Today’s global content market is constantly evolving. The rise of digital platforms has created new and exciting opportunities for production, distribution, and consumption of content. Producers and distributors are meeting their audiences where they live, which is increasingly on digital platforms. As digital content garners more viewers, internet advertising is projected to overtake TV advertising globally for the first time in 2017.1 Global digital ad spend is on track to increase over 17% in 2017 for a total of $230 billion USD. By 2020, that figure is expected to reach $335 billion USD.2 Digital media revenue is projected to be over $91 billion USD in 2017, growing to over $112 billion USD in 2020.3
This is no different in Mexico, where the content trends are shifting, albeit at a different pace than other countries. The Mexican market is poised for a significant uptick in digital content consumption, but there are three main growth dependencies that will affect how quickly and how high the ceiling will be in the shift to digital.
Mexico’s young population is demanding and driving a more mobile and digital focused economy as consumers continue to flock towards digital platforms for social media, messaging, and VOD and SVOD services, while still supporting the robust free-to-air and pay-TV market. The ability of Mexico’s large media companies to learn from other global markets and effectively execute digital transformation strategies will be essential to their survival. The digital ecosystem has become a global marketplace, creating opportunities for consolidation via M&A and strategic investment. Mexico may be in an attractive position to benefit from these activities with the right strategic development and growth plan.
Content Trends and Opportunities
While digital content is becoming more ubiquitous in Mexico, free-to-air TV is immensely popular, as almost one-third of all households have only free-to-air TV in the house.4 Televisa and TV Azteca have had a duopoly on the market for some time, with Televisa controlling about two-thirds of the market share to TV Azteca’s one-third.5 However, in an effort to increase competition, Imagen Television has joined the market as a third entrant at the end of 2016.
The pay-TV market is still very strong in Mexico as well. With around 19.5 million subscribing households, that makes for a relatively low 60%+ penetration rate in the country, but a high raw number for Latin America, accounting for about one-quarter of the region’s pay-TV subscribers.6 Televisa owns izzi Telecom, one of the two major cable companies and one of the largest VOD providers. In addition, Televisa also owns the satellite company Sky Mexico, which is in direct competition with Dish Mexico. Consumers are still happy to watch traditional TV services on the whole, but as time spent viewing content increases, OTT and mobile industries will continue to see significant usage growth rates.
OTT is picking up steam in Mexico, thanks in large part to Netflix’s presence. The OTT leader by far, Netflix has a 70% market share.7 However, it is no longer the only major player, as Televisa’s Blim has increased its market share from 1.5% in May 2016 to 17.5% by November 2016, knocking America Movil’s Claro Video down to 9.3% from its previous 28%.8 Reports have Netflix subscriber numbers pegged somewhere around five million users, which is well below pay-TV subscriber counts.9 As a result, online video revenues for 2016 were estimated at $218 million USD, which is in stark contrast to the $2.9 billion USD spent on TV ads in Mexico for the year.10 However, the Mexican digital video industry grew 39% year over year in 2016, thanks to increased broadband penetration rates and smartphone adoption, while digital video revenue is projected to increase to $500 million USD by 2020.11 Both Netflix and Blim are continuing the global strategy of ramping up localized original content production to attract subscribers and stake claim to a large market share of Mexico’s OTT landscape.
Due to some of the growth dependencies in the SVOD OTT market, Mexico’s population is still going to other online platforms to consume content in a variety of ways. Social media, messenger apps, and YouTube are all connecting with a large percentage of the population, providing an opportunity for content creators to reach audiences directly. Facebook is far and away the most popular destination for social media, as an estimated 51.8 million Mexicans use the site, accounting for almost 95% of the country’s social networking population.12 WhatsApp is the second most popular social destination, with approximately 79% usage, followed by YouTube at 66%.13 Mexico has the third highest YouTube consumption in the world, with over four billion video views per month, showing that it is focused on the future of digital video.14 Combined OTT and online video viewing time exceeds 14 hours per week, with the majority of that time spent on VOD content.15
Mexico’s population skews young compared to many other countries around the world, and with that comes an increased propensity to consume and spend on media and entertainment.16 With over 60% of the population under the age of 35, Mexico has a prime demographic that is poised to drive digital content consumption. According to eMarketer, approximately “three-quarters of internet users in the country will use a social network via any device at least once per month.”17 This heavy usage creates opportunity for content creators and advertisers alike, strengthening the digital ecosystem even more.
