On the move 2016 ANNUAL REPORT Company profile Contents Televisa is a leading media company in the Spanish-speaking world, an 02 Televisa at a glance important cable operator in Mexico and an operator of a leading di- 04 Letter to Shareholders rect-to-home satellite pay television system in Mexico. 08 Financial highlights Televisa distributes the content it produces through several broad- 10 Content cast channels in Mexico and in over 50 countries through 26 pay-tv 14 Cable brands, and television networks, cable operators and over-the-top 16 Sky or “OTT” services. 18 Other Businesses In the United States, Televisa’s audiovisual content is distributed 20 Univision through Univision Communications Inc. (“Univision”) the leading media 22 Fundación Televisa company serving the Hispanic market. Univision broadcasts Televisa’s 24 Management’s discussion and analysis of audiovisual content through multiple platforms in exchange for a roy- financial condition and results of operations alty payment. In addition, Televisa has equity and warrants which upon their exercise would represent approximately 36% on a fully-diluted, 32 Board of Directors as-converted basis of the equity capital in Univision Holdings, Inc., the 34 Financial statements controlling company of Univision. Televisa’s cable business offers integrated services, including video, high-speed data and voice services to residential and commercial cus- tomers as well as managed services to domestic and international car- riers through five cable Multiple System Operators in Mexico. Televisa owns a majority interest in Sky, a leading direct-to-home satellite pay television system in Mexico, operating also in the Dominican Republic and Central America. Televisa also has interests in magazine publishing and distribution, radio production and broadcasting, professional sports and live entertain- ment, feature-film production and distribution, and gaming. Fully integrated media and content distribution platform Our world is changing rapidly and the industries where we operate are changing at an even faster pace. Media and tele- communications continue to converge, and viewing habits, content preferences, and the way people communicate are all evolving at a rapid pace. We have been a leading producer of Spanish-language content for many decades. Today, we are also a successful and growing participant in Mexico’s telecommunications industry. We embraced change many years ago and, as such, these changes keep presenting us with opportunity. 1 This is Televisa Our company at a glance Content Sky In 2016, Televisa produced more than 90,000 Televisa owns a 58.7% interest in Sky, a leading hours of content for free-to-air and pay-TV. direct-to-home satellite television system. Sky operates in Mexico, Central America, and the Do- Advertising minican Republic. In 2016, Sky added more than Televisa operates four broadcast channels—2, 4, 742,000 subscribers. 5, and 9— in Mexico City and complements its Subscriber base: 8 million network geographic coverage through affiliat- 23.4% contribution to ed stations throughout the country. Televisa also segment net sales Sky operates in: sells advertising on its pay-TV networks and online properties. MEXICO Network Subscription Revenue 4.4% contribution to Televisa produces and distributes 26 pay-TV brands segment net sales and 52 feeds. In the United States, the Company distributes its pay-TV channels through Univision. CENTRAL In 2016, Televisa produced more than 27,000 44+ AMERICA hours of content for pay-TV networks. million pay-TV subscribers Licensing & Syndication DOMINICAN Televisa exports its programs and formats to television REPUBLIC networks around the world. In the United States, Tele- 9.1% contribution to visa distributes its content through Univision under a segment net sales Programming License Agreement (“PLA”). This year, the PLA resulted in royalties to Televisa of U.S.$324.6 million dollars. The royalty rate is set to increase from 80+ the current 11.84% on much of Univision’s audiovisual countries worldwide, approximately reach revenues to 16.45% in 2018. 36 .9% 37.9% 22.1% 25.4% contribution to contribution to OSI* contribution to contribution to OSI* segment net sales segment net sales 2 Unconsolidated Segment net sales Cable Businesses percentage Through seven operations in Mexico, Televisa is an Univision: Televisa holds a 10% direct economic 9 important player in the country’s Cable industry. interest in Univision, the leading Spanish-language Televisa operates through two business divisions: media company in the United States and the number • The Multiple System Operators (“MSOs”) five network regardless of language. Upon the exer- cise of the warrants Televisa will hold approximately 22 37 division which offers video, high-speed data, Advertising: 24 and voice services to residential and commercial 36% of the equity capital of Univision on a fully-di- Network subscription: 4 customers, including small- and medium-sized luted, as-converted basis. Licensing and businesses and hotels. Syndication: 9 • The Enterprise division which provides tele- Ocesa Entretenimiento: Televisa holds 40% eq- communications services, including voice, data, uity interest in OCESA, a live-entertainment com- and managed services, to domestic and inter- pany in Mexico, Central America and Colombia. 