Latin America is a vibrant sports broadcasting market. The spotlight will be on the region even more during the next four years as Brazil gets set to host both the soccer World Cup and the Olympics. For a broadcaster like ESPN, it is a great time to be in the market. German Hartenstein, managing director for ESPN Brazil, talks about how the broadcaster is taking what it has learned from North America and applying it to the Brazilian market.
Hartenstein: DTH is growing really fast in Brazil — much faster than cable. Last year, DTH became more than 50 percent of the total base of subscribers, and I believe this trend will continue. I think this gap between DTH and cable will continue to increase, mostly because Brazil is a very big country. The cost to build cable around a country that is about 8.5 million square kilometers is really huge. It is very difficult to penetrate in the North and North East parts of Brazil. With DTH technology, it is very easy to get everywhere. Satellite technology has a big advantage and companies like DirecTV and Telmex have been trying to take advantage of that. Most of the companies entering the pay-TV market are using DTH and not cable.
Hartenstein: I believe today the satellite market is around 52 percent of the total subscriber base. I think this will number go up. The total number of pay-TV subscribers is expected to double in the next three years in Brazil. I believe DTH will get the majority of these new subscribers. New players are also expected to come to the DTH market.
Hartenstein: Brazil is growing very fast. Despite all the growth we are seeing, the market still has only 20 percent market penetration. So, there is still a lot of room to grow. When we look at this potential, we get excited about what the future holds for our business here. Another interesting aspect about this market, and something that is relevant to ESPN, is the passion people have for sports. Brazilians love sports, especially football. The fact that Brazil will host the World Cup in 2014 makes the market more and more interesting.
Hartenstein: In Brazil, we have two SD channels and one HD channel, and the content on the HD channel is different than the content on the SD channels. We are also getting ready to launch a stream of one of our SD channels with an HD version. We will have two HD channels and two SD channels soon. We are seeing some very interesting dynamics here — an emergence of a new middle class with disposable incomes. They have bigger TV sets and they want HD content. The HD base is growing really strong. I would say that 20 percent of the total subscribers in the country are HD. What is important is that it is growing very fast. Once you start watching HD, it is hard to go back to SD.
Hartenstein: We made a very sizeable investment in the last two years and upgraded our production to a digital HD level. We are using exactly the same technology that ESPN is using in the United States. This gives us the opportunity to work on the network with them. This also gives us the opportunity to produce everything with a digital output. It makes it much easier for us to use this different material on different platforms. With this investment, not only has the final quality on the screen improved dramatically, but we get content to sports fans much faster and on different platforms.
Hartenstein: The most important thing we have done in the last few years is open our operation to new platforms. We used to be an operation totally focused on television, but now ESPN Brazil has a very strong website, mobile offering and magazine and radio operation. We are present on all platforms. We are also one of the few HD channels in Brazil. Our challenge is to continue with this strategy of serving all platforms. We believe that the Brazilian public is more and more aware of these segmentation trends. They want to watch sports and get information about sports at every time during the day, in the way they choose. This is an important challenge we are facing. This country will host a World Cup and Olympic Games, and the economy is really booming. Several companies that were not interested in the past now want to step into the market, so the challenge is to keep a strong position.