ARGENTINA: PROPOSED AUDIOVISUAL LAW COULD CHANGE MEDIA

UNCLAS BUENOS AIRES 000350 SIPDIS SENSITIVE USDOC FOR 4321/ITA/MAC/OLAC/ROSEN STATE FOR ECON WHA/BSC E.O. 12958: N/A TAGS: ETRD ECON WTRO AR SUBJECT: ARGENTINA: PROPOSED AUDIOVISUAL LAW COULD CHANGE MEDIA LANDSCAPE AND AFFECT UNITED STATES COMMERCIAL INTERESTS Ref: BUENOS AIRES 335 -------------- Summary -------------- ¶1. (SBU) On March 19, 2009, the Government of Argentina (GoA) announced a draft bill for a new Audiovisual Law which will affect the broadcasting, content, and multimedia industry in Argentina. The bill, if/when passed, is expected to replace the existing Broadcasting Law 22275, published by the Military Government in ¶1980. The basis of the draft law appears to most adversely target cable operator Clarin, which in the GOA's view has a monopoly in the sector. While U.S. firms could benefit from more customers for their signals, the bill contains negative elements such as the creation of a registry of all foreign networks, a 60% quota for local Argentine programming, and a requirement that all advertising be produced in Argentina. Negative tax implications for U.S. firms may also surface, but due to the bill's vagueness, companies will need to make further analysis and receive clarification. There will be a 90-day period for comment, a standard practice in many countries but far from the norm in Argentina. This cable should be read together with reftel, which examines the political and press freedom aspects of the bill. End Summary. -------------- Audiovisual Law Given High-Profile Release -------------- ¶2. (SBU) On March 18, President Cristina Fernandez de Kirchner presented a draft Audiovisual bill in a public and highly partisan ceremony held in the capital of Buenos Aires Province, La Plata. The ceremony was attended by high-level government officials and members of the diplomatic community, including U.S. Ambassador Wayne, who were invited by the government,(reftel). ¶3. (SBU) Local media industry players agree that, on first read, the bill would broadly affect the broadcasting, content, and multimedia industry in Argentina, specifically with regard to the entry of new players through the issuance of new licenses and competition, new tax structures, and the requirement for private media networks to share space capacity. Interestingly, there will be a 90-day comment period, a standard practice in many countries but far from the norm in Argentina. This will delay congressional consideration for the bill until after mid-term elections proposed by the GoA for June 28. -------------- Winners and Losers -------------- ¶4. (SBU) The current dominant cable operator in Argentina (Clarin's Cablevision and Multicanal) seems to be the target of the GOA initiative designed to break up the power of this multisystem operator (or MSO) and exert a greater level of control over how the programmers (the channels known as networks or signals) do their business. Industry contacts expect that the Law will allow public service companies such as Spanish-owned Argentine telecom major Telefonica the opportunity to offer Triple Play (voice, TV, internet) audiovisual content/broadcasting. If implemented, measures designed to achieve goals to increase access for social benefit and create demand for Argentine programmers and advertising production companies will influence the way U.S. media companies operate in Argentina. ¶5. (SBU) For example, U.S. programmers such as HBO, CNN, Cartoon Network, MTV, Nickelodeon, Discovery channels, and many others are a growing and integral part of the Argentine telecommunications industry, investing over $800 million in infrastructure and technological facilities; generating more than 2000 direct jobs and 6500 indirect positions; and promoting local production and products that are in turn exported throughout Latin America and the world. -------------- All Foreign Networks to Register in Argentina -------------- ¶6. (SBU) During a March 20, 2009 meeting with Television Association of Programmers (TAP) officials, Emboffs were able to clarify that according to the new proposal, all foreign cable channels will need now to be registered locally, in effect making them local public service entities and consequently subject to laws governing this sector. TAP officials - representing 30 pay-television channels in Latin America - speculated that this is the direct result of Argentine company Multicanal's unsuccessful attempt several years ago to initiate legal proceedings against HBO. Due to the fact that HBO was not registered locally, Multicanal had no basis for serving the company. Under this new provision, all foreign entities would need to register locally, holding them subject to Argentine Law -- and to GoA influence. The GoA would also have greater ability to regulate prices for cable TV. With local cable prices already considered extremely low in comparison to markets worldwide (on average, a consumer can have access to 70+ channels for approximately 70 Argentine pesos or 23.00 dollars per month), industry sources argued this will likely reduce U.S. cable company long-term profitability in this market. ¶7. (SBU) While many U.S.