Grupo Televisa S.A.B.

Welcome to the Televisa Univision third quarter 2023 earnings call. At this time, all participants have been placed in a listen-only mode. Following management's prepared remarks, we will open the call for questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, press star 2. We ask that when you pose your question, you pick up your handset to allow for optimal sound quality. Today's call is being recorded. I would now like to turn the call over to Betsy Frank, Head of Investor Relations. Please go ahead.

Thank you and welcome everyone to Televisa Univision's third quarter 2023 earnings call. I'm joined today by our CEO, Wade Davis, and our CFO, Carlos Ferrero. This morning, we issued an earnings press release, which can be found at investors.televisaunivision.com. A few notes about the content of our remarks today. We will refer to adjusted OIDDA as EBITDA. Unless stated otherwise, all financial comparisons will be on a year-over-year basis. U.S. ratings and market share figures refer to primetime audiences ages 18 to 49, and Mexico figures refer to primetime audiences P4+. Some of the information discussed today will contain forward-looking statements. These statements involve risks and uncertainties, including those highlighted in our press release, and may cause actual results to differ materially from these statements. We are not obligated to update forward-looking information discussed on this call, except as may be required by law. Our press release and reporting package contain definitions and reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. And I will now turn the call over to Wade.

Good morning, everyone. On behalf of myself and my partners, Alfonso and Bernardo in Mexico, thanks for joining us. The third quarter was another great quarter for Televisa Univision. We had a long list of amazing operational accomplishments across all areas of our business that drove fantastic financial performance. PU is a truly unique company and represents a unique growth opportunity. We are the media and content leaders in the massive global Spanish-speaking market. This is an $8 trillion GDP with more than 50% of this opportunity in our core U.S. and Mexican markets. In this quarter, the LDC and Wells Fargo published their annual U.S. Hispanic Marketplace Report highlighting the U.S. Hispanic GDP surpassed $3.2 trillion last year, making it the equivalent of the fifth largest economy in the world. And even more remarkable was that this economic block grew double digits over the last year. Again, if this was a country, it would not only be the fifth largest, it would be the fastest growing major economy in the world. And TU is the only scaled company in the world that is a pure play on the global Spanish consumer economy. It's against this unique economic opportunity that we delivered another quarter of double-digit revenue growth and a massive 58% year-over-year improvement in D2C losses that led to flat consolidated EBITDA. These financial results are being driven by remarkable audience engagement across all of our platforms and all of our geographies. Our U.S. network share of viewing hit 65%, the highest in nearly a decade. Our Mexico networks continue to deliver at historic levels, and we're both number one and number two in the country for the first time in history. And our streaming service is now seeing MAUs in excess of 40 million. This is the magic of the company we created when we brought Univision together with Televisa's content business. A fully optimized content engine that can power multiple platforms across the two largest Spanish-speaking markets in the world and deliver market-leading audience outcomes. And we can do it efficiently enough to create a completely new streaming business with hundreds of millions of dollars of year one revenue and nearly no consolidated EBITDA degradation. As an overall company, we delivered 11% revenue growth in the quarter. For the US business, we saw the highest Q3 revenue in the history of the company. In Mexico, as we have every quarter since we closed our merger, we delivered strong double-digit top-line growth. In adjusting for the lapping of last year's midterm political ad sales in the U.S., we delivered growth across all of our lines of business in all of our geographies. The ad market in the U.S. remained relatively soft this quarter, but notwithstanding that, we grew U.S. ad sales 3% excluding political inadequacy. And based on Magna reporting, we outperformed the broader market by 800 basis points, an expansion on our outperformance from last quarter. This is driven by activating new advertisers in Spanish language as more and more companies that have historically not advertised in Spanish are looking to reach the massive U.S. Hispanic market in language and in culture. More than 70% of our advertisers, both new advertisers and longstanding clients, are now using multiple components of our marketing solutions portfolio. And I'm also super happy to report that as we enter Q4, our U.S. linear business is starting to transact using Nielsen's new, more advanced methodology, panel, plus big data. As we've known for years, a panel-only methodology has intrinsic flaws and biases that massively under-reports viewership of minority audiences. We now see ratings uplifts of 20% to 30% for our entertainment properties when our audience is more accurately measured using this more advanced methodology. It's really gratifying to see systemic biases like this being rectified and minority audiences being properly counted and represented. We congratulate the agencies and clients that are embracing this and look forward to the rest of the market moving in this direction. In Mexico, we had an amazing ad sales quarter. The combination of new client activations and new advanced solutions coming online in Mexico, led by streaming inventory on VIX, drove continued growth in the quarter. In a market where we've long represented more than half of all television advertising dollars, and given the concentrated nature of the ad market in Mexico, activating this level of new clients and driving growth of this magnitude really illustrates the power and flexibility of our overall solutions and the quality of our sales executions. The other major part of our revenue, subscription and licensing, grew 18% in the quarter, driven by the premium tier of VIX, which is more than offsetting some of the softness we saw in linear subscribers. And we're also starting to see some very early momentum from the third-party licensing of our massive slate of new original VIX programming outside of our core Spanish language markets. This is another unique element of our business which we expect to drive meaningful growth. Because we're laser focused on Spanish language, we have a unique licensing opportunity to the rest of the world in any other language without licensing to competitors and fragmenting our audience in our core markets. Lastly, from a financial point of view, we are incredibly proud of the consistent and accelerated march to the profitability of our D2C business. This quarter, we narrowed our losses by nearly 60%, and we continue to have direct line of sight to our target of D2C profitability by the second half of 2024. This is now only nine months away, and when we deliver this, VIX will have had the shortest ramp to profitability of any major streaming service. We can do this because of the unique content costs and the powerful marketing advantages we've created with the combined Televisa Univision business. We have a massively scaled, fully vertically integrated business operating across multiple platforms and leading in the largest Spanish-speaking markets in the world. Our relentless focus on efficiency manifests on an overall consolidated basis with the highest operating margins in the industry. But this will be further underscored as we continue