP sold and distributed Genomma Lab’s products such as over-the-counter, pharmaceutical and cosmetic products, and certain commemorative coins of Mexico’s 200 years as an independent nation.

On February 15, 2010, we entered into an Investment and Securities Subscription Agreement, or Investment Agreement, with NII Holdings, Inc., or NII, pursuant to which we agreed to invest U.S.$1.44 billion in cash for a 30% equity interest in Comunicaciones Nextel de Mexico, S.A. de C.V., or Nextel Mexico. Our investment and other transactions contemplated by the Investment Agreement were conditioned upon the consortium formed by Nextel Mexico and the Group being awarded licenses to use specified amounts of spectrum in the spectrum auctions held in Mexico during 2010, and other customary closing conditions. In October 2010, we and NII announced that we had mutually agreed to terminate the Investment Agreement and other related agreements.

On March 18, 2010, Grupo de Telecomunicaciones Mexicanas, S.A. de C.V., or Telefónica, Editora Factum, S.A. de C.V., or Editora Factum, a wholly-owned subsidiary of the Company, and Mega Cable, S.A. de C.V., or Megacable, agreed to jointly participate, through a consortium, in the public bid for a pair of dark fiber wires held by the Mexican Federal Electricity Commission, or CFE (Comisión Federal de Electricidad). On June 9, 2010, the SCT granted the consortium a favorable award in the bidding process for a 20 year contract for the lease of approximately 19,457 kilometers of dark fiber-optic capacity, along with a corresponding concession, granted on July 5, 2010, to operate a public telecommunications network using dense wavelength division multiplexing, or DWDM, technology. The consortium, through GTAC, in which each of Telefónica, Editora Factum and Megacable has an equal equity participation, paid Ps.883.8 million as consideration for the concession plus additional payments in an aggregate amount of Ps.79.4 million for nine additional network segments, in accordance with the terms of the public bid. GTAC established the first link for operations on June 30, 2011, in accordance with the terms and conditions of its concession. By February 2012, GTAC brought to operation 80% of 128 links nationwide, corresponding to phase 1 of the project, and since that date the network became fully operational. By April 15, 2012, the remaining 10 links were brought to operation. At the present time we have provided 91 services in a testing mode, which were invoiced on April 1, 2012. Additional owned backup routes are under construction. In order to achieve this, GTAC executed with its technological partner, Huawei Technologies Mexico, S.A. de C.V., a supply agreement for U.S.$15.6 million. The total investment made by GTAC in 2010 and 2011 was Ps.1.3 billion and Ps.290 million, respectively, and there will be further investments in 2012, in an approximate amount of Ps.600 million. This new fiber optic network will represent for us a new alternative to access data transportation services, increasing competition in the Mexican telecommunications market and therefore improving the quality of the services offered. The fiber optic network will aim to increase broadband internet access for businesses as well as households in Mexico.

 

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On April 7, 2011, we entered into a transaction pursuant to which CVQ, our wholly-owned subsidiary, acquired (i) the trust beneficiary rights to 1.093875% of the outstanding shares of GSF, which indirectly owns 100% of the outstanding shares of Iusacell for an aggregate purchase price of approximately U.S.$37.5 million; and (ii) Unsecured Convertible Debentures 2010 issued by GSF, or the GSF convertible debentures, which are mandatorily convertible into shares of stock of GSF, in an aggregate principal amount of approximately U.S.$365 million of the Series 1 tranche thereof and U.S.$1,200 million of the Series 2 tranche thereof, for an aggregate investment in the GSF convertible debentures of approximately U.S.$1,565 million. The trust beneficiary rights and the Series 1 Debentures were paid in cash on April 7, 2011, and the Series 2 Debentures were paid in cash in multiple installments during 2011. The trust beneficiary rights and the GSF convertible debentures were transferred to CVQ by México Media Investments S.L., or MMI, a single-stockholder corporation (sociedad unipersonal) organized in Spain.

We also agreed to make an additional payment of U.S.$400 million to Iusacell if cumulative earnings before interest, taxes, depreciation and amortization, or EBITDA, of Iusacell reaches U.S.$3,472 million any time from January 1, 2011 and up to December 31, 2015. Upon conversion of the GSF convertible debentures, CVQ will own 50% of the outstanding shares of stock of GSF and, indirectly, 50% of the outstanding shares of Iusacell, and we and Grupo Salinas Telecom, S.A. de C.V., or GSTelecom, the beneficial owner of the remaining 50% of the GSF stock, will have equal corporate governance rights. The mandatory conversion of the GSF convertible debentures is only subject to the approval of the Mexican Antitrust Commission.

On February 2, 2012, we were notified of the resolution by which the Mexican Antitrust Commission did not approve the conversion of the debentures into equity. On March 15, 2012 we filed an appeal before the Mexican Antitrust Commission requesting that it reverse its resolution and authorize the conversion. The appeal is currently under review by the authority, which has a deadline of 60 business days to issue a new resolution. In addition to the appeal, we will assess and pursue potential remedies provided by law, which may include, without limitation, other administrative or judiciary procedures. No assurance can be given that the result of the appeal or of any other proceedings will be favorable to us. See “Key Information — Risk Factors Related to Our Business — The Results of Operations of Broadcasting Media Partners, Inc. and GSF Telecom Holdings, S.A.P.I. de C.V., May Affect Our Results of Operations and the Value of Our Investments in Those Companies”.

Iusacell is a provider of telecommunications services primarily engaged in the provision of mobile services throughout Mexico. As of December 31, 2011, Iusacell had 5,406,000 mobile wireless subscribers. In addition, Iusacell holds and operates concessions for the 800 MHz band, which allow it to provide wireless cellular services in five adjacent regions in Central and Southern Mexico, and for the 1900 MHz band, which allow it to provide PCS wireless services nationwide. Iusacell also provides other telecommunications services, such as fixed-line telephony, broadband services and links leasing to corporate customers.

Iusacell offers mobile telephony services using the CDMA technology, which is the highest capacity digital technology available for the 800 MHz and 1900 MHz frequency bands. In 2007 and 2008, Iusacell upgraded its network in certain regions through the implementation of the EVDO-3G Rev A technology, which enables users to transfer data signals at high speeds of up to 3.1 megabits per second. In addition to its basic wireless mobile services, Iusacell also offers a broad range of other telecommunications services, including long distance telephony, wireless local telephony, and data transmission. In 2010, Iusacell completed the installation of a GSM/HSDPA+ network, which enables it to provide mobile telephony and high-speed data transmission services in Mexico’s nine cellular/PCS regions. As a result, Iusacell became the only mobile provider in Mexico to operate both CDMA2000 and GSM/HSPA+ technology networks.

Within its primary line of business, which is the provision of mobile telephony services, Iusacell competes with other cellular telephony and personal communication service providers in each of the markets in which it operates. Iusacell competes nationwide with Radiomóvil Dipsa, S.A. de C.V., a subsidiary of América Móvil, S.A.B. de C.V., which operates under the brand name “Telcel”. Telcel holds spectrum concessions and provides services throughout Mexico, and is the largest wireless operator in the country. Iusacell also competes nationwide with Telefónica Móviles de México, S.A. de C.V., which is the second largest wireless operator in Mexico and offers wireless services under the brand name “Movistar”, and with Comunicaciones Nextel de Mexico, S.A. de C.V., which offers wireless services under the “Nextel” brand name.

We plan to continue leveraging our strengths and capabilities to develop new business opportunities and expand through acquisitions in Mexico, the United States and elsewhere. Any such acquisition or investment could be funded using cash on hand, our equity securities and/or the incurrence of debt, and could be substantial in size. We are constantly seeking investment opportunities that complement our telecommunications strategy. We may identify and evaluate opportunities for strategic acquisitions of complementary businesses, technologies or companies. We may also consider joint ventures and other collaborative projects and investments.

 

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Television

Television Industry in Mexico

General. There are ten television stations operating in Mexico City and approximately 467 other television stations elsewhere in Mexico. Most of the stations outside of Mexico City retransmit programming originating from the Mexico City stations. We own and operate four of the ten television stations in Mexico City, Channels 2, 4, 5 and 9. These stations are affiliated with 220 repeater stations and 33 local stations outside of Mexico City. See “— Television Broadcasting”. We also own a station that has a digital subchannel that transmits in the English language on the California border. Our major competitor, TV Azteca, owns and operates Channels 7 and 13 in Mexico City, which we believe are affiliated with 84 and 92 stations, respectively, outside of Mexico City. Televisora del Valle de Mexico, S.A. de C.V., or Televisora del Valle de Mexico, owns the concession for CNI Channel 40, a UHF channel that broadcasts throughout the Mexico City metropolitan area. The Mexican government currently operates two stations in Mexico City, Channel 11, which has 19 repeater stations, and Channel 22. There are three local television stations affiliated with Channel 28, outside of Mexico City. There are also 15 independent stations outside of Mexico City which are unaffiliated with any other stations. See “— Television Broadcasting”.

We estimate that approximately 26.5 million Mexican households have television sets, representing approximately 91.0% of the total households in Mexico as of December 31, 2011. We believe that approximately 95.5% of all households in Mexico City and the surrounding area have television sets.

Ratings and Audience Share. All television ratings and audience share information included in this annual report relate to data supplied by IBOPE AGB Mexico, a privately owned market research firm based in Mexico City. IBOPE AGB Mexico is one of the 15 global branch offices of IBOPE. IBOPE AGB Mexico conducts operations in Mexico City, Guadalajara, Monterrey and 25 other Mexican cities with a population over 500,000, and the survey data provided in this annual report covers data collected from national surveys. IBOPE AGB Mexico reports that its television surveys have a margin of error of plus or minus 5%.

As used in this annual report, “audience share” for a period means the number of television sets tuned into a particular program as a percentage of the number of households watching over-the-air television during that period without regard to the number of viewers. “Rating” for a period refers to the number of television sets tuned into a particular program as a percentage of the total number of all television households. “Average audience share” for a period refers to the average daily audience share during that period, and “average rating” for a period refers to the average daily rating during that period with each rating point representing one percent of all television households. “Prime time” is 4:00 p.m. to 11:00 p.m., seven days a week, “weekday prime time” is 7:00 p.m. to 11:00 p.m., Monday through Friday, and “sign-on to sign-off” is 6:00 a.m. to midnight, seven days a week. The average ratings and average audience share for our television networks and local affiliates and programs relate to conventional over-the-air television stations only; cable services, multi-channel, multi-point distribution system and DTH satellite services, videocassettes and video games are excluded.

Programming

Programming We Produce. We produce a significant part of the Spanish-language television programming in the world. In 2009, 2010 and 2011, we produced approximately 71,300 hours, 74,900 hours and 79,100 hours, respectively, of programming for broadcast on our network stations and through our cable operations and DTH satellite ventures, including programming produced by our local stations.

We produce a variety of programs, including telenovelas, newscasts, situation comedies, game shows, reality shows, children’s programs, comedy and variety programs, musical and cultural events, movies and educational programming. Our telenovelas are broadcast either dubbed or subtitled in a variety of languages throughout the world.

Our programming also includes broadcasts of special events and sports events in Mexico promoted by us and others. Among the sports events that we broadcast are soccer games and professional wrestling matches. See “— Other Businesses — Sports and Show Business Promotions”. In 2009, we broadcast the 2009 Confederations Cup, the 2009 FIFA Beach Soccer World Cup, the 2009 CONCACAF Gold Cup, the 2009 FIFA Under-17 World Cup and the 2009 FIFA Under-20 World Cup. In 2010, we broadcast the UEFA Champions League, the 2010 FIFA World Cup South Africa, the 2010 FIFA Under-17 Women World Cup, the 2010 FIFA Under-20 Women World Cup and the 2010 UEFA Super Cup. In 2011, we broadcast the 2011 Guadalajara Pan American Games and acquired the rights to broadcast the 2012 London Olympic Games. We have also acquired the rights to broadcast the 2014 FIFA World Cup Brasil for the territory of Mexico and the rights to broadcast the 2018 FIFA World Cup Russia and the 2022 FIFA World Cup Qatar for Mexico and other territories in Latin America.

 

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Our programming is produced primarily at our 30 studios in Mexico City. We also operate 19 fully equipped remote control units. Some of our local television stations also produce their own programming. These local stations operate 43 studios and 34 fully equipped remote control units. See “— Television Broadcasting — Local Affiliates”.

Foreign-Produced Programming. We license and broadcast television programs produced by third parties outside Mexico. Most of this foreign programming is from the United States and includes television series, movies and sports events, including coverage of Major League Baseball games and National Football League games. Foreign-produced programming represented approximately 44%, 37% and 33% of the programming broadcast on our four television networks in 2009, 2010 and 2011, respectively. A substantial majority of the foreign-produced programming aired on our networks was dubbed into Spanish and was aired on Channels 4 and 5, with the remainder aired on Channel 9.

Talent Promotion. We operate Centro de Educación Artística, a school in Mexico City, to develop and train actors and technicians. We provide instruction free of charge, and a substantial number of the actors appearing on our programs have attended the school. We also promote writers and directors through a writers’ school as well as various contests and scholarships.

Television Broadcasting

We operate four television networks that can be viewed throughout Mexico on our affiliated television stations through Channels 2, 4, 5 and 9 in Mexico City. The following table indicates the total number of operating television stations in Mexico affiliated with each of our four networks, as well as the total number of local affiliates, as of December 31, 2011.

 

     Wholly
Owned
Mexico City
Anchor
Stations
     Wholly
Owned
Affiliates
     Majority
Owned
Affiliates
     Minority
Owned
Affiliates
     Independent
Affiliates
     Total
Stations
 

Channel 2

     1         123         2                 1         127   

Channel 4

     1                                         1   

Channel 5

     1         62                         4         67   

Channel 9

     1         15                         13         29   

Subtotal

     4         200         2                 18         224   

Border Stations

             1                                 1   

Local (Stations) Affiliates

             18                 1         14         33   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     4         219         2         1         32         258   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The programs shown on our networks are among the most watched television programs in Mexico. Based on IBOPE AGB Mexico surveys during 2009, 2010 and 2011, our networks aired 136, 134 and 137, respectively, of the 200 most watched television programs throughout Mexico and produced 16, 17 and 23, respectively, of the 25 most watched television programs in Mexico. Most of the remaining top 25 programs in those periods were soccer games and special feature films that were not aired on our networks.

The following charts compare the average audience share and average ratings during prime time hours, weekday prime time hours and from sign-on to sign-off hours, of our television networks as measured by the national audience, from January 2009 through December 2011, shown on a bimonthly basis.

 

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Average Audience Share

January 2009 — December 2011(1)

 

LOGO

 

(1) Source: IBOPE AGB Mexico.

 

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Average Ratings

January 2009 — December 2011(1)

LOGO

 

(1) Source: IBOPE AGB Mexico.

Channel 2 Network. Channel 2, which is known as “El Canal de las Estrellas”, or “The Channel of the Stars”, together with its affiliated stations, is the leading television network in Mexico and the leading Spanish-language television network in the world, as measured by the size of the audience capable of receiving its signal. Channel 2’s programming is broadcast 24 hours a day, seven days a week, on 127 television stations located throughout Mexico. The affiliate stations generally retransmit the programming and advertising transmitted to them by Channel 2 without interruption. Such stations are referred to as “repeater” stations. We estimate that the Channel 2 Network reaches approximately 26.1 million households, representing 98.3% of the households with television sets in Mexico. The Channel 2 Network accounted for a majority of our national television advertising sales in each of 2009, 2010 and 2011.

According to the Política Nacional para la Introducción de los Servicios de Televisión Digital Terrestre or the National Policy for the Introduction of Terrestrial Digital Television Services in Mexico dictated by the SCT, in May 2005, Mexico City’s Channel 2 obtained a license to transmit DTV services on Channel 48 as its second channel throughout the transition period from analog to digital television. Also, 20 repeaters of the Channel 2 Network located outside of Mexico City and along the border with the United States have obtained similar licenses. Since December 2005, these DTV stations have been in place and fully operational.

The following table shows the average audience share of the Channel 2 Network during prime time hours, weekday prime time hours and sign-on to sign-off hours for the periods indicated:

 

     Year Ended December 31,  
     2009(1)     2010(1)     2011(1)  

Prime time hours

     33.9     33.3     32.6

Weekday prime time hours

     36.6     37.9     35.7

Sign-on to sign-off hours

     31.7     30.8     30.4

 

(1) Source: IBOPE AGB Mexico.

 

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The Channel 2 Network targets the average Spanish-speaking family as its audience. Its programs include soap operas (telenovelas), news, entertainment, comedy and variety programs, movies, game shows, reality shows and sports. The telenovelas make up the bulk of the prime time lineup and consist of romantic dramas that unfold over the course of 120 to 200 half-hour episodes. Substantially all of Channel 2’s programming is aired on a first-run basis and virtually all of it, other than Spanish-language movies, is produced by us.

Channel 5 Network. In addition to its anchor station, Channel 5 is affiliated with 66 repeater stations located throughout Mexico. We estimate that the Channel 5 Network reaches approximately 24.2 million households, representing approximately 91.3% of households with television sets in Mexico. We believe that Channel 5 offers the best option to reach the 18-34 year old demographic, and we have extended its reach into this key group by offering new content.

According to the National Policy for the Introduction of Terrestrial Digital Television Services in Mexico dictated by the SCT, in September 2005, Mexico City’s Channel 5 obtained a license to transmit digital television, or DTV, services in Channel 50 as its second channel during the transition period. Also, fifteen repeaters of the Channel 5 Network have obtained a similar license. Since December 2005, these DTV stations have been in place and fully operational.

The following table shows the average audience share of the Channel 5 Network during prime time hours, weekday prime time hours and sign-on to sign-off hours during the periods indicated:

 

     Year Ended December 31,  
     2009(1)      2010(1)      2011(1)  

Prime time hours

     18.6%         16.9%         18.0%   

Weekday prime time hours

     17.1%         13.8%         14.4%   

Sign-on to sign-off hours

     20.3%         19.4%         20.1%   

 

(1) Source: IBOPE AGB Mexico.

We believe that Channel 5 has positioned itself as the most innovative television channel in Mexico with a combination of reality shows, sitcoms, dramas, movies, cartoons and other children’s programming. The majority of Channel 5’s programs are produced outside of Mexico, primarily in the United States. Most of these programs are produced in English. In 2011, we aired 27 of the 50 top-rated movies.

Channel 4 Network. Channel 4 broadcasts in the Mexico City metropolitan area and, according to our estimates, reaches over 5.8 million households, representing approximately 21.7% of television households in Mexico in 2011. As described above, as part of our plan to attract medium-sized and local Mexico City advertisers, we focused the reach of this network throughout Mexico and revised the format of Channel 4 to create 4TV in an effort to target viewers in the Mexico City metropolitan area. We currently sell local advertising time on 4TV to medium-sized and local advertisers at rates comparable to those charged for advertising on local, non-television media, such as radio, newspapers and billboards. However, by purchasing local advertising time on 4TV, medium-sized and local advertisers are able to reach a wider audience than they would reach through local, non-television media.

According to the National Policy for the Introduction of Terrestrial Digital Television Services in Mexico dictated by the SCT, in September 2005, Mexico City’s Channel 4 obtained a license to transmit DTV services in Channel 49 as its second channel during the analog to digital transition period. Since December 2005, this DTV station has been fully operational.

The following table shows the average audience share of the Channel 4 Network during prime time hours, weekday prime time hours and sign-on to sign-off hours during the periods indicated, including audience share for local stations:

 

     Year Ended December 31,  
     2009(1)      2010(1)      2011(1)  

Prime time hours

     6.2%         5.8%         5.7%   

Weekday prime time hours

     7.5%         6.5%         5.7%   

Sign-on to sign-off hours

     8.3%         8.0%         7.8%   

 

(1) Source: IBOPE AGB Mexico.

4TV targets young adults and stay-at-home parents. Its programs consist primarily of news, comedy, sports, and entertainment shows produced by us, as well as a late night home shopping program, foreign-produced series, mini-series and movies, which are dubbed or subtitled in Spanish. 4TV has succeeded in attracting a larger share of the Mexico City television audience by broadcasting two local newscasts relating to the Mexico City metropolitan area.

 

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Channel 9 Network. In addition to its anchor station, Channel 9 is affiliated with 28 repeater stations, approximately 38% of which are located in central Mexico. We estimate that Channel 9 reaches approximately 19.1 million households, representing approximately 72.1% of households with television sets in Mexico. Channel 9 broadcasts in 26 of the 27 cities other than Mexico City that are covered by national surveys.

According to the National Policy for the Introduction of Terrestrial Digital Television Services in Mexico dictated by the SCT, in October 2006, Mexico City’s Channel 9 obtained a license to transmit DTV services in Channel 44 as its second channel during the transition period. In addition, nine repeaters of the Channel 9 Network have obtained a similar license. Since January 2007, this DTV station has been operational. Also, as disclosed above, in April 2008, we began broadcasting Telemundo’s original programming on Channel 9.

The following table shows the average audience share of the Channel 9 Network during prime time hours, weekday prime time hours and sign-on to sign-off hours during the periods indicated:

 

     Year Ended December 31,  
     2009(1)      2010(1)      2011(1)  

Prime time hours

     11.2%         12.0%         10.6%   

Weekday prime time hours

     11.1%         12.3%         10.8%   

Sign-on to sign-off hours

     10.6%         11.3%         10.2%   

 

(1) Source: IBOPE AGB Mexico.

The Channel 9 Network targets families as its audience. Its programs principally consist of movies, sports, sitcoms, game shows, telenovelas produced by third parties, news and re-runs of popular programs from Channel 2. In April 2008, we began broadcasting more than 1,000 hours per year of Telemundo’s original programming on Channel 9. See “Business Strategy — Maintaining Our Leading Position in the Mexican Television Market — Continuing to Produce High Quality Programming”.

Local Affiliates. There are currently 33 local television stations affiliated with our networks, of which 18 stations are wholly owned, one station is minority owned and 14 stations are independent affiliated stations. These stations receive part of their programming from Channels 4 and 9. See “— Channel 4 Network”. The remaining programs aired consist primarily of programs licensed from our program library and locally produced programs. The locally produced programs include news, game shows, musicals and other cultural programs and programs offering professional advice. In 2009, 2010 and 2011, the local television stations owned by us produced 48,600 hours, 48,900 hours and 50,400 hours, respectively, of programming. Each of the local affiliates maintains its own sales department and sells advertising time during broadcasts of programs that it produces and/or licenses. Generally, we pay the affiliate stations that we do not wholly own a fixed percentage of advertising sales for network affiliation.

According to the National Policy for the Introduction of Terrestrial Digital Television Services in Mexico dictated by the SCT, nine of the 18 local stations wholly owned and the television station on the California border have obtained licenses to transmit DTV services in their service area during the transition period. These ten DTV stations are in place and fully operational.

Border Stations. We currently own XETV, or the Border Station, a Tijuana based television station which operates under a concession from the SCT from Mexico on the Mexico/U.S. border and broadcasts English-language programs pursuant to a permit granted by The Ministry of the Interior, which is renewed annually. The Border Station is affiliated with the Tijuana/San Diego market, under an affiliation agreement with The CW Network LLC, or CW Network. CW Network was formed as a joint venture between Warner Bros. Entertainment and CBS Corporation. The Border Station broadcasts under renewable permits issued by the FCC to the station and to CW Network, which authorize electronic cross-border programming transmissions. The Border Station is operated through a station operating agreement with Bay City Television, a U.S. corporation indirectly owned by us. The Border Station’s FCC cross-border permit was renewed on June 30, 2008 for a five-year term expiring on June 30, 2013. CW Network’s cross-border FCC permit became effective on August 8, 2008 for a five-year term and will expire on August 8, 2013.

Pay Television Networks. We produce or license a suite of Spanish and English-language television channels for pay-TV systems in Mexico, Latin America, the Caribbean, Asia, Europe, the United States, Canada and Australia. These channels include programming such as general entertainment, telenovelas, movies and music-related shows, interviews and videos. Some of the programming included in these channels is produced by us while other programming is acquired or commissioned from third parties. As of December 2011, we had over 29 million subscribers worldwide.

 

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In 2009, 2010 and 2011, we produced approximately 13,300 hours, 15,700 hours and 15,900 hours, respectively, of programming and videos, for broadcast on our pay-TV channels. The names and brands of our standard definition channels include: Telehit, Ritmoson Latino, Bandamax, De Película, De Película Clásico, Unicable, Golden, Golden Edge, Golden Latinoamérica, Canal de Telenovelas, Tiin, Canal de las Estrellas Latinoamérica, Canal de las Estrellas Europa, Canal 2 Delay-2hrs, Canal de las Estrellas Delay-1hr, Clasico TV, TDN and TDN 2.0. The brands of our high definition channels include: Golden HD, Telehit HD and De Película HD.

TuTv operates and distributes a suite of Spanish-language television channels in the United States. See “— Univision”. In addition to our investment in BMP in December 2010, we sold to Univision our entire interest in TuTv, our former venture with Univision, which represented 50% of TuTv’s capital stock, for an aggregate cash amount of U.S.$55 million. See “— Univision”.

