It’s A Battle Royal Between Media Titans Berlusconi and Murdoch And They’re Not Taking Any Prisoners

Philip Stone June 10, 2009 Follow on Twitter

One of life’s great joys is watching two media barons battle it out using all the weapons at their command (Murdoch is getting real close to the waistline on personal issues; Berlusconi got too close to the waistline on business issues) but at the end of the day while Murdoch may be embarrassing Berlusconi outside of Italy inside the country the prime minister is doing just fine.

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This is nothing new between these two – the sparring has been going on for years -- Murdoch had wanted to buy Berlusconi’s Mediaset and got turned down in 1998, later Berlusconi as prime minister actually helped Murdoch get control of satellite TV broadcaster Sky Italia, probably thinking the American (former Australian) would lose his shirt on the venture, but instead Sky Italia has turned into a real success story for News Corp.

Berlusconi, Italy’s richest man from his various media holdings (Forbes puts his wealth at around $6.4 billion) and who just happens to be Prime Minister understands it was a big business mistake to have allowed Murdoch to step on Italian soil, for Sky Italia’s success could damage the successful launch of Mediaset’s digital offerings, and thus war was inevitable. 

And while the international media has been dishing out some really low blows editorially against Berlusconi for the past few days it is Murdoch’s  Times of London that called in a professor of classics at Cambridge University to compare the Italian Prime Minister with the Roman Emperor Tiberius – known for his sexual frolics – and then followed that up with a really vicious editorial  with verbiage that more properly belongs in his tabloid Sun or News of the World than it does in the august(us) Times of London.

Just the first paragraph of the editorial gives a sampling of the venom to come:  “The most distasteful aspect of Silvio Berlusconi’s behavior is not that he is a chauvinist buffoon. Nor is it that he cavorts with women more than 50 years younger than himself (has The Times forgotten that Murdoch married a woman 37 years his junior?)  abusing his position to offer them jobs as models, personal assistants or even, absurdly, candidates for the European Parliament. What is most shocking is the utter contempt with which he treats the Italian public.” Did The Times also forget that Wendi Deng worked for Murdoch’s Star TV in Hong Kong and they met when she was assigned to be his guide on a trip to Shanghai? The story goes she never returned to Star and the rest is history). Those who live in glass houses really shouldn’t throw rocks.

Not that Murdoch doesn’t have every right to be mad at Berlusconi for there can be no doubt that several times over the years the Italian has done him serious wrong.

It really started 11 years ago when Berlusconi rebuffed Murdoch’s offer to buy Mediaset for $3.22 billion. Four years later Murdoch saw his opportunity to enter the Italian market when, with  Vivendi Universal in financial crisis, News Corp bought its  Telepiu unit at a bargain €920 million to form Sky Italia, Italy’s only satellite broadcaster. In 2004 he bought out Telecom Italia’s minority 19.9% interest for another €60 million, to take 100% ownership.  

There were rumors a couple of years later that Murdoch again approached Berlusconi to buy Mediaset but Berlusconi, in a year-end news conference, stated, “Mediaset will stay in the family business.”

To make Sky Italia a success Murdoch knew from his UK Sky operation that he needed exclusive sports coverage and in Italy that could only mean football. It just so happens that Telepiu, before being sold, had paid €370 million for Italian Club A and B satellite rights. The Sky game plan, depending on the Italian love of football, was to package those games into a €47 monthly package – a plan that Berlusconi thought would fail miserably. And on that he was very wrong.

So Berlusconi decided to fight back. He got Parliament to pass a media law allowing the top three football teams (he owned one of them) to sell their home games on the new terrestrial digital platform that Mediaset was building. And then in what amounted to just about a midnight raid in 2005, Mediaset did its deal with the football teams and offered pay-for-view at just €3 each via a smart card bought at newsstands. Sky had paid three times as much for its satellite rights than Berlusconi did for the digital platform, but the first Sky knew of the digital deal was when it read about in the morning newspaper and howl as it did the deal was done!

Now, what do you do when you’re prime minister, your digital television business is starting up but you know a major hindrance to its success is the cost of the decoder box needed to receive the signal? Of course, you getParliament 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 – the value of that government subsidy is said to have been more than €100 million -- with Sky this time howling all the way to the EU that the subsidy was unfair.

And so life went on – Mediaset did okay with its a la carte football games and Sky, that had feared major subscriber losses without football exclusivity, discovered its subscriptions remained secure.  Berlusconi lost an election and things fell silent for a while. But last year Berlusconi got reelected. The battle was joined again.

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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 satellite television subscriptions while Mediaset’s three terrestrial channels had no VAT charges.  Murdoch personally went to Rome to complain, Sky Italia took out newspaper ads telling its customers how unfair it was of the government to increase their costs in recessionary times, but the deed was done. Mr. Murdoch was by no means amused.