32 national carriers and to enterprise, corporate, The Company organized 2,969 events in Mexico and government customers in Mexico and the and Colombia in 2016. The most successful tour United States. in 2016 was The Rolling Stones. Operating segment income percentage The MSOs footprint provides Televisa with the Other Businesses ability to leverage an extended network across Publishing: The leading Spanish-language magazine 3 our coverage areas, including cities such as Mex- publisher; published 136 titles in 2016. ico City, Monterrey, Tijuana, Zapopan, Queréta- Gaming: Casino sites and online lottery business. ro, Cancún, Mérida, Mexicali, and San Luis Potosí, Soccer: A first division soccer team of the Mexican among others. Televisa’s network consists of more league and owner of Mexico’s Azteca stadium. 34 38 than 80,000 kilometers of coaxial cable and more Radio: Network of owned radio stations, comple- than 33,000 kilometers of fiber optic. mented by affiliated radio stations owned by third parties. RGUs Feature-Film Distribution: Distributes movies in (Includes Cablevisión, Cablemás, Cablecom, Mexico and Latin America. Telecable, and TVI) Publishing Distribution: Distributes publications in Video: 4,205,864 Mexico and Latin America. 25 Broadband: 3,411,790 Content Cable Voice: 2,113,282 Sky Other Businesses Total RGUs: 9,730,936 * Operating segment income (OSI) is defined as operat- ing income before corporate expenses, depreciation, and amortization, and other expense, net. For a reconciliation 32.1% 34.0% 8.9% 2.7% of total operating segment income with consolidated op- contribution to contribution to OSI* contribution to contribution to OSI* erating income, see Note 25 to our year-end consolidated segment net sales segment net sales financial statements. 3 increase in consolidated 9.4% revenues and 9% in OSI, in 2016. US$325 million in royalties from Univision. Twice the amount received six years ago. Sky revenue and OSI have expanded over the last ten years at a compounded annual growth rate of 11% and 10%, respectively. increase in Cable revenues and 150 11. 9 % basis points growth in OSI margin, in 2016. 4 Dear Shareholders: As I look back at 2016, I realize how much we achieved during the year. In our advertising sales business, in pay- TV, and in our growing presence in Mexico’s fixed voice and data markets. Our new advertising sales strategy started to pay off The restructuring of our advertising sales strategy in mid-2015 was chal- lenging to our business, but also necessary. Among other measures, we re- organized the leadership of the team and restructured our rate card. We significantly changed the way in which we had been running this business for more than 20 years. From the beginning, we implemented the restructuring of this business with conviction and discipline. We took the right step. Our 2016 results showed us that Televisa’s free-to-air channels continue to be the most efficient way for our customers to run their advertising campaigns and reach their mar- keting goals. Univision posted strong financial results and royalties reached U.S.$324.6 million dollars Univision continued to serve Hispanic audiences like no other company. In the most recent broadcast season, and for the 24th consecutive year, Uni- vision’s flagship network finished as the number one network in the United States among Hispanics. Univision delivers the most ratings among Hispan- ics in many fronts; it is the number one newscast, the number one cable entertainment network, and the number one cable sports network. During 2016, Univision reported, for the first time ever, revenues in excess Emilio Azcárraga Jean of U.S.$3 billion dollars. As a result, royalties to Televisa reached U.S.$324.6 Chairman of the Board, President and million dollars in the year. This is twice the amount of royalties received by Chief Executive Officer of Grupo Televisa Televisa just six years ago. Sky reached 8 million pay-TV subscribers During the year, Sky added more than 742 thousand subscribers, reaching 8 million customers. Since 2010, when it launched its pre-paid VeTV package, Sky has added 5 million subscribers. The growth in revenue and profitability has also been outstanding. Over the last ten years Sky revenue and operat- ing segment income have expanded at a compounded annual growth rate of 11% and 10%, respectively. Local loop unbundling has been mandated in Mexico for the preponderant economic agent in the telecommunications sector. Sky, having one of the most respected brands in Mexico and the operational scale necessary to launch new services, is very well positioned to benefit from this. The recent changes to the Mexican regulation with regards to local loop unbundling have to be put to the test, but the chances that Sky launches triple-play services in an effective and profitable manner increase every day.