Programming Exports. We license our programs and our rights to programs produced by other television broadcasters and pay-TV providers in the United States, Canada, Latin America, Asia, Europe and Africa. We collect licensing fees based on the size of the market for which the license is granted or on a percentage of the advertising sales generated from the programming. In addition to the programming licensed to Univision, we licensed approximately 65,449 hours, 74,209 hours and 73,165 hours of programming in 2009, 2010 and 2011, respectively. See “— Univision” and “Operating and Financial Review and Prospects — Results of Operations — Total Segment Results — Programming Exports”. As of December 31, 2011, we had 237,301 half-hours of television programming in our library available for licensing.

Expansion of Programming Reach. Our programs can be seen in the United States, Canada, Latin America, Asia, Europe and Africa. We intend to continue to expand our sales of Spanish-language programming internationally through pay-TV services.

SVOD Licensing. Under a license agreement with Netflix, effective as of July 12, 2011, we make available to certain video-on-demand subscribers of Netflix, on a non-exclusive basis, around three thousand hours annually of telenovelas, series, and other general entertainment programming from our library for the territories of Mexico, Latin America and the Caribbean. As part of the agreement, current content will be made available to Netflix not earlier than one year after its broadcast through free-to-air television. This agreement increases our availability of programming in Latin America and the Caribbean, where Netflix launched subscription streaming at the end of 2011 and is an important first step of our plan to monetize our library of over fifty thousand hours of content via digital distribution.

Publishing

We believe we are the most important publisher and distributor of magazines in Mexico, and of Spanish-language magazines in the world, as measured by circulation.

With a total circulation of approximately 132 million copies in 2011, we publish 172 titles that are distributed in approximately 20 countries, including the United States, Mexico, Colombia, Chile, Venezuela, Puerto Rico, Argentina, Ecuador, Peru and Panama, among others. See “— Other Businesses — Publishing Distribution”. Our main publications in Mexico include a weekly entertainment and telenovelas magazine, TV y Novelas, Vanidades, a popular bi-weekly magazine for women; Caras, a monthly leading lifestyle and socialite magazine; Eres, a monthly magazine for teenagers; Conozca Más, a monthly science and culture magazine; and Furia Musical, a monthly musical magazine that promotes principally Banda and Onda Grupera music performers. Our other main publications in Latin America and the United States include Vanidades, TV y Novelas U.S.A. and Caras.

We publish the Spanish-language edition of several magazines, including Cosmopolitan, Good Housekeeping, Harper’s Bazaar, Seventeen, and Esquire through a joint venture with Hearst Communications, Inc.; Maxim, pursuant to a license agreement with Alpha Media Group, Inc.; Marie Claire, pursuant to a license agreement with Marie Claire Album; Men’s Health and Prevention, Women’s Health and Runner’s World, pursuant to a license agreement with Rodale Press, Inc.; Sport Life and Automóvil Panamericano, as well as other special editions of popular automotive magazines, through a joint venture with Motorpress Iberica, S.A.; Muy Interesante and Padres e Hijos pursuant to a joint venture with GyJ España Ediciones, S.L.C. en C.; and Disney Princesas, Disney Winnie Pooh, Disney Hadas, Disney Cars, Disney Toy Story and Disney Junior, pursuant to a license agreement with Disney Consumer Products Latin America, Inc. We also publish a Spanish-language edition of National Geographic, National Geographic Traveler and of National Geographic Kids in Latin America and in the United States through a licensing agreement with National Geographic Society. In addition, we publish a Spanish-language edition of OK! pursuant to a license agreement with Northern & Shell Luxembourg Branch as well as several comics pursuant to a license agreement with Marvel Characters, B.V.

 

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During 2007, we acquired Editorial Atlántida, a leading publishing company in Argentina. Editorial Atlántida publishes a total of 19 magazines and operates a book publishing business, interactive websites, and numerous brand-extension projects.

During 2009, we launched three new titles, two of which were still published in 2011: Poder y Negocios Venezuela and Poder y Negocios Perú (no longer published since July 2011), which are wholly owned business titles.

During 2011, we launched several Disney-Marvel comic magazines in Mexico and Argentina pursuant to a license agreement with Disney Consumer Products Latin America, Inc., and Top Teens in Argentina, a wholly owned teenager monthly magazine.

Cable and Telecom

Cablevisión

The Cable Television Industry in Mexico. Cable television offers multiple channels of entertainment, news and informational programs to subscribers who pay a monthly fee. These fees are based on the package of channels they receive. See “— Digital Cable Television Services”. According to the SCT and Cofetel, there were approximately 1,100 cable concessions in Mexico as of September 30, 2011, serving approximately 5.56 million subscribers.

Mexico City Cable System. We own a 51% interest in Cablevisión, one of the most important cable television operators in Mexico, which provides cable television services to subscribers in Mexico City and surrounding areas. As of December 31, 2011, Cablevisión had 727,235 cable television, or video subscribers, all of which were digital subscribers. On March 27, 2009, the shareholders of Cablevisión approved the issuance of an additional 657,467,502 common shares and an increase in its capital stock for an amount of Ps.328,733,751.00 for which Ps.3,371,266,237.00 was paid as premium for the subscription of such capital increase. As of November 29, 2010 the shareholders of Cablevisión approved the issuance of an additional 573,132,441 common shares and an increase in its capital stock for an amount of Ps.286,566,220.50 for which Ps.2,713,433,779.50 was paid as premium for the subscription of such capital increase. These capital increases did not change our percentage ownership in Cablevisión. CPOs, each representing two series A shares and one series B share of Cablevisión, are traded on the Bolsa Mexican de Valores, or Mexican Stock Exchange, under the ticker symbol “CABLE”.

Digital Cable Television Services. Cablevisión was the first multi-system operator in Mexico to offer an on-screen interactive programming guide, video on demand, high definition channels as well as Motorola and TiVo® DVR services throughout Mexico City. Along with its digital cable service, Cablevisión also offers high speed internet and a competitive digital telephone service in a 100% bundled portfolio. Through its world class network, Cablevisión is able to distribute high quality video content, unique video services, last generation interactivity with “Cablevisión On Demand”, 1080i high definition, impulse and order pay-per-view, a-la-carte programming, among other products and services, with added value features and premium solutions for consumers. Cablevisión’s 100% digital cable service offers six main programming packages which as of January 31, 2012 ranged in price from Ps.169.00 to Ps.679.00 (VAT included), and included up to 290 linear channels: 209 video channels (including 10 over-the-air channels, Fox, ESPN, CNN International, HBO, Disney Channel, TNT, and others), 56 audio channels and 9 pay-per-view channels.

Video-on-Demand and Pay-Per-View Channels. Cablevisión currently offers its Video-On-Demand platform as well as 9 pay-per-view cable television channels in each of its digital service packages. The Video-On-Demand Service and the pay-per-view channels show films and special events programs, including sports and musical events among other content.

Cablevisión Television Revenues. Cablevisión’s revenues are generated from subscriptions for its cable services and from sales of advertising to local and national advertisers. Subscriber revenues come from monthly service and rental fees and, to a lesser extent, one-time installation fees. As of January 31, 2012, its current monthly service fees range in price from Ps.169.00 to Ps.679.00. See “— Digital Cable Television Services”. The Mexican government does not currently regulate the rates Cablevisión charges for its basic and digital premium service packages, although we cannot assure you that the Mexican government will not regulate Cablevisión’s rates in the future. If the SCT were to determine that the size and nature of Cablevisión’s market presence was significant enough so as to have an anti-competitive effect, then the SCT could regulate the rates Cablevisión charges for its various services.

 

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Cablevisión Television Initiatives. Cablevisión plans to continue offering the following multimedia communications services to its subscribers:

 

   

enhanced programming services, including video games, video on demand, high definition, impulse pay per view;

 

   

Broadband internet services; and

 

   

IP telephony services.

In May 2007, Cablevisión received a concession to offer fixed telephony services through its network. In July 2007, Cablevisión began to offer IP telephony services in certain areas of Mexico City and by the end of 2011 offered the service in every area in which its network is bidirectional, which represents 99.09% of its total network.

In order to provide these multimedia communications services, Cablevisión requires a cable network with bi-directional capability operating at a speed of at least 750 MHz and a digital set-top box. In order to provide these new services, Cablevisión is in the process of upgrading its existing cable network. Cablevisión’s cable network currently consists of more than 19,800 kilometers with over 2.4 million homes passed. In 2011, Cablevisión expanded its network by over 2,600 kilometers. As of December 31, 2011, 2.78% of Cablevisión’s network runs at 450 MHz, approximately 0.96% of its network runs at 550 MHz, approximately 3.10% of its network runs at 750 MHz, approximately 11.06% runs at 870 MHz, approximately 82.10% of its network runs at 1 GHz, and approximately 99.09% of its network has bidirectional capability.

Cablemás.

Cablemás Cable System. Cablemás operates in 50 cities. As of December 31, 2011, the Cablemás cable network served 1,085,173 cable television, or video subscribers, 466,827 high-speed internet, or broadband subscribers and 266,160 IP-telephony lines, or voice subscribers, with more than 3 million homes passed.

As of December 31, 2011, Cablemás’ cable network consisted of 18,066 kilometers of cable. Cablemás is in the final stage of converting its existing cable network into a broadband bidirectional network, operating from 550MHz to 860MHz with the ability to transmit video, data and voice at high-speeds. As of December 31, 2011, 94.7% of Cablemás’ cable network had bidirectional capability, of which 95.8% was operating at or greater than 550 MHz and 88.2% was operating at or greater than 750 MHz.

Cablemás Revenues. Cablemás has experienced strong organic growth due to successful implementation of its business strategy, introduction of new products and services and wide acceptance of its bundling offerings.

Cablemás’ overall strategy is to increase its penetration levels in each of its markets, through greater value-added services in pay TV, in its active participation in the consolidation of the industry, and through the continued and successful roll-out of Triple-Play services. Cablemás considers itself one of the fastest growing cable television companies in Mexico. Its installed network and its access to subscribers’ homes provide opportunities to achieve sales of inter-related services, including video, data (internet) and telephony, as demand for value-added packages develops.

Cablemás’ investments to increase its networks’ bandwidth and make them bidirectional have allowed it to provide additional products which have enhanced its product offerings. These include:

 

   

Digital signal, Video-on-Demand, and high-definition programming among others, for cable television;

 

   

Broadband internet services; and

 

   

IP telephony services.

These additional products have allowed Cablemás to increase the average revenue generated per subscriber at no substantial incremental cost and at an economic advantage to consumers.

Cablemás Services. Since its beginning as a cable system concessionaire Cablemás has grown to offer cable television services, high-speed internet access and telephony services. As of January 31, 2012, Cablemás offers three types of video packages to its customers, which include: “Minibasic” (U.S.$13.24), “Basic” (U.S.$27.11) and “Plus” (basic rate plus up to U.S.$38.14). Cablemás packages include up to 130 video channels. In addition, Cablemás offers high speed internet services ranging from 2 Mbps (U.S.$14) to 100 Mbps (U.S.$148) and telephony services, including unlimited local calls and 30 cell phone minute packages (U.S.$14).

 

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TVI. In March 2006, our subsidiary CVQ acquired a 50% interest in TVI, a telecommunications company offering pay-TV, data and voice services in the metropolitan area of Monterrey and other areas in northern Mexico.

As of December 31, 2011, TVI had 1.6 million homes passed, served 370,411 cable television, or video subscribers, 191,406 high-speed internet, or broadband subscribers and 132,360 telephone lines, or voice subscribers.

Bestel. In December 2007, our indirect majority-owned subsidiary, Cablestar, S.A. de C.V., or Cablestar, completed the acquisition of shares of companies owning the majority of the assets of Letseb, S.A. de C.V. and its subsidiaries and Bestel (USA), Inc., collectively Bestel, a privately held, facilities-based telecommunications company in Mexico, for U.S.$256.0 million in cash plus an additional capital contribution of U.S.$69.0 million. In connection with the financing of the acquisition of the majority of the assets of Bestel, Cablevisión, Cablemás and TVI, which as of December 2007, held 69.2%, 15.4% and 15.4% of the equity stock of Cablestar, respectively, each entered into five year term loan facilities for U.S.$225.0 million, U.S.$50.0 million and U.S.$50.0 million, respectively. In June 2009, the Company acquired TVI’s indebtedness under the above mentioned term loan facility. In July 2009, the Company exchanged its loan balance in connection with such credit facility for the 15.4% interest TVI held in Cablestar. In November 2010 and March 2011, Cablemás and Cablevisión prepaid in full the outstanding balance of the U.S.$50.0 million and U.S.$225.0 million term loan facilities, respectively. Bestel provides voice, data, and managed services to domestic and international carriers and to the enterprise, corporate, and government segments in Mexico. Through Bestel (USA), Inc., Bestel provides cross-border services to U.S. carriers including internet protocol, or IP, transit, collocation, international private lines, virtual private networks, or VPNs, and voice services, as well as access to the Internet backbone via TIER 1 and TIER 2. Bestel owns a fiber-optic network of approximately 8,000 kilometers that covers several important cities and economic regions in Mexico and has direct crossing of its network into Dallas, Texas, Nogales, Arizona, and San Diego, California in the United States. This enables the company to provide high capacity connectivity between the United States and Mexico.

Other Businesses

Publishing Distribution. We estimate that we distribute approximately 50%, in terms of volume, of the magazines circulated in Mexico through our subsidiary, Distribuidora Intermex, S.A. de C.V., or Intermex. We believe that our distribution network reaches over 300 million Spanish-speaking people in approximately 20 countries, including Mexico, Colombia, Chile, Argentina, Ecuador, Peru and Panama. We also estimate that our distribution network reaches over 40,000 points of sale in Mexico and over 75,000 points of sale outside of Mexico. We also own publishing distribution operations in six countries. Our publications are also sold in the United States, the Caribbean and elsewhere through independent distributors. In 2009, 2010 and 2011, 62.2%, 63.3% and 62.6%, respectively, of the publications distributed by our company were published by our Publishing division. In addition, our distribution network sells a number of publications published by joint ventures and independent publishers, as well as DVD’s, calling cards, sticker albums, novelties and other consumer products.

Televisa Interactive Media. TIM is the Company’s online and wireless content division. This venture includes Esmas and Televisa.com, our Spanish-language horizontal internet portals; Esmas Móvil, our mobile value added service unit; and Tvolucion.com, our online video on demand streaming service. TIM leverages the Company’s and third party premium and extensive Spanish-language content, including news, sports, business, music and entertainment, editorials, life and style, technology, health, kids and an opinion survey channel, and offers a variety of services, including search engines, chat forums, and news bulletins.

With a wide range of content channels, online and mobile services, and more than 401 million page views per month and more than 13 million monthly unique users in 2011, we believe that TIM has positioned itself as one of the leading digital entertainment portals in Mexico and Hispanic territories. Currently, 70% of TIM’s page views come from Mexico and the rest comes from the U.S. and Latin America.

In October 2008, we entered into license agreements to distribute Telemundo’s original content through digital and wireless platforms in Mexico. As part of the agreements, Telemundo provides us with original content, including its highly popular telenovelas currently broadcast on our Channel 9, on all of our digital platforms including Esmas.com. Moreover, Televisa also offers mobile wall papers, ring tones and text messaging services based on Telemundo branded content to mobile phone subscribers in Mexico through our mobile business unit Esmas Móvil, the leading mobile premium content cell phone provider in Mexico. The agreements complement and are part of the strategic alliance to distribute Telemundo’s original content in Mexico across multiple platforms, including broadcast television, pay-TV and emerging digital platforms.

 

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Since April 2004, Esmas.com has been offering premium content service to mobile phones while leveraging the cell phone networks in Mexico, the U.S. and Latin America. In 2011, Esmas Móvil sent more than 13 million premium messages to approximately 1.5 million mobile subscribers. Most of the content demanded by users consists of news and sports text alerts, interactive TV promotions, lotteries, wallpapers games and music. We believe that due to the Mexican public’s affinity for the high quality and wide range of our programming content, TIM has become one of the leading premium content mobile service providers in Mexico and in Latin America.

Sports and Show Business Promotions. We actively promote a wide variety of sports events and cultural, musical and other entertainment productions in Mexico. Most of these events and productions are broadcast on our television stations, cable television system, radio stations and DTH satellite services. See “— Television — Programming”, “— Cable and Telecom — Digital Cable Television Services”, “— Cable and Telecom — Video-on-Demand and Pay-Per-View Channels”, “— Radio Stations”, and “— DTH Ventures”.

Soccer. We have title to some of Mexico’s professional soccer teams. Some of these teams currently play in the Mexican First Division and are among the most popular and successful teams in Mexico. Each team plays two tournaments of 17 games per regular annual season. The best teams of each regular season engage in post-season championship play.

We own the Azteca Stadium which has a seating capacity of approximately 105,000 people. Azteca Stadium has hosted two World Cup Soccer Championships. In addition, América and the Mexican National Soccer team generally play their home games at this stadium. We have exclusive rights to broadcast the home games of certain Mexican First Division soccer teams.

Promotions. We promote a wide variety of concerts and other shows, including beauty pageants, song festivals and nightclub shows of popular Mexican and international artists.

Feature Film Production and Distribution. We produce first-run Spanish-language feature films, some of which are among Mexico’s top films based on box office receipts. We co-produced one feature film in 2009, none in 2010 and one feature film in 2011. We have previously established co-production arrangements with Mexican film production companies, as well as with major international companies such as Miravista, Warner Bros., Plural Entertainment and Lions Gate Films. We will continue to consider entering into co-production arrangements with third parties in the future, although no assurance can be given in this regard.

We distribute our films to Mexican movie theaters and later release them on video for broadcast on cable and network television. In 2009 we released Cabeza de Buda, one of our coproduced feature films, through movie theaters, in 2010 we did not release any feature films, and in 2011 we released Así es la Suerte, one of our co-produced feature films. We also distribute our feature films outside of Mexico.

We distribute feature films produced by non-Mexican producers in Mexico. Under an agreement with Warner Bros., we were the exclusive distributor in Mexico of their feature films from January 1, 1999, until December 31, 2009. As of January 1, 2010, Warner Bros decided to grant the distribution rights of its films in Mexico to Universal Pictures. In 2009, 2010, 2011 and up to February 29, 2012, we distributed 40, 19, 17 and 2 feature films, respectively, including several U.S. box office hits. We also distribute independently produced non-Mexican and Mexican films in Mexico, the United States and Latin America.

At December 31, 2011, we owned or had rights to approximately 259 Spanish-language theatrical films, 119 theatrical films in other languages, 25 Spanish-language video titles and 27 video titles in other languages. Many of these films and titles have been shown on our television networks, cable system and DTH services.

Gaming Business. In 2006, we launched our gaming business which consists of bingo and sports books halls, and a national lottery. As of December 31, 2011, we had 20 bingo and sports books halls in operation, under the brand name “Play City”. In accordance with our Gaming Permit, we plan to continue opening bingo and sports books halls. In addition, during 2007 we launched Multijuegos, an online lottery with access to a nationwide network of approximately 4,600 electronic terminals. The bingo and sports books halls and Multijuegos are operated under the Gaming Permit obtained from the Mexican Ministry of the Interior, to establish, among other things, up to 65 bingo and sports books halls and number draws throughout Mexico.

Radio Stations. Our radio business, Sistema Radiópolis, S.A. de C.V., or Radiópolis, is operated under a joint venture with Grupo Prisa, S.A., a leading Spanish communications group. Under this joint venture, we hold a controlling 50% full voting stake in this subsidiary and we have the right to appoint the majority of the members of the joint venture’s board of directors. Except in the case of matters that require unanimous board and/or stockholder approval, such as extraordinary corporate transactions, the removal of directors and the amendment of the joint venture’s organizational documents, among others, we control the outcome of most matters that require board of directors and/or stockholder approval. We also have the right to appoint Radiópolis’ Chief Financial Officer. The election of Radiópolis’ Chief Executive Officer requires a unanimous vote from the joint venture’s board of directors.

 

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Radiópolis owns and operates 17 radio stations in Mexico, including three AM and three FM radio stations in Mexico City, five AM and two FM radio stations in Guadalajara, one AM station in Monterrey, one FM radio station in Mexicali, one AM/FM combination station in San Luis Potosí and one AM/FM combination station in Veracruz. Some Radiópolis stations transmit powerful signals which reach beyond the market areas they serve. For example, XEW-AM and XEWA-AM transmit signals that under certain conditions may reach the southern part of the United States. XEW-AM may also reach most of southern Mexico. In June 2004, Radiópolis entered into an agreement with Radiorama, S.A. de C.V., or Radiorama, one of Mexico’s leading radio networks, which has added as of December 31, 2011, 38 affiliate stations (10 AM, 11 FM and 17 combination stations) to Radiópolis’ existing network, expanding its total network, including owned and operated and affiliate stations, to 103 stations (including 43 combination stations). After giving effect to the transaction with Radiorama, we estimate that Radiópolis’ radio stations reach 29 states in Mexico. Our programs aired through our radio stations network reach approximately 75 percent of Mexico’s population. We plan to continue to explore ways to expand the reach of our radio programming and advertising through affiliations with third parties and through acquisitions.

According to Investigadores Internacionales Asociados, S.C., or INRA, in 2009, 2010 and 2011, XEW-AM ranked, on average, thirteenth, thirteenth and eleventh, respectively, among the 33 stations in the Mexico City metropolitan area AM market, XEQ-FM, ranked, on average, seventh, third and second, respectively, among the 30 stations in the Mexico City metropolitan area FM market, and XEBA ranked, on average, second, second and third, respectively, among 25 stations in the Guadalajara City metropolitan FM market. INRA conducts daily door-to-door and automobiles interviews in the Mexico City metropolitan area to determine radio listeners’ preferences. Outside Mexico City, INRA conducts periodic surveys. We believe that no other independent surveys of this nature are routinely conducted in Mexico.

Our radio stations use various program formats, which target specific audiences and advertisers, and cross-promote the talent, content and programming of many of our other businesses, including television, sports and news. We produce some of Mexico’s top-rated radio formats, including W Radio (News-talk), TD W (Sports), Ke Buena (Mexican music), 40 Principales (Pop music) and Besame Radio (Spanish ballads). W Radio, Ke Buena and 40 Principales formats are also broadcast through the internet.

The successful exclusive radio broadcasting of the 2011 Pan American Games and the 2010 Soccer World Cup placed Radiópolis among the highest rating sports-broadcasting radio stations in Mexico.

During the last five years, Radiópolis has organized 20 massive live musical events with leading artists in both musical formats, gathering an attendance of approximately 65,000 people during the last two events, which were performed at the Estadio Azteca in Mexico City. The events organized by Radiópolis have become among the most popular music-related events among the musical radio stations in Mexico.

We sell both national and local advertising on our radio stations. Our radio advertising sales force sells advertising time primarily on a scatter basis. See “— Business Strategy — Maintaning our Leading Position in the Mexican Television Market — Advertising Sales Plan”. In addition, we use some of our available radio advertising time to satisfy our legal obligation to the Mexican government to provide up to 35 minutes per day of our broadcast time, between 6:00 a.m. and midnight for public service announcements, and 30 minutes per day for official programming (referred to in this annual report as “Official Radio Broadcast Time”).

Investments

OCEN. We own a 40% stake in OCEN, a subsidiary of CIE, which owns all of the assets related to CIE’s live entertainment business unit in Mexico. OCEN’s business includes the production and promotion of concerts, theatrical, family and cultural events, as well as the operation of entertainment venues, the sale of entrance tickets (under an agreement with Ticketmaster Corporation), food, beverages and merchandising, and the booking and management of Latin artists. OCEN also promotes the largest racing series in the country (NASCAR Mexico) and special events related to athletic and sporting competitions (in 2011 OCEN organized and operated the 2011 Pan-American Games in Guadalajara).

During 2009, 2010 and 2011, OCEN promoted more than 4,497, 3,891 and 4,334 events, respectively, and managed 15 entertainment venues in Mexico City, Guadalajara and Monterrey, providing an entertainment platform that established OCEN as a principal live entertainment company in Mexico.

 

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During 2011, 22.89 million entrance tickets were sold by OCEN’s subsidiary Ticketmaster, compared to 18.64 million in 2010.

Mutual Fund Venture. On June 22, 2010, we sold our 40.84% interest in Más Fondos to Profie Mexicana, S.A. de C.V., our former partner in this venture. On March 24, 2011, the CNBV authorized that sale.

Volaris. In October 2005, we acquired a 25% interest in Controladora Vuela Compañía de Aviación, S.A. de C.V. and in Concesionaria Vuela Compañía de Aviación, S.A. de C.V., (jointly, “Vuela”). In July 2010, we sold our equity stake in Vuela, which in the aggregate represented a participation interest of 25% in Volaris, the company that operates the airline “Volaris”.

La Sexta and Imagina. In November 2005, the government of Spain granted a concession for a nationwide free-to-air analog television channel and two nationwide free-to-air digital television channels to La Sexta, a consortium that includes the Company. La Sexta began broadcasting in March 2006. During 2009, we made additional capital contributions to La Sexta of €35.7 million. During 2010, we made loans to La Sexta of €21.5 million which were capitalized on January 31, 2011.

