LATIN AMERICA: BEYOND THE BEDLAM - Latin America is famous for chaos, corruption and kidnappings but media owners are optimistic about its future. Jim Edwards finds out why

On 2 February 2002, Washington Olivetto, the creative director and owner of W/Brasil, one of Brazil's best-known advertising agencies, was found by police after being kidnapped on 11 December. He had been kept in a windowless cell in a dingy apartment in Sao Paulo, a few blocks from where he disappeared 53 days earlier. His kidnappers - a Chilean extremist group called the Manuel Rodriguez Patriotic Front - demanded more than $10 million in ransom money.

What's shocking about this story is that Olivetto is the fourth ad executive to be a kidnapping target in Brazil. Luiz Salles, the former president of Salles D'Arcy, Geraldo Alonso Filho, the president of Publicis Norton, and Roberto Medina, the president/owner of Artplan Publicidade, have all been victimised since 1989.

The release of Olivetto capped a tumultuous year in the region that saw the collapse of the Argentinian economy, a coup and counter-coup in Venezuela, a precipituous series of currency devaluations and a continent-wide recession that shows little sign of ending.

Given the above, you'd be forgiven for thinking that Latin America is a chaotic, lawless, unstable area that lacks the kind of basic political cohesiveness required to sustain a mature media and marketing industry.

Sometimes it is. The head of one agency network's Latin American office nicknames it "the wild wild west".

But surprisingly, all the media buyers and sellers are upbeat, with many looking to expand their budgets and reach. While almost everyone admits to drawing a red-ink soaked veil over the past 12 months, some predicted signs of an upturn by the end of the year. Veterans of the scene have continued to chant their familiar mantra: "Look to the long term."

As Newsweek's vice-president/international, David Swanson, puts it: "We've been in Latin America through successions of crises, devaluations, mudslides, earthquakes, and we've grown steadily throughout it. I think the Latin American market has room for growth, to a large extent it's still an untapped market."

But first, the damage.

Argentina saw annual total adspend drop 11 per cent in 2001, according to a January analysis by Starcom MediaVest Group. Total spending has declined from $3.6 billion in 1998 - its best year ever - to an estimated less than $1 billion last year, due not only to the recession but also the devaluation of the peso. Before devaluation, the peso traded at roughly one US dollar. Now, a dollar buys you 3.55 pesos.

"The Argentina disaster is a depression, Starcom MediaVest Group Latin America's chief executive, Laura Desmond, says. "We're not talking recession, it's a depression in that market right now."

In Brazil, the total adspend declined from an estimated $7 billion in 2000 to $6.4 billion in 2001, according to Starcom. The decline is more pointed when you factor in a 30 per cent depreciation in its currency value this year. The Brazil and Argentina figures are significant because between them they account for about half Latin America's total adspend.

Although Starcom is predicting adspend growth in Venezuela, from around $1 billion in 2000 to $1.4 billion in 2001, president Hugo Chavez allowed the bolivar to lose 32 per cent of its value this year, on top of a 7.7 per cent decline last year.

"The effect of the collapsing countries is so heavy that it drives everything down, Jean-Christophe Petit, the chief operating officer, Latin America for Initiative Media Worldwide, says.

"Even if (total adspend) is increasing by 5 or 6 per cent in all the other markets, it is not enough to compensate."

The experience is perhaps best illustrated by looking at Rolling Stone's Latin America edition. In 2001, the magazine, licensed by Grupo De Revistas La Nacion, did $1.5 million in ad sales, according to the general manager and chief executive, Andres Gomez. In the first three or four months of 2002, business is just 50 to 60 per cent of what it was last year, he says. That's measured in pesos, so in US dollar terms his Argentinian sales are worth only 15 to 20 per cent of what they were a year ago. And that decline comes on top of the steady fall off since the country's decade-long 10 per cent-per-year growth spurt ended in 1998.

"In Argentina, companies are cutting their ad budgets 80 or 90 per cent, Gomez says. "Sales are losing everything. The only industries that have good numbers are tourism, because people are coming from other parts of the world, and some industries that have export goods."

Interestingly, Rolling Stone's circulation has remained relatively steady, Gomez says, even though 45 to 50 per cent of sales in the region are in Argentina. Currently with a print run of about 50,000, Gomez says he sells around 30,000 in Argentina, Uruguay, Paraguay, Bolivia and Chile. That's only a 10 or 15 per cent slip since 2000, he says.

It's a similarly gloomy picture at Time Latin America, although some in the AOL Time Warner family remain optimistic about the as-yet largely unrealised potential for cross-media offerings in the region. "In Europe and North America the whole idea of multi-platform buying ... has been accelerated, whereas I think in Latin America that hasn't happened as fast as we would have liked it to, Kevin Razvi, CNN's executive vice-president for news/advertising sales for Latin America and Asia, says. "The synergy elements are there but we've spent a bit more time talking about them than actually constructing them."

There has been some successful joint selling across CNN en Espanol, AOL and AOL Time Warner's cartoon and entertainment properties, he says. "There's definitely more of an interest in a cross- divisional approach from the agencies and from clients. One result of the recession is the market has become decommoditised because people are looking for more innovation within their media schedules."

The media buyers are cautiously sympathetic to media offerings linked to AOL. "We want to see them succeed because the more competition, the more offerings, the better the marketplace, Desmond says.

