Murdoch and Berlusconi Clash Head-To-Head With TV Competition, Italian Style

Philip Stone March 26, 2009

Watching two media billionaires fight it out for broadcast supremacy in Italy reminds one of the fight to the death of the ancient gladiators, but this fight is not just in the Colisseum – it covers the whole country and right now the crowds are showing “thumbs up” for both.

In one corner stands Silvio Berlusconi, Italy’s richest billionaire – Forbes Magazine’s billionaire list says he and the family are worth around $6.5 billion. He is the controlling shareholder in the Mediaset television empire and let’s not forget he just happens to be the Prime Minister which means he has great authority, too, over state broadcaster RAI. Add Mediaset and RAI together and Berlusconi has his fingers deeply into around 90% of Italian TV. 

Mediaset’s 2008 profit dropped 9.4% and the company has said Q1 of this year has seen a sharp downfall in advertising, so the company is really banking on new premium channels for additional revenue and it really wants to chip away at the competition.

And in this case that means none other than Rupert Murdoch whose Sky Italia satellite TV service has been a thorn in Berlusconi’s side for several years. Murdoch, according to the Forbes list, saw his wealth plunge in 2008 from around $6.8 billion to “only” $4 billion as News Corp’s shares have really taken a hit with first quarter net profit down 29.6% on the same period last year, with almost all of his various media businesses suffering.

That means whatever product lines are bucking that trend and doing well are even more important than ever before  and with Sky Italia turning in operating income of some $165 million  and the subscriber base increasing by 359,000 in the past 12 months, that’s a franchise that Murdoch really wants to nourish.

Murdoch and Berlusconi have been sparring for the past four years. For instance,  Sky had exclusive satellite rights to Italian  football butin what amounted to just about a midnight raid in 2005, Mediaset, building its terrestrial digital platform, obtained terrestrial digital rights to the league’s top three teams  -- Berlusconi owns one of them -- and offered pay-for-view at just €3 each via a smart card bought at newsstands. By comparison, Sky, that had paid three times as much for its satellite rights than Berlusconi did for the digital platform, offers a monthly contract at €47 a month, and there can be no question the reason for Sky’s success was that football-mad Italians were willing to pay for their games on Sky.

And then there were the digital decoder boxes. When you’re prime minister, and your television business is starting up digital television but you know a major hindrance to its success is the cost of the decoder box needed to receive the signal what do you do? Why, of course, you get Parliament to pass legislation that all terrestrial transmissions must be digital by an early date and to help meet that date the government will provide a subsidy of about 60% on the cost of decoder boxes, And that’s exactly what Berlusconi did back in 2005 with Sky complaining to the EU that the subsidy was unfair.

And then last Fall Berlusconi showed Murdoch again what it means to do battle with a Prime Minister – the government issued a decree doubling to 20% the VAT on pay television subscriptions. And Mediaset and RAI  (remember Berlusconi has great power over RAI) announced they were launching together a digital terrestrial service based on the British Freeview  service and it is thought this will cut severely into Sky’s market share. And if that wasn’t enough hardball, RAI has already announced it will cancel its carriage deal with Sky Italia in June when its contract expires, and Mediaset is expected to do the same – that bottom line meaning Sky won’t have access to all of Italy’s terrestrial channels to offer in its package as it does now.

And now Mediaset has done a deal with Telecom Italia in which it will provide premium content, including football, to Telecom’s Alice Home IPTV Network that is already available in 500 Italian cities. The Mediaset content is basically the same it sells under its Mediaset Premium product, a one-year-old card operated pay TV service delivered on the digital network. That Premium service is ahead of business plan with close to 3 million customers whereas Sky Italia has around 4.8 million.

All in all one can see there really is little business love loss between these two although in the early days they had worked together to carve out their broadcast empires and ensure state broadcaster RAI would not present any problems. Back in 2003 when Murdoch launched Sky Italia Berlusconi considered it to be an expensive toy on which Murdoch would lose his shirt, and for some time he did just that. But   Sky Italia has come a long way from then and last year it earned $3.2 billion, not that much less than the $3.7 billion RAI earned and the $4 billion by Mediaset.

Obviously, Murdoch is not one to take all of this sitting back. He has gone on the attack, too, by hiring big Italian talent – one of the most recent being Rosario Fiorello, a singer, stand-up comedian, and  impersonator considered one of Italy’s top entertainers. He has worked for both RAI and Mediaset and when Berlusconi heard he was about to sign a Sky contract he invited him home and asked him, “What are you doing, switching over to the enemy?” He did indeed  sign with Sky, so chalk one up for Murdoch.

And then there are the Olympic Games. Murdoch really plunged the knife in by Sky winning the rights for the 2010 Winter Olympic Games in Vancouver and the 2012 Summer Games in London. Usually European Olympic TV rights are negotiated by the European Broadcast Union (EBU) for public broadcasters and other members, but Sky got to the International Olympic Committee early and made an offer it apparently couldn’t refuse, (compared with what NBC has been paying for Olympic rights the EBU has been getting a big bargain for years and was trying for similar this time around, too – well with the Sky deal the IOC sure sent a shot across the EBU bow on that one). RAI is so upset about not getting the rights that it is now talking about closing down its sports channel, and other European public broadcasters are talking about not televising lesser sporting events if they are denied Olympic coverage.

So the two gladiators continue their sparring. Mediaset on a commercial basis doing what it can to chip away at Sky’s success while Berlusconi is not beyond using his government powers to cause Sky harm where he can – although he has to be careful of not upsetting the EU in the process. All good fun, but deadly serious business, with both sides obviously in this for the long-run for the prize is enormous.