Five key affiliate stations say they will stop carrying Azteca America’s signal, dealing a significant blow to the L.A.-based Spanish-language network’s bid to crack the U.S. market.

Azteca is a wholly owned subsidiary of TV Azteca, the No. 2 broadcaster in Mexico. The company established its U.S. headquarters in Century City only last May, commemorated by an official welcome from City Council President Eric Garcetti and a Cinco de Mayo celebration at the Skirball Center.

The decision also comes at a critical time before the “upfront season” when advertisers size up next fall’s TV shows and decide upon their ad spending.

“The move comes as no surprise, although we don’t exactly understand the logic involved,” said Luis Echarte, chairman of Azteca America. “We are confident that we will be able to maintain or improve coverage with agreements that are in negotiation.”

Pappas Telecasting Cos. in Visalia owns all five stations, located in Houston, San Francisco, Sacramento, Reno, and Sioux City, Iowa. The decision takes effect on June 30. The Azteca network has outlets in 55 U.S. markets, but according to Pappas nearly two-thirds of Azteca’s primetime audience come from just three Pappas stations.

Azteca perpetually runs behind rival Univision Communications Inc., the L.A.-based behemoth of U.S. Spanish media, and Telemundo, a subsidiary of NBC Universal. But for now one crucial Pappas station remains in the network: KAZA-TV (Channel 54) in Corona covers the Los Angeles market, the largest in the nation for Spanish-language advertising. Thanks to a special operating agreement, the station should keep its Azteca identity until July 2008.

For the other Pappas stations, the marriage to Azteca lasted about six years. “Azteca America network’s programming has not developed and ratings have not grown as we had expected,” said Chief Executive Officer Henry Pappas. “We are choosing amongst various other options for programming on these stations.”

Based on the experience of the Fox, WB and CW networks in English, as well as Univision’s Telefutura network launch in Spanish, Pappas said programming strategies can be evaluated within two to three years. Azteca’s programming has scored some successes with “La Academia,” an “American Idol”-like show, the telenovelas “Cuando Seas Mia” and the Brazilian import “Xica,” and Mexican soccer matches.

“In fairness, there has been content which has performed credibly. And particularly on our stations, with that kind of content, we were fully competitive with Univision and Telemundo,” said Pappas. “What we haven’t seen is the whole of Azteca America’s program schedule develop as it should in order for us to justify continuing affiliation. By this time, a network should be fairly viable in all key day parts, particularly in primetime. And all through prime – not just one hour.”

However, according to Azteca, Pappas stations only account for about 9 percent of Hispanic households nationwide. The network said it plans to select better affiliate partners that can promote and sell Azteca programs, especially in the large Houston and San Francisco markets.

As for the poor performance, “we disagree with the reasons stated by Pappas. Stations of strong operators, who are investing in local programming and promotions to complement our network feed, are growing nicely,” said Echarte. “For instance, in Las Vegas, our affiliate beat out Telemundo in key day parts in the November sweeps. Our station in Los Angeles also beats Telemundo in key day parts. With new station owners, we look forward to being able to coordinate marketing and promotions more closely than with the Pappas administration.”

Trouble foreshadowed

As a foreign company, TV Azteca cannot own U.S. broadcast stations, so on paper the Pappas arrangement looked good for both sides. But a parting of the ways was foreshadowed as far back as 2003, when the partners negotiated an affiliation agreement that allowed either side to terminate the agreement at six month intervals.