On December 14, 2011, we agreed to exchange our 40.7680% equity interest in La Sexta for equity participations equivalent to 14.5% of the capital stock of Imagina, the indirect owner of the majority equity interest in La Sexta. The transaction consists in a swap of La Sexta stock for equity participations of Imagina and involves no cash payments. The transaction was subject to certain conditions, all of which have been satisfied, and closed on February 29, 2012. As a result of the transaction, we became a shareholder of Imagina, one of the main providers of content and audiovisual services for the media and entertainment industry in Spain. Imagina was created in 2006 with the merger of Mediapro and Grupo Arbol. Imagina is a leading distributor of sports rights and is the current owner of the Spanish Soccer League distribution rights worldwide. Through Globomedia, part of the Grupo Arbol Companies, it is also a leading producer of series, dramas and comedies in Spain. Imagina is also a provider of satellite transmission services as well as “on location” production and post-production services for third parties.

The terms of the agreement improve the potential for synergies between us and Imagina and opportunities to create value. The transaction also includes commercial agreements between the parties to explore collaboration in content production projects. Additionally, the transaction grants us certain rights of first refusal to acquire formats and audiovisual content, as well as transmission rights for sport events in certain territories. As part of the transaction, we named two directors of Imagina’s board, which is now composed of 12 members.

Also on December 14, 2011, in a separate transaction, La Sexta agreed to merge with A3TV, a publicly traded company on the Madrid Stock Exchange. A3TV is the second largest private television network in Spain. Under the terms of the agreement, and subject the transaction being approved, La Sexta will be merged into A3TV and La Sexta’s shareholders will receive up to a 14% equity stake in A3TV, a portion of which is conditioned on A3TV achieving certain profitability goals. The transaction is subject to certain conditions, which include obtaining all necessary regulatory approvals. However, we do not receive A3TV shares as a result of the swap transaction described above.

Alvafig. In May 2008, we converted all of the convertible long-term notes into 99.99% of the capital stock of Alvafig, the holding company of a 49% interest in the voting stock of Cablemás. The conversion was authorized by the Mexican Antitrust Commission subject to compliance with certain conditions. The initial two conditions imposed by the Mexican Antitrust Commission were: (1) to make available, subject to certain conditions, our over-the-air channels to pay-TV operators on non-discriminatory terms (“must offer”) and (2) that our pay-TV platforms carry upon request and subject to certain conditions, over-the-air channels operating in the same geographic zones where such pay-TV platforms provide their services (“must carry”). There were other conditions that have been met as confirmed by the Mexican Antitrust Commission, including the termination of the Stockholder Trust which took place on June 17, 2009.

On April 1, 2011, we announced an agreement reached with the minority stockholder of Cablemás to obtain the 41.7% equity interest that we did not own in Cablemás. The acquisition of such equity stake resulted from a series of capital distributions, the capitalization of certain debt and receivables, and the subsequent merger of Cablemás into the Company. On April 29, 2011, our stockholders approved the merger of Cablemás into the Company, as surviving company. As a result of this merger, a capital increase was approved by our stockholders, and consequently 24.8 million CPOs were issued in favor of Cablemás non-controlling stockholders. Regulatory approvals for the transaction were obtained on February 24, 2011 and June 17, 2011. Cablemás operates in 50 cities.

 

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Grupo de Telecomunicaciones de Alta Capacidad, S.A.P.I. de C.V. On March 18, 2010, Telefónica, Editora Factum, S.A. de C.V., a wholly-owned subsidiary of the Company, and Megacable agreed to jointly participate, through a consortium, in the public bid for a pair of dark fiber wires held by the CFE (Comisión Federal de Electricidad). On June 9, 2010, the SCT granted the consortium a favorable award in the bidding process for a 20 year contract for the lease of approximately 19,457 kilometers of dark fiber-optic capacity, along with a corresponding concession, granted on July 5, 2010, to operate a public telecommunications network using DWDM technology. The consortium, through GTAC, in which each of Telefónica, Editora Factum and Megacable has an equal equity participation, paid Ps.883.8 million as consideration for the concession plus additional payments in an aggregate amount of Ps.79.4 million for nine additional network segments, in accordance with the terms of the public bid. GTAC established the first link for operations on June 30, 2011, in accordance with the terms and conditions of its concession. By February 2012, GTAC brought to operation 80% of 128 links nationwide, corresponding to phase 1 of the project, and since that date the network became fully operational. By April 15, 2012, the remaining 10 links were brought to operation. At the present time we have provided 91 services in a testing mode, which were invoiced on April 1, 2012. Additional owned backup routes are under construction. In order to achieve this, GTAC executed with its technological partner, Huawei Technologies Mexico, S.A. de C.V., a supply agreement for U.S.$15.6 million. The total investment made by GTAC in 2010 and 2011 was Ps.1.3 billion and Ps.290 million, respectively, and there will be further investments in 2012, in an approximate amount of Ps.600 million. This new fiber optic network will represent for us a new alternative to access data transportation services, increasing competition in the Mexican telecommunications market and therefore improving the quality of the services offered. The fiber optic network will aim to increase broadband internet access for businesses as well as households in Mexico.

We have investments in several other businesses. See Notes 2 and 5 to our consolidated year-end financial statements.

DTH Ventures

Background. We own a 58.7% interest in Innova, a DTH company with services in Mexico, Central America, and the Dominican Republic. The remaining 41.3% of Innova is owned by DIRECTV.

For a description of capital contributions and loans we have made to Innova, see “Operating and Financial Review and Prospects — Results of Operations — Liquidity, Foreign Exchange and Capital Resources — Capital Expenditures, Acquisitions and Investments, Distributions and Other Sources of Liquidity”.

We have also been developing channels exclusively for pay-TV broadcast. Through our relationship with DIRECTV, we expect that our DTH satellite service will continue to negotiate favorable terms for programming rights with both third parties in Mexico and with international suppliers from the United States, Europe and Latin America and elsewhere.

Innova’s Social Part Holders Agreement provides that neither we nor News Corp. nor DIRECTV may directly or indirectly operate or acquire an interest in any business that operates a DTH satellite system in Mexico, Central America and the Dominican Republic (subject to limited exceptions).

In connection with our investment in Innova, we guarantee a share of Innova’s transponder lease obligations to Intelsat Corporation equal to our percentage ownership of Innova.

Sky. We operate “Sky”, our DTH satellite venture in Mexico, Central America and the Dominican Republic, through Innova. We indirectly own 58.7% of this venture. As of December 31, 2009, 2010 and 2011, Innova’s DTH satellite pay-TV service had approximately 1,959,700, 3,044,000 and 4,008,400 gross active subscribers, respectively. Innova primarily attributes its successful growth to its superior programming content, its exclusive transmission of sporting events such as soccer tournaments and special events such as reality shows, its high quality customer service and its nationwide distribution network with approximately 1,500 points of sale. In addition to the above, Innova also experienced growth during 2009, 2010 and 2011 due to the success of VeTV, our low-end package in Mexico. Sky continues to offer the highest quality and exclusive content in the Mexican pay-TV industry. Its programming packages combine our over-the-air channels with other DTH exclusive channels produced by News Corp.

During 2011, Sky offered exclusive content such as one out of every five soccer matches from the Mexican First Division 2011 Tournament, the widest coverage of the Spanish soccer league, the NFL Sunday Ticket, Major League Baseball, the National Hockey League, NBA PASS and the widest coverage of the Mexican Baseball League (LMB). Sky also added new channels, such as TBS, Multimedios Plus, Tiin, Azteca 13-1h, Disney Junior, Juicy, XTSY, Real and Manhandle to its standard definition offerings in addition to Telehit HD, BBC HD, TNT HD, Warner HD, ESPN HD, Azteca 7 HD, Azteca 13 HD, Sony HD, A&E HD, History HD, Fox Sports+ HD, AXN HD and Universal HD to its HD lineup. In addition to new programming contracts, Sky continues to operate under arrangements with a number of third party programming providers to provide additional channels to its subscribers. Sky also has arrangements with the major studios.

 

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In 2011, Sky HD Package, comprised of 36 channels, transmitted all Spanish League, Carling Cup, Berlin Marathon, Bullfights from Spain, NHL, XFL and some WTA games among other HD transmissions. We expect to continue broadening our HD offering in the coming years.

As of 2009, Sky also broadened its product offering by launching MiSky and VeTV, two new, lower-priced packages that are highly attractive to customers with lower budgets. MiSky is the first modular offering in Mexico that enables our clients to add thematic packages to a base package that includes 25 of the most watched channels. VeTV, a prepaid basis product, offers a low-cost package that includes the free-to-air channels as well as other pay-TV channels that appeal to the whole family.

As of 2012, programming package monthly fees for residential subscribers, net of a prompt payment discount if the subscriber pays within 12 days of the billing date, are the following: Basic Ps.159, Fun Ps.279, Movie City Ps.394, HBO/Max Ps.444 and Universe Ps.584. Monthly fees for each programming package do not reflect a monthly rental fee in the amount of Ps.164 for the decoder necessary to receive the service (or Ps.150 if the subscriber pays within 12 days of the billing date) and a one-time installation fee which depends on the number of decoders and payment method.

Sky devotes 20 pay-per-view channels to family entertainment and movies and eight channels are devoted to adult entertainment. In addition, Sky assigns five extra channels exclusively for special events, known as Sky Events, which include concerts and sports. Sky provides some Sky Events at no additional cost while it sells others on a pay-per-view basis.

In order to more effectively compete against cable operators in the Mexican pay-TV market, in September 2005, Sky launched the “Multiple Set-Top Box” concept, which allows its current and new subscribers to have up to four set-top boxes in their homes with independent programming on each TV. Sky also launched SKY+, a PVR set-top box, which enables its subscribers to record up to 120 hours of their favorite programs by programming dates and hours or selecting the program directly from the program guide. In 2010, SKY launched two new set-top box for HD programming, SKY+ HD, a personal video recorder, or PVR, set-top box that allows up to 400 hours of standard definition, or SD, programming or 100 hours of HD programming recorded on its 500 GB drive, and SKY HD, a set-top box designed to view HD and SD programming. Both set-top boxes come with our new and enhanced programming guide and new functionalities.

The installation fee is based on the number of set up boxes and the method of payment chosen by the subscriber. The monthly cost consists of a programming fee plus a rental fee for each additional box.

Programming. We are a major source of programming content for our DTH venture and have granted our DTH venture DTH satellite service broadcast rights to all of our existing and future program services (including pay-per-view services on DTH), subject to some pre-existing third party agreements and other exceptions and conditions. Through its relationships with us and DIRECTV, we expect that the DTH satellite service in Mexico will be able to continue to negotiate favorable terms for programming both with third parties in Mexico and with international suppliers from the United States, Europe and Latin America. At the end of 2008, DISH, a new competitor in the DTH market, launched its services in Mexico. At the beginning of 2009, HiTV, a television service which consists of the transmission of digital television channels through the technology known as DTT, started operating in Mexico City and its metropolitan area. HiTV currently offers approximately 22 channels, including Televisa’s digital over-the-air networks. The Mexican Fiscal Court is currently reviewing the legality of this service. We are uncertain as to how this service may affect our pay-TV business. Since 2010, there is a fiber to the home, or FTTH, pay-TV service called Total Play, which offers more than 260 channels, Video on Demand, HD and other applications. This service also includes bundle discounts for their internet and voice services.

Univision

We have a number of arrangements with Univision, the leading Spanish-language media company in the United States, which owns and operates the Univision Network, the most-watched Spanish-language television network in the United States, the TeleFutura broadcast and Galavision satellite/cable television networks, and the Univision.com website and other Univision-branded online experiences. Historical information regarding Univision’s business which appears in this annual report has been derived primarily from public filings made by Univision with the SEC and the FCC.

 

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On December 20, 2010, Univision, we, Univision’s parent company, and other parties affiliated with the investor groups that own Univision’s parent company entered into various agreements and completed certain transactions previously announced in October 2010. As a result, in December 2010, we (1) made a cash investment of U.S.$1,255 million in BMP, the parent company of Univision, in exchange for an initial 5% equity stake in BMP, and U.S.$1,125 million aggregate principal amount of 1.5% Convertible Debentures of BMP due 2025 which are convertible at our option into additional shares currently equivalent to a 30% equity stake of BMP, subject to existing laws and regulations in the United States and other conditions, (2) acquired an option to purchase at fair value an additional 5% equity stake in BMP, subject to existing laws and regulations in the United States, and other terms and conditions, and (3) sold to Univision our 50% equity interest in TuTv, previously our joint venture with Univision engaged in satellite and cable pay-TV programming distribution in the United States, for an aggregate cash amount of U.S.$55 million. In connection with this investment, (1) we entered into an amended program license agreement, or PLA, with Univision, pursuant to which Univision has the right to broadcast certain Televisa content in the United States for a term that commenced on January 1, 2011 and ends on the later of 2025 or seven and one-half years after we have sold two-thirds of our initial investment in BMP, (2) we entered into a new program license agreement with Univision, the Mexico License Agreement, or MLA, under which we have the right to broadcast certain Univision content in Mexico for the same term as that of the PLA and (3) four representatives of the Company joined Univision’s Board of Directors, which was increased to 22 members.

In connection with this transaction, we and Univision terminated the prior program license agreement as of December 31, 2010.

Under the new PLA, we have granted Univision exclusive Spanish-language broadcast and digital rights to our audiovisual programming (subject to certain exceptions) in the United States and all territories and possessions of the United States, including Puerto Rico, which includes the right to use our online, network and pay-television programming in all Spanish-language media (with certain exceptions), including Univision’s three current Spanish television networks (the Univision, Telefutura and Galavision television networks), future Spanish- language networks owned or controlled by Univision and current and future Univision Spanish-language online and interactive platforms (such as Univision.com). Univision also has rights under the new PLA to broadcast in the United States Mexican soccer games for which we own or control the United States rights, beginning with select teams in 2011 and expanding in 2012 to all teams to which we own or control United States rights.

Under the terms of the new PLA, Univision’s royalty payments to us increased, effective as of January 1, 2011, from 9.36% of television revenue, excluding certain major soccer events, to 11.91% of substantially all of Univision’s audiovisual and online revenues through December 2017, at which time royalty payments to us will increase to 16.22%. Additionally, we will receive an incremental 2% in royalty payments on any Univision audiovisual revenues above U.S.$1.65 billion. The royalty base generally includes all Univision revenues from the exploitation or operation of its Spanish-language audiovisual platforms, sublicensing arrangements, licenses of content to network affiliates or multichannel video programming distributors, and Univision-branded online platforms, whether those revenues are derived on an advertising, subscription, distribution, interactive media, or transactional basis. We have agreed to provide Univision with at least 8,531 hours of programming per year for the term of the PLA.

In connection with the December 20, 2010 transactions with Univision, we and Univision entered into the MLA, under which we have received the exclusive Spanish-language broadcast and digital rights to Univision’s audiovisual programming (subject to certain exceptions) in Mexico during the term of the new PLA.

We have an international program right agreement, or IPRA, with Univision that previously required Univision to grant us and Venevision International Corporation, or Venevision, the right to broadcast outside the United States programs produced by Univision for broadcast on the Univision Network or the Galavision Network under this agreement. On December 20, 2010, we and Univision entered into an amendment to the IPRA pursuant to which, subject to the MLA, our broadcast rights over Univision programs reverted back to Univision without affecting Venevision’s rights under the IPRA. We also entered into an international sales agency agreement with Univision, pursuant to which Univision grants us the right to act as Univision’s sales agent during the term of the MLA to sell or license worldwide outside the United States and Mexico (and with respect to certain programming, outside of Venezuela and certain other territories) Univision’s Spanish-language programming, to the extent Univision makes such programming available in other territories and Univision owns or controls rights in these territories, and subject to limited exceptions.

In December 2011, we made an additional investment of U.S.$49.1 million in cash in common stock of BMP, the parent company of Univision, by which we increased our interest in BMP from 5% to 7.1%.

 

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Competition

We compete with various forms of media and entertainment companies in Mexico, both Mexican and non-Mexican.

Television Broadcasting

Our television stations compete for advertising revenues and for the services of recognized talent and qualified personnel with other television stations (including the stations owned by TV Azteca) in their markets, as well as with other advertising media, such as radio, newspapers, outdoor advertising, cable television and a multi-channel, multi-point distribution system, or MMDS, and DTH satellite services. We generally compete with 199 channels throughout Mexico, including the channels of our major competitor, TV Azteca, which owns and operates Channels 7 and 13 in Mexico City, which we believe are affiliated with 178 stations outside of Mexico City. Televisora del Valle de Mexico owns the concession for Channel 40, a UHF channel that broadcasts in the Mexico City metropolitan area. Based upon IBOPE AGB Mexico surveys, during 2009, 2010 and 2011 the combined average audience share throughout Mexico of both the Channel 7 and 13 networks was 30.2%, 32.0% and 33.1%, respectively, during prime time, and 29.2%, 30.4% and 31.5%, respectively, during sign-on to sign-off hours. See “— Television — Television Industry in Mexico”.

In addition to the foregoing channels, there are additional operating channels in Mexico with which we also compete, including Channel 11, which has 19 repeater stations, and Channel 22 in Mexico City, which are operated by the Mexican government. Our television stations are the leading television stations in their respective markets. See “— Television — Television Broadcasting”.

Our English and Spanish-language border stations compete with English and Spanish-language television stations in the United States, and our Spanish-language productions compete with other English and Spanish-language programs broadcast in the United States.

We are a major supplier of Spanish-language programming in the United States and throughout the world. We face competition from other international producers of Spanish-language programming and other types of programming.

Publishing

Each of our magazine publications competes for readership and advertising revenues with other magazines of a general character and with other forms of print and non-print media. Competition for advertising is based on circulation levels, reader demographics and advertising rates.

Cable and Telecom

According to the most recent information from the SCT and Cofetel, there were approximately 1,100 cable concessions in Mexico as of September 30, 2011 serving approximately 5.56 million subscribers. Cablevisión, Cablemás and TVI compete with Innova, our DTH venture. See “— DTH Satellite Services”. Cablevisión also faces competition from Dish Mexico, a joint venture between MVS Comunicaciones and set-top provider EchoStar. Dish Mexico is a DTH operator and competes in some segments against Cablevisión in Mexico City and the surrounding areas mainly driven by its Ps.149 basic package. Dish Mexico has been in operation for more than three years and offers 53 channels to its subscribers in its basic package. Furthermore, since Cablevisión, Cablemás and TVI operate under non-exclusive franchises, other companies may obtain permission to build cable television systems, DTH, IPTV and MMDS systems in areas where they presently operate. In addition, pursuant to the Telecommunications Law, Cablevisión, Cablemás and TVI are required to provide access to their cable network to the extent they have available capacity on their respective networks.

In addition, in connection with internet access services and other new products and multimedia communications services, cable operators, who were already authorized to provide bidirectional data and internet broadband services, have been authorized by the Mexican government to also provide voice services, including VoIP services.

In October 2006, the Mexican federal government enacted a new set of regulations known as the Convergence Regulations. The Convergence Regulations allow certain concessionaires of telecommunications services to provide other services not included in their original concessions. Cable television providers may be allowed to provide internet and telephone services. In addition, telephone operators, such as Telmex, may be allowed to provide cable television services if certain requirements and conditions are met. We believe that we may face significant competition from new entrants providing telephony services, including cable television providers. See “Key Information — Risk Factors — Risk Factors Related to our Business — We Face Competition in Each of Our Markets That We Expect Will Intensify”.

 

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As a result of the aforementioned, Cablevisión, Cablemás and TVI will face competition from several media and telecommunications companies throughout Mexico, including internet service providers, DTH services and other personal communications and telephone companies, including us and our affiliates.

Radio

The radio broadcast business is highly competitive in Mexico. Our radio stations compete with other radio stations in their respective markets, as well as with other advertising media, such as television, newspapers, magazines and outdoor advertising. Among our principal competitors in the radio broadcast business are Grupo Radio Centro, S.A. de C.V., which owns or operates approximately 118 radio stations throughout Mexico, 11 of which are located in Mexico City, and Grupo Acir, which owns or operates approximately 100 radio stations in Mexico, six of which are located in Mexico City.

Competition for audience share in the radio broadcasting industry in Mexico occurs primarily in individual geographic markets. Our radio stations are located in highly competitive areas. However, the strength of the signals broadcast by a number of our stations enables them to reach a larger percentage of the radio audience outside the market areas served by their competitors.

Feature Film Production and Distribution

Production and distribution of feature films is a highly competitive business in Mexico. The various producers compete for the services of recognized talent and for film rights to scripts and other literary property. We compete with other feature film producers, Mexican and non-Mexican, and distributors in the distribution of films in Mexico and in the U.S. See “— Other Businesses — Feature Film Production and Distribution”. Our films also compete with other forms of entertainment and leisure time activities.

DTH Satellite Services

Innova presently competes with, or expects to compete with, among others, cable systems (including Cablevisión), MMDS systems, national broadcast networks (including our four networks), regional and local broadcast stations, other DTH concessions, unauthorized C-band and Ku-band television signals obtained by Mexican viewers on the gray market, radio, movie theaters, video rental stores, internet and other entertainment.

Consolidation in the entertainment and broadcast industries could further intensify competitive pressures. As the pay-TV market in Mexico matures, and as the offering of bundled services that include internet, data and telephony increases, Innova expects to face competition from an increasing number of sources. Emerging technologies that provide new services to pay-TV customers as well as new competitors in the DTH field or telecommunication players entering into video services would require us to make significant capital expenditures in new technologies.

In October 2008, DISH Mexico, a U.S. based DTH company operating with certain arrangements with Telmex, started operations in Mexico through a DTH concession. DISH currently operates nationwide.

At the beginning of 2009, HiTV, a television service which consists of the transmission of digital television channels through the technology known as DTT, started operating in Mexico City and its metropolitan area. HiTV currently offers approximately 22 channels, including Televisa’s digital over-the-air networks. The Mexican Fiscal Court is currently reviewing the legality of this service. We are uncertain as to how this service may affect our pay-TV business.

Since 2010, there is a FTTH pay-TV service called Total Play, which offers 250 channels, Video on Demand, HD and other applets. This service also includes bundle discounts for their internet and voice services.

Gaming Business

Our principal competitors in the gaming industry are, with respect to bingo and sports halls, Codere, CIE and Grupo Caliente, and, with respect to Multijuegos, the governmental lotteries of Pronósticos and Lotería Nacional.

Regulation

Our business, activities and investments are subject to various Mexican federal, state and local statutes, rules, regulations, policies and procedures, which are constantly subject to change, and are affected by the actions of various Mexican federal, state and local governmental authorities. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Imposition of Fines by Regulators and Other Authorities Could Adversely Affect Our Financial Condition and Results of Operations” and “— Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”. The material Mexican federal, state and local statutes, rules, regulations, policies and procedures to which our business, activities and investments are subject are summarized below. Station XETV, Tijuana, which broadcasts CW Network television programming in the San Diego television market, is also subject to certain regulatory requirements of the FCC, including the obligation to obtain permits for cross-border transmission of programming broadcast to the United States and to obtain licenses to operate microwave and/or satellite earth station transmitting equipment within the U.S. These summaries do not purport to be complete and should be read together with the full texts of the relevant statutes, rules, regulations, policies and procedures described therein.

 

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Television

Mexican Television Regulations

Concessions. Certain amendments to the existing Radio and Television Law and the Telecommunications Law have been enacted. In May 2006, several members of the Senate of the Mexican Federal Congress filed a complaint before the Supreme Court of Justice of Mexico, seeking a declaration that such amendments were unconstitutional and therefore null and void. This complaint was resolved by the Supreme Court of Justice in June 2007, declaring several provisions of the amendments to the Radio and Television Law and to the Telecommunications Law unconstitutional and therefore null and void. Among the provisions declared as unconstitutional by the Supreme Court of Justice are the ones referred to in former Article 28 of the Radio and Television Law, pursuant to which holders of concessions had the ability to request authorization to provide additional telecommunications services within the same spectrum covered by a current concession without having to participate in a public bid therefor and Article 16 of the Radio and Television Law, pursuant to which concessions were granted for a fixed term of 20 years with the possibility to renew such concessions by obtaining from the SCT a certification of compliance with the obligations of the concessionaire under the concession. As a result of the Supreme Court of Justice’s ruling, once the transition to digital television and digital radio broadcasting is completed, if we want to provide additional telecommunications services within the same spectrum granted for digital television or digital radio broadcasting, respectively, we will have to follow the provisions of Article 24 of the Telecommunications Law to obtain the concession therefor. Also, there is uncertainty as to how radio and television concessions will be renewed in the future, since the Supreme Court of Justice ruling has resulted in requiring the renewal of the concessions to be subject to a public bid process, with a right of preference over other participating bidders given to the incumbent concessionaire. Additionally, some members of the Mexican Federal Congress have expressed their intent to propose a new Radio and Television Law, which could affect, among other things, the framework for granting or renewing concessions. See “Key Information — Risk Factors — Risk Factors Related to Our Business — The Operation of Our Business May Be Terminated or Interrupted if the Mexican Government Does Not Renew or Revokes Our Broadcast or Other Concessions”. Also, either the SCT or the Comision Federal de Telecomunicaciones, or Federal Telecommunications Commission, shall provide notice in the Diario Oficial de la Federación, or the Official Gazette of the Federation, of the call for bids and the available television frequencies, and make available the prerequisites for bids from interested parties for a maximum of 30 days.

The bidders shall comply with the following requirements:

 

   

proof of Mexican nationality;

 

   

submission of a business plan;

 

   

submission of technical specifications and descriptions;

 

   

submission of a plan for coverage;

 

   

submission of an investment program;

 

   

submission of a financial program;

 

   

submission of plans for technical development and actualization;

 

   

submission of plans for production and programming;

 

   

receipt of a guaranty to ensure the continuation of the process until the concession is granted or denied; and

 

   

a request for a favorable opinion from the Mexican Antitrust Commission.

