Seeking to become el grande in the growing U.S. Latin music market, Universal Music Group on Thursday said it had agreed to buy Univision Communications Inc.'s record division.
The purchase price was nearly $140 million, according to two people close to the negotiations who asked not to be identified because the financial terms were confidential.
The acquisition, which is subject to regulatory approval, would more than triple Universal's share of the Latin music market to about 49%. And it would expand the range of the world's largest record company into such popular niches as regional Mexican music, Latin pop, Latin rap and hip-hop.
"This deal is about following the changing demographics of the population of the country," said Zach Horowitz, president and chief operating officer of Universal Music, who negotiated the deal. "This demographic is growing at a much faster rate than any other segment of the population. And we will have this treasure trove of a catalog that goes back 30 years and includes some of the biggest artists in Latin music today."
Universal's French parent, Vivendi Universal, is building its music portfolio at a time when much of the industry is retrenching in the face of plunging CD sales and online piracy. For Spanish-language media giant Univision, the sale will allow it to shed a troublesome noncore asset and to pay down a smidgen of the $10-billion debt that its new owners assumed when they acquired the company last year.
Univision Music, which includes the Fonovisa Records and Disa Records labels, claims 35% of the Latin music market. It currently boasts five of the top 10 Latin albums in the U.S., said Universal, citing data from research firm Nielsen SoundScan.
The deal included an interesting provision, which took months to negotiate: Univision agreed to provide prominent advertising spots on its two broadcast television networks, Univision and TeleFutura, for five years to Universal so that it could promote its recording artists and releases.
"That's a shrewd business move on Universal's part because it subsidizes their marketing costs," said Aram Sinnreich, managing partner of Radar Research, a Los Angeles-based consulting firm.
These days it is nearly impossible to break out a blockbuster record without relying on substantial television exposure, Sinnreich said. "That's the only way to have a profitable record at this point -- they need to get national broadcast coverage on both radio and TV," he said.
The two Univision networks routinely pull in nearly 80% of Spanish-language TV viewers in the U.S., hitting the bull's-eye of the target audience for Disa and Fonovisa records.
"This is one of the genres of music that will be least affected by online piracy. It's still a physical CD business," Horowitz said. In addition, he said his company would be able to tap new revenue streams by offering music and ring tones for downloads to cellphones.
Adam Chesnoff, president of Saban Capital Group Inc., negotiated the deal on behalf of Univision. A year ago, Saban Capital and private equity firms Providence Equity Partners, Madison Dearborn Partners, Thomas H. Lee Partners and Texas Pacific Group acquired Univision in a $12.3-billion deal that took the company private.
Clearing the way for the sale, Univision this month settled a lawsuit that alleged that top Univision Music executives encouraged a payola scheme to bribe undisclosed radio station managers to win better play for its artists' songs. Univision had maintained that the suit had no merit.