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Edited Transcript of TLEVISACPO.MX earnings conference call or presentation 25-Oct-19 1:00pm GMT

Q3 2019 Grupo Televisa SAB Earnings Call

Mexico Oct 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Televisa SAB earnings conference call or presentation Friday, October 25, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexandre Penna

Grupo Televisa, S.A.B. - CEO of SKY

* Alfonso de Angoitia Noriega

Grupo Televisa, S.A.B. - Co-CEO & Director

* Patricio Wills

Grupo Televisa, S.A.B. - President of Televisa Estudios

* Salvi Rafael Folch Viadero

Grupo Televisa, S.A.B. - CEO of Cable Division & Director

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Conference Call Participants

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* Arturo Langa

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Daniel Federle

Crédit Suisse AG, Research Division - Research Analyst

* David Carl Joyce

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Frederico P. Mendes

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

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Presentation

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Operator [1]

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Good morning, everyone, and welcome to Grupo Televisa's Third Quarter 2019 Conference Call.

Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything we discuss in today's call and in the earnings release.

I will now turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [2]

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Thank you, [Alfie]. Good morning, everyone, and thanks for joining us today.

With me are the heads of our 3 key business segments: Salvi Folch, CEO of Cable; Alex Penna, CEO of Sky; Patricio Wills, Chair of Televisa Estudios; and also Carlos Ferreiro and Antonio Lara, Corporate Vice President of Finance and Administration, respectively.

We will take you through the highlights of our 2019 third quarter results. And following our opening remarks, we will answer all your questions.

As we will share next, we hit a number of milestones during the quarter. For example, private sector advertising performed well even considering the difficult comparison related to the transmission of the World Cup last year. In addition, we reached new viewership records with our production and transmission of a number of very successful shows this quarter.

In Univision, after the successful negotiation with Dish, royalties are growing again. Also during the quarter, Sky resumed growth in video revenue-generating units or RGUs and added 82,000 broadband RGUs. Finally, Cable continued to post double-digit growth and expanded its broadband market share. We are happy with this progress, but we have a lot of work in front of us.

Let me start by addressing our financial results for the third quarter. Consolidated sales and operating segment income as reported grew by 3% and 4.4%, respectively. However, excluding the non-recurring licensing of the broadcast and digital rights of the World Cup in Latin America, consolidated sales and operating segment income increased by 7.3% and 10.8%, respectively. These figures don't take into account other factors which made the comparison to last year more difficult such as the World Cup incremental advertising revenue last year nor the decline in government advertising this year.

Now we will address each of our core businesses in detail. I will turn it over to Salvi for a discussion of our Cable business.

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Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CEO of Cable Division & Director [3]

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Thank you, Alfonso. During the third quarter, revenue grew 14.7%. Excluding the acquisition of Axtel, which took place during the fourth quarter last year, top line growth was also strong at 8.4%. The strong organic growth was driven by our pricing strategy, promotions we have put in place to increase speed and reduce churn and the increase in our load factor.

In addition, we now have a stronger Content buffer at higher revenue per service, which includes our new unlimited bundle of Netflix and Blim, priced at MXN 670 per month. We are the first and only operator in Mexico offering an OTT bundle to our customers. Such packets and the option to subscribe to Star, Acorn, HBO, FOX Premium and Noggin among other Content offering have allowed us to position ourselves as an aggregator of the most relevant content available in the market.

During the quarter, we added 126,000 RGUs, posting growth in voice and broadband services, although we experienced a marginal decline in video RGUs. We have continued to gain market share in the markets where we operate and remain very optimistic about the ongoing increase in broadband penetration in Mexico and in the levels of data consumption.

For example, almost half of all our new customers are contracting at least 20 megs. It is very positive for us that they are moving from our lowest price offers to peers with faster speeds. Also, the amount of data used by our average customer continues to increase. During the third quarter, this figure reached approximately 210 gigabits per month, a year-over-year increase of more than 20%.

Transition to high-speed data in Mexico is happening just like it did in the U.S. some years ago. In this regard, we are several years behind the U.S. So the migration to higher-speed plans will continue over time.

