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Specialist Guide to the
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Politics and Government Spend in Media
When discussing Mexico in 2018, it is unavoidable to discuss politics
Internally, several criminal processes and investigations are underway against high profile politicians, including former governors who are either imprisoned, subject to extradition or fugitive from justice.
Despite this fact, the general outcry against corruption has not been met with a strong case against members of the Presidential cabinet or the federal government nor has the national anti-corruption system been implemented.
However, the above does not even come close to the amount of debate generated internally by the 2018 election process, which in July 2018 will result in the election of more than 3,400 official charges at federal and local levels, including the President of Mexico, 628 congressmen and 2,818 local official charges, including nine governors.
Never in the modern history of Mexico has there been such a large-scale election process and, understandably, the country as a whole is living an unprecedented politically-charged environment.
This situation is presenting new challenges to all industries and, notably, to the media industry due to its traditional role as the so-called "fourth power" due to its large influence on Mexican society.
The Mexican government, at all levels, has a tradition of itself being a very large customer of media outlets, for many, in fact, the largest. A recent report by Fundar, a research group analysing government spend in media indicates that in 2016, the Mexican federal government spent more than MXN 10.6 billion (approximately USD 600 million).
Of such spend, around 38 per cent went to television, 16 per cent to radio, 17 per cent to printed media, 6 per cent to internet providers and 20 per cent to others. The report speculates that internet spend is higher and not adequately reported and accounted for.
Social media gaining growth
A recent study by the Mexican Internet Association indicates that 97 per cent of the polled users in Mexico intend to inform themselves about election issues through social networks, which is a dramatic shift away from printed media and traditional television.
The creation of new media categories has disrupted the industry in several ways and media spend in general is undergoing a global re-balancing, placing some new players as leaders in traditional fields. Media streaming platforms, social networks, digital-only radio stations and news channels are quickly gaining their spot in the limited attention span of users and eyeballs around the world.
With around 70 million internet users (63 per cent of the total population) there is still room for market growth, especially as the economy expands, the middle classes solidify and disposable income increases among Mexican families.
The 2017 report by the Mexican Internet Association indicates that the highest use of the internet in Mexico is for access to social networks (83 per cent), with Facebook leading the pack with 95 per cent, WhatsApp with 93 per cent, YouTube 72 per cent, Twitter 66 per cent and Instagram 59 per cent.
Potential regulation on media and the recent example with fintech
While 2018 looks like a generator of high profits for media outlets in Mexico, based importantly on electoral advertising spend, it is also a year of definition and potential regulations. The current administration and legislators are facing pressure and showing interest in issuing regulation on social network content, either for public advertising spend control and reporting, fake news detection and banning and intermediary liability.
However, moving initiatives in congress during such an important election year, while also engaging in re-negotiations of the NAFTA, may prove to be slightly ambitious, but not unachievable.
A refreshing positive example of modern law-making was the recent passing of the so-called "Fintech Law" in Mexico, which was expedited during late 2017 and early 2018 and finally enacted in March 2018, providing certainty (but not over regulation) to a new industry including the most relevant new category disruptors in the financial sector, including payment processors, crypto currencies, lending providers, robo-advisors, among others, placing Mexico as one of the few countries in the world with fintech regulations and the first country in Latin America to enact a federal law.
However, there are also lingering concerns about the appetite for regulation of media from the new administration (which starts in December 2018), which can vastly differ depending not only on the experience with media during the election campaigns and the election process itself, but also on the political platform and government style, ideals and beliefs that could go from the market-driven pro-business politics of one party, to the approach of less transparency being best by another party to the apparent risk of totalitarian control by a more radical third party. Overall, all industries in general are closely watching and preparing for different scenarios.
Spectrum activity in 2017
But not all is politics in the media industry. Late in 2016, Grupo Imagen launched the so called "third national TV chain" and 2017 was a fairly active year on spectrum tenders as Mexico's Federal Telecommunications Institute auctioned 148 digital terrestrial television channels, 27 AM and 114 FM broadcasting frequencies and 21 spectrum blocks for private radio-communications.
These new entrants will further define market integration, present potential for market consolidation, merger and acquisition activity and the ever growing need of content generation to keep-up with the demand.
A report by the Competitive Intelligence Unit in Mexico indicates that the market for subscription-based video on-demand grew 25.6 per cent from 2016 to 2017 with Netflix leading with 63.6 per cent of all subscribers, followed by Claro Video with 24.9 per cent, HBO Go with 2.3 per cent and Fox Premium with 0.9 per cent.
Such growth will continue to drive the need for increased content creation and syndication, which has led studios to continue to invest in Mexico and may also be further fueled by the inspiration of Oscar-winning film The Shape of Water by Guillermo del Toro.
Other potential drivers include animation hits from Mexican animation company Anima Studios and the consolidation of the Mexico-driven Ibero-american cinema award academy Cinema23 and its annual
"Fenix" awards, which include a vast range of categories from television series and documentaries to large film productions.
Overall, the situation of media in Mexico has not escaped the global shift of economic powers from traditional to digital, while such digital media has brought accelerated change to mostly unregulated fields, which are tempting regulators towards some level of control, while preserving freedom of speech principles and compliance with global standards of a democratic country, all while battling with important political and policy matters that are urgent and in the spotlight.
While typically, presidential election years in Mexico are times of hiatus and a cautious approach by most industries, media is playing a fundamental role in the transformation of Mexico and as such will most likely result not only in good financial results for the industry, but also in a more pragmatic approach by legislators and regulators as they get used to co-existing in the new era of digital normality.
Sergio Legorreta G. is a partner at Baker & McKenzie, where he leads the firm’s media, telecommunications, technology and intellectual property practices in Mexico. His work focuses on market-entry, content licensing and production, service regulation, technology implementation, joint ventures, venture capital, emerging companies, complex contract negotiations and IP-related litigation. His clients include several of the world’s leading media, entertainment and technology clients as well as industry groups, governments and influencers. For over a decade, he has been consistently ranked by publications such as Media Law International, Legal 500 and Chambers & Partners as a leading practitioner in the fields of technology, outsourcing, communications, intellectual property and digital media. Sergio has spoken and written extensively on a wide range of topics relevant to his field.
Media in Mexico, A Shift of Powers in More Ways Than One
Written by Sergio Legorreta G.
Baker & McKenzie
Mexico has been subject to international pressure this year from President Donald Trump's administration with the intention to build a border wall, the ongoing (and uncertain) negotiations of the North America Free Trade Agreement (NAFTA, between Canada, Mexico and the United States), the ongoing pressure for American and other multinational companies to move manufacturing and corporate facilities from Mexico to the United States and the change of migratory policies that could result in the deportation of thousands of individuals to Mexico.