Berlusconi, however, wasn’t done yet. His Mediaset and the state-run public broadcaster RAI which Berlusconi effectively controls, too, as prime minister, announced they were launching together a digital terrestrial service based on the British Freeview service and they hoped this would cut severely into Sky’s market share. And if that wasn’t enough hardball, RAI announced it would cancel its carriage deal with Sky Italia when its contract expires this month with Mediaset doing the same – bottom line meaning Sky won’t have access to all of Italy’s terrestrial channels to offer in its packages as it does now.

And Mediaset has done a deal with Telecom Italia to 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.

So Sky hit back. It went after Mediaset on-screen talent and signed up Rosario Fiorello, one of Mediaset’s finest. Before the deal was done Berlusconi pleaded with Fiorello not to join “the enemy”. And if the blood wasn’t bad enough between the two camps Sky Italia showed a rather boring film in April, during Easter called Killing Silvio which depicted an attempt to kidnap the prime minister. Berlusconi’s spokesman said the purpose of the film was “instigate hatred against the prime minister.”

It wasn’t long after that stories started appearing in The Times about Noemi Letizia an 18-year-old with whom it was suggested that Berlusconi had more than a platonic relationship, and she was the reason for Mrs. Berlusconi very publicly asking for a divorce and Mr. Berlusconi saying very publicly that Mrs. Berlusconi owed him an apology for suggesting there was some hanky-panky.. All very good theater, but taken in stride by Italians who understand such things! And The Times noted Noemi called Berlusconi “papi” – did that suggest the relationship was a lot closer than anyone had thought?

The Times was said, even in these uncertain times when editorial budgets are being slashed, to have sent a second correspondent to Rome to follow-up on any further Berlusconi shenanigans that might come to light and the newspaper was not disappointed. Italian media started reporting that Berlusconi had used a military plane to ship in entertainers to his New Year’s Eve party, and then there were reports that a paparazzi had taken pictures using a very long lens of naked women at several Berlusconi parties in Sardinia but on privacy grounds Berlusconi got a court order preventing their sale in Italy although El Pais in Spain did print eight of the photos on its web site, although they really don’t show very much. The surprise here is that neither The Sun nor The News of the World have done likewise – does that mean there is meat in European privacy law?

But was that a misuse of government funds to use a military plane for such purposes? The Italian ANSA agency’s report of that is a delight. “Opposition politicians continued to rail against the premier with former graft buster and Italy of Values (opposition) leader Antonio Di Pietro criticizing ‘the use and abuse of military airplanes and pilots trained like in Top Gun at a cost of €40-50 million a year, to transport jesters, ballerinas, minstrels, and showgirls to the villa of our very own (Emperor) Nero.’”

The agency continued, “Berlusconi hit back at accusations that he had wasted state funds, saying he paid to host foreign heads of state at the villa out of his own pocket, ‘without a single euro from the state. When there are guests I organize a dinner and put on a show with artists who certainly don’t come free, and then there are the presents; since I am a leader I don’t give scarves, but presents that cost around €10,000,’ he added.”

Berlusconi says there is a specific law that allows such use of government transport by the prime minister, but the opposition points out that law was passed three months after the event. The Rome prosecutor’s office has been asked to investigate, but Berlusconi’s people say they are confident the problem will just go away. But all great fodder for The Times’ cannons.

So with all of that going on --  and the cause was taken up by other leading European newspapers such as Die Welt in Germany, Le Figaro in France , and the Financial Times in the UK -- Berlusconi decided to lash out at his “enemy”. On a Mediaset television program he exclaimed, “I don’t want to be nasty, but the episode of VAT on Sky created a rift with Sky and Murdoch which has been followed by a series of highly critical articles about me.”

The Times naturally covered Berlusconi’s comment calling them “an attack” on the newspaper, but it gave it at least a good reason to rehash the story again.

If the purpose of all the publicity was to weaken Berlusconi at home then that seems to have failed.Berlusconi's Freedom's People party notched 35% of the electorate in the weekend’s European Parliament elections, well ahead of his center-left challengers who are still trying to figure out the best way to go after Berlusconi.

As for Murdoch, apart from embarrassing Berlusconi there’s not much that he can do to change things in Italy, even though the stakes are high.Last year Sky Italia earned some $3.22 billion while Mediaset made about $4 billion. For Berlusconi that means Murdoch is doing too well and snapping at Mediaset’s heels, so perhaps there will be more to come aimed at Sky?

Murdoch has served notice, however, to politicians around the world who cross him that his attack back does not need to emanate from within that country. He has plenty of media from the UK to Australia that can do a lot of damage if called upon.