We closed the quarter with 12.5 million RGUs, of which 4.7 million were broadband, 4.3 million were video and 3.5 million were voice RGUs.

We are confident that we have a very competitive product and that we will be able to continue growing our market share in all our services. Growing our enterprise business was 5.9% and was driven by higher revenues mainly in our private sector plan. Our market share in this business segment is low, and we see good growth opportunities in the future.

Operating segment income posted a growth of 14.7%. And we reached a margin of 42.4%, notwithstanding the additional cost of content related to our unlimited product.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [4]

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Thank you, Sal. Now let me turn it over to Alex Penna, CEO of Sky.

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Alexandre Penna, Grupo Televisa, S.A.B. - CEO of SKY [5]

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Thank you, Alfonso. During the third quarter, total revenues were marginally down by 1.3%. The decline is explained by the difficult comparison with last year given the disconnections that followed Sky's transmission of all matches of the soccer World Cup.

On a sequential basis, however, video RGUs rose by 19,000. This is a second consecutive quarter with video net additions after the disconnections earlier in the year. Sky has been able to resume growth in video customers by implementing a number of initiatives, including price alignments to competition in some postpaid packages and attractive video and broadband double-play offers.

In terms of broadband customers, Sky added 81,000 during the quarter, reaching a total of 319,000 broadband RGUs. Sky operating segment income was lower by 6.6% when compared to last year, but the margin remained strong at 45%. The drop of 250 basis points in the margin when compared to last year is explained by the increase of broadband RGUs with a lower margin than video, higher transmission costs, and the [monetization] of special events and higher marketing expenses.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [6]

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Thank you, Alex. Moving on to Content. Advertising fell year-over-year by 5.2% with government advertising down by approximately 40% this quarter. Private sector advertising, however, was marginally up by 1.3%, even including the incremental advertising revenues from the transmission of the World Cup last year. Excluding the effect of the Cup, core private sector advertising revenue rose by 5.1%, which resulted from the reactivation of the campaigns by many of our customers and their growing confidence in our Content.

In addition, we had a solid performance in the other 2 sources of Content revenue: Licensing and Syndication, which includes Univision royalties, was up by 6.8%; and Network Subscription revenue was up by 4.7%. The acceleration in these line items is mainly explained by a repackaging of some of our networks. Excluding the income last year from the licensing of the World Cup lines in Latin America, Content revenue and operating segment income were practically flat year-over-year. Year-to-date Content cost and expenses are down by MXN 854 million and in line with our goal for full a year reduction of around MXN 1 billion.

Now in terms of our upfront negotiations. This year, we are implementing a number of changes in order to monetize our inventory more effectively. For many years, the negotiation of the upfront and the negotiation of our fourth quarter Advertising Sales happened simultaneously. This overlap in the negotiations has undermined our ability to price our upfront inventory properly and closed a strong fourth quarter, which is the most important quarter of the year for us. For that reason, among the changes we're implementing, we will extend the conclusion of the negotiations of the upfront for the first few months of the coming year.

We are convinced that Televisa has the content, the audiences and the reach that advertisers need to promote their products and services. This change is incremental to all other changes we have recently put in place in our Advertising Sales operation.

I will now turn it over to Patricio for a discussion of the progress we made during the quarter in our Content offering.

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Patricio Wills, Grupo Televisa, S.A.B. - President of Televisa Estudios [7]

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Thank you, Alfonso. In terms of Content offer, Televisa continues producing and transmitting very successful charts. For example, during the quarter, we had a lot of success with the broadcast of our drama series, La Usurpadora. This series, which concluded this month, is both on television in Mexico and in Univision in the United States. In Mexico, La Usurpadora added us a record 5.6 rating points during the 9:10 p.m. time slot and 6.2 million viewers per episode for its 25 episodes, delivering the highest rating of any TV series in Mexico since September 2017.

In Televisa's digital platform, the first episode of Usurpadora, which the highest number of views of any program during the third quarter. Year-to-date, it is a program with the second-highest number of views with a total cumulative of [4.2 million] viewers from the date of its launch.