towards B2C profitability, where we believe our margins will also be best in class. Beyond the financial efficiency of the business, our platforms are posting records with our audiences. Our U.S. television networks delivered our highest prime time Spanish language market share in nine years, growing 500 basis points versus a year ago to reach 65%. This was propelled by primetime novellas, where we were number one in all four of the primetime slots during the quarter, and record-setting live events in both sports and in music, with the Gold Cup as the number one rated soccer tournament a year, regardless of language, with the 20th edition of the premieres who've been tuned, our award show honoring the best in Latin music, changemakers, and pop culture, delivering growth in audience, and positioning Univision as the number one network on all of television for the entire night for the third consecutive year. Our Mexico networks are setting records as well. Against the backdrop of stable Mexican consumption, our market share is so meaningful and our content offering is so strong we actually saw recruitment of audiences to TV that drove overall usage to levels that haven't been seen in Mexico since the pandemic lockdown. While our flagship network, Astraeus, remains number one in Mexico this quarter, our performance was notably driven by our second network, Channel 5, which is the most popular network for viewers under 25. And this network posted its highest audience in five years. surpassing our largest competitor for the first time in history, giving us both the number one and number two broadcast networks in Mexico. We've built one of the world's most efficient and prolific long-form video content engines. Our massive, fully integrated infrastructure has been constantly producing at full capacity, guided by sophisticated analytics and insights. optimized to power all of our platforms through innovative windowing and production strategies, and allowing us to maximize the value of our rights and intellectual property. This system allows us to program our linear and streaming platforms to complement one another. We are continuing to delight our networks audience on linear TV, while expanding our reach to new audiences that have not been historically well served by linear TV in Spanish. on streaming. Our strategy and assets allow us to leverage each platform for what it does best. Linear is designed around cultural and habituated viewing with live soccer, tent poles, high volume novellas, and appointment viewing like morning and evening news. Streaming is designed to deliver high intent viewing around our original movies and series, a massive volume of live exclusive soccer that's indispensable for a serious soccer fan, and a huge volume and range of niche content to serve as more nuanced Latino audiences. Q3 had some fantastic examples of the two platforms working together in concert. On the entertainment side was La Casa de Los Famosos, a Mexican reality show where we produced different and complementary content for streaming and for linear. The linear show was a traditional twice-weekly live reality show that aired on Channel 5. And for streaming, we produced separate content that was pitched from linear and included multiple live 24-hour feeds that drove always-on engagement for the superfans. We were able to produce a huge volume of content at incredibly low price points per hour, and we were able to cross-promote the two platforms and experiences to create enormous reach and engagement on Linear, where the show propelled Channel 5 to the number two position in Mexico. And on VIX, we saw free-tier audience levels rival the World Cup last year, and it drove the highest attributable new subscribers in both Q2 and Q3. This strategy also works really well for us with sports. As previously mentioned, we have the Gold Cup this quarter. The right fees for that property include a massive number of games. Some of these early games made sense to use on VIX in front of the paywall to build awareness for the tournament. As we got further along, we moved the games behind the paywall on VIX to drive subscribers. And having used VIX to build engagement and reach with games we couldn't have aired on linear because of limited shelf space, we were able to push a massive audience to linear for the playoff and final stage games to deliver the highest rating for a soccer tournament this year. There's almost nothing we do from a content perspective that doesn't contemplate a combined linear and streaming ecosystem. Not only does this help with audience flow, cross-promotion, and content efficiencies as our results illustrate, but we're also maintaining the integrity of the ecosystem with our distribution partners. Obviously, this quarter saw some tension between programmers and distributors in the U.S. around the levels of content overlap between linear and streaming that's causing the industry to evolve. But the composition and positioning of our platforms as non-overlapping and complementary positions us extremely well for these dynamics. VIX also continues to evolve and progress operationally. Remember, VIX has only been live in the market for four full quarters. We launched this service a handful of months after closing our merger, and this required to bring the market a very streamlined minimum viable product and focused our early launch efforts on emphasizing the content offerings. Not only it continued to release a consistent volume of incredible original content, but we're now getting the product's underlying features and functions to basic parity. Improved content recommendations, multiple profiles, and casting are all great examples of really, really important features that are only coming online now and already having big impacts on incremental engagement and retention. We also made huge strides from a distribution perspective this quarter. Until now, we only had about 60% of the connected TV market live. But this quarter, we activated Vizio, LG, and Hisense, and now have nearly 100% coverage. And this week, we're launching with MercadoLibre, the market leader in e-commerce in Latin America and one of the largest sources of streaming subscriptions in the regions. All of the advancements that we made in the quarter supported VIC's continued success. We saw gains in viewership and engagement across all regions, surpassing 40 million MAUs, while our two-tier ecosystems exceeding our expectations in terms of productivity, with the free tier delivering a high watermark of two-thirds of our gross new subscribers this quarter. The consistent operational improvement The great content slate, expanded distribution footprint, and rapidly growing revenue across both subscription and ad sales all contributed to the significant progress we made this quarter narrowing our D2C operating losses by nearly 60%. We have been very disciplined in keeping our D2C investment inside the financial envelope afforded by the growth of our core business over the past two years. And we are very happy with the return on this investment in terms of the magnitude of overall B2C revenues we expect this year, as well as the turn to profitability around the quarter next year. As one of the only pure play companies delivering on the massive global Spanish-speaking consumer economy, we continue to deliver above market levels of growth and industry-leading profit margins. Our unique content engines continue to deliver hits at scale, attracting record audiences across all platforms and all geographies. And our investments in streaming are paying off, both in terms of revenue scale and improved profitability. It's a really exciting time to be at TU, and I'm incredibly proud of what our team has delivered this quarter, and I'm even more excited for what lies ahead. And with that, I'll turn it over to Carlos to take you through our financials in greater detail.