With the increased use of ad blocking technology, many distributors of digital content are having to think about new ways to monetize. Globally, ad blocking is used on approximately 600 million devices, with about 11% of global internet users taking advantage of the technology.18 This can force some distribution platforms to shift away from traditional AVOD or display advertising models to SVOD or hybrid models. There is an opportunity for Mexican companies to address this issue head on, as ad blocking technology is not going to go away. While there is no standard approach that will alleviate the pain point, it is important for content distributors to understand their consumers and provide a business model that still has value to its consumers.
The growth of the digital distribution network in Mexico is reliant on the quality of its infrastructure which is poised for vast improvements. According to a recent SNL Kagan report, the Mexican government has been working on its Programa Nacional de Infraestructura 2014-2018, which includes an estimated $38 billion USD investment into the telecommunications sector. The México Conectado project is also tasked with providing free broadband internet access in public spaces. These developments will help increase the number of broadband users and allow for more consumption opportunities for digital content.19
Broadband penetration climbed to an estimated 45.5% of Mexican households by the end of 2016 and is projected to reach 54% of households by the end of 2020.20 That continued growth will be necessary to scale the potential digital market opportunity and create the type of user activity that can sustain a digital content ecosystem. One limiting factor is the actual speed of the broadband service that consumers can afford. Mexico has a high percentage of households with at least 4Mbps download speeds, capturing 8.4 million subscribers at the end of 2015.21, 22 For reference, Netflix recommends a 5Mbps download rate to use its services, which artificially reduces the number of consumers who may be able to use some of the new OTT providers such as Netflix and Amazon Prime Video. However, other popular online content services such as YouTube and Facebook do not have such demands, making them more popular overall.
One reason for Mexico’s lower broadband penetration rates overall is the consolidated power of America Movil and its subsidiary Telmex, which holds a roughly 60% market share for the country’s fixed broadband services.23 Until government action in 2013, broadband access was limited to those consumers who bought a more expensive package that included a landline. Increased competition from Megacable and izzi are opening up options for consumers, as well as providing broadband-only services.
While Mexican broadband penetration is about the same as the rest of Latin America, outside of Uruguay that boasts over 70% household penetration, it still lags far behind other global leaders, where penetration rates can be as high as 106% in Singapore.24 Mexico’s penetration rates put it more in line with a country like China, where nonurban physical barriers to installation continue to keep rates low for the overall population. Both countries are working to increase the overall rates through government mandates and investment, but the opportunity for faster mobile networks may provide the added access Mexico needs to grow its digital consumer base.
The Mexican mobile phone market has become a rapidly growing internet entry point for users. While America Movil has significant market share (66%), Telefonica (20%) and AT&T (14%) are trying to gain ground.25 This increased competition has opened the wireless market up and consumers are taking advantage of it. As of 2016, Mexico has a 69% mobile phone penetration rate with projected growth to 84% by 2020.26 More than half of all mobile customers have a smartphone currently, which should increase to 70% by 2020.27 Two-thirds of the entire Mexican population should have mobile internet access by 2020.28
All of this growth should lead to more digital content consumption. The growth in the mobile market will continue to drive opportunities for digital platforms and distribution. Most internet users (68%) use their mobile phone to access the internet now, and while mobile internet usage is on the rise, laptop connectivity is dropping.
Credit Cards and Alternative Payment Methods
One of the major limitations to Over the Top (OTT) growth in Mexico is the lack of credit and debit card usage. For subscription video on demand (SVOD) services such as Netflix, a valid credit card is the easiest way to pay for the recurring subscription fees. According to the latest Global Findex survey, credit card ownership and usage is extremely low in Mexico, registering less than half the cards per person than Brazil.29 Also, according to a PwC report, only 18% of the population has a credit card at all.31
In order for SVOD services to gain traction, it will be necessary to increase the number of credit and debit card users. This is a big task for Mexican financial institutions as fraud and data theft are two major issues that consumers face when using their cards online.32 Netflix does offer alternative payment methods, such as prepaid gift cards, PayPal, and iTunes or Google Play integration for account payment consolidation. SVOD providers and other online content distributors will need to adopt and integrate these alternative payment methods to capture market share and scale operations.
Digital Transformation and M&A Opportunities
While some of the dependencies hindering Mexico’s digital growth opportunities are being addressed, the bigger players in the space have the luxury of creating and executing digital transformation strategies to position themselves for future market relevance and dominance. Globally, other major media companies have diligently worked to address the realities of digital transformation.
As an example, ProSiebenSat.1 Group acquired Collective Digital Studios, an LA-based multichannel network in 2015, and merged it with its own in-house Studio71. In January 2017, they have now taken on a combined minority investment of $56 million USD from both French and Italian companies.33 This investment helps Studio71 expand its distribution network and grow strategically.