In the U.S. through Univision, La Usurpadora outperformed Telemundo and English-language shows on CBS, ABC, NBC and CW during the 9:00 p.m. time slot.

La Usurpadora is the first series development with a 3-factor initiative, which is consistent with creating Televisa's most iconic drama in less than 30 episodes. Also our transmission of Quién es la máscara or The Masked Singer averaged a record 7.4 rating points on [shows on] prime time, and we had an average of 8.2 million viewers per episode over its 8 episodes. The final episode reached around 19.4 million people, being the top-highest entertainment final episode since 2016.

The top 10 transmission of serialized content on Mexican television this year were producers of and transmitted by Televisa. In the U.S.A., the top 10 shows were transmitted by 4 different networks: NBC, CBS, ABC and Fox. Furthermore, the percentage of total population, all of our top 10 shows delivered another largess that is top 10 shows in the U.S.A. And as an example, after adjusting for the size of the population in each market, our transmission of The Masked Singer delivered 85% more viewers than Fox's transmission of the same show in the USA.

Competition for viewers is intense and revenues remain volatile. These 2 shows were very successful, but we also have a number of shows that did not meet our expectations. We are expecting new shows like never before, and this is allowing to reach the new records in several parts.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [8]

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Thank you, Patricio. Moving on to Univision. Its operating metrics are looking better, and we are enthusiastic about its prospects in 2020. For example, for the first time in 4 years, Univision's most recent upfront grew by mid-single digits. Also, Univision's flagship network finished as the #1 Spanish-language network in 2018-'19 broadcast season despite being dark on Dish for close to 6 months. In addition, the Univision network outdelivered at least 1 of the big 4 English-language networks roughly half of the nights during the third quarter. Also during the July suites, Univision aired 60 of the top 100 entertainment programs in prime time among U.S. Hispanics regardless of language.

Univision continues to be the leader in the transmission of soccer matches. During July, the 2019 World Cup final outperformed last year's soccer World Cup final on Telemundo by 36%. Finally, Univision hosted the September Democratic presidential debate, beating the rating of the prior debate on Telemundo by 35%.

Over the past 2 quarters, we have taken a number of measures to strengthen our balance sheet. We raised MXN 25 billion from 2 facilities: the first one for $750 million in 30-year-term senior notes; and also second, MXN 10 billion in the 5-year-term syndicated loan. With the proceeds, we prepaid our 2010, 2014 and 2015 local issues. As a result, we improved our debt profile by extending our average maturity by 3 years to 17.3 years and reduced our average cost of debt slightly, including currency hedges, to approximately 6.6%.

In closing, we made good progress this quarter across all our businesses and we still have more to do. Our Content is performing really well and we will actively work to monetize it more effectively. Cable keeps expanding its broadband market share, and we will focus on reaccelerating the pace of growth in net additions. Sky has resumed its growth in video customers, and we are in progress of building a relevant scale in our double-play video and broadband package. We are very focused in achieving these goals.

Now we are ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from the line of Miguel Dávila from Itaú.

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Arturo Langa, Itaú Corretora de Valores S.A., Research Division - Research Analyst [2]

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This is actually Arturo Langa. I have 2 questions, if I may. The first is regarding the functional separation of América Móvil, which I understand is expected to be concluded by March next year. I was wondering if you could detail what are the opportunities you're seeing there across your business lines.

And my second question is regarding Content. I think the 5% increase in core advertising revenues is interesting. And I just wanted to confirm, but the new telenovelas according the figures I'm seeing are reaching ratings of close to 5 million or 6 million viewers prime time. This is more than double than the 2.5 million average you were doing maybe 1 year ago on some of your key shows. And going forward, shows like Rubí or Cuna de Lobos, I was wondering what expectations you have there and maybe what reading we could give into the future for ratings for open TV and how maybe you can monetize that.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [3]

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Arturo, as to your first question that has to do with Telmex's functional separation. What I can say is that assuming that functional separation works, Sky could benefit from that by offering video -- I'm sorry, by offering voice and data services through Telmex's infrastructure. It would not be limited to fixed mobile through Red Compartida. So Sky continues Telmex's infrastructure for that purpose. Also, our Cable operation could benefit by accessing the infrastructure necessary to offer services to a much larger number of homes.