"I would say that the Time Warner group has made a pretty good job," Petit adds, "even if AOL as a medium is a bit limited due to the slowdown of the entire industry."

Further complicating the picture are recent changes to advertising and media law in Brazil. Article 222 of the Constitution, written under the military regime of 1964 to 1985, bans foreign media ownership. In May, Article 222 was revised to allow overseas investors to take up to a 30 per cent stake in Brazilian companies.

A second, closely watched development was the passage of the Ancine Amendment, which imposed a 3 per cent tax on commercials - intended to fund local movie and TV production.

Third, remaining unchanged, is the Brazilian taboo against independent media planning and buying agencies. All buys must be executed through a full-service agency.

The result has allowed Globo, a privately owned TV brand, to reach 60 per cent or more of the audience on any given day.

As such, its near-monopoly status has allowed it to ignore the way buyers and international competitors do business.

Given the economic realities - Globo is heavily in debt and its advertising revenues have been excoriated by the recession - and the recent legal changes, foreign executives see the writing on the wall for Brazil's protectionist way of doing things.

"Brazil is now the only major market in the world that operates according to a bundled agency model, so they're behind the times. And they're behind the times in terms of investment and outlook, Desmond says.

"Clients are increasingly upset about that, because Brazil is a top ten market for most multinational businesses and the last thing they want to see is a gap widening between Brazil and the rest of their marketing practices."

"If you buy media in Brazil you can buy one station which gives you a 60 per cent reach ... there is less opportunity to really shine, the Lowe Lintas & Partners Latin America chief executive, Peter Minnium, says.

This means buyers can only get creative and demonstrate strategic differences with the remaining 30 to 40 per cent of the budget, he notes. "The markets are less sophisticated, less complicated and less diverse."

In the meantime, the news from Brazil, Argentina and Venezuela has been so grim that it has all but eclipsed what ad and media executives have been trying to tell clients for years: although it's tempting to see Latin America as a single entity like the US and Canada, it isn't and it's the differences across the region which keep these executives bullish.

"Mexico has been a benchmark of stability, Colin Lawrence, BBC World's strategy and sales operations director, says. "Its performance has been extraordinary. Its total adspend rose from $3.26 billion in 2000 to $3.55 billion in 2001, according to Starcom. Growth is expected to increase, and Starcom is forecasting a rise to $4.2 billion by the end of 2002.

Other countries that Starcom predicts will grow include Chile ($3.4 billion in 2001, rising to $3.6 billion in 2002) and Colombia ($1.07 billion in 2001, rising to $1.11 billion in 2002).

Those numbers particularly inspire Lawrence because he's hoping to add an ad sales revenue stream on to BBC World's largely subscriber-fee-based model. To make the international-news-heavy product more attractive, BBC World has been including 40 hours a week of Spanish subtitling on its non-news shows, such as the international edition of Top Gear. "We've grown from 4.5 million households to just over six million households in the space of 12 months. And the areas where we've added mostly are the southern cone: Chile, Argentina, and we're about to add Uruguay, Lawrence says. "News as a genre has become much more important in the past 12 months and it doesn't look as if it's tailing off."

The BBC still has a way to go, however, to catch up with other networks.

CNN en Espanol claims 9.5 million households, plus a separate Mexico feed which lights up another 2.5 million. MTV Latin America boasts about 12 million with a separate Brazil feed serving a claimed 17 million. ESPN has 14 million and Discovery has 16 million, in what it believes is a regional market ceiling of 16.5 million.

ESPN is ploughing on regardless of economic conditions. It has recently launched another brand in Argentina, Chile, Paraguay and Uruguay - ESPN+ (pronounced ESPN Mas) to focus on local sports such as rugby and football and will broadcast in Spanish. ESPN+ joins ESPN International, ESPN Dos and ESPN Brasil in the region. "We've done well in the context of everything else that's going on in the rest of the world, Michael Fox, the vice-president of worldwide advertising sales, says. But he notes that plans for ESPN Magazine, first discussed more than a year ago, remain on the drawing board until things improve.

The magazine sector has seen a wave of investment in the past few months.

Conde Nast completed a buyout reportedly valued at more than $25 million of Ideas Publishing Group in Miami, which distributes nine licensed titles including Vogue en Espanol, Glamor en Espanol and Architectural Digest en Espanol.

Also entering the market is Dennis Publishing with Maxim en Espanol which launched in December. "We started with 150,000 and we've reached 220,000 in circulation, Eduardo Michelsen, the vice-president of operations at Editorial Televisa in Miami, the company that licenses the title, says.

Currently distributed in the US Hispanic markets Mexico, Puerto Rico, Dominican Republic and Venezuela, its fourth edition will add Colombia to the list. However, Maxim's Brazilian/ Portugese licence is still on the market, according to Dennis Publishing's president, Stephen Colvin.

Finally, as if further proof were needed that even the most alarming news hasn't dampened enthusiasm in the region, the embattled Rolling Stone plans to launch a Portugese edition in Brazil in 2003.

                     1999     2000     2001     2002       2003   Growth
                                                     (estimate)    99-03
North America     137,145  152,316  156,082  163,472    170,853      20%
Europe             80,532   87,727   92,897   98,253    103,470      22%
Asia-Pacific       62,139   65,782   69,758   73,587     77,578      20%
Latin America      22,248   24,244   26,573   28,787    31,175       29%
Source: Zenith Media.


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