Before granting the concession, the Federal Telecommunications Commission shall review the plans and programs submitted and the goals expressed by the bidder for consistency, as well as the results of the call for bids through the public auction. Within 30 days of the determination of a winning bid, such bidder has to provide proof of the required payment.

Television concessions may be granted for a term of up to 20 years.

 

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If the SCT determines (i) that the bidders’ applications do not guarantee the best conditions for the rendering of radio and television services, or (ii) that the offered payment proposals are not sufficient, or (iii) that the submitted applications do not fulfill the requirements established under the bidding call or the bidding bases, it may terminate the bidding process and not grant the concession to any of the applicants.

The SCT may void the grant of any television concession or terminate or revoke the concession at any time, upon the occurrence of, among others, the following events:

 

   

failure to construct broadcasting facilities within a specified time period;

 

   

changes in the location of the broadcasting facilities or changes in the frequency assigned without prior governmental authorization;

 

   

direct or indirect transfer of the concession, the rights arising therefrom or ownership of the broadcasting facilities without prior governmental authorization;

 

   

transfer or encumbrance, in whole or in part, of the concession, the rights arising therefrom, the broadcasting equipment or any assets dedicated to the concessionaire’s activities, to a foreign government, company or individual, or the admission of any such person as a partner in the concessionaire’s business;

 

   

failure to broadcast for more than 60 days without reasonable justification;

 

   

any amendment to the bylaws of the concessionaire that is in violation of applicable Mexican law; and

 

   

any breach to the terms of the concession title.

None of our over-the-air television concessions has ever been revoked or otherwise terminated.

We believe that we have operated our television concessions substantially in compliance with their terms and applicable Mexican law. If a concession is revoked or terminated, the concessionaire could be required to forfeit to the Mexican government all of its assets or the Mexican government could have the right to purchase all the concessionaire’s assets. In our case, the assets of our licensee subsidiaries generally consist of transmitting facilities and antennas. See “Key Information — Risk Factors — Risk Factors Related to Our Business — The Operation of Our Business May Be Terminated or Interrupted if the Mexican Government Does Not Renew or Revokes Our Broadcast or Other Concessions”.

In July 2004, in connection with the adoption of a release issued by the SCT for the transition to digital television, all of our television concessions were renewed until 2021. DTH concessions expire in 2020 and 2026. The expiration dates for the concessions for our telephone services range from 2018 to 2026. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”. We are unable to predict when we will obtain the renewal to such concessions. See “Key Information — Risk Factors — Risk Factors Related to Our Business — The Operation of Our Business May Be Terminated or Interrupted if the Mexican Government Does Not Renew or Revokes Our Broadcast or Other Concessions”.

Supervision of Operations. The SCT regularly inspects the television stations and the companies to which concessions have been granted must file annual reports with the SCT.

Television programming is subject to various regulations, including prohibitions on foul language and programming which is offensive or is against the national security or against public order. Under Mexican regulations, the Mexican Ministry of the Interior reviews most television programming and classifies the age group for which the programming is acceptable for viewing. Programs classified for adults may be broadcast only after 10:00 p.m.; programs classified for adults and teenagers over 15 years old may be broadcast only after 9:00 p.m.; programs classified for adults and teenagers under 15 years old may be broadcast only after 8:00 p.m.; and programs classified for all age groups may be shown at any time.

Television programming is required to promote Mexico’s cultural, social and ideological identity. Each concessionaire is also required to transmit each day, free of charge, up to 30 minutes of programming regarding cultural, educational, family counseling and other social matters using programming provided by the Mexican government. Historically, the Mexican government has not used a significant portion of this time.

Networks. There are no Mexican regulations regarding the ownership and operation of a television network, such as the Channel 2, 4, 5 and 9 networks, apart from the regulations applicable to operating a television station as described above and the ownership restrictions described below.

 

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Restrictions on Advertising. Mexican law regulates the type and content of advertising broadcast on television. Concessionaires may not broadcast misleading advertisements. Under current law, advertisements of alcoholic beverages (other than beer and wine) may be broadcast only after 10:00 p.m. and advertisements for tobacco products are prohibited. Advertising for alcoholic beverages must not be excessive and must be combined with general promotions of nutrition and general hygiene. The advertisements of some products and services, such as medicine and alcohol, require approval of the Mexican government prior to their broadcast. Moreover, the Mexican government must approve any advertisement of lotteries and other games.

No more than 18% of broadcast time may be used for advertisements on any day. The SCT approves the minimum advertising rates. There are no restrictions on maximum rates. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”.

Broadcast Tax. Until 2002, radio and television stations were subject to a tax which could be paid by granting the Mexican government the right to use 12.5% of all daily broadcast time. In October 2002, the 12.5% tax was replaced by the obligation to the Mexican government to provide up to 18 minutes per day of our television broadcast time and 35 minutes per day of our radio broadcast time between 6:00 a.m. and midnight, in each case distributed in an equitable and proportionate manner. Any time not used by the Mexican government on any day is forfeited. Generally, the Mexican government uses all or substantially all of the broadcast time available to it under this tax.

Foreign Ownership. Non-Mexican ownership of shares of Mexican enterprises is restricted in some economic sectors, including broadcast television, cable television, radio and DTH satellite services and certain telecommunications services. Under Mexico’s Ley de Inversión Extranjera, or Foreign Investment Law, the Radio and Television Law, and the Reglamento de la Ley de Inversión Extranjera, or the Foreign Investment Law Regulations, foreign investors may not vote the capital stock of Mexican broadcasting companies (other than through “neutral investment” mechanisms, such as through the CPOs held by certain of our stockholders). See “— Satellite Communications — Mexican Regulation of DTH Satellite Services”.

Radio

The regulations applicable to the operation of radio stations in Mexico are identical in all material respects to those applicable to television stations. The expiration dates of our radio concessions range from 2015 to 2020. See “— Television”, “— Other Businesses — Radio Stations” and “Key Information — Risk Factors — Risk Factors Related to Our Business — The Operation of Our Business May Be Terminated or Interrupted if the Mexican Government Does Not Renew or Revokes Our Broadcast or Other Concessions”.

Cable Television

Concessions. Cable television operators now apply for a public telecommunications network concession from the SCT in order to operate their networks and provide cable television services and other multimedia communications services. Applications are submitted to the SCT and, after a formal review process, a public telecommunications network concession is granted for an initial term of up to 30 years. Cablevisión obtained a telecommunications concession, which expires in 2029, and its Channel 46 Concession, which expired on November 17, 2010. We have filed for a renewal of the Channel 46 Concession and in February 2010, the SCT notified Cablevisión that the Channel 46 Concession will not be renewed. We have initiated legal actions against SCT’s notice seeking to obtain the renewal of such concession. Pursuant to its public telecommunications concession, Cablevisión can provide cable television, limited audio transmission services, specifically music programming, bidirectional internet access and unlimited data transmission services in Mexico City and surrounding areas in the State of Mexico (Estado de México), and on October 21, 2010 the SCT granted Cablevisión authorization to provide the aforementioned services in 13 additional municipalities of the State of Mexico. In addition, in May 2007 the SCT granted Cablevisión a concession allowing Cablevisión to provide local telephony services using the telephony public network. The scope of Cablevisión’s public telecommunications concession is much broader than the scope of its former cable television concession, which covered only cable television services and audio programming.

Cablemás operates under 47 concessions which cover 14 Mexican states. Through these concessions, Cablemás provides cable television services, internet access and bidirectional data transmission. Each concession granted by the SCT allows Cablemás to install and operate a public telecommunications network. The expiration dates for Cablemás’ concessions range from 2013 to 2039.

TVI operates under 7 concessions, which cover four Mexican states. Through these concessions, TVI provides cable television services, bidirectional data transmission and internet and telephony services. Each concession granted by the SCT allows TVI to install and operate a public telecommunications network. The expiration dates for TVI’s concessions range from 2015 to 2028.

 

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A public telecommunications concession may be renewed upon its expiration, or revoked or terminated prior to its expiration in a variety of circumstances including:

 

   

unauthorized interruption or termination of service;

 

   

interference by the concessionaire with services provided by other operators;

 

   

noncompliance with the terms and conditions of the public telecommunications concession;

 

   

the concessionaire’s refusal to interconnect with other operators;

 

   

loss of the concessionaire’s Mexican nationality;

 

   

unauthorized assignment, transfer or encumbrance, in whole or in part, of the concession or any rights or assets;

 

   

the liquidation or bankruptcy of the concessionaire; and

 

   

ownership or control of the capital stock of the concessionaire by a foreign government.

In addition, the SCT may establish under any public telecommunications concession further events which could result in revocation of the concession. Under current Mexican laws and regulations, upon the expiration or termination of a public telecommunications concession, the Mexican government has the right to purchase those assets of the concessionaire that are directly related to the concession, at market value.

Cable television operators are subject to the Telecommunications Law and, since February 2000, have been subject to the Reglamento del Servicio de Televisión y Audio Restringidos, or the Restricted Television and Audio Services Regulations. Under current Mexican law, cable television operators are classified as public telecommunications networks, and must conduct their business in accordance with Mexican laws and regulations applicable to public telecommunications networks which, in addition to the Telecommunications Law and the Restricted Television and Audio Services Regulations, includes the Radio and Television Law and the Reglamento de la Ley Federal de Radio y Televisión.

Under the applicable Mexican law, the Mexican government, through the SCT, may also temporarily seize or even expropriate all of a public telecommunications concessionaire’s assets in the event of a natural disaster, war, significant public disturbance or threats to internal peace and for other reasons related to preserving public order or for economic reasons. The Mexican government is obligated by Mexican law to compensate the concessionaire, both for the value of the assets seized and related profits.

Supervision of Operations. The SCT regularly inspects the operations of cable systems and cable television operators must file annual reports with the SCT.

Under Mexican law, programming broadcast on cable networks is not subject to judicial or administrative censorship. However, this programming is subject to various regulations, including prohibitions on foul language, programming which is against good manners and customs or programming which is against the national safety or against public order.

Mexican law also requires cable television operators to broadcast programming that promotes Mexican culture, although cable television operators are not required to broadcast a specified amount of this type of programming.

In addition to broadcasting programming that promotes Mexican culture, cable television operators must also set aside a specified number of their channels, which number is based on the total number of channels they transmit, to transmit programming provided by the Mexican government.

Restrictions on Advertising. Mexican law restricts the type of advertising which may be broadcast on cable television. These restrictions are similar to those applicable to advertising broadcast on over-the-air Channels 2, 4, 5 and 9. See “— Regulation — Television — Mexican Television Regulations — Restrictions on Advertising”.

Forfeiture of Assets. Under Mexican regulations, at the end of the term of a public telecommunications concession, assets of concessionaires may be purchased by the Mexican government at market value.

Non-Mexican Ownership of Public Telecommunications Networks

Under current Mexican law, non-Mexicans may currently own up to 49% of the outstanding voting stock of Mexican companies with a public telecommunications concession. However, non-Mexicans may currently own up to all of the outstanding voting stock of Mexican companies with a public telecommunications concession to provide cellular telephone services, provided that the requisite approvals are obtained from the Comisión Nacional de Inversiones Extranjeras, or the Foreign Investment Commission.

 

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Application of Existing Regulatory Framework to Internet Access and IP Telephony Services

Cablevisión, TVI and Cablemás may be required, under Mexican law, to permit other concessionaires to connect their network to its network in a manner that enables its customers to choose the network by which the services are carried.

To the extent that a cable television operator has any available capacity on its network, as a public telecommunications network, Mexican law requires the operator to offer third party providers access to its network. Our cable operators currently do not have any capacity available on their networks to offer to third party providers and do not expect that they will have capacity available in the future given the broad range of services they plan to provide over their networks.

Satellite Communications

Mexican Regulation of DTH Satellite Services. Concessions to broadcast DTH satellite services are for an initial term of up to 30 years, and are renewable for up to 30 years. We received a 30-year concession to operate DTH satellite services in Mexico utilizing SatMex satellites on May 24, 1996. On November 27, 2000, we received an additional 20-year concession to operate our DTH satellite service in Mexico using the PAS-9 satellite system, a foreign-owned satellite system.

Like a public telecommunications network concession, a DTH concession may be revoked or terminated by the SCT prior to the end of its term in certain circumstances, which for a DTH concession include:

 

   

the failure to use the concession within 180 days after it was granted;

 

   

a declaration of bankruptcy of the concessionaire;

 

   

failure to comply with the obligations or conditions specified in the concession;

 

   

unlawful assignments of, or encumbrances on, the concession; or

 

   

failure to pay to the government the required fees.

At the termination of a concession, the Mexican government has the preemptive right to acquire the assets of a DTH satellite service concessionaire. In the event of a natural disaster, war, significant public disturbance or for reasons of public need or interest, the Mexican government may temporarily seize and expropriate all assets related to a concession, but must compensate the concessionaire for such seizure. The Mexican government may collect fees based on DTH satellite service revenues of a satellite concessionaire.

Under the Telecommunications Law, DTH satellite service concessionaires may freely set customer fees but must notify the SCT of the amount, except that if a concessionaire has substantial market power, the SCT may determine fees that may be charged by such concessionaire. The Telecommunications Law specifically prohibits cross-subsidies.

Non-Mexican investors may currently own up to 49% of full voting equity of DTH satellite system concessionaires, provided that Mexican investors maintain control of the operation. Foreign investors may increase their economic participation in the equity of a concessionaire through neutral investment mechanisms such as the CPO trust.

Regulation of DTH Satellite Services in Other Countries. Our current and proposed DTH ventures in other countries are and will be governed by laws, regulations and other restrictions of such countries, as well as treaties that such countries have entered into, regulating the delivery of communications signals to, or the uplink of signals from, such countries. In addition, the laws of some other countries establish restrictions on our ownership interest in some of these DTH ventures as well as restrictions on programming that may be broadcast by these DTH ventures.

Mexican Gaming Regulations

Pursuant to Mexico’s Federal Law of Games and Draws, or Ley Federal de Juegos y Sorteos, or Gaming Law, and its accompanying regulations, the Reglamento de la Ley Federal de Juegos y Sorteos, or Gaming Regulations, the Mexican Ministry of the Interior has the authority to permit the operation of all manner of games and lotteries that involve betting. This administrative authorization is defined as a permit under the Gaming Regulations. Under the Gaming Regulations, each permit establishes the terms for the operation of the respective activities authorized under the permit and the specific periods for operation of those activities. Permits for games and lotteries that involve betting have a maximum term of 25 years. The holder of the relevant permit must comply with all the terms provided in the permit, the Gaming Law and the Gaming Regulations. We were granted a Gaming Permit on May 25, 2005, which expires on May 24, 2030.

 

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Mexican Antitrust Law

Mexico’s Federal Antitrust Law and the accompanying regulations, the Reglamento de la Ley Federal de Competencia Económica, may affect some of our activities, including our ability to introduce new products and services, enter into new or complementary businesses and complete acquisitions or joint ventures. In addition, Mexico’s Federal Antitrust Law and the accompanying regulations may adversely affect our ability to determine the rates we charge for our services and products. In addition, approval of the Mexican Antitrust Commission is required for us to acquire certain businesses or enter into certain joint ventures. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Mexican Antitrust Laws May Limit Our Ability to Expand Through Acquisitions or Joint Ventures” and “— Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”.

Several amendments to Mexico’s Federal Antitrust Law have been in full force since May 11, 2011.

Under these recent amendments, the review process of mergers and acquisitions by the Mexican Antitrust Commission has been modified to allow reporting parties to request a “fast track” review for a specific transaction when it is evident that the transaction does not restrain competition. It is considered evident that a transaction does not restrain competition when:

 

  (i) the acquirer does not have any participation in any market related to the relevant market; and

 

  (ii) the acquirer is not an actual or potential competitor of target; and

 

  (iii) any of the following circumstances are met:

 

  (x) the acquirer is a new participant in the relevant market;

 

  (y) the acquirer does not have control over target before or after the transaction; or

 

  (z) the acquirer has control over target before the transaction.

The Mexican Antitrust Commission must resolve within 5 business days from the date of filing if the fast track review process is available. Once admitted, it must resolve within 15 business days whether it is evident that the transaction does not restrain competition.

In addition, pursuant to these last amendments, the following reportable transactions, among others, are exempt from being reviewed by the Mexican Antitrust Commission:

 

  (i) Corporate restructurings.

 

  (ii) Transactions where the acquirer has control over the target from its incorporation or from the date the last reported transaction was approved by the Mexican Antitrust Commission.

 

  (iii) Transactions that have effect in Mexico involving non-Mexican participants, if the participants will not take control of Mexican legal entities, or acquire assets in Mexico, in addition to those previously controlled or owned by such participants.

 

  (iv) Acquisitions of equity securities (or convertible securities) through stock markets that represent less than 10% of such securities, and the acquirer is not entitled to (w) appoint board members; (x) control a shareholders meeting decision; (y) vote more than 10% of voting rights of the issuer; or (z) direct or influence the management, operation, strategy or principal policies of the issuer.

Additionally, the amendments also provide for a significant enhancement of the Mexican Antitrust Commission’s authority:

(a) The Mexican Antitrust Commission has been granted authority to request written evidence, request testimonies, and perform verification visits in any premises of the party being investigated where it is presumed that evidence related to the commission of violations of the law may exist, without the need of a judicial subpoena.

(b) If, after an investigation is terminated, the Mexican Antitrust Commission resolves that there is evidence to presume the existence of a monopolistic practice or illegal merger, it must summon the defendant. In connection with or after such summon, if it believes that the presumed illegal conduct could irreversibly restrain competition, it could issue a temporary suspension order of such conduct until a final resolution is issued.

 

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(c) The Mexican Antitrust Commission has also been empowered to file with the Mexican Federal Attorney General a criminal complaint against any individual that participates, orders or executes any per se practice (price fixing, output restriction, market allocation and bid rigging) and only when a non-appealable decision is issued confirming such conduct. All the criminal investigation and process will be handled by the Mexican Federal Attorney General.

The amendments have also increased monetary fines significantly and provide for changes in the actions to be taken by the Mexican Antitrust Commission with respect to illegal conduct. See “Key Information — Risk Factors — Risk Factors Related to Mexico — Imposition of Fines by Regulators and Other Authorities Could Adversely Affect Our Financial Condition and Results of Operations”.

Additionally, Mexico’s Federal Antitrust Law was amended on August 30, 2011.

These amendments provide that those persons who have suffered damages or losses arising out of monopolistic practices or prohibited concentrations may, individually or collectively, bring legal actions, irrespective of the remedies already provided for in Mexico’s Federal Antitrust Law. Such legal actions must be brought pursuant to the Federal Code for Civil Procedures.

Mexican Electoral Amendment

In 2007, the Mexican Federal Congress published an amendment to the Mexican Constitution, pursuant to which, among other things, the IFE has the exclusive right to manage and use the Official Broadcast Time. For a description of Official Television Broadcast Time and Official Radio Broadcast Time, see “Information of the Company — Business Overview — Business Strategy — Maintaining Our Leading Position in the Mexican Television Market — Advertising Sales Plan” and “Information of the Company — Business Overview — Other Businesses — Radio Stations”. The IFE has the exclusive right to use the Official Broadcast Time for its own purposes and for the use of political parties in Mexico (as provided in the Mexican Constitution) for self promotion and, when applicable, to promote their electoral campaigns during election day, pre-campaign and campaign periods.

The IFE and the political parties must comply with certain requirements included in the Constitutional Amendment for the use of Official Broadcast Time. During federal electoral periods, the IFE will be granted, per the Constitutional Amendment, 48 minutes per day in each radio station and television channel, to be used during pre-campaign periods in two and up to three minutes per broadcast hour in each radio station and television channel, of which all the political parties will be jointly entitled, to use one minute per broadcast hour. During campaign periods, at least 85% of the 48 minutes per day, shall be allocated among the political parties, and the remaining 15% may be used by the IFE for its own purposes. During non-electoral periods, the IFE will be assigned with up to 12% of the Official Broadcast Time, half of which shall be allocated among the political parties. In the event that local elections are held simultaneously with federal elections, the broadcast time granted to the IFE shall be used for the federal and the local elections. During any other local electoral periods, the allocation of broadcast time will be made pursuant to the criteria established by the Constitutional Amendment and as such criteria is reflected in applicable law.

In addition to the foregoing, pursuant to the Constitutional Amendment political parties are forbidden to purchase or acquire advertising time directly or through third parties, from radio or television stations; likewise, third parties shall not acquire advertising time from radio or television stations for the broadcasting of advertisements which may influence the electoral preferences of Mexican citizens, nor in favor or against political parties or candidates to offices elected by popular vote.

We believe we have been operating our business in compliance with the provisions of the Constitutional Amendment; however, we have filed legal actions contesting certain provisions of such Constitutional Amendment. We cannot predict the outcome of the legal actions brought by the Company against the Constitutional Amendment.

The IFE ruled that some of our subsidiaries infringed the Federal Code of Electoral Institutions and Procedures (Código Federal de Instituciones y Procedimientos Electorales), or Electoral Law. As a consequence thereof, the IFE imposed fines to such subsidiaries in an approximate amount of Ps.21 million. The relevant subsidiaries challenged the resolutions and the fines before the Federal Electoral Court (Tribunal Federal Electoral). The Federal Electoral Court confirmed the rulings and the fines. Although we continue to disagree with the determination of the IFE and the Federal Electoral Court and have challenged the constitutionality of the Electoral Law, our subsidiaries paid such fines.

 

53


At this time, the Constitutional Amendment has not had an impact upon the results of our radio and television businesses, however we cannot predict what impact, if any, the Constitutional Amendment may have on our operating results in the future. A decrease in paid advertising of the nature described above could lead to a decrease in our television or radio revenues.

Significant Subsidiaries

The table below sets forth our significant subsidiaries and Innova, a consolidated variable interest entity, as of December 31, 2011.

 

Name of Significant Subsidiary

  

Jurisdiction of
Organization or
Incorporation

   Percentage
Ownership(1)
 

Corporativo Vasco de Quiroga, S.A. de C.V. (4)(5)

   Mexico      100.0

Consorcio Nekeas, S.A. de C.V.(2)(3)

   Mexico      100.0

CVQ Espectáculos, S.A. de C.V.(2)(3)

   Mexico      100.0

Editora Factum, S.A. de C.V.(3)(5)

   Mexico      100.0

Empresas Cablevisión, S.A.B. de C.V.(3)(6)

   Mexico      51.0

Editorial Televisa, S.A. de C.V.(3)(7)

   Mexico      100.0

Factum Más, S.A. de C.V.(3) (8)

   Mexico      100.0

Sky DTH, S. de R.L. de C.V. (3) (8)

   Mexico      100.0

Innova Holdings, S. de R.L. de C.V. (3) (8)

   Mexico      58.7

Innova, S. de R.L. de C.V. (Innova)(9)

   Mexico      58.7

Grupo Distribuidoras Intermex, S.A. de C.V.(2)(3)(10)

   Mexico      100.0

Grupo Telesistema, S.A. de C.V.(11)

   Mexico      100.0

G-Televisa-D, S.A. de C.V.(12)

   Mexico      100.0

Televisa, S.A. de C.V.(13)

   Mexico      100.0

Televisión Independiente de México, S.A. de C.V.(3)

   Mexico      100.0

Televisa Mexico Ltd. (14)

   Switzerland      100.0

Multimedia Telecom, S.A. de C.V. (14)

   Mexico      100.0

Sistema Radiópolis, S.A. de C.V.(2) (3) (15)

   Mexico      50.0

Televisa Juegos, S.A. de C.V.(2) (3)(16)

   Mexico      100.0

 

(1) Percentage of equity owned by us directly or indirectly through subsidiaries or affiliates.

 

(2) One of five direct subsidiaries through which we conduct the operations of our Other Businesses segment, excluding Internet operations.

 

(3) While this subsidiary is not a significant subsidiary within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act, we have included this subsidiary in the table above to provide a more complete description of our operations.

 

(4) Direct subsidiary through which we maintain 1.093875 % of the capital stock of GSF and our investment in mandatorily Convertible Debentures issued by GSF.

 

(5) One of two direct subsidiaries through which we own equity interests in and conduct the operations of our Cable and Telecom segment.

 

(6) One of the indirect subsidiaries through which we conduct the operations of our Cable and Telecom segment.

 

(7) Direct subsidiary through which we conduct the operations of our Publishing segment.

 

(8) One of three subsidiaries through which we own our equity interest in Innova.

 

(9) Consolidated variable interest entity through which we conduct the operations of our Sky segment. We currently own a 58.7% interest in Innova.

 

(10) Direct subsidiary through which we conduct the operations of our Publishing Distribution segment.

 

(11) Direct subsidiary through which we conduct the operations of our Television Broadcasting, Pay Television Networks and Programming Exports segments.

 

(12) Indirect subsidiary through which we conduct certain operations of our Television Broadcasting segment.

 

(13) Indirect subsidiary through which we conduct the operations of our Television Broadcasting, Pay Television Networks and Programming Exports segments.

 

(14) Direct and indirect subsidiaries through which we maintain 7.1 % of the capital stock of BMP and our investment in 1.5% Convertible Debentures issued by BMP.