Thanks, Wade, and good morning, everyone. I'm happy to be here today to share Televisa Univision's solid third quarter results. Consolidated revenue grew by 11%. This includes growth of 5% in the U.S. and 24% in Mexico. Our consolidated results include an FX benefit of approximately 600 basis points to the top line and 500 basis points to the bottom line. In advertising, consolidated revenue grew 7%. In the U.S., we experienced a 1% decline on a reported basis and growth of 3% when adjusting for political and advocacy spend. It was comprised of 6% growth in the national business, while local was down 3%, driven by divestitures of certain radio stations and softness in the scattered markets. Areas of strength this quarter included live events, which produced exceptional demand, such as temples and sports events. Ports overall produced double-digit volume growth with record pricing driven by an exceptional Gold Cup performance. Demand for VIX also remains a bright spot, with sellouts above 90% and pricing premiums to linear above 80%. Underneath this, we continue to see broad macro-driven softness in the ad market. The scattered market remains challenged. However, we maintained healthy pricing premiums to the upfront. We continued to outperform the market, and during the quarter, we closed our best upfront in nearly a decade with a record number of advertisers participating and high single-digit volume growth. In Mexico, advertising revenue grew 21%. This growth was driven by the private sector across both linear and streaming as we continue to add new advertisers to the platform and provide value-added capabilities to our clients. Moving on to the other major component of our revenues, subscription and licensing. Revenue grew 18% and was driven by the success of VIX's premium tier, pricing growth on linear subscribers, and increased content licensing revenue, as we're seeing demand for VIX originals in other territories. Turning to expenses and profitability. Expenses, which were adversely impacted by SX, grew 17% in the quarter. This underscores the significant investments in VIX in the form of new original premium content, sports rights, marketing, and technology. Despite that, we held the adjusted EBITDA flat as losses in our DTC business significantly improved year over year. Now let's cover the balance sheet. We ended the quarter with $283 million of cash on our balance sheet. with incremental liquidity available through credit lines of $900 million. Our capex this quarter was $37 million, consistent with a year ago. We continue to expect the full year 2023 to be roughly in line with 2022 at $150 million. Our leverage ratio ended the quarter at 5.9 times flat with the prior two quarters. Leverage remains elevated as we work our way through streaming losses. However, we're moving towards profitability in DTC, and we expect leverage to reduce accordingly. Looking more closely at our debt, we refinanced $700 million during the quarter. We accomplished this through the issuance of $500 million of new senior secured notes and a $200 million add-on to the existing term loan aid facility. We now have $1 billion that matures in Q1 of 2025 and will continue to be opportunistic. In summary, 2023 is shaping up to be a great year for us. Looking ahead to the fourth quarter, we have some challenging conversations And with that, let's take your questions. Operator, please open the line. At this time, if you would like to ask a question, please press the star and one on your touchtone phone.