The big assumption is whether the functional separation will work. Unfortunately, Telmex has not complied with its obligations under the Constitution to give access to its network to other operators. And Salvi, can you expand on this please?

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Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CEO of Cable Division & Director [4]

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Yes. Sure, Alfonso. Look, as you know, the overall idea of the access to the infrastructure of the preponderant operator is that the unbundlers or their resellers use the existing infrastructure to provide more competition in the market. The European experience showed us that with the proper access to such infrastructure, the resellers or unbundlers were able to reach, 4 years after it was enacted, about 20% market share. Unfortunately, in our country, it has not worked. The number of unbundled services so far is tiny.

I believe that there are many reasons why this is happening, and the preponderant operation continues to undermine competition. They want to keep their dominant position. As an example -- another example is in order for us to be able to sell or to use the infrastructure, we have to use the same electronic management system that the preponderant operator uses so we are on the same level-playing field. However, Telmex is using a different system to meet their own requests and that works more efficiently. So just to give you an example, we can access the system. And it seems that there is no service available in a particular address if you go to a Telmex store and you can get the service in that particular address.

We have already filed more than 100 complaints against the anticompetitive practices, and the regulator has initiated sanctions proceeding in at least 6 of them. For example, some of the things that the authorities have determined is that Telmex has breached its obligation by improperly contacting the clients of the competitors that are using their networks, sending invoices directly to the clients instead of sending the information to the concessionaires themselves. So if we go and sell to a particular client, we are the agent that is invoicing the clients and Telmex should not be contacting those lines directly.

Another example is that they frequently give us incorrect information of the infrastructure to deny the service, which is a violation of the obligation on the -- of the resolution of [preponement]. This is very relevant not only for selling services but also for having access to some of their jobs for deploying our infrastructure.

Telmex is replicating practices that were banned and severely punished in other jurisdictions like in Europe. To date, and notwithstanding that the regulator has determined the violations that are affecting competition, there have been no sanctions yet. So the functional separation, we expect that it could be something that would work if we are treated exactly the same that Telmex or Telcel with their requests.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [5]

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And Arturo, as to your second question that has to do with Content. As Patricio reported, we're very happy with the results of our new shows in this quarter. For the first time, we aired La Usurpadora, as Patricio mentioned. And this is the first of our series of telenovelas where we are re-creating the most iconic dramas. And we're doing that in less than 30 episodes rather than the traditional novela, which lasted around 3.5 to 4 months.

So the result of La Usurpadora has been amazing both in Mexico on all platforms and in the U.S. I can mention that in Mexico, the ratings were great and we captured younger generations. Just on the digital platforms, La Usurpadora was the highest number of views of any program during the third quarter. So the success on digital platform was also there. And on Univision, La Usurpadora outperformed Telemundo and also English-language shows on CBS, ABC, NBC during the 9:00 p.m. time slot. So I mean we are very happy with the results. We'll continue to follow that initiative and we'll continue to re-create these iconic telenovelas and to produce them as series. So we're very happy with the result and what we are seeing and we'll continue to do that.

As Patricio mentioned also, we had huge success with The Masked Singer. We basically had an audience of -- an average audience of about 8 million viewers per episode over 8 episodes. So this was the most watched show on Mexican television by far. And the audiences that we saw are great.

So throughout our grid, we're seeing that what we're doing in terms of transforming our programming into a series and a new type and -- new versions and new type of shows are having success and are working.

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Operator [6]

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And our next question will come from the line of Rodrigo Villanueva from Merrill Lynch.

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Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [7]

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I have a few questions, if I may. The first one is related to pay-TV prices in Mexico. I was wondering if you could share your thoughts with us particularly on how they compare with global pay-TV prices and also if you still see room for pay-TV prices to increase in Mexico at least in line with inflation. That would be my first question.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [8]

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Rodrigo, I'll ask Salvi to answer the question.

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Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CEO of Cable Division & Director [9]

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Rodrigo, we believe that pay-TV prices in Mexico are very competitive. If you see the starting point of our bundles, it's very cheap compared to other markets. As a matter of fact, according to a recent Morgan Stanley study, the cost of pay-TV in Mexico is the lowest of 10 Latin American countries.

