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Television, Italian Style: Rupert Murdoch Learns That Prime Minister Berlusconi Is a Worthy Opponent

The Italian television business is stranger than fiction

Consider this: Your company receives about 65% of the country’s television advertising revenues. Your three terrestrial television stations have about a 45% share of viewers. You allow one of the world’s major media moguls into your market and let him buy a fledgling satellite broadcaster and turn it into a real competitor via its exclusive football rights. You break that exclusivity by getting Parliament to pass a media law allowing the top three football teams (you own one of them) to sell their home games on the new terrestrial digital platform you are building. You persuade the government to invest some €100 million (so far) to subsidize the digital decoders which viewers need to receive your digital programs. Oh, almost forgot -- you just happen to also be prime minister, which means you are the government and you have a majority in Parliament to enact whatever legislation you want.

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It doesn’t stop there. Because you run the government you get to appoint the directors to RAI, the state broadcaster which also has about 29% of the Italian television advertising business, and a 45% share of the audience. And that means together with your own television holdings you basically control the country’s terrestrial television.

And you get to oversee the 20-30% privatization of RAI due for completion before the middle of 2005, making sure, of course, there are rules in place to stop that international media mogul from getting his hands on more than 1% of the privatized company. And if that wasn’t enough you also own the country’s largest advertising company and you own a load of influential publications, and the list goes on.

Silvio Burlusconi

Meet Silvio Berlusconi, Italy’s richest entrepreneur who just happens to be Italy’s longest serving prime minister in 60 years. Via his Finninvest holding company, Berlusconi’s family controls the Mediaset empire, which, among other things, controls Italy’s top three private television stations.

The international mogul whom Berlusconi is succeeding at keeping at bay is Rupert Murdoch who had long been looking for an anchor in continental Europe to accompany his Sky satellite television and newspaper operations in the UK. Berlusconi had rebuffed Murdoch’s offer in 1998 to buy Mediaset for $3.22 billion, so Murdoch seized an opportunity in 2002, when Vivendi Universal was in crisis, to buy 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 again at the end of 2004 that Murdoch wanted to buy Mediaset, but Berlusconi, in a year-end news conference, stated, “Mediaset will stay in the family business.”

Rupert Murdoch

Murdoch knows from his UK Sky operation that to draw viewers means exclusive sports coverage, and in Italy that can only mean football. And 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 have 3 million subscribers by end of 2004, and 4 million by the end of 2005. That is thought to be on course, but what will the new digital deal mean?

According to Sky executives, they believe fans will prefer satellite delivery of all games on a contract basis, to the digital pay-per-view terrestrial network. But Mediaset has launched a unique sales campaign. Starting this week Italians can visit their local newspaper shop/kiosk or the Internet and buy pre-paid permissioning cards for between €2-€3 Euro each which they insert into their digital decoder to view the specific game bought. It could well work out less expensive than the approximate €50 a month contract to watch football on Sky.

With the government investing heavily to subsidize desktop decoders -- some 1 million are said to already be distributed and the goal is to have 2 million in Italian homes by the end of 2005 — the Mediaset campaign could have a chilling effect on Sky Italia’s fortunes. Sky still  bleeds hundreds of millions of dollars annually as it fights rampant piracy (with new decoder boxes) and spends heavily to build its subscriber base, but football is said to provide 40% of its turnover.

Mediaset paid €86 million for the digital platform rights for the next three years to air the home games of the top three Italian clubs -- Juventus, Inter Milan, and Berlusconi’s own AC Milan (the presidency of which he gave up at year-end to comply with a new law on conflict of interests. His son is expected to take over.)

But more ominous for Sky Italia is that with those digital rights Mediaset also obtained an option for the satellite, cable, and Internet rights for those teams’ home games after the 2006 –2007 season when the Sky contract ends. Will Italians still flock to satellite football if the home games of the three most important and richest teams are not on offer?  Italy aims to turn off analog television by the end of 2007.

Left out of all of this is RAI, the state broadcaster, which currently only gets to televise the international matches of the Italian national team, the Italy Cup, and a Sunday wrap-up show.

But with RAI’s upcoming partial privatization (in the H1, 2004 its profit was €82 million – it is said to be worth some €6 billion) it should be in a stronger position when it renegotiates its soccer rights later this year. But at the end of the day many observers believe that Berlusconi and Murdoch will come to some sort of agreement in carving up Italian football coverage that will leave RAI on the outside. Murdoch will not be much interested in the RAI privatization – Berlusconi took care of that by having Parliament (which since Berlusconi has a majority does what he wants) decree in the privatization legislation that no one investor may own more than 1% of RAI.

Berlusconi’s three terrestrial Mediaset television stations compete directly with RAI’s three channels. The Antitrust Authority said in early December that Mediaset and RAI were carving up the annual €4.5 billion television spend with some 65% going to Mediaset, 29% to RAI and the remaining 6% going to two smaller channels which do not televise nationally and therefore find it difficult to attract large spending advertisers. In addition RAI receives an annual television license fee of €99.50 per television household.

The Antitrust Authority raised the government’s ire by suggesting (it has little political power) that before RAI is privatized it be split into two companies – one financed by the license fee offering public service broadcasting, and the other financed by advertising revenue.

That caught the attention of Romano Prodi, the former president of the European Commission, who has returned to Italy to head the center-left coalition and to be a thorn in Berlusconi’s behind (Prodi was elected prime minister in 1996 defeating Berlusconi and the two have remained political foes). Prodi wrote a letter to the Corriere della Sera newspaper supporting the Antitrust Authority’s opinion and so RAI’s privatization has again entered the political field.

Opinion polls suggest if elections were held today that the center-left would prevail over Berlusconi’s center-right.

But for Berlusconi, who is now Italy’s longest serving leader since Mussolini, the New Year dawns bright. He has been acquitted of bribery charges that have dogged him for years, he looks younger thanks to a strict diet, hair implants and some cosmetic surgery around the eyes, and although forced to give up the presidency of his beloved Milan AC, no one doubts he will still be the power behind that thrown.

If it wasn’t only for that Italian tourist who threw his camera tripod at him, catching him behind the ear as he strolled the Piazza Navona shortly after sunset on New Years Eve. “When I saw him there greeting the crowds I couldn’t help myself,” the attacker reportedly told police.

Berlusconi’s spokesman said the premier was deeply saddened by the attack. His Forza Italia (Go Italy) party said it was the fault of the center-left because they have created an atmosphere of hate.

And so the political New Year begins. One way to judge which way the wind is blowing is to keep a close eye on the RAI privatization.

 

 

 

 


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