You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. We'll pause for a moment to allow questions to queue. And we'll take our first question from Michael Nathanson with Moffat Nathanson. Your line is open. And Michael Nathanson, your line is open. Please ask your question.

Hey, can you guys hear me? Good morning. Good morning, Michael. Good morning, Wade. I was really interested in your comments about how you thought. as you planned your business, the differences between your linear programming and then your VIX strategy and how you maximize, you know, optimization in both windows. I wonder when you look back and think about what happened in September with Charter and Disney, Do you see this as a chance for you guys to take increasing dollar share out of distributors and anything you can share with us on conversations you've had? Because I think your comments are totally right on about how the world's going to break down going forward. And then secondly, I know it's early days on licensing and content with VIX, but anything you can give us kind of the scale of the revenues so far today and maybe the longer term opportunity as you sell VIX content outside your key market specs?

Sure. Well, thanks for the question. So I'll start with, I guess, the Charter Disney question. First, we totally agree with Charter. The programmer's strategy to strip mine their linear programming proposition to create D2C services that are cannibalistic and ended up fragmenting the audience and competing with the linear bundle is while at the same time raising prices for consumers has totally undermined the value of the video bundle and driven cord cutting which has hurt all of us and you know the highlighted in my remarks our strategy has been different from day one we build streaming as a totally non-overlapping complement to linear and we're investing in both and These investments are highlighted in our growing share of TV viewership. They're highlighted in massive growth in our streaming audience, where 60% of that audience is unique. And that strategy and where we sit today with those two platforms is really, really positive for us if the rest of the industry kind of moves in the direction that the charter set with Disney. I think it's positive for us for a few reasons. First, we have no long-tail network drop risk. We sell four networks, two broadcast, two cable. We have seven niche networks that the distributors can take or not, but has no economic impact to us. And our two cable networks, 2DNA, which is the number one sports network, Galavision, which is the number one cable entertainment network, they represent 54% of all viewership out of the top 10 Spanish language cable networks. So we don't think we have any long-tail drop risk, which was something you saw in Charter Disney. The second, because as I described, our streaming service is completely additive to linear from a programming and content perspective. We think distributors are much more likely to ascribe value and pay incremental fees should they seek to expand the bundle and include VIX. And I guess lastly, I would say because VIX is early in its launch and we're still at relatively low levels of penetration, we would get a lot more benefit from a penetration lift that would come from from bringing VIX into a broader video bundle. So, you know, we think, you know, we think for us, if the industry heads in that direction, I think it's, you know, and it's likely that that's going to be the case and you see one of the largest video distributors and, you know, the largest general market programmer enter into a deal along those lines. You know, this is something that we think is going to be very, very positive for us. On licensing, so, yeah, it is early days. You know, remember, the premium service VIX has been in market for four quarters now. And so, you know, what we're really, you know, talking about incrementally is the licensing into non-core markets of the original VIX programming. So that licensing stream of available product kind of builds as we move forward for launch. And I would say this is probably the first quarter that we've started to see material impact from a growth standpoint. If you look at the impact that, you know, if you look at our overall licensing growth in the quarter, I think it was almost 50% growth of licensing in the quarter. And a lot of that was driven by the new VIX product. You know, for us, this is a great opportunity because, as I said, there's a lot of really adjacent markets where there's high demand for this kind of premium product. And, you know, because we're only focused on Spanish language, we can take advantage of that demand without having to license, you know, in our core markets to other people who in some ways might be competitors or in other ways dilute the exclusivity of our programming proposition. So, you know, we're seeing a lot of demand out of Brazil. We have an output deal with Glovo. Um, you know, we are, we're selling products today in Spain where we haven't launched, you know, VIX on a direct basis. Um, you know, that, that market will exist for us as we, as we ramp up, um, over the coming years and actually look to enter Spain, uh, directly. Uh, so there it's not only a good short-term economic opportunity, but it also starts conditioning the market to, um, you know, to, to our programming. We're licensing into Portugal. There's additional Western European markets that are going to come online in the next quarter, so France is likely to be the next big buyer. So, you know, there's a lot of demand for the product, and there's a lot of, you know, based on that demand, there's a lot of growth that you're going to see over the next probably six to eight quarters coming out of this new line.