Also, when we bundle our service with unlimited telephony and with broadband access, if you compare the price of the bundle with other markets, I think that we are very competitive, especially considering that a lot of the CapEx that is required on the customer premise equipment is dollar-denominated.

We are very sensitive on the macro environment and we are eager to help to increase the penetration of the different services on the Mexican market. But some of the price increases we make are basically in line with inflation due to increase in costs, labor or programming. So I think that we will continue to focus on offering very attractive offers to our customers. And I believe that the room for providing additional services such, for example, like the one that we are providing, giving access to our customers to Blim and to Netflix, it's very useful for our customers that we provide them a set-top box by which they can see the relevant content on their TV sets. There are not that many smart TVs in the Mexican market, and we help to allow them to use the content in their devices, notwithstanding if they are older TV sets. So we will continue to offer very attractive pricing in the different services that we have.

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Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [10]

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Understood, Salvi. My next question is related to advertising. I was wondering if you could share with us how would you expect advertising revenue to perform in the fourth quarter, particularly considering that it appears that last year, the government was not very active already in the fourth quarter. And also if you could please share your thoughts regarding potential ad campaigns from the public sector in the fourth quarter of 2019?

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [11]

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Yes. Well, you are right, Rodrigo, that the cost between the fourth quarter this year and the fourth quarter last year will be an easy one because last year, it was the end of the Peña administration where basically they did not advertise. And then we had December when the López Obrador administration took over and there were no campaigns.

So there were very small amount of money that came from the state and from other entities, but the comp will be easy. We believe that from what we saw in the third quarter, we'll see a more active federal government and more active local governments and public entities. So we believe that, that will reactivate the expenditure. And we believe that, all in all, throughout the year, the plan will be around 50% of what used to be the total budgets that were assigned to us in terms of advertising.

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Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [12]

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Understood, Alfonso. Very clear. And one final question, if I may. I was wondering if you could please elaborate on the potential to accelerate share buybacks in the open market, block trades or even a tender offer. What I mean here is how much would you be willing to invest to buy back stock and why now and not during the second quarter when the stock reached a 15-year low.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [13]

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Yes. Very good question. We're extremely frustrated because during the quarter, there were certain events which, unfortunately for us and for the shareholders, but under the advice of both our New York and Mexican legal counsel, we were precluded from doing any share buybacks. This was really unfortunate and as I mentioned frustrating but we continue to see great value in our shares. And as we mentioned, we're looking at alternatives. We're looking at alternatives that would allow us to accelerate the repurchases.

Unfortunately, the mechanisms that we have examined such as a tender offer via, for example, a Dutch auction from the regulatory perspective would have to happen both in Mexico and in the United States simultaneously. And surprisingly to us when we have explored this, this has never been done in Mexico by a Mexican company. So there are regulatory hurdles. And this from that perspective has become a headache since it has never been done. So those are the type of mechanisms that we are actively -- very actively exploring. And as I mentioned, it was very unfortunate that we could not do them during the quarter.

So in terms of money invested, it's very difficult to say. We have a very strong balance sheet, and we believe that the purchase of our own stock is very attractive. So -- and you'll be seeing us more active going forward through this type of mechanisms or through direct purchases.

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Operator [14]

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And our next question will come from the line of David Joyce from Evercore ISI.

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David Carl Joyce, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [15]

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2 questions, please. First on the video losses. Would that be explained by some of the economic softness? Are those lower-ARPU video packages that caused the net declines? And then -- or if there's another explanation, that would be helpful.

And then secondly on your new upfront mechanism. How should we think about that altering the balance of the upfront versus scatter proportion? And would we still expect all of the upfront deposits to be made at some point in the first quarter?

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [16]

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Thank you, David. I will ask Salvi to answer your first question.

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Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CEO of Cable Division & Director [17]

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I mean regarding the video losses that we had during the quarter, what I would say is that the economic environment has caused a temporarily slowdown in the face of net additions for the industry and we are not the exception. As you are aware, we increased prices in line with inflation in September. So some of our customers have been disconnected due to economic factors. And it's likely that such price increase had an impact on some of our customers.

