The ratings game

Felipe Gozon is the first to admit that he doesn’t know much about running a television station. "I’m a lawyer," said Gozon, who holds office daily at the Belo Gozon Law Office in Makati but is in constant touch with key people at GMA Network Inc. by cell phone.

In his first full year as chief executive officer, Gozon significantly improved on GMA Network’s end-2000 net income of P200 million. Net income rocketed by 1,600% to P3.2 billion in the first half of 2001. Despite flat industry growth in the third quarter, GMA’s sales continued to grow by triple digits.

"We’ve seen a drop in the November figures as the weak economy began to impact on the advertising budgets of companies," said Gozon, who has already surpassed the 2001 sales target set by his board.

Like most industry players, GMA is made up of several companies. GMA Network owns most Channel 7 and manages most of the radio stations nationwide. Marketing and sales is handled by GMA Marketing and Production. Republic GMA manages some of the radio stations owned by GMA Network.

GMA Network is owned by three major groups. The Duavit and Jimenez families each hold a 35% stake. Gozon’s group, who bought the remaining shares of Robert Stewart in 1975, holds the balance 30%. At the time of the purchase, Gozon was GMA Network’s legal counsel. After the purchase, he was named chairman.

Programming

GMA Network’s healthy bottom line last year could be traced in part to a mindset change. "We want to be more competitive. We want to recapture the number one slot we held in the 1970s and the early 1980s," said Gozon. "Focus groups show Channel 7 has branding."

Management took a second look at its programming. "It is important to go where the people want. You can’t afford to swim against the current because TV is a sales and rating game," said Gozon.

A case in point is the popularity of soaps on prime time or the 7-9 p.m. window where the ratings game is mainly played. Prime time’s main market is the Class C-D-E housewife who is comfortable in Pilipino. Even among soaps, there is a growing preference for locally produced shows with Filipino actors and actresses whom housewives can identify with rather than for shows imported from Mexico and South America and dubbed in Pilipino.

"We used to be a champion of counter-programming. When the other channels were showing soaps, we insisted on showing animes. And we lost out. The ratings gap between Channel 7 and our biggest competitor during prime time was so wide that whales could easily swim through," said Gozon.

Today, Channel 7 shows soaps like everybody else and the prime time gap has narrowed enough so only dolphins can swim through. "We now have the same type of programming as our competitors but we’d like to think we’ve brought in innovations in the quality of the programs we’ve produced," he said.

To meet the demand for locally-produced drama and variety shows, it is hiring people, both in front and behind the camera. It is putting up a talent center. It is also on the look out for more production unit manager so their individual loads will be reduced from the current five shows to two or three.

Given its commitment to produce decent and responsible shows, GMA Network favors in-house productions. It is also reviewing the contracts of block-timers, most of whom are earning excessively on their purchased time slots.

On paper, Channel 7 has a 92% reach nationwide. The figure is, however, currently being validated at ground level. To date, the validation process, which includes the 100-kilowatt Tandang Sora transmitter that used to operate at 38% power until last year, is 50% complete.

"A price war normally takes place in a weak economy. The bottom line between the rate card and the effective rate is cost benefit to the advertiser. We’d like to think our advertisers get more from us than from our competitors," Gozon said.

Cash

Even without its strong financial showing and improved program ratings last year, GMA Network is an attractive company. Three years ago, its enterprise valuation was pegged at between P10 billion and P12 billion. Early last year, the valuation shot up to P14 billion.

"Through the years, the stockholders have received unsolicited offers to buy in. We were not desperate to sell until P14 billion was mentioned," Gozon said.

A memorandum of understanding was signed in February 2001 between the GMA Network stockholders and the PLDT Group. Under the MOU, Philippine Long Distance Telephone Co. agreed to buy 67% or legal control of the company. The price for 100% of GMA Network’s stocks was P14.588 billion.

Under an earn out provision, GMA Network’s stockholders would have gotten additional cash two years after the sale if the company meets its revenue targets.

The buy in, however, didn’t push through when the PLDT Group reduced its offer to 51% of GMA Network’s shares and then to 20%.

"Even without PLDT, we have enough money to finance our projects this year," Gozon said.

Of the P1.9 billion, five-year loan arranged by Chase Manhattan Bank in 2000, P300 million remains undrawn. The balance has been used to pay down existing short-term loans, 50%, which are high-interest loans. The company also has existing lines worth P500 million with other commercial banks.

GMA Network has also been cleaning its own house as it looks for more ways to increase revenues and reduce costs. On the one hand, the time between showing of a commercial and collection will be reduced to 90 days from last year’s 100 days. On the other hand, producers can expect to go through the wringer before their budgets are approved by management.

To further reduce overhead, non-core businesses such as UHF-Channel 27 have been temporarily closed. "First things, first. Although we are financially healthy, we do not have unlimited resources. All our resources will go this year to making Channel 7 the best in the country," said Gozon, who now talks less like a lawyer and more like a manager.