Thanks, Wayne. It's really helpful. Thank you.

And we'll take our next question from John Hodelick with UBS. Your line is open.

Great. Thank you. Maybe, Wade, a few questions on the streaming business. First of all, any additional details you guys can provide on what drove the dramatic improvement in streaming losses? And then it really appears the sort of free-to-premium strategy is working. If you can give any additional color on sort of what you're seeing in terms of conversion of free subs to premium subs. And then in your prepared remarks, you talked about the longer-term profitability of the streaming business, and I think you said you expected it to be best-in-class. I mean, just to confirm, I think Netflix's margin is sort of in the low 20s. How profitable do you think that segment can get over time? Thank you.

Thanks, Sean. Well, let me try and I think maybe I'll try and answer kind of questions one and three together, and then I'll come back to the ad-supported tier question. So, it was a great quarter for us in terms of narrowing losses. And, you know, when you think about our path to profitability, I touched on it in my remarks, but fundamentally our ability to hit profitability faster and get to better margins is derived from the efficiency of our system. And the efficiency of our system, really, those benefits are derived from both content and marketing. So on the content side, the combination of the power and audience consumption of our library which we haven't licensed. You know, we've taken that back. We haven't licensed it in our core markets, as I've said. And the vast majority, you know, between 70 and 85 percent of the consumption, you know, for our free tier comes off of that. So, you know, our ability to spend additional or our need to spend additional dollars or forego revenue to put together a compelling library product system doesn't exist. So, that's essentially for free. Plus, the production cost advantages that we get from producing the volume of original content we do in a low-cost location in a fully vertically integrated ecosystem. Our total content cost, if you just want to think about these things on a percentage basis, is probably about a third of what other streamers have because of those two advantages. And then from a marketing standpoint, again, thinking about this generally, The benefits that we have are, number one, the power of our O&O platforms to really serve as almost the entirety of our top of the funnel marketing. Remember, we had 60% Spanish language viewing in the U.S. this quarter. So our O&O platforms can really cover the vast majority of the market, and we have available inventory. And then the second thing is the efficiency of the free funnel that comes out of the design of our two-tier service and, you know, effectively cuts performance marketing in half because, as we said, even more this quarter where we saw more than 65% of customers you know, of our subscribers come out of the free funnel. So in the aggregate, you know, across those two benefits, our marketing costs are about 40%, you know, of what other streamers. So that's just out of the gates. That's the fundamental superior efficiency. of our system. And then remember, this business has only been in the market for a little more than a year. So there's just a lot of optimization that's not only been occurring over the course of the last year, but it's still to come, right? So you think about when we launched the content slave You know, we have a pretty good feel for the audience, but there was no data, right? I mean, all of these streaming services, their content efficiency is built on years and years of data around what their audiences are watching and how it works. Now we know what works for our audience more empirically, and our hit ratio has improved by about 30%. That's going to get better. Obviously, as our hit ratio gets better, the efficiency of our programming improves, and that drops to the bottom line as well. We talked about the product improvements in my remarks. We're moving from something that was essentially a minimum viable product video player to something that's now more full featured. That improves retention and engagement, which obviously drives monetization. You know, we're putting in place the remaining pieces of our distribution footprint. You said in my remarks, you know, we're missing half of the CTV footprint in the marketplace. That's the most engaged audience. And so, you know, as we put in place apps and deals with the rest of the CTV footprint, as we launch with Mercado Libre, other big B2B distributors, that further increases marketing efficiency. And, you know, SAC and TAC improvements, those also get better over time as we uh build a better marketing machine we have a better uh you know better data around uh how to optimize the given channels particularly on a b2b partner basis and and then look as the system scales because of this this two-tier system that we have in which we have massive monetization coming out of avod but in a lot of cases moving those avod users to become subscribers you know the bigger the system gets the more ad dollars we're generating and the more efficiently we're moving people out of that funnel into into sub base without actually you know incurring additional SAC. So, sorry for the long-winded answers. There's a lot in there. You know, and yes, we do think, you know, when I made the statement that we think we're going to, you know, as we get to scale, you know, we'll have best-in-class operating margins for our streaming business. I made that statement fully aware of where operating margins are in the streaming industry now. To be clear, we're not going to turn the corner in profitability in the second half of next year and suddenly have 25% operating margin. So the business will scale to that over time. Thanks for the call, Wade. Yeah. And then in terms of the ad-supported tier, it's an interesting question. And it's an interesting question, actually, particularly in light of Michael's earlier question. Look, I would say this is a big opportunity for us. In general, other streamers launched ad-supported subscription tiers after they saw a couple things. Number one, they saw that the premium long-form streaming ad market had matured, and they could understand what ad arcues might look like to close any sort of gap in subscription prices. And then secondly, and probably was the real driver for them, was that their growth on ad-free tiers had slowed, and they needed to expand their TAM at the lower end. You know, we think about where we're at, right? First, we've been building a big, sophisticated ad business first and from day one, which is When we bring online a different tier that has ads, this is going to allow us to seamlessly maximize additional capacity at very high ARPUs. In fact, when you look at what's happening on our ad ARPUs, this quarter our ARPUs over last year grew 139% in the U.S. So we're seeing huge momentum there. in our ability to really maximize the value of our ad-supported viewership. You know, as it relates to the other point, look, our ad-free tier grew subs 144 percent this quarter. So, we continue to have plenty of growth to go there. That's not something we expect to slow down. And for us, the last consideration, though, which is probably the most important one at the moment tactically, is just marketing efficiency and consumer confusion. Think about the fact that we moved a couple of quarters ago to simplify the VIX and VIX Plus branding to just go to VIX. VIX is still at only about 40% general awareness in the US. So we want to be careful about introducing too much too soon when it's not necessary to drive the results, you know, the performance of our business. But a very interesting and important factor for us here is the Charter Disney Agreement, right, in which Charter is going to be distributing the ad-supported tier of Disney Plus to their expanded basic subs. And so, just going back to what I said a minute ago, If one of our main considerations in not doing this right now is marketing efficiency and potential customer confusion, as we're marketing directly and seeing huge growth and success with the ad-free tier, launching an ad-supported tier with a distribution partner would be super interesting, right? Because, look, we don't have a product, an ad-supported product in the market. So launching with a distribution partner would instantly drive significant penetration of that tier with zero launch costs and zero SAC. And, you know, furthermore, since we don't have an existing product in the market, we wouldn't be suffering any of the kind of high ARPU degradation from D to C subs that might swap into a bundle where we'd be getting paid lower ARPUs you know, on a bundle wholesale basis. So for us, you know, it's a big opportunity in general. I think where the industry is headed makes it, you know, may create super interesting near-term opportunity for us to do this in partnership with our distribution partners, and that would just represent pure upside for us. Great. Thank you.

