Brazil To Allow Some Foreign Ownership Of Media

By: Tony Smith, AP Business Writer

(AP) No news seems to be good news for the Brazilian media business these days.

Over the past year, the bursting of South America’s most inflated Internet bubble and the global economic downturn have shot holes in the balance sheets of many newspapers, magazines, and radio and TV stations. Advertising revenues have plummeted, debt is spiraling, and hundreds of journalists’ jobs have been axed.

Business is so bad that one of Brazil’s sacred cows — a 60-year-old law banning foreign ownership of the media — is being slaughtered. But, at least for now, analysts expect no major takeovers by international giants, such as AOL Time Warner or The Walt Disney Co.

It will, however, allow best-placed local companies such as Globo television group and magazine publisher Abril to tap international capital markets.

Brazil, a country of 170 million people, nearly 90% of whom have access to television, is one of the world’s most vibrant media markets. The choice of publications at newsstands rivals those in North America and Europe.

The ban on foreign ownership, dating from Brazil’s 1964-1985 military regime and enshrined in Article 222 of the Constitution, has protected local media, allowing big players such as Globo to develop a near monopoly in some sectors.

After months of debate in Congress, the Senate on Wednesday amended the Article, effectively opening up 30% of local companies to foreign capital.

“Brazilian media are so decapitalized,” said Alberto Dines of respected media watchdog Observatorio de Imprensa. “They were trapped by this article.”

Dines said the push to change the law started six years ago but met opposition from Globo, Brazil’s most powerful media empire that both critics and admirers say can make or break a presidential campaign.

“Globo understood that for them it wasn’t so good because it would allow their closest competitors … to capitalize,” he said. “Without Globo, these things simply don’t advance. They have such a strong lobby in Congress and in the government.”

But the expansion plans of the Rio de Janeiro-based conglomerate owned by the Marinho family — including cable TV, an Internet Service Provider, and two new dailies in Brazil’s biggest city Sao Paulo — have been costly. Some say Globo’s debts are running at more than $1 billion.

Globo is not the only group suffering.

Advertising revenue in Brazil was nearly $6.4 billion in 2001, down 10% from 2000 and way off the over $8.6 billion in 1997, according to Zenith Media, a London-based consultancy.

“I’ve never seen such a black moment for journalism in Brazil,” said Luis Costa, a former editor at Estado de Sao Paulo, one of the country’s most respected dailies.

He was let go late last year, just one of more than 600 journalists laid off in a matter of weeks at several publications, including Estado, Abril’s leading news weekly, Veja, and its Globo competitor, Epoca. Troubled business daily Gazeta Mercantil fired 143 reporters in one fell swoop.

“I expected this,” said Fred Ghedini, president of the National Journalists Union. “Just as the Internet bubble (of 2000) was the biggest ever, so now the slump seems to be the deepest ever.”

“Everybody is suffering,” added Dines.

He predicted Gazeta Mercantil and Jornal do Brasil, a troubled Rio de Janeiro daily, could be saved by the injection of foreign capital.

But will the foreigners bite?

“I wouldn’t expect major buyouts for now,” said Whitney Johnson, Latin American media analyst at Merril Lynch. “It all comes down to a question of control. Would Globo be willing to sell a controlling stake? Maybe not.”

Globo has time-honored links with Time Warner and current business links with Rupert Murdoch’s News Corp., while Abril started off as a small-time publisher of Disney comics. SBT, Globo’s main television rival, also has links to Disney.

Business daily Valor, one of Globo’s Sao Paulo projects, is a partnership with Folha de Sao Paulo, Brazil’s best-selling paper, and was engineered for a future injection of capital from Pearson PLC, the London-based owners of the Financial Times. Spain’s El Pais is also said to be interested in buying into a Brazilian paper.

A global slowdown in advertising will likely temper any enthusiasm for the Brazilian market, experts say.

“The media is in crisis not only in Brazil, but also in the United States and in Europe,” said Paulo Cabral, president of Correio Barziliense, the leading daily in Brazil’s capital, Brasilia.

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