Italian Football Score: Berlusconi 1 Murdoch 0

Philip Stone January 31, 2005

The world’s first pay-per-football-match digital terrestrial television system, owned by Italy’s billionaire Prime Minister Silvio Berlusconi, has gotten off to a rousing start, and that’s bad news for Rupert Murdoch’s Sky Italia satellite service.
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Sky Italia has exclusive satellite rights to Italy’s top A League games through 2007, and sells those games on monthly contracts to viewers for about €47 a month, including other sports programming. Football has enabled it to grow the business by some 700,000 viewers in the past 18 months and it is fast approaching 3 million subscribers, but still loosing about €150 million a year.

But then lightning struck. Mediaset, controlled by Berlusconi’s family, made a surprise announcement late last year that it had bought the digital terrestrial rights to the home games of Italy’s top three teams, and would offer those games on a unique pay-as-you-go basis at €3 a game. The first such telecast was in January and while no official numbers are available, the word-of-mouth is that Mediaset did well.

That terrestrial deal, worth about €118 million, was done in great secrecy – Sky Italia officials allegedly didn’t know about such rights being available, let alone sold, until the Mediaset announcement. If Sky customers opt for the terrestrial football option then the Sky business plan could come to a screeching halt.

How does Sky fight back? Based on the experience in the UK with BskyB, Murdoch will do what it takes to maintain and grow his business. Free dishes, free installation, lower promotional monthly rates etc all of which will impact negatively in the short-run on the bottom line, but could help save the business.

And Sky is not amused that it paid more than three times as much for its football rights than did Mediaset, and a complaint to the EC antitrust unit could follow. Perhaps even more worrying to Murdoch is that the terrestrial deal gives Mediaset an option for satellite rights to the three teams after Sky’s contract ends with the 2006 season. Somewhere in all of this is probably a deal in the making, and they have a couple of years to work it out.

Silvio Berlusconi...smiling

Mediaset knew it had several obstacles to overcome if its infant digital platform was to be successful. It needed special programming to attract viewers but how to do that if the programming Italians crave most – their beloved football – was available only on satellite? Simple solution – let Sky have its satellite rights, which doesn’t cover terrestrial digital, and do a private deal for the digital terrestrial rights to the home games of the top three teams that attract more than 90% of Italian football viewers. The deal had to be done quietly so Murdoch could not interfere, but since Berlusconi happened to own one of the teams – Milan AC – that was not so difficult to achieve.

But even given it now had the programming, how to persuade viewers to opt for football via the digital platform instead of satellite? The answer had to be in the packaging, and Mediaset came up with its unique pay-per-view strategy of selling a card at local newsstand kiosks for €18 which, when plugged into the set-top box, permits the viewing of six games. It also has done a deal with La7, a network that had digital rights for less illustrious teams, ensuring it would have plenty of product available.

The customer now has a choice – a monthly fee by satellite or a la carte by terrestrial. The unanswered question is whether the terrestrial customers will be new customers, or they will come from Sky? If one uses the experience of low cost airlines entering a new market, the answer is probably some of both.

In building its terrestrial digital platform Mediaset had another problem to overcome -- even with good programming how do you encourage people to buy the set-top box necessary to receive the service? But that’s actually not such a problem if your patriarch also happens to be prime minister!

Thus Parliament passed legislation that all terrestrial transmissions must be digital by January 2007, and the goal is that by 2009 some 20 million households will have a digital terrestrial service.  To help achieve that, the government provided a 2004 subsidy of €72 for each of the first 720,000 digital set-top boxes sold. That subsidy has now been extended for another 1 million boxes in 2005 and means, depending on the box sold, the government pays at least 60% plus of the full purchase price.

Rupert Murdoch...not smiling

Even with that, the uptake has not been as fast as one might expect. Less than 1 million decoders have been sold. Mediaset has not said how many viewers tuned in to its telecast and media reports range from 40,000 cards sold to more than 300,000 cards sold by one major retailer. But no one is yet saying how many of those cards were actually used for the first game although the word-of-mouth is that the telecast numbers were good.  Mediaset needs about 300,000 viewers for each game at the €3 fee to breakeven.

One bright spot for Murdoch: At the moment only about 70% of Italy is covered by a terrestrial platform. Satellite still has its place.

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Murdoch and Berlusconi Meet – October 15, 2005

Oh, to have been the fly on the wall when Rupert Murdoch and Silvio Berlusconi had their two-hour lunch together last week in Rome

They would have had a lot to talk about. Their relationship soured about a year ago when Mediaset, controlled by the Berlusconi family, bought digital TV rights at a marginal fee for Italian football games and then sold the games on an a la carte basis to the public in competition to Murdoch’s Sky Italia that had paid through the nose for satellite rights and offered them only upon full subscription.

Making matters worse, the Italian government has subsidized about half the cost of the 3 million digital TV decoders now in use needed to receive the Mediaset signals. Murdoch has appealed those subsidies to the EC.

Murdoch, in Italy to introduce a new Sky Italia decoder that permits recording and storing programs, lunched with Berlusconi’s arch political rival, Romano Prodi, the day before. Prodi often appears on Sky Italia news programs.

An election must be held by May 30, 2006 and for now Prodi’s center-left coalition leads Berslusconi’s center-right coalition in the opinion polls.

Berlusconi as prime minister has great influence over state broadcaster RAI and with the Mediaset holdings he basically controls about 90% of the terrestrial Italian TV market. Perhaps as a dig at Berlusconi, Murdoch told a news conference, “I believe that in TV one is using a public license to disseminate the news and it is important that you should remain absolutely fair.”

Murdoch does not own any newspaper in Italy to serve as an editorial platform from which to blast away editorially at Berlusconi, and he said television is not the right platform for which to do that. There had been rumors that Murdoch was interested in buying an available 20.9% stake in RCS Media that publishes Corriere della Sera, but he told the Rome news conference he had no intention of doing so and had not considered it.