And we'll take our next question from Jessica Reeve-Ehrlich with Bank of America Securities. Your line is open.

Thank you. I guess two questions. One on sports rights. What do you have that's coming up in the next year or so? Who is your main competition? And I know you talked about sports rights, but what did you just renew and what kind of increases are you paying? And then separate topic, Just on advertising, the market still seems pretty anemic, the overall general market. Upfront kicks in in Q4. Can you give us some color on outlook for Q4 and what else is going on and what percent you sold in the upfront that will impact this quarter?

A lot in there, Jessica. All right. Let me try to keep me honest if I don't get all of those. So from a sports standpoint, sports is critical to both our linear and our streaming platforms. Let's talk about what's unique for us and why this represents a much more profitable and predictable part of our business. And it starts with focus. We are almost exclusively focused on soccer. We deliver over 60% of all soccer viewing in the US, regardless of language, and 85% of viewership in Spanish. And because we're solely focused on soccer, our sports proposition really stands for something. And we're able to focus our rights acquisition dollars on compiling a comprehensive and compelling offering. You know, we're the home of Mexican soccer, period. We have 17 of the 18 Liga MX teams. And we have the most important global tournament play. We have the Gold Cup, Copa America, UEFA Nations, UEFA Champions. So we think about compiling that that proposition, you know, very strategically. And, you know, for streaming, there's nothing else like it, right? There's nobody else on any streaming platform that has the volume of soccer that we have. And you look back on year one, we had over 7,000 live exclusive hours behind the paywall. And because of our market position across the U.S. and Mexico as market leaders, because we have linear and streaming platforms, and in certain cases because of the league structure like League MX where the rights are sold team by team on a staggered basis, we are able to buy very, very efficiently. And, you know, as we've been doing that, we've been putting those rights in place for the long term. In most cases, that means through the end of the decade. So, you know, although we don't talk about any of our, you know, as I hope you would expect, we don't talk about any of our renewals specifically, you know, that's probably the best color I can give you as it relates to, you know, the dynamics around renewal profile and any sort of risk to future rights fees. And consequently, look, we don't really see ourselves as having a lot of competition in this. There are people who have soccer rights on a piecemeal basis. Our major Spanish language competitor has one Liga MX team. They have the World Cup, I guess, four years from now, only in the U.S., You know, and then there's soccer rights in English sprinkled around the market, but nobody represents the home of soccer, you know, the way that we do. And as I said, I think that's reflected in the fact that, you know, for a Spanish language media business, the fact that we represent over 60% of all soccer viewing regardless of language and 85% in language really reflects that market leadership. From an ad sales standpoint, yes, the market had a little bit of softness this quarter. But that was really, it was really in linear. But we continued to meaningfully outperform the market, not only just on linear, but on all of our platforms. You know, as I said in my remarks, to the tune of about 800 basis points. in the aggregate. But if your questions about softness were focused on linear, I guess I can unpack that a little bit more. Linear for us remains fundamentally healthy and a big opportunity for us going forward. You know, it represents $600 million to $700 million of, you know, revenue opportunity at today's market, you know, viewership share, if you look at closing the power ratio gap with the general market. But to give you a little bit more insight into what's happening with U.S. linear, you know, remember, we put national, local TV, and radio all in linear. If you take out political and advocacy, which is really having a big impact on local from last year's midterm, and if you adjust for the radio stations that we sold, linear would have been down a little less than 2%. And all of that decline was really with two accounts in the tech category that pushed out of the quarter. So if you just for those items, linear would have been flat in the quarter. And, you know, I think that really underscores the strength and stability and differentiation of our linear proposition, you know, in a market, you know, more broadly that was down as significantly, you know, as it was. From an upfront standpoint, that's coming online in Q4. We had a great upfront that's going to benefit Q4. Overall in the upfront, we were up high single digits in a market that was probably up low single digits. But building on some of the comments I just had on linear, probably the most important, one of the most important and relevant