Communications

Highlights

• As opposed to most sectors of the economy, during 2008, total investment in the advertising industry increased 1% over 2007. The main reason behind this increase is found in the political campaigns.
• The most significant increase in advertising investment during 2008, took place in the Paid TV (Cable and Satellite) sector (+50%). Regular TV had a 1.3% reduction, while other media had increases of one or two percent.
• While the advertising sector witnessed the disappearance of several agencies, at least two of them have decided to take an aggressive stand. Grey Puerto Rico launched a new strategic tool called Grey Brand Acceleration 2.0, and local management projects a 15% growth for 2009.
• De la Cruz & Associates entered in partnership with well known ad executive Jackie Bird, to create Redbean Society LLC in New York. The new firm will target Latina women across the country. Bird has broad experience in the Hispanics markets as well as in the Puerto Rican market.
• De la Cruz Group was awarded some of the most important advertising accounts of the new government in office, such as Tourism, Lottery and Puerto Rican Rums.
• RAAD Broadcasting Corporation acquired FM Radio station WKSA in Isabela for $5 million. RAAD's leading station La X, should benefit from the purchase in terms of signal improvement and market penetration.

Overview

The communications landscape in Puerto Rico has changed significantly, both in terms of quantity and quality. Under most strict criteria used around the world, dollars per capita investment on the island in areas of communications, were considered above standards up to year 2000. In recent years, the economy of Puerto Rico has been loosing momentum with a yearly growth rate of only 0.6% during 2001-08, and the different communications segments have experienced stagnations and reductions in billings.

The Communications Sector, which includes the telecommunications, broadcasting, and publishing industries, has experienced mixed growth patterns, passing through different phases promoted by internal and external factors. Deregulation, new technologies and the advent of the Internet have all been catalysts for the growing sector. The telephone industry, for its part, has been transformed, both in infrastructure and in services diversification through competition from wireless providers as well as the Internet. On the other hand, traditional mass media such as Television, Newspapers and Radio are facing reductions.

Commercial Communications

The advertising industry plays an important role in most communications in Puerto Rico, as well as in many countries with similar business sector structure, where commercial ads are the usual form by which the media obtains financial resources. A study on the impact of the advertising industry on the economy of Puerto Rico, conducted by Estudios Tecnicos in 2003, estimated the percentages of media income coming from advertising agencies as follows: TV-79%; CableTV-60%; Newspaper-48%; Radio-55%; and Magazine-49%. On the average, around 60% of the total media income in Puerto Rico stems from the advertising industry.

The recent experience of media investment in Puerto Rico has been one of declining trends. Particularly after the election year of 2004, the average annual reduction has been on the order of 5%. According to Medianet, one of the largest media buying agencies in Puerto Rico, if political funds were not available in 2008, total media estimates for the year would be 2% lower than 2007. In 2008, political ads were expected to be at the level of $42.4 million, making it possible for total media investment to grow by 4% over 2007. Nevertheless, total actual media investment for 2008 was 1% over 2007.

In Puerto Rico, print has been the leading media dollar generator during last two decades, with over 40% of media share, followed by TV, but both mediums have experienced low growth in recent years. The most dynamic economic mediums have been outdoors as well as Cable/Satellite TV, both relatively small in dollars value.

Telecommunications

• The use of landline telephone is diminis.

At the beginning of the new millennium, the number of fixed telephones began to diminish in favor of the new portable telephone, commonly known as the cellular phone.

According to the Telecommunications Regulation Board (TRB), the number of cell phones on the island is more than twice the number of residential and commercial landlines. As of June, 2008, there were 2.5 million cellular phones versus 975,000 landlines.

According to the President of the TRB, the numbers observed in Puerto Rico are in line with the global trends where wireless lines surpass the landlines in many territories. In year 2000, the ratio of fixed telephones and cell phones was 50-50, around 1.4 million in each segment, while in 2004, the ratio was 1.8 million cell phones to 1.3 fixed phones. Experts believe that fixed lines will not disappear, but the current trends are very much in favor of the wireless communication.

The Wireless Sector

The island's wireless market is estimated at around 2.5 million subscribers for 2008 (Estudios Técnicos Inc.). Recent trends point to industry consolidations and local wireless consumers have become more knowledgeable and sophisticated. On the other hand, companies are very competitive in prices, technology and customer services.

Industry experts indicate that the most important aspects in determining the market position of telecoms is innovation and who gets to the market first with the newest technology. Wireless rates have fallen considerably, from 30 cents a minute in 1998, to less than five cents a minute today, and wireless technology players have been very aggressive.