 

(15) Direct subsidiary through which we conduct the operations of our Radio business.

 

(16) Direct subsidiary through which we conduct the operations of our Gaming business.

 

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Property, Plant and Equipment

Broadcasting, Office and Production Facilities. Our properties consist primarily of broadcasting, production facilities, television and reporter stations, technical operations facilities, workshops, studios and office facilities, most of which are located in Mexico. We own most of our properties or lease offices and facilities through indirect wholly owned and majority owned subsidiaries. There are no major encumbrances on any of our properties, and we currently do not have any significant plans to construct any new properties or expand or improve our existing properties. Our principal offices, which we own, are located in Santa Fe, a suburb of Mexico City. Each of our television stations has individual transmission facilities located in Mexico, substantially all of which we own. Our television production operations are concentrated in four locations in Mexico City, 14 studios in San Angel, 12 studios located in Chapultepec, 3 studios in Santa Fe and 1 studio in Rojo Gomez. We own substantially all of these studios. The local television stations wholly or majority owned by us have in the aggregate 43 production studios. We own other properties used in connection with our operations, including a training center, technical operations facilities, studios, workshops, television and repeater stations, and office facilities. We beneficially own Azteca Stadium, which seats approximately 105,000 people, through a trust arrangement that was renewed in 1993 for a term of 30 years and that may be extended for additional periods. In the aggregate, these properties, excluding Azteca Stadium, currently represent approximately 5.2 million square feet of space, of which over 3.7 million square feet are located in Mexico City and the surrounding areas, and approximately 1.5 million square feet are located outside of Mexico City and the surrounding areas.

Our cable television, radio, publishing and Mexican DTH satellite service businesses are located in Mexico City. We also own the transmission and production equipment and facilities of our radio stations located outside Mexico City.

We also own or lease over a total of 546,510 square feet in properties in the United States, Latin America, Spain and Switzerland in connection with our operations there. We own or lease all of these properties through indirect wholly owned and majority owned subsidiaries. The following table summarizes our real estate and lease agreements in the United States, Latin America, Spain and Switzerland.

 

Operations

  Number of
Properties
 

Location

Television and news activities

Owned properties

  2   Buenos Aires, Argentina(1)
    San Diego, California(1)

Leased properties

  4   Madrid, Spain(2)
    San Diego, California(1)
    Zug, Switzerland(1)

Publishing activities

Owned properties

  8   Miami, Florida(1)
    Santiago, Chile(1)
    Quito, Ecuador(1)
    Guayaquil, Ecuador(1)
    Caracas, Venezuela(1)
    Buenos Aires, Argentina(2)
    Bogota, Colombia(1)

Leased properties

  8   Beverly Hills, California(1)
    Miami, Florida(1)
    New York, New York(1)
    Medellín, Colombia(1)
    Bogota, Colombia(2)
    Quito, Ecuador(1)
    San Juan, Puerto Rico(1)

Publishing distribution and other activities

Owned properties

  2   Lima, Peru(1)
    Guayaquil, Ecuador(1)

Leased properties

  79   Quito, Ecuador(2)
    Guayaquil, Ecuador(1)
    Buenos Aires, Argentina(2)
    Panamá, Panamá(2)

 

55


Operations

  Number of
Properties
 

Location

    Santiago, Chile(44)
    Barranquilla, Colombia(2)
    Bogota, Colombia(5)
    Bucaramanga, Colombia(1)
    Cali, Colombia(5)
    Cartagena, Colombia(1)
    Colombia, Colombia(2)
    Ibage, Colombia(1)
    Manizales, Colombia(1)
    Medellín, Colombia(3)
    Pasto, Colombia(1)
    Pompayan, Colombia(1)
    Pereira, Colombia(1)
    Santa Martha, Colombia(1)
    Sincelejo, Colombia(1)
    Villavicencio, Colombia(1)
    Lima, Peru(1)

DTH

   

Leased properties

  7   San José, Costa Rica(1)
    Guatemala(1)
    Nicaragua(1)
    Panama(1)
    Salvador(1)
    Honduras(1)
    Dominicana(1)

Telephony

   

Leased properties

  8   San Antonio, Texas(3)
    Dallas, Texas(2)
    Laredo, Texas(1)
    McAllen, Texas(1)
    Mission, Texas(1)

Satellites. We currently use transponder capacity on seven satellites: Satmex V, which reaches Mexico, the United States, Latin America, except Brazil, and the Caribbean; Solidaridad II, which reaches only Mexico; Intelsat IS-11, replacement of PAS 3-R (renamed in February 2007 IS-3R), which started operations in July 2009 and reaches North America, Western Europe, Latin America and the Caribbean; Galaxy 16 (formerly Galaxy IVR), which reaches Mexico, the U.S. and Canada; IS-905, which reaches Western and Eastern Europe; IS-9, which reaches Central America, Mexico, the Southern United States and the Caribbean and IS-16 which reaches Central America, Mexico, the Southern United States and the Caribbean. The Intelsat IS-9 (formerly PAS-9) satellite is currently in operation. However, Intelsat has reported that IS-9’s estimated end of life has been reduced to October 2012. In March 2010, Sky reached an agreement with a subsidiary of Intelsat to lease 24 transponders on the Intelsat IS-21 satellite which will be mainly used for signal reception and retransmission services over the satellite’s estimated 15-year service life. IS-21 satellite is intended to replace Intelsat IS-9 as Sky’s primary transmission satellite and is currently expected to start service in the third quarter of 2012. On April 1, 2010 Intelsat released IS-16 satellite, where Sky has an additional twelve transponders to deliver new DTH-HD channels and more DTH SD channels; also this satellite is a back-up satellite for our DTH venture operations. For a description of guarantees related to our DTH venture transponder obligations, see Note 11 to our consolidated year-end financial statements.

In 1996, PanAmSat (now Intelsat), our primary satellite service provider, agreed to provide U.S. transponder service on three to five PAS-3R Ku-band transponders, at least three of which were intended to be for the delivery of DTH satellite services to Spain. Under the PAS-3R transponder contract, as amended, we were required to pay for five transponders at an annual fee for each transponder of U.S.$3.1 million. We currently have available transponder capacity on two 36 MHz C-band transponders on Galaxy 16 (formerly, Galaxy IVR), which reaches Mexico, the United States and Canada, due to an exchange with three of the five 54 MHz Ku-band transponders on PAS-3R described above. Until April 2010, for each of the 36 MHz C-band transponders we paid an annual fee of approximately U.S.$3.7 million. Subsequent to April 2010, the annual fee for the 36 MHz C-band transponders is approximately U.S.$1.3 million.

 

56


In December 2005, we signed an extension with PanAmSat, for the use of three transponders on the PAS-3R satellite until 2009 and 2012 and two transponders on the Galaxy IVR (replaced by Galaxy 16) satellite until 2016.

On February 1, 2007, Intelsat renamed some of its satellite fleet recently acquired with its 2006 merger with PanAmSat: current names for PAS-9 and PAS-3R are IS-9 and IS-3R, respectively. Intelsat kept the name of Galaxy 16. In December 2007, Sky and Sky Brasil reached an agreement with Intelsat Corporation and Intelsat LLC to build and launch a new 24-transponder satellite, IS-16, for which service will be dedicated to Sky and Sky Brasil over the satellite’s estimated 15-year life. The satellite was manufactured by Orbital Sciences Corporation and was successfully launched in February 2010 and started operations in April 2010.

On August 3, 2009, the contract on two remaining transponders of the IS-3R satellite expired (end of life of the satellite). Televisa negotiated a new contract for a new transponder on the IS-905 satellite until August 31, 2012, for the distribution of our content in Europe. Negotiations on contract renewal on the same transponder and satellite are in process.

In February 2012, we renewed the contract on Satmex V. The new contract includes the full service migration to the new satellite, Satmex 8, which is scheduled to start operations in the fourth quarter of 2012.

With several new domestic and international satellites having been launched recently, and with several others scheduled for launch in the next few years, including those scheduled for launch by the new Intelsat company and the new Satmex company, we believe that we will be able to secure satellite capacity to meet our needs in the future, although no assurance can be given in this regard.

Insurance. We maintain comprehensive insurance coverage for our offices, equipment and other property, subject to some limitations, that result from a business interruption due to natural disasters or other similar events. However, we do not maintain business interruption insurance for our DTH business in case of loss of satellite transmission.

Item 5. Operating and Financial Review and Prospects.

You should read the following discussion together with our consolidated year-end financial statements and the accompanying notes, which appear elsewhere in this annual report. This annual report contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in “Key Information — Risk Factors”. See “Key Information — Forward-Looking Statements” for further discussion of the risks and uncertainties inherent in forward-looking statements. In addition to the other information in this annual report, investors should consider carefully the following discussion and the information set forth under “Key Information — Risk Factors” before evaluating us and our business.

Preparation of Financial Statements

Our consolidated year-end financial statements have been prepared in accordance with Mexican FRS, which differ in some significant respects from U.S. GAAP. Note 24 to our consolidated year-end financial statements describes certain differences between Mexican FRS and U.S. GAAP as they relate to us through December 31, 2011 and provides a reconciliation to U.S. GAAP of net income and total stockholders’ equity. Note 24 to our consolidated year-end financial statements also presents other disclosures required by U.S. GAAP, as well as condensed financial statement data.

As required by Mexican FRS, beginning on January 1, 2008, we discontinued recognizing the effects of inflation in our financial information. Our financial information for the years ended December 31, 2009, 2010 and 2011 maintained the inflation adjustments recognized in our consolidated stockholders’ equity, and the inflation-adjusted amounts for non-monetary assets and liabilities at December 31, 2007.

Results of Operations

The following tables set forth our results of operations data for the indicated periods as a percentage of net sales:

 

     Year Ended December 31,(1)  
     2009     2010     2011  

Segment Net Sales

      

Television Broadcasting

     40.3     38.5     35.7

Pay Television Networks

     5.1        5.3        5.6   

 

57


     Year Ended December 31,(1)  
     2009     2010     2011  

Programming Exports

     5.3        5.2        6.3   

Publishing

     6.3        5.5        5.0   

Sky

     18.7        19.0        19.5   

Cable and Telecom

     17.3        20.0        21.3   

Other Businesses

     7.0        6.5        6.6   
  

 

 

   

 

 

   

 

 

 

Total Segment Net Sales

     100.0     100.0     100.0

Intersegment Operations

     (2.2     (2.1     (2.0
  

 

 

   

 

 

   

 

 

 

Total Consolidated Net Sales

     97.8     97.9     98.0
  

 

 

   

 

 

   

 

 

 

Net Sales

      

Cost of Sales(2)

     45.4     45.4     45.0

Selling Expenses(2)

     8.9        8.3        7.9   

Administrative Expenses(2)

     7.3        8.0        8.3   

Depreciation and Amortization

     9.4        11.4        11.9   

Consolidated Operating Income

     29.0        26.9        26.9   
  

 

 

   

 

 

   

 

 

 

Total Consolidated Net Sales

     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

 

 

(1) Certain segment data set forth in these tables may vary from certain data set forth in our consolidated year-end financial statements due to differences in rounding. The segment net sales and total segment net sales data set forth in this annual report include sales from intersegment operations in all periods presented. See Note 22 to our consolidated year-end financial statements.

 

(2) Excluding depreciation and amortization.

For the years ended December 31, 2009, 2010 and 2011, 85.1%, 86.8% and 86.8%, respectively, of our total consolidated net sales were in Mexico. See Note 22 to our consolidated year-end financial statements.

Summary of Business Segment Results

The following table sets forth the net sales and operating segment income (loss) of each of our reportable business segments and intersegment sales, corporate expenses and depreciation and amortization for the years ended December 31, 2009, 2010 and 2011. In 2011, we adopted the provisions of Mexican FRS B-5, “Financial Information by Segments” issued by the Mexican Financial Reporting Standards Board. This standard requires us to identify our reportable operating segments based on our method of internal reporting to senior management for making operating decisions and evaluating performance of operating segments, and certain qualitative, grouping and quantitative criteria. In accordance with this standard, we currently classify our operations into seven business segments: Television Broadcasting, Pay Television Networks, Programming Exports, Publishing, Sky, Cable and Telecom, and Other Businesses. Effective October 1, 2009, we began consolidating the assets, liabilities and results of operations of TVI in our consolidated financial statements as part of our Cable and Telecom business segment. See Note 2 to our consolidated year-end financial statements.

 

     Year Ended December 31,(1)  
     2009     2010     2011  
     (Millions of Pesos)  

Segment Net Sales

      

Television Broadcasting

   Ps. 21,561.6      Ps. 22,750.1      Ps. 22,829.2   

Pay Television Networks

     2,736.6        3,146.2        3,584.8   

Programming Exports

     2,845.9        3,074.8        4,038.7   

Publishing

     3,356.1        3,229.6        3,191.8   

Sky

     10,005.2        11,248.2        12,479.2   

Cable and Telecom

     9,241.8        11,814.2        13,635.4   

Other Businesses

     3,771.4        3,812.3        4,126.6   
  

 

 

   

 

 

   

 

 

 

Total Segment Net Sales

     53,518.6        59,075.4        63,885.7   

Intersegment Operations

     (1,166.1     (1,218.6     (1,304.2
  

 

 

   

 

 

   

 

 

 

Total Consolidated Net Sales

   Ps.     52,352.5      Ps.     57,856.8      Ps.     62,581.5   
  

 

 

   

 

 

   

 

 

 

Operating Segment Income (Loss)

      

Television Broadcasting

   Ps. 10,323.9      Ps. 10,714.3      Ps. 10,524.3   

Pay Television Networks

     1,660.4        1,622.0        1,803.9   

Programming Exports

     1,437.2        1,503.6        2,116.3   

Publishing

     190.7        425.3        452.6   

 

58


Sky

     4,478.8        5,074.5        5,790.3   

Cable and Telecom

     2,971.9        3,907.2        4,768.3   

Other Businesses

     (318.2     (184.0     (118.7
  

 

 

   

 

 

   

 

 

 

Total Operating Segment Income(2)

     20,744.7        23,062.9        25,337.0   

Corporate Expenses(2)

     (658.2     (901.0     (1,085.2

Depreciation and Amortization(2)

     (4,929.6     (6,579.3     (7,429.8
  

 

 

   

 

 

   

 

 

 

Total Consolidated Operating Income(3)

     Ps.     15,156.9        Ps.     15,582.6        Ps.     16,822.0   
  

 

 

   

 

 

   

 

 

 

 

(1) Certain segment data set forth in these tables may vary from certain data set forth in our consolidated year-end financial statements due to differences in rounding. The segment net sales and total segment net sales data set forth in this annual report reflect sales from intersegment operations in all periods presented. See Note 22 to our consolidated year-end financial statements.

 

(2) The total operating segment income data set forth in this annual report do not include corporate expenses and depreciation and amortization in any period presented, but are presented herein to facilitate the discussion of segment results.

 

(3) Total consolidated operating income reflects corporate expenses and depreciation and amortization in all periods presented. See Note 22 to our consolidated year-end financial statements.

Seasonality

Our results of operations are seasonal. We typically recognize a disproportionately large percentage of our overall advertising net sales in the fourth quarter in connection with the holiday shopping season. For example, in 2009, 2010 and 2011, we recognized 29.0%, 28.5% and 29.2%, respectively, of our net sales in the fourth quarter of the year. Our costs, in contrast to our revenues, are more evenly incurred throughout the year and generally do not correlate to the amount of advertising sales.

Results of Operations for the Year Ended December 31, 2011

Compared to the Year Ended December 31, 2010

Total Segment Results

Net Sales

Our net sales increased by Ps.4,724.7 million, or 8.2%, to Ps.62,581.5 million for the year ended December 31, 2011 from Ps.57,856.8 million for the year ended December 31, 2010. This increase was attributable to revenue growth across all our business segments with the exception of Publishing. Growth was especially strong in our Cable and Telecom, Sky, Programming Exports and Pay Television Networks segments.

Cost of Sales

Cost of sales increased by Ps.1,871.5 million, or 7.1%, to Ps.28,166.3 million for the year ended December 31, 2011 from Ps.26,294.8 million for the year ended December 31, 2010. This increase was due to higher costs in our Sky, Cable and Telecom, Programming Exports, Pay Television Networks, Television Broadcasting and Other Businesses segments. These increases were partially offset by a decrease in the costs of our Publishing segment.

Selling Expenses

Selling expenses increased by Ps.175.1 million, or 3.6%, to Ps.4,972.8 million for the year ended December 31, 2011 from Ps.4,797.7 million for the year ended December 31, 2010. This increase was attributable to higher selling expenses in our Cable and Telecom, Television Broadcasting, Programming Exports and Pay Television Networks segments. These increases were partially offset by a decrease in selling expenses in our Sky, Publishing and Other Businesses segments.

Administrative Expenses

Administrative expenses increased by Ps.588.2 million, or 12.8%, to Ps.5,190.6 million for the year ended December 31, 2011 from Ps.4,602.4 million for the year ended December 31, 2010. The growth reflects increased administrative expenses in our Cable and Telecom, Sky, Television Broadcasting and Programming Exports segments, as well as an increase in corporate expenses due to higher share-based compensation expense, which amounted to approximately Ps.653.2 million in 2011, compared with Ps.560.6 million in 2010. These increases were partially offset by a decrease in administrative expenses in our Pay Television Networks, Publishing and Other Businesses segments.

 

59


Television Broadcasting

Television Broadcasting net sales are derived primarily from the sale of advertising time on our national television networks, Channels 2, 4, 5 and 9, and local stations, including our English language station on the Mexico/U.S. border. The contribution of local stations net sales to Television Broadcasting net sales was 11.8% in 2010 and 11.2% in 2011. No Television Broadcasting advertiser accounted for more than 10% of Television Broadcasting advertising sales in any of these years.

Television Broadcasting net sales, representing 38.5% and 35.7% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, increased marginally by Ps.79.1 million, or 0.3%, to Ps.22,829.2 million for the year ended December 31, 2011 from Ps.22,750.1 million for the year ended December 31, 2010. This increase was achieved despite the contribution to Television Broadcasting net sales for 2010 attributable to our sales during that year of the broadcast and transmission of the Soccer World Cup. During 2011, Televisa’s content continued to achieve high ratings. The final episode of the novela “Teresa” was the highest-rated program transmitted in Mexico through broadcast television during the year. Additionally, eight of the top-ten-rated shows on over-the-air television in Mexico were produced and transmitted by Televisa. Upfront deposits represented 72.5% of revenues during 2011, compared with 78.3% during 2010; the remaining were sales in the spot market.

Television Broadcasting operating segment income decreased by Ps.190.0 million, or 1.8%, to Ps.10,524.3 million for the year ended December 31, 2011 from Ps.10,714.3 million for the year ended December 31, 2010. This decrease was due to the increase in cost of sales related to the produced programs costs (news and variety programs, principally), and an increase in operating expenses, primarily in promotional, advertising and personnel expenses. This decrease was partially offset by an increase in net sales.

Advertising Rates and Sales

We sell commercial time in two ways: upfront and on a scatter basis. Advertisers that elect the upfront option lock in prices for the upcoming year, regardless of future price changes. Advertisers that choose the upfront option make annual prepayments, with cash or short-term notes, are charged lower rates for their commercial time, are given the highest priority in schedule placement, and are given a first option in advertising during special programs. Scatter advertisers, or advertisers who choose not to make upfront payments but rather advertise from time to time, risk both higher prices and lack of access to choice commercial time slots. We sell part of advertising to our customers on a cost per rating point basis or cost-per-thousand basis. Under cost per rating point pricing, we are not committed with advertisers to achieve a certain rating upon broadcast, and therefore, we do not have to provide any future price adjustments if the rating is not met.

The Mexican government does not restrict our ability to set our advertising rates. In setting advertising rates and terms, we consider, among other factors, the likely effect of rate increases on the volume of advertising sales. We have historically been flexible in setting rates and terms for our television advertising. Nominal rate increases have traditionally varied across daytime hours, and the same price increases have not been implemented for all programs, with higher increases in certain programs as a result of high demand for advertising during certain hours.

During 2010 and 2011, we increased our nominal advertising rates. During prime time broadcasts, we sold an aggregate of 1,512 hours of advertising time in 2010 and 1,289 hours in 2011. During sign-on to sign-off hours, we sold 3,071 hours of advertising time in 2010 and 2,723 hours in 2011. The decrease in sold advertising time mainly reflects a change of programming in Channel 4 and fewer product infomercials. Television Broadcasting advertising time that is not sold to the public is primarily used to satisfy our legal obligation to the Mexican government to provide Official Television Broadcast Time and to promote, among other things, our products.

As of December 31, 2010 and 2011, we had received Ps.16,556.2 million and Ps.18,026.5 million, respectively, of advertising deposits for television advertising time during 2011 and 2012, respectively, representing approximately U.S.$1,339.8 million and U.S.$1,289.6 million, respectively, at the applicable year-end exchange rates. Approximately 66.0% and 63.9% of these deposits as of December 31, 2010 and 2011, respectively, were in the form of short-term, non-interest bearing notes, with the remainder in each of these years consisting of cash deposits. The weighted average maturity of these notes at December 31, 2010 and 2011 was 4.6 months for both years.

On January 19, 2012, the Reglamento a la Ley General de Salud en Materia de Publicidad, or General Health Law Regulation on Advertising, was amended. As a result of these amendments, we are bound to request proof of evidence from advertisers of registration of their products before the Comisión para la Protección de Riesgos Sanitarios, or Federal Commission for the Protection Against Sanitary Risks, or Cofepris, and authorization thereof. Otherwise, we have to suspend the broadcast of advertisers that do not comply with these obligations. The foregoing may result in a decrease in our income.

Pay Television Networks

Pay Television Networks net sales are derived primarily from revenues received in exchange for providing television channels to pay-TV providers servicing Mexico, the United States, Europe, the Caribbean, Australia, Latin America and Canada.

 

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Pay Television Networks net sales also included in 2010, the revenues from TuTv, our former pay-TV venture in the United States with Univision. Beginning December 2010, we no longer consolidate TuTv in our financial statements, because we sold to Univision our entire interest in TuTv which represented 50% of its capital stock, pursuant to the investment agreement with Univision and the purchase and assignment and assumption agreement entered into in connection therewith. Revenues from advertising time sold with respect to programs provided to cable systems in Mexico and internationally are also reflected in this segment. Pay Television Networks sell advertising on a scatter basis, independently from our other media-related segments.

Pay Television Networks net sales, representing 5.3% and 5.6% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, increased by Ps.438.6 million, or 13.9%, to Ps.3,584.8 million for the year ended December 31, 2011 from Ps.3,146.2 million for the year ended December 31, 2010. The annual increase was driven by higher revenues from channels sold mainly in Mexico and Latin America, as well as higher advertising sales, which represented 24.1% of segment revenue in 2011, up from 22.7% in 2010. The 2011 results no longer include the consolidation of TuTV, which was sold to Univision in 2010. Excluding the contribution to revenues of TuTV in the 2010 results, which amounted to Ps.175.6 million, the increase in net sales in our Pay Television Networks segment was 20.7%. During 2011, we successfully added “Tiin” to our portfolio of channels. This new network targets young teenagers and complements our existing portfolio of pay-TV channels.

Pay Television Networks operating segment income increased by Ps.181.9 million, or 11.2%, to Ps.1,803.9 million for the year ended December 31, 2011, from Ps.1,622.0 million for the year ended December 31, 2010. These results reflect higher revenue and the absence of costs and expenses related to (i) ForoTV, which is now part of Television Broadcasting; (ii) the transmission of the World Cup by TDN in 2010; and (iii) TuTV, which is no longer consolidated. This was partially offset by an increase in the cost of content, mainly as a result of the launch of “Tiin” and more in-house productions.

Programming Exports

Programming Exports net sales consist primarily of revenues from program license agreements and principally relate to our telenovelas and our variety programs. In 2010 and 2011, 64.0% and 70.2%, respectively, of net sales for this segment were attributable to programming licensed under our Program License Agreement with Univision. In 2010 and 2011, we received U.S.$156.1 million and U.S.$224.9 million, respectively, in program royalties from Univision, related to the Univision Network and Galavision Network.

Programming Exports net sales, representing 5.2% and 6.3% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, increased by Ps.963.9 million, or 31.3%, to Ps.4,038.7 million for the year ended December 31, 2011 from Ps.3,074.8 million for the year ended December 31, 2010. The growth was primarily due to an increase in royalties from Univision, from US$156.1 million in 2010 to US$224.9 million in 2011. This reflects the ongoing ratings success of Univision, and the favorable impact of the revised royalty structure. Additionally, during the second-half of 2011, we received revenues from Netflix.

Programming Exports operating segment income increased by Ps.612.7 million, or 40.7%, to Ps.2,116.3 million for the year ended December 31, 2011 from Ps.1,503.6 million for the year ended December 31, 2010. This increase reflects higher sales that were partially offset by higher amortization costs relating to co-produced and exportable programming, including “La Fea más Bella” and “Rebelde”, as well as an increase in operating expenses, primarily personnel and promotional and advertising expenses.

Publishing

Publishing net sales are primarily derived from the sale of advertising pages in our various magazines, as well as magazine sales to distributors. Our Publishing segment sells advertising independently from our other media-related segments. Advertising rates are based on the publication and the assigned space of the advertisement.