facts about the upfront was that we were the only group to drive real volume growth on linear. Linear only was up mid single digits while The rest of the linear market was down probably low single digits. And on broadcast, we did about 600 basis points better than the market in terms of pricing. So, you know, there's really kind of good tailwinds in Q4 around those macro factors. I think, you know, there's some other important things that we got done in the upfront that were strategic to us. As you know, a big part of the way in which we close that power ratio gap, that $600 to $700 million of revenue opportunity that I referenced, is through bringing new advertisers who don't historically advertise in Spanish into the platform. We activated 14 new zero share advertisers in the upfront, which is great because those advertisers start out at zero share and then we grow them to low share and then ultimately within a year or two generally get them to their fair share of about 20% of their marketing budget. But another really, really important thing that I touched on in my remarks was just the evolution of measurement. In the latest upfront, we were really happy to see that certain agencies and clients were beginning the adoption process of more accurate measurement and writing deals that used the more accurate Nielsen panel plus big data methodology as currency. And, you know, I can't really overstate the importance of seeing better measurement methodologies being brought to market that finally more accurately measure minority audiences who have been underreported and underrepresented in the media market, you know, essentially since the dawn of measurement. And so that's an incredibly important thing, you know, for us generally as a society. And for us, it's good and important for us as a business because there's real uplift from a capacity standpoint when using more accurate methodology.

Thank you.

And we'll take our next question from David Joyce with Seaport Partners. Your line is open.

Thank you. Following on the advertising conversation, could you help us understand where you are on integrating various targeted advertising capabilities, you know, both on linear as well as stations and VIX, because that should be bringing, you know, higher CPMs with even greater measurability beyond what you were just discussing. Thanks.

Sure. But advanced advertising solutions has been a core part of our strategy since the day we closed on the Univision acquisition. We brought in a completely new team, you know, that I've worked with historically, both at Viacom and at WarnerMedia, who built the advanced advertising capabilities of both of those companies were key parts of creating the OpenAP consortium and initiative that is really the, you know, a lot of ways the early foundation for data-driven linear targeting. You know, one of the first things that we started investing in on that side was the creation of the first and only U.S. Hispanic household data graph. We now have, you know, over 95% of all U.S. Hispanic households mapped to a central data spine that we're constantly appending first and as well as third-party data to expand our insight around, you know, the U.S. Hispanic market. We use that data asset, you know, for our own programming decisions. We use that data asset for our own marketing decisions, either from a D2C standpoint with VIX. And, you know, we also use that data asset as an important part of our targeted advertising business, both on linear and on VIX. You know, we are able to, you know, to drive significant impact. We really look at it on linear as yield improvements, you know, because you're trading off higher CPMs in some cases for lower in-target delivery. But, you know, the yield improvements that we're seeing on data-driven linear targeting are around 20%. That business, you know, has been more than doubling, you know, every year since we launched it. It's a material part of our overall AMS solution. And then, you know, to state the obvious, you know, it's even more powerful on VIX where you can get the benefit of the higher CPMs, but because you're able to, you know, to target those ads much more directly, you don't lose the leakage from lower end target delivery. You know, we're seeing CPMs on the VIX part of the business you know, when you look at both targeted and advanced units. So we have some ad innovation units that we kind of put into that business. But we can see, you know, CPMs in the hundreds of dollars, you know, when looking at, you know, across data targeting as well as the innovation units that we have on VIX. So all of that's a big part of, you know, driving overall ad upside and I think the AMS business in the aggregate this quarter is now more than 25% of our total ad sales business. So it's something that's been growing really rapidly. It's an important set of differentiated capabilities that are really relevant to our advertisers. We have about 80% of our advertisers now using some form of our advanced marketing solutions portfolio. And as it's grown and penetrated with our advertisers, it now represents more than 25% of the total ad sales business.