A review of the wireless voice and data industry in Puerto Rico reflects an impressive array of products and services directed to provide quick and secure communication at speeds that allows business to gain competitive advantage and consumers to enjoy life with total mobility. Latest products in the consumer market provide fast and easy access to data, news, sports, weather, music, e-mail and wireless music downloads. For the business market, most providers offer custom mobility solutions in order to make any place a workplace.

Cable TV

There are three cable TV providers in Puerto Rico: Onelink services eight municipalities (San Juan, Bayamón, Cataño, Carolina, Guaynabo, Toa Alta, Toa Baja and Trujillo Alto); Liberty, 37; and Choice Cable, 31. There is also a satellite provider covering the Island; Direct TV. According to the Telecommunications Regulatory Board (TRB), the total number of cable TV subscribers has been declining, while the number of satellite subscribers is growing. Total cable TV subscribers surpass the half million mark.

Internet

One of the most significant events in the field of communications during last fifty years is the Internet, an invention that is a corollary to another great creation: the computer. Since the introduction of Television in the 1950's, the world of communications had not seen such a dramatic transformation. The overload of information available through the Internet will probably change daily living patterns for most people around the world, as was the case of TV in the last century.

The amount of information tied to the speed of transmission to any place in the world, allowed by Internet, was unthinkable thirty years ago. Nowadays, the most significant issues related to Internet have to do with the general access to the Web, regardless of economic conditions of countries or people. That is the great challenge of our age. With this motivation, the Sales and Marketing Executives Association has sponsored in three different instances, a study directed at measuring Puerto Rico's Internet penetration. The longitudinal study has been conducted by Estudios Técnicos in 2005, 2006 and 2008 by means of a sample size on the order of 1,000 persons 12+, users and non users of Internet.

The first highlight of the study has to do with the incidence of Internet usage in Puerto Rico that presents a moderate growth rate of 5%, moving from 33% to 38%, between 2005 and 2008.

Even though a 5% increase might sound reasonable in certain situations, when we compare the Internet development of Puerto Rico with other countries such as Argentina, Chile or Spain, that were at our level of Internet incidence in 2005, we realize that it is not enough. Puerto Rico is falling behind; Costa Rica, México and Brazil are showing significant increases.

Should Internet usage in Puerto Rico continue at the current pace, an incidence level of 50% would be achieved by the year 2015, something incompatible with the goals of a competitive country.

On the positive side of the equation, the 2008 study presents significant incidence increases in the age groups 12-17 and 25-34, a promising development for the future.

Another step towards knowledge democratization was found in the study, in terms of the increase in Internet usage among Junior and High School students. Efforts conducted by Municipal Governments around the island directed to provide Internet connection in public places such as squares, libraries and community centers, seem to be paying off.

The home of the Internet user remains by far the place where they connect to the Web. But in recent years, there have been increases in places away from home, such as restaurants, libraries, shopping centers, cyber cafes, stores and public facilities.

The average number of computers per household in Puerto Rico is 1.42, and there is at least one computer in 50% of the households. Over 80% of Internet users, have computers at home, while close to 30% of non-users also have a computer at home.

The incidence of broadband connection has increased at a rate of 29% between 2005 and 2008, and a total of 869,000 persons surf the Internet at high speed in 2008.

A comparison between the profiles of Internet users and non-users shows that the group of Internet users is balanced between genders, are younger, almost 50% are single, have a college level education and median income between $20,000 and $24,999.

Many Internet users (66%) are connected to social networks such as facebook and myspace. The highest penetration is among age groups 12-34 years.

In order to reach the Internet incidence goal of 50% before 2015, it is necessary to coordinate efforts between private and public sectors, along the lines of the models implemented in the municipalities of Caguas and Manatí. These efforts are directed at promoting access, supporting educational and community institutions. Suggested approaches include providing tax incentives, promoting public policy initiatives, and the development of local wi-fi sites.

Television

The television market includes five private VHF (very high frequency) and several private UHF (ultra high frequency) stations. These include the station owned by the government's Puerto Rico Public Broadcasting Corporation (Channel 6), a private university-owned cable station and a number of religious channels sanctioned by the Federal Communications Commission (FCC) public service broadcasting mandates.

Recent 2008 revenue estimates for local TV, by Medianet, present a $26 million decline from the 2005 level. Total TV advertising investment in 2008 was $199 million since actual political investment was less than expected. The projection for 2009 is 5% lower than in 2008. Roughly 97% of Puerto Rico's households have a color television set. The main three commercial channels are 2, 4 and 11 which compete for the local market.