Publishing net sales, representing 5.5% and 5.0% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, decreased by Ps.37.8 million, or 1.2%, to Ps.3,191.8 million for the year ended December 31, 2011 from Ps.3,229.6 million for the year ended December 31, 2010. This decrease reflects mainly a decrease in circulation and advertising revenue in Mexico, which was partially offset by an increase in advertising revenue abroad.

Publishing operating segment income increased by Ps.27.3 million, or 6.4%, to Ps.452.6 million for the year ended December 31, 2011 from Ps.425.3 million for the year ended December 31, 2010. This increase reflects primarily lower paper and printing costs and our ongoing strict control on operating expenses, which was partially offset by the decrease in net sales.

 

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Sky

Sky net sales are primarily derived from program services, activation fees and equipment rental to subscribers, and national advertising sales.

Sky net sales, representing 19.0% and 19.5% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, increased by Ps.1,231.0 million, or 10.9%, to Ps.12,479.2 million for the year ended December 31, 2011 from Ps.11,248.2 million for the year ended December 31, 2010. The annual increase was driven by strong growth in the subscriber base of more than 964,300, mainly attributable to the continued success of Sky’s low-cost offerings and exclusive content. Sky’s attractive and exclusive content offerings included some of the most important soccer tournaments, such as the “Copa de Oro” and “Copa América”. As of December 31, 2011, the number of gross active subscribers increased to approximately 4,008,400 (including 157,600 commercial subscribers), compared with 3,044,000 (including 149,900 commercial subscribers) as of December 31, 2010. Sky closed the year with more than 159,300 subscribers in Central America and the Dominican Republic.

Sky operating segment income increased by Ps.715.8 million, or 14.1%, to Ps.5,790.3 million for the year ended December 31, 2011 from Ps.5,074.5 million for the year ended December 31, 2010. These results reflect higher net sales as well as the absence of amortization costs related to the exclusive transmission of certain 2010 Soccer World Cup matches. This was partially offset by an increase in operating expenses due to commissions paid, personnel expenses and increase in the provision for doubtful trade accounts.

Cable and Telecom

Cable and Telecom net sales are derived from cable television and telecommunication services, as well as advertising sales. Net sales for cable television services generally consist of monthly subscription fees for basic and premium service packages, fees charged for pay-per-view programming and, to a significantly lesser extent, monthly rental and one-time installation fees, broadband internet and telephone services subscription. Beginning June 2008, we began to consolidate the financials of Cablemás, a significant cable operator in Mexico operating in 50 cities, into our financial statements. Beginning October 2009, we began to consolidate the financials of TVI. The telecommunications business derives revenues from providing data and long-distance services solutions to carriers and other telecommunications service providers through its fiber-optic network. Net sales for cable television advertising consist of revenues from the sale of advertising on Cablevisión, Cablemás and TVI. Rates are based on the day and time the advertising is aired, as well as the type of programming in which the advertising is aired. Cable subscription and advertising rates are adjusted periodically in response to inflation and in accordance with market conditions.

Cable and Telecom net sales, representing 20.0% and 21.3% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, increased by Ps.1,821.2 million, or 15.4%, to Ps.13,635.4 million for the year ended December 31, 2011 from Ps.11,814.2 million for the year ended December 31, 2010. This increase was primarily due to the addition of more than 623,100 revenue generating units (RGUs) in Cablevisión, Cablemás and TVI during the year as a result of the success of our competitive offerings. During the year, Cablevisión, Cablemás, TVI and Bestel net sales increased 12.3%, 16.3%, 17.2% and 19.6%, respectively.

Cable and Telecom operating segment income increased by Ps.861.1 million, or 22.0%, to Ps.4,768.3 million for the year ended December 31, 2011 from Ps.3,907.2 million for the year ended December 31, 2010. These results reflect continued growth in the cable platforms, and improved operating margins at Bestel. These favorable factors were partially offset by an increase in signal costs due to the increase in the subscriber base as well as an increase in personnel and advertising expenses during 2011.

The following table sets forth the breakdown of RGUs as of December 31, 2011:

 

     Cablevisión      Cablemás      TVI  

Video

     727,235         1,085,173         370,411   

Broadband

     408,408         466,827         191,406   

Voice

     251,340         266,160         132,360   

RGUs

     1,386,983         1,818,160         694,177   

 

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Other Businesses

Other Businesses net sales are primarily derived from the promotion of sports and special events in Mexico, the distribution of feature films, revenues from our internet businesses, which includes revenues from advertisers for advertising space on Esmas.com and Televisa.com, and revenues related to our PSMS messaging service, gaming, radio and publishing distribution.

Other Businesses net sales, representing 6.5% and 6.6% of our total segment net sales for the years ended December 31, 2010 and 2011, respectively, increased by Ps.314.3 million, or 8.2%, to Ps.4,126.6 million for the year ended December 31, 2011 from Ps.3,812.3 million for the year ended December 31, 2010. Businesses with increased sales in 2011 included our feature-film distribution, soccer, and gaming businesses. The results of the gaming business were driven by the success in the launch of new games. The soccer business benefited from the consolidation of the teams Necaxa and San Luis. Finally, the feature-film distribution business distributed hits such as “Salvando al Soldado Pérez” and “La Leyenda de la Llorona”. These increases were partially offset by a decrease in net sales in our publishing distribution business.

Other Businesses operating segment loss decreased by Ps.65.3 million, or 35.5%, to Ps.118.7 million for the year ended December 31, 2011 from Ps.184.0 million for the year ended December 31, 2010. This decrease was attributable to the positive shift from operating losses in 2010 to operating income in 2011 in our gaming and internet businesses, as well as an increase in the operating income of our radio business. These favorable effects were partially offset by an increase in the operating segment loss of our sports and show business promotions and publishing distribution businesses.

New Structure of Segments in 2012

At the beginning of 2012, we adjusted our segment reporting structure. From the first quarter of 2012 onwards, the results of Television Broadcasting, Pay Television Networks and Programming Exports businesses, which were previously reported as separated segments, and the internet business, which was previously reported as part of the Other Businesses segment, will be reported as a single segment, Content, which will categorize our source of content revenue as follows:

 

  a) Advertising,

 

  b) Network Subscription Revenue, and

 

  c) Licensing and Syndication.

Given the cost structure of our Content business, operating segment income will be reported as a single line item. For a better understanding of the structure of our new Content Segment that will be used for reporting purposes, prior-year figures have been adjusted as follows:

 

     Year Ended December 31,  
     2009      2010      2011  
     (Millions of Pesos)  

Net Sales:

     Ps.     27,406.0         Ps.     29,234.7         Ps.     30,685.6   

Advertising

     21,396.7         22,746.5         23,206.1   

Network Subscription Revenue

     2,200.7         2,379.2         2,590.8   

Licensing and Syndication

     3,808.6         4,109.0         4,888.7   

Operating Segment Income

     Ps.     13,417.0         Ps.     13,820.3         Ps.     14,465.6   

Depreciation and Amortization

Depreciation and amortization expense increased by Ps.850.5 million, or 12.9%, to Ps.7,429.8 million for the year ended December 31, 2011 from Ps.6,579.3 million for the year ended December 31, 2010. This change primarily reflects an increase in such expense in our Cable and Telecom, Sky and Television Broadcasting segments, which was partially offset by a decrease in our Publishing and Other Businesses segments.

 

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Non-operating Results

Other Expense, Net

Other expense, net, increased by Ps.72.8 million, or 12.8%, to Ps.640 million for the year ended December 31, 2011, compared with Ps.567.2 million for the year ended December 31, 2010. The increase reflected primarily the absence in 2011 of a gain on disposition in 2010 of our equity stakes in Volaris, a low-cost carrier airline, and TuTv, a distributor of our Spanish-speaking programming packages in the United States. These unfavorable factors were partially offset primarily by (i) a reduction of expenses related to financial advisory and professional services, (ii) a lower loss on disposition of property and equipment, and (iii) the absence of expenses related to an impairment adjustment made to the carrying value of goodwill in our Publishing segment and the refinancing of debt of Cablemás in 2010.

Integral Cost of Financing, Net

Integral cost of financing, net, significantly impacts our consolidated financial statements in periods of high inflation or currency fluctuations. Under Mexican FRS, integral cost of financing reflects:

 

   

interest expense, including gains or losses from derivative instruments;

 

   

interest income; and

 

   

foreign exchange gain or loss attributable to monetary assets and liabilities denominated in foreign currencies, including gains or losses from derivative instruments.

Our foreign exchange position is affected by our assets or liabilities denominated in foreign currencies, primarily U.S. dollars. We record a foreign exchange gain or loss if the exchange rate of the Peso to the other currencies in which our monetary assets or liabilities are denominated varies.

The net expense attributable to integral cost of financing increased by Ps.1,114.1 million, or 36.8%, to Ps.4,142.7 million for the year ended December 31, 2011 from Ps.3,028.6 million for the year ended December 31, 2010. This increase reflected primarily (i) a Ps.697.4 million increase in interest expense, due mainly to a higher average principal amount of long-term debt in 2011 and (ii) a Ps.515.7 million increase in foreign unhedged exchange loss resulting primarily from the unfavorable effect of a 13.1% depreciation of the Mexican peso against the U.S. dollar in 2011 on our average net U.S. dollar liability position compared with a 5.5% appreciation in 2010 on our average net U.S. dollar liability position. These unfavorable changes were partially offset by a Ps.99 million increase in interest income, which is primarily attributable to our investment in debentures issued by BMP and GSF, the controlling companies of Univision and Iusacell, respectively, in 2011, which effect was partially offset by a lower average amount of cash and cash equivalents in 2011.

Equity in Losses of Affiliates, Net

This line item reflects our equity participation in the operating results and net assets of unconsolidated businesses in which we maintain an interest, but over which we have no control. We recognize equity in losses of affiliates up to the amount of our initial investment and subsequent capital contributions, or beyond that amount when guaranteed commitments have been made by us in respect of obligations incurred by affiliates.

Equity in losses of affiliates, net, increased by Ps.237.5 million to Ps.449.4 million in 2011 compared with Ps.211.9 million in 2010. This increase reflected mainly equity in losses of La Sexta, a free-to-air television channel in Spain, and BMP, the controlling company of Univision. This increase was partially offset by an increase in equity in earnings of OCEN, a live-entertainment venture in Mexico.

Income Taxes

Income taxes increased by Ps.150.8 million, or 4.6%, to Ps.3,409.8 million in 2011 from Ps.3,259 million in 2010. This increase reflected primarily a higher effective income tax rate.

We are authorized by the Mexican tax authorities to compute our income tax on a consolidated basis. Mexican controlling companies are allowed to consolidate, for income tax purposes, income or losses of their Mexican subsidiaries up to 100% of their share ownership in such subsidiaries.

The Mexican corporate income tax rates in 2009, 2010 and 2011 were 28%, 30% and 30%, respectively.

The Flat Rate Business Tax (“Impuesto Empresarial a Tasa Única” or “IETU”) became effective in Mexico as of January 1, 2008. This flat tax replaced Mexico’s asset tax and is applied along with Mexico’s regular income tax. In general, Mexican companies are subject to paying the greater of the flat tax or the income tax. The IETU is calculated by applying a tax rate of 17% in 2009 and 17.5% in 2010, 2011 and thereafter. Although the IETU is defined as a minimum tax it has a wider taxable base as many of the tax deductions allowed for income tax purposes are not allowed for the flat tax. As of December 31, 2009 and 2010, this tax did not have a material effect on the Group’s deferred tax position, and the Group expects to pay primarily the regular income tax in the near future on a tax consolidated basis.

 

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In December 2009, the Mexican government enacted certain amendments and changes to the Mexican Income Tax Law that became effective as of January 1, 2010. The main provisions of these amendments and changes are as follows: (i) the corporate income tax rate is increased from 28% to 30% for the years 2010 through 2012, and will be reduced to 29% and 28% in 2013 and 2014, respectively; (ii) the deferred income tax benefit derived from tax consolidation of a parent company and its subsidiaries is limited to a period of five years; therefore, the resulting deferred income tax has to be paid starting in the sixth year following the fiscal year in which the deferred income tax benefit was received; (iii) the payment of this income tax has to be made in installments of 25% in the first and second year, 20% in the third year, and 15% in the fourth and fifth year; and (iv) this procedure applies to the deferred income tax resulting from the tax consolidation regime prior to and from 2010, so taxpayers paid in 2010 and 2011 the first and second installment of the cumulative amount of the deferred tax benefits determined as of December 31, 2004 and in 2011, the first installment of the amount of the deferred tax benefit determined for the year ended December 31, 2005. See “Risk Factors — Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”.

Non-controlling Interest Net Income

Non-controlling interest net income reflects that portion of operating results attributable to the interests held by third parties in the businesses which are not wholly-owned by us, including our Cable and Telecom and Sky segments, as well as our Radio businesses.

Non-controlling interest net income increased by Ps.458 million, or 55%, to Ps.1,290.5 million in 2011, from Ps.832.5 million in 2010. This increase reflected primarily a higher portion of consolidated net income attributable to interests held by non-controlling equity owners in our Cable and Telecom and Sky segments.

Controlling Interest Net Income

We generated controlling interest net income in the amount of Ps.6,889.6 million in 2011, as compared to Ps7,683.4 million in 2010. The net decrease of Ps.793.8 million reflected:

 

   

a Ps.72.8 million increase in other expense;

 

   

a Ps.1,114.1 million increase in integral cost of financing, net;

 

   

a Ps.237.5 million increase in equity in losses of affiliates, net;

 

   

a Ps.150.8 million increase in income taxes; and

 

   

a Ps.458.0 million increase in non-controlling interest net income.

These changes were partially offset by:

 

   

a Ps.1,239.4 million increase in operating income.

Results of Operations for the Year Ended December 31, 2010

Compared to the Year Ended December 31, 2009

Total Segment Results

Net Sales

Our net sales increased by Ps.5,504.3 million, or 10.5%, to Ps.57,856.8 million for the year ended December 31, 2010 from Ps.52,352.5 million for the year ended December 31, 2009. This increase was attributable to revenue growth across all our business segments with the exception of Publishing which underwent a restructuring process. Growth was especially strong in our Cable and Telecom and Sky segments.

Cost of Sales

Cost of sales increased by Ps.2,526.4 million, or 10.6%, to Ps.26,294.8 million for the year ended December 31, 2010 from Ps.23,768.4 million for the year ended December 31, 2009. This increase was due to higher costs in our Cable and Telecom, Television Broadcasting, Sky, Pay Television Networks and Programming Exports segments. These increases were partially offset by a decrease in the costs of our Publishing and Other Businesses segments.

 

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Selling Expenses

Selling expenses increased by Ps.125.6 million, or 2.7%, to Ps.4,797.7 million for the year ended December 31, 2010 from Ps.4,672.1 million for the year ended December 31, 2009. This increase was attributable to higher selling expenses in our Cable and Telecom, Pay Television Networks, Programming Exports and Television Broadcasting segments. These increases were partially offset by a decrease in selling expenses in our Publishing, Sky and Other Businesses segments.

Administrative Expenses

Administrative expenses increased by Ps.776.9 million, or 20.3%, to Ps.4,602.4 million for the year ended December 31, 2010 from Ps.3,825.5 million for the year ended December 31, 2009. This increase reflects increased administrative expenses in all our segments, especially in our Cable and Telecom and Sky segments, as well as an increase in corporate expenses due to higher share-based compensation expense, which amounted to approximately Ps.560.6 million in 2010, compared with Ps.375.7 million in 2009.

Television Broadcasting

Television Broadcasting net sales increased by Ps.1,188.5 million, or 5.5%, to Ps.22,750.1 million for the year ended December 31, 2010 from Ps.21,561.6 million for the year ended December 31, 2009. Our content continued to perform well. For example the final episode of the telenovela “Soy tu Dueña” was the highest rated program transmitted in Mexico through broadcast television during the year, and nine of the top-ten rated shows on over-the-air television in Mexico were transmitted by us. The sales of the broadcast and transmission of the 2010 Soccer World Cup in South Africa also contributed to the increase in net sales.

Television Broadcasting operating segment income increased by Ps.390.4 million, or 3.8%, to Ps.10,714.3 million for the year ended December 31, 2010 from Ps.10,323.9 million for the year ended December 31, 2009. This increase was due to the increase in net sales and was partially offset by an increase in cost of sales related to the transmission during the year of programs produced in connection with the 2010 Soccer World Cup, including the soccer matches, and an increase in operating expenses, primarily in personnel expenses.

Pay Television Networks

Pay Television Networks net sales increased by Ps.409.6 million, or 15.0%, to Ps.3,146.2 million for the year ended December 31, 2010 from Ps.2,736.6 million for the year ended December 31, 2009. This increase was achieved in spite of a negative translation effect of foreign-currency-denominated sales, and was driven by higher revenues from channels sold in Mexico as well as higher advertising sales, which represented 22.7% of segment revenue in 2010. Some of the most successful channels during the year included Clásico TV and the 2-hour delayed broadcast of Channel 2. Additionally, during the year, we successfully added to our portfolio of high-definition channels Golden and American Network, and launched the TL Novela channel in Brazil.

Pay Television Networks operating segment income decreased by Ps.38.4 million, or 2.3%, to Ps.1,622.0 million for the year ended December 31, 2010, from Ps.1,660.4 million for the year ended December 31, 2009. This decrease reflects an increase in cost of sales and operating expenses, driven mainly by investments made in the production and launch of two new channels. In August 2009, we launched our sports pay-TV channel, Televisa Deportes Network (TDN), which carried on an exclusive basis ten of the 64 games of the 2010 Soccer World Cup. Additionally, in February 2010, we launched Foro TV, our 24-hour news channel, which since September 2010 is broadcast on our free-to-air Channel 4.

Programming Exports

Programming Exports net sales increased by Ps.228.9 million, or 8.0%, to Ps.3,074.8 million for the year ended December 31, 2010 from Ps.2,845.9 million for the year ended December 31, 2009. This increase was primarily due to an increase in royalties from Univision, from U.S.$143.0 million in 2009 to U.S.$156.1 million in 2010, as well as higher programming sales, mainly in Europe, and higher revenue from co-productions abroad. This increase was partially offset by a negative translation effect on foreign-currency-denominated sales.

Programming Exports operating segment income increased by Ps.66.4 million, or 4.6%, to Ps.1,503.6 million for the year ended December 31, 2010 from Ps.1,437.2 million for the year ended December 31, 2009. This increase was primarily due to the increase in net sales, which was partially offset by an increase in cost of sales due to higher programming and co-production costs and operating expenses, primarily due to an increase in personnel expenses and an increase in the provision for doubtful trade accounts.

 

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Publishing

Publishing net sales decreased by Ps.126.5 million, or 3.8%, to Ps.3,229.6 million for the year ended December 31, 2010 from Ps.3,356.1 million for the year ended December 31, 2009. The annual decrease was driven by the negative impact of the translation effect on foreign-currency-denominated sales and by a restructuring of the business, which included taking some magazines off the market, resulting in a decrease in magazine circulation in Mexico and consequently a decrease in advertising revenue. This decrease was partially offset by an increase in advertising sales abroad.

Publishing operating segment income increased by Ps.234.6 million, or 123.0%, to Ps.425.3 million for the year ended December 31, 2010 from Ps.190.7 million for the year ended December 31, 2009. This increase reflects primarily lower paper and printing costs in connection with the restructuring process and to a lesser extent lower operating expenses due to non-recurrent charges such as decreases in expense allocations and the provision for doubtful trade accounts. This increase in the operating segment income was partially offset by the decrease in net sales.

Sky

Sky net sales increased by Ps.1,243.0 million, or 12.4%, to Ps.11,248.2 million for the year ended December 31, 2010 from Ps.10,005.2 million for the year ended December 31, 2009. The annual increase was driven by solid growth in the subscriber base in Mexico, mainly attributable to the success of Sky’s new low-cost offerings. Additionally, Sky transmitted 24 matches of the 2010 Soccer World Cup on an exclusive basis and in some packages sold it as a pay-per-view event. The number of gross active subscribers increased to 3,044,000 (including 149,900 commercial subscribers) as of December 31, 2010 from 1,959,700 (including 144,300 commercial subscribers) as of December 31, 2009.

Sky operating segment income increased by Ps.595.7 million or 13.3% to Ps.5,074.5 million for the year ended December 31, 2010 from Ps.4,478.8 million for the year ended December 31, 2009. This increase was due to the increase in net sales as well as a reduction in the amount of costs amortized related to the exclusive transmission of certain 2010 Soccer World Cup matches. This increase was partially offset by an increase in programming costs associated with the increase in our subscriber base, and operating expenses due to commissions paid and increase in the provision for doubtful trade accounts.

Cable and Telecom

Cable and Telecom net sales increased by Ps.2,572.4 million, or 27.8%, to Ps.11,814.2 million for the year ended December 31, 2010 from Ps.9,241.8 million for the year ended December 31, 2009. This increase was primarily due to the consolidation of TVI effective October 1, 2009, which represented incremental sales of Ps.1,463.5 million, as well as the addition of more than 356,000 revenue generating units (RGUs) in Cablevisión and Cablemás.

Cable and Telecom operating segment income increased by Ps.935.3 million, or 31.5%, to Ps.3,907.2 million for the year ended December 31, 2010 from Ps.2,971.9 million for the year ended December 31, 2009. This increase was due to the continued growth in the cable platforms as well as a positive translation effect on foreign-currency-denominated costs, and was partially offset by the increase in costs resulting from the growth in the subscriber base and higher costs and expenses resulting from the consolidation of TVI.

The following table sets forth the breakdown of RGUs as of December 31, 2010:

 

     Cablevisión      Cablemás      TVI  

Video

     668,985         997,239         301,698   

Broadband

     299,157         360,049         147,268   

Voice

     190,441         205,180         106,129   

RGUs

     1,158,583         1,562,468         555,095   

Other Businesses

Other Businesses net sales increased by Ps.40.9 million, or 1.1%, to Ps.3,812.3 million for the year ended December 31, 2010 from Ps.3,771.4 million for the year ended December 31, 2009. This increase was primarily due to higher sales related to our gaming, sporting events production, radio and publishing distribution businesses. This increase was partially offset by lower sales in our feature-film distribution and internet businesses.

Other Businesses operating segment loss decreased by Ps.134.2 million, or 42.2%, to Ps.184.0 million for the year ended December 31, 2010 from Ps.318.2 million for the year ended December 31, 2009. This decrease reflects

 

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a decrease in the losses attributable to our sporting events production, gaming and publishing distribution businesses as well as an increase in the operating segment income of our radio business. These favorable effects were partially offset by an increase in the losses attributable to our internet business and the losses attributable to our feature-film distribution business in 2010, as compared to 2009 when this business produced income.

Depreciation and Amortization

Depreciation and amortization expense increased by Ps.1,649.7 million, or 33.5%, to Ps.6,579.3 million for the year ended December 31, 2010 from Ps.4,929.6 million for the year ended December 31, 2009. This change primarily reflects an increase in such expense in our Cable and Telecom (due to the consolidation of TVI), Sky and Television Broadcasting segments. This increase was partially offset by a decrease in such expense in our Publishing segment.

Non-operating Results

Other Expense, Net

Other expense, net, decreased by Ps.1,197.7 million, or 67.9%, to Ps.567.2 million for the year ended December 31, 2010, compared with Ps.1,764.9 million for the year ended December 31, 2009. This decrease reflected primarily (i) a reduction in non-cash impairment adjustments to the carrying value of goodwill in our Cable and Telecom, Television Broadcasting and Publishing segments and (ii) the gain on disposition of investments in shares. These favorable variances were partially offset by (i) non-recurring expenses related to the refinancing of debt of Cablemás, and (ii) increases in other expenses related to financial advisory and professional services and the disposition of equipment.

Integral Cost of Financing, Net

Integral cost of financing, net, significantly impacts our consolidated financial statements in periods of high inflation or currency fluctuations. Under Mexican FRS, integral cost of financing reflects:

 

   

interest expense, including gains or losses from derivative instruments;

 

   

interest income; and

 

   

foreign exchange gain or loss attributable to monetary assets and liabilities denominated in foreign currencies, including gains or losses from derivative instruments.

Our foreign exchange position is affected by our assets or liabilities denominated in foreign currencies, primarily U.S. dollars. We record a foreign exchange gain or loss if the exchange rate of the Peso to the other currencies in which our monetary assets or liabilities are denominated varies.

The net expense attributable to integral cost of financing increased by Ps.55.3 million, or 1.9%, to Ps.3,028.6 million for the year ended December 31, 2010 from Ps.2,973.3 million for the year ended December 31, 2009. This increase primarily reflected (i) a Ps.478.9 million increase in interest expense, due mainly to a higher average principal amount of long-term debt in 2010, and (ii) a Ps.5.9 million decrease in interest income explained primarily by a reduction of interest rates applicable to cash equivalents and temporary investments in 2010. These unfavorable variances were partially offset by a Ps.429.5 million decrease in foreign exchange loss resulting primarily from the favorable effect of a 5.5% appreciation of the Mexican peso against the U.S. dollar in 2010 on our average net U.S. dollar liability position in 2010, which changed from a net U.S. dollar asset position in 2009.

Equity in Losses of Affiliates, Net

This line item reflects our equity participation in the operating results and net assets of unconsolidated businesses in which we maintain an interest, but over which we have no control. We recognize equity in losses of affiliates up to the amount of our initial investment and subsequent capital contributions, or beyond that amount when guaranteed commitments have been made by us in respect of obligations incurred by affiliates.