In the U.S., major media companies are investing in and acquiring strategic digital growth opportunities. Comcast’s $3.8 billion USD acquisition of DreamWorks Animation was partially based on the AwesomenessTV asset that DreamWorks acquired in 2013 for $33 million USD.34 By 2016, AwesomenessTV was valued at $650 million USD just before Comcast bought the whole company.
Disney has invested twice in Vice Media for a total of $400 million USD, believing that the multiplatform content producer can help them reach millennials in the digital age. Disney has also invested $1 billion USD into BAMTech to help them better navigate the OTT distribution industry. In both cases, Disney is looking forward at the digital landscape and positioning itself to stay relevant as consumer demands for content and distribution change.
In each of these cases, large, traditional media companies evaluated and executed opportunities to proactively address the coming digital transformation process, seeing content and content distribution as ways to achieve success. The opportunity is no different in Mexico, as the major companies that have held power and position for so long need to understand what the move to digital will mean for their businesses and how they can retain and grow their customer base through the transition.
Companies like America Movil, Televisa, and TV Azteca are all in a position of risk and opportunity as Mexico continues to move into the digital age. Televisa is taking a strong, diversified approach while maintaining and growing its main revenue streams. Televisa’s push into OTT with Blim has been a resounding success in its first year, taking significant market share away from America Movil’s Claro Video and moving into the clear second position behind Netflix. Televisa’s continued approach to quality original content production has helped it solidify its own distribution channels, while providing significant content to Univision in the U.S. for additional revenue.
On the other hand, TV Azteca has been slow to act. Their updated strategy to commit to new content production is potentially too little too late. Their lack of digital strategy and presence will hurt their position with millennials, potentially creating a decline in viewership. They have not diversified their offerings and appear stuck in the same rut that has plagued other major media companies, paralyzed by fear, indecision, or both.
One of the ways in which these companies can position themselves for the future includes the same strategy that Televisa seems to be taking. The digital diversification of business models and commitment to the coming changes of content consumption behaviors is important. Investment in in-house growth opportunities or other strategic companies will mitigate risk for potential shifts in the ecosystem.
The opportunity for growth via international investment or acquisition can also help reduce risk. Since Mexico is already a leader in content production and distribution in Latin America, a natural growth strategy to expand influence and efficiencies across the region could bear fruit with a larger digital reach. Identifying and executing that strategy properly will require a deep knowledge of the digital landscape and future trends.
Conversely, Mexico can become a potential investment target for foreign entities looking to reach a digital growth market. The ability for Mexican companies to effectively communicate their strategy and growth plans against the realities of the marketplace can potentially attract an international investment opportunity. However, it is necessary to understand what a strategic investor would be looking for and how to position the company to be attractive for investment.
The future of digital content production and distribution in Mexico is bright. The current limiting dependencies in place are already being addressed in some way or another by government or private investment. With the rapid pace of technology development and the growing competitive landscape, including AT&T’s emergence as a legitimate wireless company and $3 billion USD investment, Mexico is poised to take advantage of the coming digital transformation. It will be important to continue to understand the evolving content trends within and outside of Mexico, but with the right strategy and execution plan, Mexican companies could be in position to thrive in the new digital age.
1PwC. “Global entertainment and media outlook 2015-2019.” 2015.
2 eMarketer. “Worldwide Ad Spending: eMarketer’s Updated Estimates and Forecast for 2015–2020.” October 2016.
3Statista. “Statista (Digital Market Outlook).” 2016.
4SNL Kagan. “Global Multichannel Forecast Table - Mexico.” September 23, 2016.
5SNL Kagan. “Broadcast TV Summary - Mexico.” September 23, 2016.
13comScore. “2016 Global Digital Future in Focus.” 2016.
16PwC. “Global Entertainment and Media Outlook 2016-2020.” 2016.
19Mendez, Marcos Rodrigues. “In Mexico, broadband expansion won't eclipse pay TV.” SNL Kagan – Global Multichannel. December 30, 2015.
20SNL Kagan. “Global Multichannel Forecast Table - Mexico.” September 23, 2016.
21Almenteros, Angelu. “Latin America: More than half of broadband homes in 13 major markets have speeds below 4 Mbps.” SNL Kagan – Global Multichannel. May 2, 2016.
22SNL Kagan. “Broadband Market Summary - Mexico.” September 23, 2016.
23SNL Kagan. “Broadband Market Summary - Mexico.” September 23, 2016.
24SNL Kagan. “Global Multichannel Forecast Table - Singapore.” July 16, 2015.
30Global Findex survey – Mexico. 2014.