Cable TV is an increasingly important player, with three main companies and a satellite service provider serving the Island. Revenue figures in recent years has presented Cable TV as a medium with high growth rates. Medianet estimates total billings of $30 million for 2008, with a 10% increase in 2009, for $33 million.

Broadcast TV

As confirmed by the Internet study sponsored by the Sales and Marketing Executives Association, Television is considered the medium most affected by the migration of viewers to the cyber world. In line with that situation, television has experienced limited billings growth during recent years, and competition among three main local TV chains (Telemundo, Televicentro and Univisión) remains fierce for a shrinking audience. The most significant challenge is coming from cable TV that still has a smaller base of billings and subscribers, but is expected to grow rapidly during coming years. The future survival and growth of broadcast TV will almost certainly require collaborative alliances with other vehicles such as the Internet. TV pioneering efforts in media convergence have been in process at local level, mainly by Televicentro (wapa.tv).

Cable & Satellite TV

Cable television's penetration has not grown significantly due to the high capital expenditures required to lay additional lines, especially in distant areas with low household concentration. There is, however, no doubt as to the value of cable. Close to 50% household penetration to some of the most affluent homes on the island, promises enough deep pocket consumers to continue making Cable TV a valuable and lucrative medium.

The versatility of cable technology has been used aggressively by local providers by means of the triple concept: TV, Internet, and telephone service wrapped up in one. Other products include the video on demand service that allows the customer to order movies/events and even video games at the click of a button.

Digital TV

After an extensive and intensive campaign explaining and promoting the TV change to digital, conducted by all the TV stations on the island, the switch-over date of February 17, 2009 was moved to June 12, by a Congress decision. In Puerto Rico the general perception was that the majority of consumers were ready for the change, since a total of 1,272,000 of the $40 TV Converter Box Coupon had been redeemed by January 31, 2009, and around 42% of Households are subscribed to Cable TV, therefore, don't need a converter. As of January 31, industry sources had estimated that 175,000 households (15%) were not yet ready for the change.

As of February 2009, some TV stations on the Island were already broadcasting their programming using the digital system. According to the President of local TV Station WAPA-TV, this is a situation similar to the Y2K, in which many people thought it was going to be a major crisis, but nothing happened.

Radio

Radio is considered "the medium" in Puerto Rico, regardless of other new media entering the market. There are 126 radio stations operating throughout the Island, and total revenues for 2008 were around $83.6 million, with an $85 million projection for 2009. As in many other markets, the radio industry in Puerto Rico is undergoing rapid changes due to deregulation and new business conditions. Changes in federal regulations now allow flexibility in terms of ownership of radio stations in a single market, and this has rapidly fostered a spree of consolidations.

Print Media

There are four daily newspapers, three in Spanish and one in English. "El Nuevo Día" and "Primera Hora" are the two Spanish entries of the Ferré Group, while "El Vocero" is published by El Vocero de Puerto Rico. The Puerto Rico Daily Sun (formerly knows as the San Juan Star) is the only newspaper in English.

"Primera Hora" was launched in 1997, and has been one of the biggest success stories in Puerto Rico. Two other newspapers launched at that same time, "El Mundo" and The San Juan Star en Español, did not prevail. Primera Hora was developed after careful market analysis and is directed to active 18-34 young adults looking for highly visual, fast information. Contrary to El Nuevo Día which relies heavily on home delivery, sales of Primera Hora are very strong at traffic lights, gas stations and convenience stores. The publication has been used very effectively by advertisers looking for immediate reaction.

An important factor in the printed media picture is the presence of the regional newspapers. Most of the Island's regions and municipalities have a weekly newspaper of their own. There are thirteen regional, high-quality, free, weekly publications that are home delivered, with substantial circulation. About 40% of all Puerto Rican households receive at least one regional newspaper. The most important of these - which circulate in the municipalities of Bayamón, Carolina, Ponce, and Mayagüez- have circulations of close to 100,000 per week. They have become a major advertising channel due to low rates and the capacity to penetrate local markets more effectively.

Total billings for daily newspapers during 2008 were estimated at $310 million, while the projection for 2009 is $302 million. Regional newspapers are expected to reduce billings by 10% in 2009.

Outlook for the Sector

In line with the GNP growth projection of -3.4%, the total Communications sector is not expected to experience significant investments. In particular, the ad industry will be facing another challenging year in 2009. According to latest media projections, the industry expects advertising investment to decline around 5% compared to 2008, with strong effects over most media. Cable and Satellite TV is the only media projected gaining volume and share during 2009.