-based content providers are already registered in Argentina, HBO and Discovery currently do not have registered subsidiaries in Argentina. TAP officials indicated that in past meetings with COMFER, Argentina's FCC equivalent, they have asked to be allowed to register their members such as HBO and Disney through the Association TAP representatives said they fear that forcing companies to register in Argentina would provide the GoA much greater power and authority over programming content. -------------- National Ownership and Content Quotas -------------- ¶8. (SBU) According to the proposed law, a 60-percent minimum content quota for local Argentine programming will be established. Industry experts have stated that compliance will be nearly impossible if consumers are to maintain current channel and content variety. As a result, one TAP official noted that the local-content quota of the draft law is unlikely to move forward, as the Argentine populace enjoys foreign programming and has grown accustomed to watching many foreign shows at nearly the same time that they are released in their domestic markets. Shows such as "American Idol" and "Lost" are televised in Argentina approximately one week after airing in the United States. ¶9. (SBU) Local analysts agree that the draft law's limitations on foreign ownership of media broadcast companies is a straightforward attempt to propel new domestic players into the market. Nevertheless, COMFER officials had previously indicated that such local ownership provisions would not affect the locally incorporated subsidiaries of U.S. companies already in Argentina such as Viacom/MTV, Turner Broadcasting, Fox, and Disney, as they may be considered legal Argentine entities registered in Argentina. It is not clear how this proposal would impact U.S. companies such as HBO and the Discovery Channel, who currently do not maintain locally incorporated subsidiaries. -------------- All Advertising to be Produced in Argentina -------------- ¶10. (SBU) The proposed law stipulates that all advertising must be produced in Argentina. The consensus of local analysts is that this could have a very negative impact on programmers who receive content from satellite feeds. While Turner and Disney already rely on a significant amount of advertising that is produced locally, as TAP officials explained, cable advertising is not local in nature as it is generally produced for numerous markets, if not worldwide, thereby making this requirement unrealistic. In addition, compliance with this provision is complicated by the fact that Argentine advertising firms could not handle the market demand created by this provision. With advertising representing 50% of all cable TV revenues, if this provision is not altered, U.S. firms could face a serious challenge to local market profitability. -------------- Twelve Minutes Per Hour of Cable Advertising -------------- ¶11. (SBU) Under the proposed law, cable operators will be allowed to maintain a maximum of twelve minutes per hour of advertising. This provision is, in fact, a major win for companies such as Turner Broadcasting that had feared the bill would reduce advertisements significantly. Pressure on the GoA to reduce the allotment of pay television advertising time is reported to have come from the non-cable operators who have seen cable advertising sales grow significantly for several years while seeing their own advertising sales decrease. -------------- Tax Provisions -------------- ¶12. (SBU) TAP officials expressed confusion over tax provisions in the proposal that are vague and would be subject to regulation. For example, in a departure from the current law, programmers must pay tax on gross revenues of the previous year, can only deduct expenses incurred in Argentina, and would require the foreign programmer to set aside a percentage of their revenue for Argentine programming. -------------- Soccer and Direct TV -------------- ¶13. (SBU) Under the proposed law, the ownership and sale of soccer broadcasting rights would be significantly amended - no small detail in this soccer-crazy country. Now, the most important, and arguably the most profitable soccer match of the week ("el clasico") will be transmitted by open-air channels rather than via paid TV due to "public interest" considerations. This proposal has a direct impact on the interests of U.S. investors, including Direct TV, which are majority shareholders in the company TRISA that has exclusive rights from the Argentine Football Association (AFA) to sell soccer matches and other important sports events. According to TRISA, this single game, akin to the "game of the week," represents almost 40 percent of their revenues from Pay TV operators, a percentage of which they, in turn, pay to AFA. Representatives of TRISA and Direct TV have already approached the Embassy with their concerns, but will need more time to analyze the contents and respond to us with their reaction. -------------- Comment -------------- ¶14. (SBU) Just hours before President Kirchner announced the new draft media law, she thanked MTV/Viacom for investing in Argentina at the opening of their new MTV office in Buenos Aires. Two hundred MTV/Viacom employees develop content for their Spanish-speaking audiences. The new legislation contains elements that could reduce the likelihood of such investments in the future. But it could also have procompetitive effects that help some U.S. firms. The industry's initial take is that the bill is not an attack on U.S. interests, but rather an effort to weaken the Clarin Group's dominant market position. As a result, the proposed law could have the indirect effect of creating more opportunities for U.S. companies by breaking up a dominant cable outlet and creating new customers such as those offering triple-play and other new ways to deliver pay TV to households. ¶15. (SBU) TAP executives tell us that there was a "sigh of relief" among their members, as the overall bill does not seem to be as harmful as many thought or as past drafts promised. Emboffs will continue to meet with TAP and U.S. channel reps to gain insight into potential opportunities for and challenges to U.S. media interests that may arise as the implications of the proposal are better understood. One thing is clear: the business of pay television programming is based on the regional transmission of satellite signals, making local content requirements extremely damaging to U.S. pay television programmers. WAYNE