However, we are confident that the penetration of our video and broadband services will continue to increase over time. We are strengthening our offer of -- as I pointed out, including additional content, additional services. Many of the disconnects that we had were single plays of video and that's why you see a decline. But we are confident that our offer is very strong and that we will not have disconnections like that in the coming quarters.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [18]

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And as to your second question, David, we're going to see a dramatic change in the way in which we sell advertising. What we have seen, and I'm sure you also noticed, is that we're selling CPMs at a very low price when compared to other parts of the world, especially in Latin America.

Today, we have the product. We have the audiences with our productions, our content, which has been very successful. We have the reach which nobody can deliver. No digital platform in Mexico nor anybody can deliver the reach that we can, especially through Las Estrellas, our flagship.

And what we have realized through detailed analysis is that the manner in which we have been selling advertising for many years, which is the upfront plan, was tying our hands and basically was taking leverage away from us in the sense that it coincided with the fourth quarter, where we were trying to have a successful fourth quarter, which is very important for us cyclically. And that coincidence of the fourth quarter and the negotiation of the upfront and the negotiation of the advertising budget for next year was creating issues in terms of taking the leverage away because we wanted to close the fourth quarter with good results and we also wanted to take the money for the upfront. And we were putting pressure on ourselves by trying to close everything at the same time by December.

So now we're disassociating the close of the fourth quarter with the upfront. So you'll see ongoing negotiations during the month of January and February. So the pricing of the upfront will take place then rather than trying to do everything at the same time in December. You will see an increase in terms of CPM because of what I mentioned. If you compare them to other countries in Latin America, they're extremely low.

So now is the right time to do it. Of course, it has risks associated with this. But we believe that we have the product, the audiences and the reach to be able to do it. The advertisers know that they're paying low CPMs in Mexico because they know how much -- especially the transnational companies, they know how much they're paying in other parts of the world. And they know that our product works in terms of positioning their products and their brands. So I think we have to do it, and we have to give value to our product and we have to change the way in which we have been doing things. So this is the right time and that's what we're going to do.

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Operator [19]

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And our next question comes from the line of Fred Mendes from Bradesco.

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Frederico P. Mendes, Banco Bradesco BBI S.A., Research Division - Research Analyst [20]

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I have 2 questions as well. The first one, if you can just go back to the advertising revenue, I mean the results, actually on the private segment. I mean there was a significant change, of course positive, versus the second Q. Now you're growing 5% adjusted. Last Q, you were dropping 5% adjusted for the World Cup impact. So I'm just trying to understand what's really changed there, if it's only the impact from La Usurpadora or if there is something else to it, and of course, how we expect these lines to continue in 2020.

And if you allow me, maybe the second question. Looking at the Cable segment, again, very strong performance. But I guess your main competitor, he's mentioning he's actually more on fiber now. So if you are seeing a stronger competition in the Cable segment especially in Mexico City or that the competition is coming mainly from price and not so much in terms of quality yet?

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [21]

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Thanks for your question, Fred. Yes. I think the increase in terms of private sector advertising has to do with what you mentioned. The products are working not only in La Usurpadora. But if you look at the program in grid, most of the shows are working.

But also we believe that the sentiment as to Mexico is better. I think there, it's important to look at advertising revenue on an annualized basis rather than on a quarterly, year-over-year basis. What happened this year is that many of our clients did not use their advertising money or their deposits in the first half of the year so it was back loaded. And they started to advertise more heavily during the third quarter, and we expect that to continue during the fourth quarter.

So in talking to our largest clients, we believe that they are being more optimistic. And so in many cases, they are launching more active campaigns. They have launched more active campaigns in the third quarter. And as I mentioned, they will continue in the fourth one. So in terms of -- I think that the environment is better. The sentiment is better and that's great for us.

And I'll ask Salvi to answer your question that has to do with Cable.

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Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CEO of Cable Division & Director [22]

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Yes. Fred, well, I think that there's no doubt that penetration of broadband will increase in Mexico over time. The need for faster speed, for more data is going to happen as it has happened in many other countries. As a matter of fact, Mexico has basically one of the lowest penetrations in the OECD. And that's why we are very optimistic.