Equity in losses of affiliates, net, decreased by Ps.503.4 million, or 70.4%, to Ps.211.9 million in 2010 compared with Ps.715.3 million in 2009. This decrease mainly reflected a reduction in equity in loss of La Sexta, our 40.5% interest in a free-to-air television channel in Spain. This decrease was partially offset by the absence of equity in earnings of (i) Volaris, as we disposed of this investment in the third quarter of 2010, and (ii) TVI, as we began consolidating its assets, liabilities and results of operations in our consolidated financial statements effective in the fourth quarter of 2009. Equity in losses of affiliates, net, for the year ended December 31, 2010, is mainly comprised of the equity in loss of La Sexta, which was partially offset by the equity in earnings of other associates.

 

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Income Taxes

Income taxes increased by Ps.138.3 million, or 4.4%, to Ps.3,259.0 million in 2010 from Ps.3,120.7 million in 2009. This increase primarily reflected a higher income tax base, which was partially offset by a lower effective income tax rate.

We are authorized by the Mexican tax authorities to compute our income tax on a consolidated basis. Mexican controlling companies are allowed to consolidate, for income tax purposes, income or losses of their Mexican subsidiaries up to 100% of their share ownership in such subsidiaries.

The Mexican corporate income tax rates in 2008, 2009 and 2010 were 28%, 28% and 30%, respectively.

The IETU became effective in Mexico as of January 1, 2008. This flat tax replaced Mexico’s asset tax and is applied along with Mexico’s regular income tax. In general, Mexican companies are subject to paying the greater of the flat tax or the income tax. The IETU is calculated by applying a tax rate of 16.5% in 2008, 17% in 2009, and 17.5% in 2010 and thereafter. Although the IETU is defined as a minimum tax it has a wider taxable base as some of the tax deductions allowed for income tax purposes are not allowed for the flat tax. As of December 31, 2008, 2009 and 2010, this tax did not have an effect on the Group’s deferred tax position, and the Group does not expect to have to pay the IETU in the near future.

In December 2009, the Mexican government enacted certain amendments and changes to the Mexican Income Tax Law that became effective as of January 1, 2010. The main provisions of these amendments and changes are as follows: (i) the corporate income tax rate is increased from 28% to 30% for the years 2010 through 2012, and will be reduced to 29% and 28% in 2013 and 2014, respectively; (ii) the deferred income tax benefit derived from tax consolidation of a parent company and its subsidiaries is limited to a period of five years; therefore, the resulting deferred income tax has to be paid starting in the sixth year following the fiscal year in which the deferred income tax benefit was received; (iii) the payment of this income tax has to be made in installments of 25% in the first and second year, 20% in the third year, and 15% in the fourth and fifth year; and (iv) this procedure applies for the deferred income tax resulting from the tax consolidation regime prior to and from 2010, so taxpayers paid in 2010 the first installment of the cumulative amount of the deferred tax benefits determined as of December 31, 2004. See “Risk Factors — Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue”.

Non-controlling Interest Net Income

Non-controlling interest net income reflects that portion of operating results attributable to the interests held by third parties in the businesses which are not wholly-owned by us, including our Cable and Telecom and Sky segments, as well as our Radio businesses.

Non-controlling interest net income increased by Ps.256.9 million, or 44.6%, to Ps.832.5 million in 2010, from Ps.575.6 million in 2009. This increase primarily reflected a higher portion of consolidated net income attributable to interests held by non-controlling stockholders in our Cable and Telecom and Sky segments.

Controlling Interest Net Income

We generated controlling interest net income in the amount of Ps.7,683.4 million in 2010, as compared to Ps.6,007.1 million in 2009. The net increase of Ps.1,676.3 million reflected:

 

   

a Ps.425.7 million increase in operating income, net;

 

   

a Ps.1,197.7 million decrease in other expense, net; and

 

   

a Ps.503.4 million decrease in equity in losses of affiliates, net.

These changes were partially offset by:

 

   

a Ps.55.3 million increase in integral cost of financing, net;

 

   

a Ps.138.3 million increase in income taxes; and

 

   

a Ps.256.9 million increase in non-controlling interest net income.

Effects of Devaluation and Inflation

The following table sets forth, for the periods indicated:

 

   

the percentage that the Peso devalued or appreciated against the U.S. Dollar;

 

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the Mexican inflation rate;

 

   

the U.S. inflation rate; and

 

   

the percentage change in Mexican GDP compared to the prior period.

 

     Year Ended December 31,  
     2009     2010     2011  

Devaluation (appreciation) of the Peso as compared to the U.S. Dollar(1)

     (5.5 %)      (5.5 %)      13.1

Mexican inflation rate(2)

     3.6        4.4        3.8   

U.S. inflation rate

     2.7        1.5        2.9   

Increase (decrease) in Mexican GDP(3)

     (6.2     5.5        3.9   

 

(1) Based on changes in the Interbank Rates, as reported by Banamex, at the end of each period, which were as follows: Ps.13.84 per U.S. Dollar as of December 31, 2008; Ps.13.08 per U.S. Dollar as of December 31, 2009; Ps.12.3576 per U.S. Dollar as of December 31, 2010; and Ps.13.9785 per U.S. Dollar as of December 31, 2011.

 

(2) Based on changes in the NCPI from the previous period, as reported by the Mexican Central Bank, which were as follows: 92.2 in 2008; 95.5 in 2009; 99.7 in 2010; and 103.5 in 2011.

 

(3) As reported by the Instituto Nacional de Estadística, Geografía e Informática, or INEGI, and, in the case of GDP information for 2011 as estimated by INEGI.

The general condition of the Mexican economy, the devaluation of the Peso as compared to the U.S. Dollar, inflation and high interest rates have in the past adversely affected, and may in the future adversely affect, our:

 

   

Advertising and Other Revenues. Inflation in Mexico adversely affects consumers. As a result, our advertising customers may purchase less advertising, which would reduce our advertising revenues, and consumers may reduce expenditures for our other products and services, including pay-TV services.

 

   

Foreign Currency-Denominated Revenues and Operating Costs and Expenses. We have substantial operating costs and expenses denominated in foreign currencies, primarily in U.S. Dollars. These costs are principally due to our activities in the United States, the costs of foreign-produced programming and publishing supplies and the leasing of satellite transponders. The following table sets forth our foreign currency-denominated revenues and operating costs and expenses stated in millions of U.S. Dollars for 2009, 2010 and 2011:

 

     Year Ended December 31,  
     2009      2010      2011  
     (Millions of U.S. Dollars)  

Revenues

   U.S.$     716       U.S.$     743       U.S.$     836   

Operating costs and expenses

     659         623         626   

On a consolidated basis, in 2009, 2010 and 2011, our foreign-currency-denominated costs and expenses did not exceed our foreign-currency-denominated revenues but there can be no assurance that they will continue not to do so in the future. As a result, we will continue to remain vulnerable to future devaluation of the Peso, which would increase the Peso equivalent of our foreign-currency-denominated costs and expenses.

 

   

Depreciation and Amortization Expense. Prior to January 1, 2008, we restated our non-monetary Mexican and foreign assets to give effect to inflation. The restatement of these assets in periods of high inflation, as well as the devaluation of the Peso as compared to the U.S. Dollar, increased the carrying value of these assets, which in turn, increased the related depreciation expense.

 

   

Integral Cost of Financing. The devaluation of the Peso as compared to the U.S. Dollar generated foreign exchange losses relating to our net U.S. Dollar-denominated liabilities and increases the Peso equivalent of our interest expense on our U.S. Dollar-denominated indebtedness. Foreign exchange losses, derivatives used to hedge foreign exchange risk and increased interest expense increased our integral cost of financing.

We have also entered into and will continue to consider entering into additional financial instruments to hedge against Peso devaluations and reduce our overall exposure to the devaluation of the Peso as compared to the U.S. Dollar, inflation and high interest rates. We cannot assure you that we will be able to enter into financial instruments to protect ourselves from the effects of the devaluation of the Peso as compared to the U.S. Dollar, inflation and increases in interest rates, or if so, on favorable terms. In the past, we have designated, and from time to time in the future we may designate, certain of our investments or other assets as effective hedges against Peso devaluations. See “Key Information — Risk Factors — Risk Factors Related to Mexico”, “Quantitative and Qualitative Disclosures About Market Risk — Market Risk Disclosures” and Note 9 to our consolidated year-end financial statements.

 

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U.S. GAAP Reconciliation

For a discussion of the principal quantitative and disclosure differences between Mexican FRS and U.S. GAAP as they relate to us through December 31, 2011, see Note 24 to our consolidated year-end financial statements.

International Financial Reporting Standards

In the first quarter of 2009, the CNBV issued regulations for listed companies in Mexico requiring the adoption of IFRS as issued by the IASB to report comparative financial information for periods beginning no later than January 1, 2012. We have already completed a plan to comply with these regulations and started reporting our consolidated financial statements in accordance with IFRS in the first quarter of 2012.

Beginning on January 1, 2012, we discontinued using Mexican FRS and adopted IFRS as issued by the IASB for financial reporting purposes. Accordingly, our consolidated financial statements as of December 31, 2012, and for the year ending on that date, will be presented on a comparative basis in accordance with IFRS. Mexican FRS differs in certain respects from IFRS. Information relating to the nature and effect of certain differences between Mexican FRS and IFRS as they relate to the initial adoption of IFRS in our consolidated stockholders’ equity as of January 1, 2011, the transition date, and December 31, 2011, is presented in Note 23 to our consolidated year-end financial statements.

Recently Issued IFRS

As mentioned in Notes 1(a) and 23 to our consolidated year-end financial statements, as of January 1, 2012 we adopted IFRS for the preparation of our consolidated financial statements. Below is a list of the new and amended standards that have been issued by the IASB and are effective for annual periods starting on or after January 1, 2012, as well as those that are effective for subsequent periods. We are in the process of evaluating the potential impact of these pronouncements on our consolidated financial statements in accordance with IFRS.

Deferred Tax: Recovery of Underlying Assets (Amendments to International Accounting Standard (“IAS”) 12). These amendments introduce an exception to the existing standard for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, Income Taxes—Recovery of Revalued Non-depreciable Assets, will no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is withdrawn. These amendments are effective for annual periods beginning on or after January 1, 2012.

Presentation of Items of Other Comprehensive Income (Amendments to IAS 1). The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (“OCI”) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. These amendments are effective for annual periods beginning on or after July 1, 2012 (retrospective application required), with early adoption permitted.

IAS 19, Employee Benefits (as amended in 2011). This standard, as amended, eliminates the corridor approach for the recognition of actuarial gains or losses, and requires the calculation of finance costs on a net funding basis. This amended standard is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted.

IFRS 9, Financial Instruments. IFRS 9 is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. This standard is effective for periods beginning on or after January 1, 2015, with early adoption permitted.

IFRS 10, Consolidated financial statements. The objective of IFRS 10 is to establish principles for the preparation and presentation of consolidated financial statements when an entity controls one or more other entities. It defines the principle of control and establishes control as the basis for consolidation. It sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee, and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces IAS 27 and SIC 12 and is effective for periods beginning on or after January 1, 2013, with early adoption permitted if it is applied with IFRS 11, IFRS 12, IAS 27 (as amended in 2011) and IAS 28 (as amended in 2011) at the same time.

 

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IFRS 11, Joint Arrangements. IFRS 11 focuses on the rights and obligations of the arrangement rather than its legal form. It specifies that there are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is not longer allowed. It is effective for periods beginning on or after January 1, 2013, with early adoption permitted if it is applied with IFRS 10, IFRS 12, IAS 27 (as amended in 2011) and IAS 28 (as amended in 2011) at the same time.

IFRS 12, Disclosures of Interests in Other Entities. IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. It is effective for periods beginning on or after January 1, 2013, with early adoption permitted if it is applied with IFRS 10, IFRS 11, IAS 27 (as amended in 2011) and IAS 28 (as amended in 2011) at the same time.

IFRS 13, Fair Value Measurement. IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. It is effective for periods beginning on or after January 1, 2013, with early adoption permitted.

IAS 27, Separate Financial Statements (as amended in 2011). This amended standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. It is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted if it is applied with IFRS 10, IFRS 11, IFRS 12 and IAS 28 (as amended in 2011) at the same time.

IAS 28, Investments in Associates and Joint Ventures (as amended in 2011). This amended standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. It is effective for periods beginning on or after January 1, 2013, with early adoption permitted if it is applied with IFRS 10, IFRS 11, IFRS 12 and IAS 27 (as amended in 2011) at the same time.

Critical Accounting Policies

We have identified certain key accounting policies upon which our consolidated financial condition and results of operations are dependent. The application of these key accounting policies often involves complex considerations and assumptions and the making of subjective judgments or decisions on the part of our management. In the opinion of our management, our most critical accounting policies under both Mexican FRS and U.S. GAAP are those related to the accounting for programming, equity investments, the evaluation of definite lived and indefinite lived long-lived assets, deferred income taxes, and fair value measurements. For a full description of these and other accounting policies, see Note 1 and Note 24 to our consolidated year-end financial statements.

Accounting for Programming. We produce a significant portion of programming for initial broadcast over our television networks in Mexico, our primary market. Following the initial broadcast of this programming, we then license some of this programming for broadcast in secondary markets, such as Mexico, the United States, Latin America, Asia, Europe and Africa. Under Mexican FRS and U.S. GAAP, in order to properly capitalize and subsequently amortize production costs related to this programming, we must estimate the expected future benefit period over which a given program will generate revenues (generally, over a five-year period). We then amortize the production costs related to a given program over the expected future benefit period. Under this policy, we generally expense approximately 70% of the production costs related to a given program in its initial broadcast run and defer and expense the remaining production costs over the remainder of the expected future benefit period. See Note 1(e) to our consolidated year-end financial statements.

We estimate the expected future benefit periods based on past historical revenue patterns for similar types of programming and any potential future events, such as new outlets through which we can exploit or distribute our programming, including our consolidated subsidiaries and equity investees. To the extent that a given future expected benefit period is shorter than we estimate, we may have to accelerate capitalized production costs sooner than anticipated. Conversely, to the extent that a given future expected benefit period is longer than we estimate, we may have to extend the amortization schedule for the remaining capitalized production costs.

We also purchase programming from, and enter into license arrangements with, various third party programming producers and providers, pursuant to which we receive the rights to broadcast programming produced by third parties over our television networks in Mexico. In the case of programming acquired from third parties, we estimate the expected future benefit period based on the anticipated number of showings in Mexico. In the case of programming licensed from third parties, we estimate the expected future benefit period based upon the term of the license. To the extent that a given future expected benefit period is shorter than we estimate, we may have to accelerate the purchase price or the license fee sooner than anticipated. Conversely, to the extent that a given future expected benefit period is longer than we estimate, we may have to extend the amortization schedule for the remaining portion of the purchase price or the license fee.

 

72


Equity Investments. Some of our investments are structured as equity investments. See Notes 1(g) and 5 to our consolidated year-end financial statements. As a result, under both Mexican FRS and U.S. GAAP, the results of operations attributable to these investments are not consolidated with the results of our various segments for financial reporting purposes, but are reported as equity in income (losses) of affiliates in our consolidated income statement. See Note 5 to our consolidated year-end financial statements.

In the past we have made significant capital contributions and loans to our joint ventures, and we may in the future make additional capital contributions and loans to at least some of our joint ventures. In the past, these ventures have generated, and they may continue to generate, operating losses and negative cash flows as they continue to build and expand their respective businesses.

We periodically evaluate our investments in these joint ventures for impairment, taking into consideration the performance of these ventures as compared to projections related to net sales, expenditures, strategic plans and future required cash contributions, among other factors. In doing so, we evaluate whether any declines in value are other than temporary. We have taken impairment charges in the past for some of these investments. Given the dynamic environments in which these businesses operate, as well as changing macroeconomic conditions, we cannot assure you that our future evaluations would not result in our recognizing additional impairment charges for these investments.

Once the carrying balance of a given investment is reduced to zero, we evaluate whether we should suspend the equity method of accounting, taking into consideration both quantitative and qualitative factors, such as guarantees we have provided to these ventures, future funding commitments and expectations as to the viability of the business. These conditions may change from year to year, and accordingly, we periodically evaluate whether to continue to account for our various investments under the equity method.

Goodwill and Other Indefinite-lived Intangible Assets. We assess our goodwill and other indefinite-lived intangible assets for impairment on an annual basis using fair value measurement techniques.

The measurement of impairment to goodwill and intangible assets with indefinite lives involves the estimation of fair values. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. The impairment test for goodwill involves a comparison of the estimated fair value of each of our reporting units to its carrying amount, including goodwill. We determine the fair value of a cash generating unit using a combination of a discounted cash flow analysis and a market-based approach, which utilizes significant unobservable inputs (Level 3) within the fair value hierarchy. The impairment test for intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. We determine the fair value of the intangible asset using a discounted cash flow analysis, which utilizes significant unobservable inputs (Level 3) within the fair value hierarchy. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market-based approach and the consideration of whether a discount premium should be applied to comparable companies.

Inherent in these estimates and assumptions is a certain level of risk, which we believe we have considered in our fair value determinations. Nevertheless, if future actual results differ from estimates, a possible impairment charge may be recognized in future periods related to the write-down of the carrying value of goodwill and other intangibles in addition to the amounts recognized previously.

Once an asset has been impaired, it is not remeasured at fair value on a recurring basis; however, it is still subject to fair value measurements to test for recoverability of the carrying amount.

The asset balances shown in the consolidated balance sheets that were measured at fair value on a non-recurring basis amounted to Ps.971 million of goodwill as of December 31, 2010. There were no goodwill impairments recorded in 2011. Related impairments are discussed in Note 24(e) to our consolidated year-end financial statements.

In order to evaluate the sensitivity of the fair value estimates, the Group applied a hypothetical 10% decrease to the fair value of each of the reporting units as well as the indefinite-lived intangibles which were tested separately. Such a hypothetical 10% decrease would not have had a significant effect with respect to the estimated recoverable value of goodwill and other indefinite-lived intangible assets with the exception of the Telecom reporting unit, where such a hypothetical decrease would have resulted in the recognition of an impairment charge of approximately Ps.604 million as of December 31, 2011.

 

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Long-lived Assets. Under both Mexican FRS and U.S. GAAP, we present certain long-lived assets other than goodwill and indefinite-lived intangible assets in our consolidated balance sheet. Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may no longer be recoverable. Recoverability is analyzed based on projected cash flows. Estimates of future cash flows involve considerable management judgment. These estimates are based on historical data, future revenue growth, anticipated market conditions, management plans, assumptions regarding projected rates of inflation and currency fluctuations, among other factors. If these assumptions are not correct, we would have to recognize a write-off or write-down or accelerate the amortization schedule related to the carrying value of these assets. See Notes 1(j), 7 and 17 to our consolidated year-end financial statements. We have not recorded any significant impairment charges over the past few years. Unlike U.S. GAAP, Mexican FRS allows the reversal in subsequent periods of previously taken impairment charges.

Deferred Income Taxes. Under both Mexican FRS and U.S. GAAP, we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, we may need to adjust the amount of the valuation allowance under certain circumstances. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Financial Assets and Liabilities Measured at Fair Value. We have a significant amount of financial assets and liabilities which are measured at fair value on a recurring basis. The degree of management’s judgment involved in determining the fair value of a financial asset and liability varies depending upon the availability of quoted market prices. When observable quoted market prices exist, that is the fair value estimate we use. To the extent such quoted market prices do not exist, management uses other means to determine fair value. The following provides a summary of the financial assets and liabilities under U.S. GAAP and a discussion of the fair value estimates inherent therein.

Financial assets and liabilities measured at fair value under U.S. GAAP as of December 31, 2011 (in thousands of Mexican Pesos):

 

     Balance as of
December 31,

2011
     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
     Internal Models
with Significant
Observable
Inputs (Level 2)
     Internal Models
with Significant
Unobservable
Inputs (Level 3)
 

Assets:

           

Temporary investments

   Ps. 5,422,563       Ps. 2,735,124       Ps. 2,687,439       Ps. —     

Available-for-sale investments:

           

Open ended fund

     2,812,200         —           2,812,200         —     

Convertible Debentures due 2025

     15,767,748         —           —           15,767,748   

GSF Convertible Debentures(1)

     19,959,342         —           —           19,959,342   

Derivative financial instruments

     145,009         —           145,009         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Ps.   44,106,862       Ps.   2,735,124       Ps.   5,644,648       Ps.   35,727,090   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   Ps. 310,604       Ps. —         Ps. 310,604       Ps. —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Ps. 310,604       Ps. —         Ps. 310,604       Ps. —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Under Mexican FRS this investment is recorded as an other permanent investment and recorded at cost subject to impairment test when there are indicators of impairment.

The table below presents the reconciliation under U.S. GAAP for all assets and liabilities measured at fair value using internal models with significant unobservable inputs (Level 3) during the year ended December 31, 2011.

 

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     Convertible
Debentures due
2025
 

Balance at beginning of year

   Ps. 13,904,222   

Total gain or losses (realized/unrealized):

     —     

Included in earnings

     —     

Included in other comprehensive income

     2,593,812   

Purchase, issuance and settlements

     19,229,056   
  

 

 

 

Balance as the end of year

   Ps.   35,727,090   
  

 

 

 

Temporary Investments. Temporary investments include highly liquid securities, including without limitation debt with a maturity of three months, or over, and up to one year at the balance sheet date, stock and other financial instruments denominated principally in U.S. dollars and Mexican Pesos.

Temporary investments are generally valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include mostly fixed short-term deposits, equities and corporate fixed income securities denominated in U.S. dollars and Mexican Pesos. Such instruments are classified in Level 1 or Level 2 depending on the observability of the significant inputs.

For positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. Such instruments are classified in Level 2.

Available-for-Sale Investments.

Investments in securities or with readily determinable fair values, not classified as held-to-maturity are classified as “available-for-sale,” and are recorded at fair value with unrealized gains and losses included in consolidated stockholders’ equity as accumulated other comprehensive result.

Available-for-sale investments are generally valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency. Such instruments are classified in Level 1, Level 2, and Level 3 depending on the observability of the significant inputs.

Open ended fund

In the second half of 2009, we invested U.S.$180 million in an open ended fund (the “Fund”) that has as a primary objective to achieve capital appreciation by using a broad range of strategies through investments and transactions in telecom, media and other sectors across global markets, including Latin America and other emerging markets. Pursuant to the offering circular of the Fund, a shareholder may not redeem any shares until at least 180 days after their issuance. Subsequent to this, shares may be redeemed on a quarterly basis at the Net Asset Value (“NAV”) per share as of such redemption date.

We determined the fair value of the Fund using the NAV per share. The NAV per share is calculated by determining the value of the fund assets and subtracting all of the funds liabilities and dividing the result by the total number of issued shares.

Convertible Debentures due 2025

On December 20, 2010, we made cash investments in the form of 1.5% Convertible Debentures due 2025 of BMP, the parent company of Univision, in the principal amount of U.S.$1,125 million (Ps.13,904 million), which are convertible at our option into additional shares currently equivalent to a 30% equity stake of BMP, subject to existing laws and regulations in the United States, and other conditions (see Notes 2, 5 and 9 to our consolidated year-end financial statements).

We determined the fair value of the Convertible Debentures using the income approach based on post-tax discounted cash flows. The income approach requires management to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include long-term growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates based on weighted average cost of capital, among others. Our estimates for market growth are based on historical data, various internal estimates and observable external sources when available, and are based on assumptions that are consistent with the strategic plans and estimates used to manage the underlying business. Since the described methodology is an internal model with significant unobservable inputs, the Convertible Debentures are classified in Level 3.

 

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We determined projected future cash flows for a 5-year period and applied an annuity for the following periods. In order to evaluate the sensitivity of the fair value estimates of the Convertible Debentures, we applied a hypothetical 10% increase and decrease in the projected future cash flows. The hypothetical analysis would have resulted in an increase in the fair value of the Convertible Debentures of approximately U.S.$388 million (Ps.5,428 million) and a decrease in the fair value of the Convertible Debentures of approximately U.S.$388 million (Ps.5,428 million) as of December 31, 2011. The result of this analysis does not purport to represent actual changes in the fair value of the Convertible Debentures.

GSF Unsecured Convertible Debentures

As described in Note 2 to our consolidated year-end financial statements, on April 7, 2011, we reached an agreement with GSF, the controlling company of Iusacell, under which we made an investment of U.S.$37.5 million (Ps.442,001) in 1.093875% of the outstanding shares of common stock of GSF and U.S.$1,565 million (Ps.19,229,056) in unsecured debentures issued by GSF that are mandatorily convertible into shares of common stock of GSF.

We have accounted for this investment as an other permanent investment under Mexican FRS subject to an impairment test when there are indicators of impairment. Under U.S. GAAP the investment is accounted for as an available-for-sale debt security. In performing the impairment analysis for Mexican FRS and determining the fair value under U.S. GAAP, we determined the fair value of the Convertible Debentures using the expected present value valuation methodology based on post-tax discounted cash flows. The expected present value methodology requires management to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include long-term growth rates, operating margins used to calculate projected future cash flows and risk-adjusted discount rates based on weighted average cost of capital, among others. Our estimates for market growth are based on current conditions and reasonable forecasts, various internal estimates and observable external sources when available, and are based on assumptions that are consistent with the strategic plans and estimates use to manage the underlying business. We concluded at December 31, 2011 that impairment did not exist, as the fair value of the convertible debentures was valued above cost at Ps.19,959,342.

