Hernán López

February 2, 2009 World Screen

When FOX launched in Latin America 15 years ago, it introduced viewers in the region to U.S series and other programming not offered elsewhere. The success of FOX led to the development of a bouquet of 140 channels across 18 brands in 32 languages, all operated by the Fox International Channels (FIC) group. The channels and their related mobile and high-definition extensions reach more than 383 million households. Hernán López, the COO of FIC and president of Fox Latin America and U.K., was a key member of the team that oversaw that growth under the direction of David Haslingden, the CEO of FIC and of National Geographic Channels internationally and in the U.S. In addition to his Latin American and U.K. responsibilities, López spearheaded the group’s acquisition of and expansion into production companies and online ad networks.



WS: How big of an audience do you need to maintain a niche channel? And at what point does it become so targeted that it just doesn’t make financial sense?
LÓPEZ: It depends on the size of the country, of the market, and on our own economics. A niche channel, such as Nat Geo Music, that may be financially viable in a large market and one where we have a strong footprint, such as in Italy, may not be viable as a standalone proposition in a smaller market. What we try to do is launch as many of our channels as close to a multiterritory, or ideally a global scale, as possible. That way we can amortize our programming costs across a larger number of territories.
WS: What economies of scale do you gain by having a bouquet already in place and then launching another channel?
LÓPEZ: There are tremendous economies of scale in our business, and that is one of the things that our company has been particularly good at. We have managed to reduce the nonprogramming costs in some cases to as little as a few hundred thousand dollars a year, which has allowed us to launch more channels and, I believe, [more than our competitors.] We now operate 140 channels around the world. All but ten of those were launched in the last seven years. Last year we launched 40 channels. That’s almost one a week.


WS: I understand you worked with a consultant to better tailor messages to the audience of a certain country. How did that come about?
LÓPEZ: A few years ago, I read a book called The Culture Code, by Dr. Clotaire Rapaille. One of the most interesting books I have ever read, and I would recommend that anybody who works with a number of different cultures read it. And I realized it would be a great idea to contact Dr. Rapaille, who is a French man living in New York state, and ask him if he would do a tailored study for us, particularly in Brazil. And what Dr. Rapaille does is to find the code of each culture. He defines the code as the imprints that are left on each person from a very early age, that are carried with that person into adulthood and provide a lens through which different cultures interpret the exact same message in different ways. 


WS: And how did you apply that to your channels? 
LÓPEZ: We had never been as successful with the FOX channel in Brazil as we had been, for instance, in Argentina. Our ratings in Argentina were more than double our ratings in Brazil and since we applied the results of Dr. Rapaille’s research, our share of the audience has gone up. And it comes to program selection and communication. We started to do promotions specifically tailored for the Brazilian market to a greater extent than we had been doing before.


WS: Does having a large bouquet of channels give you leverage when you’re approaching pay-TV operators?
LÓPEZ: Absolutely. If you have 27 channels and all of them are on a platform, it’s harder for them to drop you than if you have only two channels. Conversely, if you have 27 channels and a platform launches in a new market and they want to cherry pick, you can’t allow that to happen because the other platforms will feel undercut. 
 
WS: You’ve started original productions on a number of channels. How do you know when a channel can afford producing its own shows?
LÓPEZ: The FOX Latin American channel, as you know, just turned 15 years old. We didn’t do any original scripted productions until it was 14 years old, which was last year with Tiempo Final. Could we have done it sooner? We probably could have. Not much sooner, but it comes back to the question of the difference in price between producing and acquiring and just how significant that difference is. When the difference is ten to one, you can’t afford it. When the difference is two to one, which is closer to the situation in Latin America, you can afford it because you own the end product and you can distribute it in a number of ways. Over the last two years in Latin America, we went from producing probably a dozen hours to 3,000 hours for all of our channels combined, and also third-party channels.


WS: Are you happy with the positioning and with the performance of the channels in Latin America?
LÓPEZ: Absolutely. I’m happy with the performance of our channels all around the world. Can we do more? Absolutely. We have reached the point of, as David [Haslingden] likes to call it, self-sustaining scale. In all of our major markets, we have a scale that allows us to commission programs which we can own, to retain the strongest sales teams in the region, which allows us to command a larger share of revenue than others, and I’m particularly proud that in the last two years we have extended beyond cable and satellite channels to production and online. We bought two online networks, in Latin America and in Europe. Today we offer Internet advertising inventory or television advertising inventory in 33 markets all around the world. 
We are very well-positioned to capitalize on the growth of online video as the largest ad-supported international cable channel group, and we also have the largest online-video network in Europe.


WS: Will growth come from consolidating the position you have or are you thinking of launching new channels?
LÓPEZ: Almost the majority of our revenues come from either emerging markets or mature markets with a relatively low cable-and-satellite penetration. So even if we did nothing, which as you know, is not in our DNA, our channels still have a lot of upside from having strong ratings and being in a market that has 25-percent penetration [with the potential to grow to] 80-percent penetration. There’s no reason why rich markets around the world wouldn’t be able to get to the levels of penetration that you see in the U.S. And at the same time, we will continue to launch channels wherever it makes financial sense. Most of our channels break even within six quarters of launch. And again, we have managed to do that because of our scale and our very sharp attention to margins and operating costs.