Great. Thank you very much, Wade.

And we'll take our last question from Aaron Watts with Deutsche Bank. Your line is open. Hi.

Thanks for speaking in. You covered a lot of ground. I just had a few quick questions. Follow on on advertising in Mexico. I just wanted to clarify what ad growth was, excluding the currency impact. And do you think that's a good representation of the current ad environment there? Or were there other factors like World Cup that impacted comparisons or will impact in the fourth quarter? And then a clarifier on VIX, if I could, with the DTC losses improving by around, I think you said, 58% in the quarter, is that a good trajectory to assume for each quarter going forward, or will expenses be more lumpy as you progress towards break-even and profitability in the second half of next year? And then finally, maybe for Carlos, as you think about being able to reduce leverage as you move this to profitability would appreciate your latest thoughts around where you'd like leverage to live or where you think you can get leverage in the next year or two, especially given the market's increased sensitivity to those leverage levels. Thank you.

Sure. Thanks, Aaron. So in terms of Mexico ad sales, I mean, Net of FX, the business, you know, grew mid to low single digits. That growth was driven by activation of new clients. It was driven by bringing online, you know, new advanced solutions in the marketplace that we haven't had, which by the way also helps with new client activations. And on that front, we're seeing huge progress in the market maturing in Mexico around streaming. It still is early days. We have massive, massive capacity and volume on VIX in Mexico. We're seeing sellouts start to creep up. But probably most importantly, we're seeing real progress in from an ARPU standpoint in Mexico. When you look at the ARPU, you know, the ad supported ARPUs that we had in Mexico this quarter, it was 198% better than it was a year ago. So, you know, even though that market, you know, the ad supported streaming market is still early days, we're making a lot of progress there, and I'm super optimistic that that will continue to be an engine of growth for our overall Mexican ad sales business. Could you just repeat your question? We've got a little bit garbled on the, I think, on your World Cup expense lumpiness question that you had. Yeah, sorry about that.

You mentioned the DTC loss is improving by around 58% in the quarter. I was curious if that's a good trajectory to assume for each quarter going forward, or will expenses be more lumpy as you progress towards break-even and profitability in the second half of next year?

Well, I don't think you should – you shouldn't just model in a 58% improvement in profitability every single quarter. I mean, these businesses particularly – one, you know, particularly to the extent that we have, you know, such a big part of that overall business in ad sales. Ad sales, as you know, is, you know, fundamentally a seasonal business. um and then you know when you think about uh you know the cost structure there there's a lot of variable costs related to consumption um that's pretty consistent uh you know um the lumpiness in in cost though really come from content releases right so depending on what you have from a release late uh standpoint you could see some lumpiness and amortization uh showing up in a quarter as we get more and more mature with that business, that lumpiness over time will smooth out. So, yeah, I would encourage you not to bake into your models a 58% improvement every quarter, but for the reasons that we talked about, we do expect consistent improvement and a very clear line of sight to return into profitability for our D2C business as a whole in the third quarter of next year. Understood.

Thanks, Aaron. Thanks for the question. Leverage was flat with the prior quarters 5.9 times. As I mentioned in my remarks, it's still elevated as we work our way through streaming losses. We expect leverage to remain around six times through the end of the year. Following that, as we move into 24 and work our way towards streaming profitability, we expect leverage to begin trending downwards. De-leveraging is a top priority for us, and we would expect to move below four times in the medium term as a result of three things. First, improved earnings. That's related to a profitable streaming business, and the ability to generate cash flow that allows us to reduce debt going forward. We are committed on deleveraging, and our target would be to be below four times in the medium term.

Thank you. This does conclude today's Televisa Univision third quarter earnings call. You may now disconnect your line and have a nice day. Thanks, everybody.