In order to evaluate the sensitivity of the fair value estimates of the Convertible Debentures, we applied a hypothetical 10% increase and decrease in the projected future cash flows. The hypothetical analysis would have resulted in an increase in the fair value of the Convertible Debentures of approximately Ps.2,404,171 and a decrease in the fair value of the Convertible Debentures of approximately Ps.2,404,171 as of December 31, 2011. The result of this analysis does not purport to represent actual changes in the fair value of the Convertible Debentures. See “Key Information — Risk Factors — Risk Factors Related to Our Business — The Results of Operations of Broadcasting Media Partners, Inc. and GSF Telecom Holdings, S.A.P.I. de C.V., May Affect Our Results of Operations and the Value of Our Investments in Those Companies”.

Derivative Financial Instruments.

Derivative Financial Instruments include swaps, forwards and options. (See Notes 1(p) and 9 to our consolidated year-end financial statements).

Our derivative portfolio is entirely over-the-counter (“OTC”). Our derivatives are valued using industry standard valuation models: projecting future cash flows discounted to present value, using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies.

When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit spreads considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. All derivatives are classified in Level 2.

Pension and Seniority Premiums Plan Assets. The pension and seniority premiums plan assets consist primarily of common stock, mutual funds of fixed rate instruments and money market securities (see Note 24(g) to our consolidated year-end financial statements).

Common stocks are valued at the closing price reported on the active market on which the individual securities are traded.

Mutual funds consist of fixed rate instruments. These are valued at the net asset value provided by the administrator of the fund.

Money market securities consist of government debt securities, which are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis.

The majority of the our non-financial instruments, which include goodwill, intangible assets, inventories, transmission rights and programming and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually in the fourth quarter for goodwill and indefinite-lived intangible assets) such that a non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of carrying amount or its fair value.

 

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The impairment test for goodwill involves a comparison of the estimated fair value of each of our reporting units to its carrying amount, including goodwill. We determine the fair value of a reporting unit using a combination of a discounted cash flow analysis and a market-based approach, which utilize significant unobservable inputs (Level 3) within the fair value hierarchy. The impairment test for intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. We determine the fair value of the intangible asset using a discounted cash flow analysis, which utilizes significant unobservable inputs (Level 3) within the fair value hierarchy. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market-based approach.

Once an asset has been impaired, it is not remeasured at fair value on a recurring basis; however, it is still subject to fair value measurements to test for recoverability of the carrying amount.

The asset balances shown in the consolidated balance sheets that were measured at fair value on a non-recurring basis amounted to Ps.971 million of goodwill as of December 31, 2010. There were no non-recurring fair value measurements in 2011 as no impairments were recorded. Related impairments are discussed in Note 24(e) to our consolidated year-end financial statements.

Liquidity, Foreign Exchange and Capital Resources

Liquidity. We generally rely on a combination of operating revenues, borrowings and net proceeds from dispositions to fund our working capital needs, capital expenditures, acquisitions and investments. Historically, we have received, and continue to receive, most of our advertising revenues in the form of upfront advertising deposits in the fourth quarter of a given year, which we in turn used, and continue to use, to fund our cash requirements during the rest of the quarter in which the deposits were received and for the first nine months of the following year. As of December 31, 2011, December 31, 2010, and December 31, 2009, we had received Ps.18,026.5 million (nominal), Ps.16,556.2 million (nominal) and Ps.17,810.4 million (nominal), respectively, of advertising deposits for television advertising during 2012, 2011 and 2010, respectively, representing U.S.$1.3 billion, U.S.$1.3 billion, and U.S.$1.4 billion, respectively, at the applicable year-end exchange rates. The deposits as of December 31, 2011, represented an 8.9% increase, as compared to year-end 2010, and deposits as of December 31, 2010, represented a 7.0% decrease, as compared to year-end 2009. Approximately 63.9%, 66.0% and 64.2% of the advance payment deposits as of each of December 31, 2011, December 31, 2010, and December 31, 2009, respectively, were in the form of short-term, non-interest bearing notes, with the remainder in each of those years consisting of cash deposits. The weighted average maturity of these notes at December 31, 2011 and 2010 was 4.6 months for both years, and at December 31, 2009 was 4.5 months.

During the year ended December 31, 2011, we had a net decrease in cash and cash equivalents of Ps.4,666.6 million, as compared to a net decrease in cash and cash equivalents of Ps.8,998.9 million during the year ended December 31, 2010.

Net cash provided by operating activities for the year ended December 31, 2011, amounted to Ps.22,855.2 million. Adjustments to reconcile income before income taxes to net cash provided by operating activities primarily included: depreciation and amortization of Ps.7,429.7 million; net unrealized foreign exchange loss of Ps.1,199.6 million; interest expense of Ps.4,109.1 million; impairment of long-lived assets and other amortization of Ps.124.7 million; and equity in losses of affiliates of Ps.449.4 million. Income taxes paid for the year ended December 31, 2011 amounted to Ps.3,622.6 million.

Net cash used for investing activities for the year ended December 31, 2011, amounted to Ps.25,093.3 million, and was primarily used for investments in property, plant and equipment of Ps.9,668.5 million; held-to-maturity and available-for-sale investments of Ps.313.9 million; equity method and other investments of Ps.1,916.9 million; investment in convertible debentures of Ps.19,229.0 million; and investments in goodwill and other intangible assets of Ps.242.7 million; which effect was partially offset by cash provided by temporary investments of Ps.5,238.4 million; and a disposition of equity method and other investments of Ps.66.3 million.

Net cash used for financing activities for the year ended December 31, 2011, amounted to Ps.2,543.1 million, and was primarily used for dividends and repurchase of capital stock of Ps.1,035.6 million; interest paid of Ps.4,067.2 million; prepayment and repayment of debt and lease payments of Ps.4,341.6 million; derivative financial instruments of Ps.149.5 million; and dividends to non-controlling interest of Ps.2,649.2 million; which effect was partially offset by cash provided by credit agreements with certain Mexican banks in the amount of Ps.9,700.0 million.

 

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We expect to fund our operating cash needs during 2012, other than cash needs in connection with any potential investments and acquisitions, through a combination of cash from operations and cash on hand. We intend to finance our potential investments or acquisitions in 2012 through available cash from operations, cash on hand and/or borrowings. The amount of borrowings required to fund these cash needs in 2012 will depend upon the timing of cash payments from advertisers under our advertising sales plan.

During the year ended December 31, 2010, we had a net decrease in cash and cash equivalents of Ps.8,998.9 million, as compared to a net decrease in cash and cash equivalents of Ps.3,641.6 million during the year ended December 31, 2009.

Net cash provided by operating activities for the year ended December 31, 2010, amounted to Ps.16,864.9 million. Adjustments to reconcile income before income taxes to net cash provided by operating activities primarily included: depreciation and amortization of Ps.6,579.3 million; net unrealized foreign exchange gain of Ps.1,460.3 million; interest expense of Ps.3,289.2 million; impairment of long-lived assets and other amortization of Ps.354.7 million; gain on disposition of investments of Ps.1,113.3 million; and equity in losses of affiliates of Ps.211.9 million. Income taxes paid for the year ended December 31, 2010 amounted to Ps.4,403.4 million.

Net cash used for investing activities for the year ended December 31, 2010, amounted to Ps.27,273.9 million, and was primarily used for investments in property, plant and equipment of Ps.11,306.0 million; temporary investments of Ps.1,351.5 million; held-to-maturity and available-for-sale investments of Ps.373.1 million; equity method and other investments of Ps.2,418.5 million; investment in convertible debentures of Ps.13,966.4 million; and investments in goodwill and other intangible assets of Ps.712.1 million; which effect was partially offset by cash provided by a disposition of equity method and other investments of Ps.1,807.4 million.

Net cash provided by financing activities for the year ended December 31, 2010, amounted to Ps.1,435.5 million, and was primarily used for repurchase of capital stock of Ps.1,274.0 million; interest paid of Ps.3,003.1 million; prepayment and repayment of debt and lease payments of Ps.4,221.3 million; and derivative financial instruments of Ps.52.5 million; which effect was partially offset by cash provided by the issuance of 7.38% Notes due 2020 in the amount of Ps.10,000.0 million.

During the year ended December 31, 2009, we had a net decrease in cash and cash equivalents of Ps.3,641.6 million, which included cash and cash equivalents of Ps.21.5 million of TVI upon consolidation of this subsidiary into our financial reports as of October 2009, as compared to a net increase in cash and cash equivalents of Ps.8,103.5 million during the year ended December 31, 2008 which included cash and cash equivalents of Ps.483.9 million of Cablemás upon consolidation of this subsidiary in June 2008.

Net cash provided by operating activities for the year ended December 31, 2009, amounted to Ps.15,135.6 million. Adjustments to reconcile income before income taxes to net cash provided by operating activities primarily included: depreciation and amortization of Ps.4,929.6 million; net unrealized foreign exchange gain of Ps.1,003.5 million; interest expense of Ps.2,832.7 million; impairment of long-lived assets and other amortization of Ps.1,224.5 million; and equity in losses of affiliates of Ps.715.3 million. Income taxes paid for the year ended December 31, 2009 amounted to Ps.4,282.0 million.

Net cash used for investing activities for the year ended December 31, 2009, amounted to Ps.11,052.2 million, and was primarily used for investments in property, plant and equipment of Ps.6,410.9 million; temporary investments of Ps.524.2 million; held-to maturity and available-for-sale investments of Ps.3,051.6 million; equity method and other investments of Ps.809.6 million; and investments in goodwill and other intangible assets of Ps.569.6 million.

Net cash used for financing activities for the year ended December 31, 2009, amounted to Ps.7,640.9 million, and was primarily used for dividends and repurchase of capital stock of Ps.9,841.0 million; interest paid of Ps.2,807.8 million; prepayment and repayment of debt and lease payments of Ps.2,520.2 million; and derivative financial instruments of Ps.206.8 million; which effect was partially offset by cash provided by the issuance of 6.625% Senior Notes due 2040 in the amount of Ps.7,612.1 million.

Capital Expenditures, Acquisitions and Investments, Distributions and Other Sources of Liquidity.

During 2012, we expect to:

 

   

make aggregate capital expenditures for property, plant and equipment totaling U.S.$850 million, of which U.S.$475 million and U.S.$250 million are for the expansion and improvements of our Cable and Telecom and Sky segments, respectively, and the remaining U.S.$125 million is for our Television Broadcasting segment and other segments;

 

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provide financing to GTAC in connection with a long-term credit facility and our 33.3% interest in GTAC in the aggregate principal amount of Ps.180 million (U.S.$12.9 million); and

 

   

use 24 transponders on Intelsat IS-21 satellite under a lease agreement, which will be mainly used by Sky for signal reception and retransmission services over the satellite’s estimated 15-year service life. This lease agreement for 24 transponders on IS-21 contemplates a monthly payment of U.S.$3.0 million to be paid by Sky beginning in September 2012, and will be accounted for as a capital lease in our consolidated balance sheet.

During 2011, we:

 

   

made aggregate capital expenditures for property, plant and equipment totaling U.S.$791 million, of which U.S.$406.1 million, U.S.$241.6 million and U.S.$13.8 million were for the expansion and improvements of our Cable and Telecom and Sky segments and Gaming businesses, respectively, and U.S.$129.5 million for our Broadcasting Television segment and other businesses;

 

   

made investments of U.S.$49.1 million in cash in common stock of BMP, the parent company of Univision;

 

   

made a capital contribution related to our 33.3% interest in GTAC in the amount of U.S.$6.6 million;

 

   

made an investment of U.S.$37.5 million in equity and U.S.$1,565 million in mandatorily convertible debentures of GSF, the parent company of Iusacell. Upon conversion of the debentures, which is subject to the approval of the Mexican Antitrust Commission, our equity participation in GSF will be 50% (see “Key Information — Risk Factors — Risk Factors Related to Our Business — The Results of Operations of Broadcasting Media Partners, Inc. and GSF Telecom Holdings, S.A.P.I. de C.V., May Affect Our Results of Operations and the Value of Our Investments in Those Companies”); and

 

   

made other fixed investments in the aggregate amount of Ps.713.6 million (U.S.$51.4 million).

During 2010, we:

 

   

made aggregate capital expenditures for property, plant and equipment totaling U.S.$1,011 million, of which U.S.$438.5 million, U.S.$436.6 million and U.S.$12.5 million were for the expansion and improvements of our Cable and Telecom and Sky segments and Gaming businesses, respectively, and U.S.$123.4 million for our Broadcasting Television segment and other businesses. The actual amount for 2010 includes an accrual of U.S.$111.0 million related to our investment in a new 24-transponder satellite that was launched in the first quarter of 2010, which was paid in cash in the first quarter of 2011;

 

   

made short-term loans related to our 40.5% interest in La Sexta in the principal amount of €21.5 million (U.S.$29.2 million). In the first quarter of 2011, we made a capital contribution related to our interest in La Sexta with the principal amount of the short-term loans made by us in 2010, and our interest in La Sexta increased from 40.5% to 40.8%. We do not have commitments for additional capital contributions in La Sexta as we no longer have a direct equity participation in such entity;

 

   

made investments of U.S.$1,255.0 million in cash in BMP, the parent company of Univision, in exchange for a 5% equity stake of the outstanding common stock of BMP and U.S.$1,125 million principal amount of debentures due 2025 bearing interest at an annual rate of 1.5%, that are initially convertible at our option into additional shares currently equivalent to a 30% equity stake of BMP, subject to certain conditions and regulations; and

 

   

made a capital contribution related to our 33.3% interest in GTAC in the amount of U.S.$4.3 million (Ps.54.7 million). Additionally, in 2010, we provided long-term financing to GTAC in the principal amount of U.S.$29.0 million (Ps.372.1 million) under a credit facility related to our interest in GTAC.

During 2009, we:

 

   

made aggregate capital expenditures totaling U.S.$499.3 million, of which U.S.$239 million, U.S.$128.8 million and U.S.$17.5 million correspond to our Cable and Telecom, Sky and Gaming businesses, respectively, and U.S.$114 million to our Television Broadcasting and other businesses;

 

   

made investments related to our 40.5% interest in La Sexta for an aggregate amount of €35.7 million (U.S.$49 million); and

 

   

made investments in Volaris, for an aggregate amount of U.S.$5 million, and in other companies in which we hold a non-controlling interest for an aggregate amount of U.S.$5.5 million.

 

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Refinancings. In November 2009, we issued U.S.$600.0 million Senior Notes due 2040. We used the net proceeds from the issuance for general corporate purposes.

In October 2010, we issued Ps.10,000 million Notes (Certificados Bursátiles) due 2020. We used the net proceeds to strengthen our financial position.

In March 2011, we entered into long-term credit agreements with four Mexican Banks for an aggregate principal amount of Ps.8,600 million, with maturities between 2016 and 2021.

Indebtedness. As of December 31, 2011, our consolidated long-term portion of debt amounted to Ps.55,657.0 million, and our consolidated current portion of debt was Ps.1,170.0 million. As of December 31, 2010, our consolidated long-term portion of debt amounted to Ps.46,495.7 million, and our consolidated current portion of debt was Ps.1,469.1 million. The following table sets forth a description of our outstanding indebtedness as of December 31, 2011, on a historical, actual basis. Information in the following table is presented in millions of Pesos as of December 31, 2011:

 

     Debt Outstanding(1)  

Description of Debt

   December 31,
2011 Actual
     Interest Rate(2)     Denomination      Maturity of Debt  

6% Senior Notes(2)

     6,989.2         6.0     U.S. Dollars         2018   

8.5% Senior Notes(2)

     4,193.6         8.5     U.S. Dollars         2032   

6.625% Senior Notes(2)

     8,387.1         6.625     U.S. Dollars         2025   

8.49% Senior Notes(2)

     4,500.0         8.49     Pesos         2037   

6.625% Senior Notes(2)

     8,387.1         6.625     U.S. Dollars         2040   

7.38% Notes(3)

     10,000.0         7.38     Pesos         2020   

Santander Serfín loan (4)

     2,000.0         8.12     Pesos         2016   

BBVA Bancomer loan(4)

     2,500.0         8.095     Pesos         2016   

Banamex loan(4)

     1,600.0         9.0725     Pesos         2021   

HSBC loan(4)

     2,500.0         5.9650     Pesos         2016   

Banco Inbursa, S.A. loan (5)

     1,000.0         10.35     Pesos         2012   

Santander Serfin loan (6)

     1,400.0         5.038     Pesos         2016   

Banamex loan (6)

     2,100.0         8.74     Pesos         2016   

Banco Mercantil del Norte loan (7)

     1,100.0         6.95     Pesos         2016   

Other debt (7)

     170.0         7.091     Pesos         2012   
  

 

 

         

Total debt

     56,827.0         —          —           13.2(8)   

Less: Short-term debt and current maturities of long- term debt

     1,170.0         —          Various         2012   
  

 

 

         

Total long-term debt

     55,657.0           
  

 

 

         

 

(1) U.S. Dollar-denominated debt is translated into Pesos at an exchange rate of Ps.13.9785 per U.S. Dollar, the Interbank Rate, as reported by Banamex, as of December 31, 2011.

 

(2) These Senior Notes due 2018, 2025, 2032, 2037 and 2040, in the outstanding principal amount of U.S.$500 million, U.S.$600 million, U.S.$300 million, Ps.4,500 million and U.S.$600 million, respectively, are unsecured obligations of the Company, rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company, and are junior in right of payment to all of the existing and future liabilities of the Company’s subsidiaries. Interest on the Senior Notes due 2018, 2025, 2032, 2037 and 2040, including additional amounts payable in respect of certain Mexican withholding taxes, is 6.31%, 6.97%, 8.94%, 8.93% and 6.97% per annum, respectively, and is payable semi-annually. These Senior Notes may not be redeemed prior to maturity, except (i) in the event of certain changes in law affecting the Mexican withholding tax treatment of certain payments on the securities, in which case the securities will be redeemable, as a whole but not in part, at the option of the Company; and (ii) in the event of a change of control, in which case the Company may be required to redeem the securities at 101% of their principal amount. Also, the Company may, at its own option, redeem the Senior Notes due 2018, 2025, 2037 and 2040, in whole or in part, at any time at a redemption price equal to the greater of the principal amount of these Senior Notes or the present value of future cash flows, at the redemption date, of principal and interest amounts of the Senior Notes discounted at a fixed rate of comparable U.S. or Mexican sovereign bonds. The Senior Notes due 2018, 2032 and 2040 were priced at 99.280%, 99.431% and 98.319%, respectively, for a yield to maturity of 6.097%, 8.553% and 6.755%, respectively. The Senior Notes due 2025 were issued in two aggregate principal amounts of U.S.$400 million and U.S.$200 million, and were priced at 98.081% and 98.632%, respectively, for a yield to maturity of 6.802% and 6.787%, respectively. The agreement of these Senior Notes contains covenants that limit the ability of the Company and certain restricted subsidiaries engaged in Television Broadcasting, Pay Television Networks and Programming Exports, to incur or assume liens, perform sale and leaseback transactions, and consummate certain mergers, consolidations and similar transactions. The Senior Notes due 2018, 2025, 2032, 2037 and 2040 are registered with the U.S. Securities and Exchange Commission.

 

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(3) In October 2010, the Company issued 7.38% Notes (Certificados Bursátiles) due 2020 through the Mexican Stock Exchange in the aggregate principal amount of Ps.10,000 million. Interest on these Notes is payable semi-annually. The Company may, at its own option, redeem these Notes, in whole or in part, at any semi-annual interest payment date at a redemption price equal to the greater of the principal amount of the outstanding Notes and the present value of future cash flows, at the redemption date, of principal and interest amounts of the Notes discounted at a fixed rate of comparable Mexican sovereign bonds. The agreement of these Notes contains covenants that limit the ability of the Company and certain restricted subsidiaries appointed by the Company’s Board of Directors, and engaged in Television Broadcasting, Pay Television Networks and Programming Exports, to incur or assume liens, perform sale and leaseback transactions, and consummate certain mergers, consolidations and similar transactions.

 

(4) In March 2011, the Company entered into long–term credit agreements with four Mexican banks in the aggregate principal amount of Ps.8,600 million with an annual interest rate between 8.09% and 9.4%, payable on a monthly basis, and principal maturities between 2016 and 2021. The proceeds of these loans were used for general corporate purposes. Under the terms of these loan agreements, the Company is required to (a) maintain certain financial coverage ratios related to indebtedness and interest expense; and (b) comply with certain restrictive covenants on spin-offs, merger and similar transactions.

 

(5) Includes Ps.1,000 million in connection with a credit agreement entered into by the Company with a Mexican bank, with maturity in 2012. Interest on this loan is 10.35% per annum, and is payable on a monthly basis. Under the terms of this credit agreement, the Company and certain restricted subsidiaries engaged in Television Broadcasting, Pay Television Networks and Programming Exports are required to (a) maintain certain financial coverage ratios related to indebtedness and interest expense; and (b) comply with certain restrictive covenants on indebtedness, dividend payments, issuance and sale of capital stock, and liens.

 

(6) Includes two long-term loans entered into by Sky with Mexican banks in the principal amounts of Ps.1,400 million and Ps.2,100 million, with a maturity in 2016, bearing annual interest of TIIE plus 24 basis points and 8.74%, respectively, with interest payable on a monthly basis. This long-term indebtedness of Sky is guaranteed by the Company. Under the terms of these loan agreements, Sky is required to (a) maintain certain financial coverage ratios related to indebtedness and interest expense; and (b) comply with certain restrictive covenants on indebtedness, liens, asset sales, and certain mergers and consolidations.

 

(7) Includes loans under certain credit agreements entered into by TVI with Mexican banks in the aggregate principal amount of Ps.1,270 million, with maturities in 2012 and 2013, bearing different annual interest rates of 7.81% and in the range TIIE plus 2.15% and TIIE plus 3.50%, with interest payable on a monthly basis.

 

(8) Actual weighted average maturity of long-term debt as of December 31, 2011.

Interest Expense. Interest expense for the years ended December 31, 2009, 2010 and 2011 was Ps.3,136.4 million, Ps.3,615.3 million and Ps.4,312.8 million, respectively.

The following table sets forth our interest expense for the years indicated (in millions of U.S. Dollars and millions of Mexican Pesos):

 

     Year Ended December 31,(1)(2)  
     2009      2010      2011  

Interest payable in U.S. Dollars

   U.S.$     125.8       U.S.$     165.5       U.S.$     146.7   

Amounts currently payable under Mexican withholding taxes(3)

       5.5           8.6           7.2   
  

 

    

 

    

 

 

Total interest payable in U.S. Dollars

   U.S.$     131.3       U.S.$     174.1       U.S.$     153.9   
  

 

    

 

    

 

 

Peso equivalent of interest payable in U.S. Dollars

   Ps.     1,788.7       Ps.     2,210.9       Ps.     1,911.0   

Interest payable in Pesos

       1,347.7           1,404.4           2,401.8   
  

 

    

 

    

 

 

Total interest expense(4)

   Ps.     3,136.4       Ps.     3,615.3       Ps.     4,312.8   
  

 

    

 

    

 

 

 

(1) U.S. Dollars are translated into Pesos at the rate prevailing when interest was recognized as an expense for each period.

 

(2) Interest expense in these periods includes amounts effectively payable in U.S. Dollars as a result of U.S. Dollar-Peso swaps. Interest expense in these periods also includes gains or losses from related derivative instruments.

 

(3) See “Additional Information — Taxation — Federal Mexican Taxation”.

 

(4) Total interest expense includes a net loss from related derivative contracts of Ps.123.2 million, Ps.255.4 million and Ps.133.3 million in 2009, 2010 and 2011, respectively.

 

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Guarantees. We guarantee our proportionate share of our DTH ventures’ minimum commitments for use on PanAmSat (now Intelsat Corporation) IS-9 satellite’s transponders for periods of up to 15 years. The amount of these guaranteed commitments is estimated to be an aggregate of U.S.$10 million as of December 31, 2011, related to Innova.

Since April 2006 the proportionate share of Innova’s transponder lease obligation on satellite IS-9 (formerly PAS-9) guaranteed by us is 58.7%, corresponding to our percentage ownership of Innova. See “Information on the Company — Business Overview — DTH Ventures” and Note 11 to our consolidated year-end financial statements.

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments consist primarily of long-term debt, as described above, satellite transponder obligations and transmission rights obligations.

Contractual Obligations on the Balance Sheet

The following table summarizes our contractual obligations on the balance sheet as of December 31, 2011 (these amounts do not include future interest payments):

 

     Payments Due by Period  
     Total      Less Than 12
Months  January

1, 2012 to
December 31,
2012
     12-36 Months
January 1, 2013
to December 31,
2014
     36-60 Months
January 1, 2015
to December 31,
2016
     After 60 Months
Subsequent to
December 31, 2016
 
     (Thousands of U.S. Dollars)  

6.0% Senior Notes due 2018

   U.S.$ 500,000       U.S.$ —         U.S.$       U.S.$ —         U.S.$ 500,000   

6.625% Senior Notes due 2025

     600,000                  600,000   

8.5% Senior Notes due 2032

     300,000                  300,000