And we think that with the network that we have, we can provide great service to our customers. We have seen how the cable companies in the U.S. have been able to not only be very competitive but to win market share especially using DOCSIS 3.1. So we have room for being very competitive.

Our product continues to be strong. The speeds that people are requesting keep increasing as people have more devices on their homes. The number of gigs that are used by our customer base continues to increase, which is encouraging because that means that the need for broadband is going to grow over time.

However, the penetration is lower because it's very linked to the economy. But we are pretty sure that it is temporary, this slowdown in the pace of net additions of broadband. People need a lot of giga. And the mobile sector in Mexico, it's not an option because it's very expensive to use broadband data in mobile devices, right? There's no one that can watch Netflix or an OTT or Blim on their mobile device because basically they would run out of their prepaid plans. Goldman Sachs recently made a report of how expensive it is. And it's more expensive than in the region to consume that data. Just to put it in context, I think that in Mexico, the average use on mobile devices is close to 2 gigs per month when you compare it to over 200 gigs on the fixed side.

We welcome competition if there is more competition in market, as you pointed out, like in Mexico City. Well, if the industry is not growing, we will fight more for the existing customers. But as the industry expands, our offer is very competitive. And we have made the investments and we have the technology to be one of the best offers in the Mexican market.

Our market share has consistently expanded. And we only cover about 15 million homes out of the 33 million homes in the country. So if -- we have an overall market share north of 24%. But if you consider the areas where we operate, it is in the region of about 38%. So we have a very competitive product. And we are very confident that as penetration increases, we will be gaining many more customers.

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Operator [23]

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And our next question comes from the line of Daniel Federle from Credit Suisse.

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Daniel Federle, Crédit Suisse AG, Research Division - Research Analyst [24]

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The first one is just on the advertising side, just to understand a little bit more on the reasons behind the increase in the private sector. This is mostly new clients coming to Televisa or the existing clients are spending more with the company? And if that's the case, if they are spending more because they are buying extra time or because of price increases? That's the first question.

And the second question on the Cable side. If the growth in the future -- what is it expected to gain from? That is mostly from network expansion or if it's additional penetration in the existing footprint?

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [25]

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Daniel, as to your first question, it's basically traditional clients, existing clients, where their advertising expenditures or investments happen more in the third quarter and will continue in the fourth quarter. So basically, as I mentioned, we believe that the sentiment in Mexico is much better. And these advertising clients bought in the upfront mostly and they decided to advertise more in the third quarter and fourth quarters rather than in the first half of the year. They -- some of those clients have bought additional campaigns. So they have bought in the scattered market, but it's mostly traditional clients. As to your second question, Salvi?

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Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CEO of Cable Division & Director [26]

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Thanks, Daniel. Regarding the second question, I think the expansion will come from both the -- having more customers on the network that we already have. But we also continue to expand our network at the cities where we operate growth.

There is good opportunities to grow. I think we are doing a good job on increasing the loading factor and the prices that people -- that the packages that our customers start subscribing to have higher speeds, as I pointed out before. And that helps us to increase revenues.

I think that we will all -- we are having good success and we will continue to have good success over the coming years on selling the unlimited bundle, which includes Netflix and Blim. That will help us to grow. Unfortunately, it has lower margin. So we'll see good results on the top line but it comes at a higher cost especially Netflix, as you know, has a lower margin than our traditional products but I think that we will expand.

If you look at the IFT studies of broadband penetration on the different places in the country, there are big opportunities in the areas that have even lower penetration. We are present in some of those markets. So I think that it will come from both a network expansion and a better use of -- or a higher number of customers in our existing footprint.

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Operator [27]

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And I'm actually showing no further questions at this time. I'd like to turn the call back to the speakers for closing remarks.

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Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - Co-CEO & Director [28]

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Well, I would like to thank everyone for joining us today. I think we have made great progress, and we believe that we'll be able to make further progress in the quarters to come. As always, feel free to contact us at any time with any questions that you might have. Thank you.

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Operator [29]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.