It Has Not Been A Good Three Months For Silvio Berlusconi Since He Lost The Italian Premiership: The New Government Plans To Overhaul the Media Laws That Favor His Mediaset, He Must Stand Trial For Tax Fraud, And Even a Spanish Court Is Investigating Him

Philip M Stone - July 13, 2006

Losing the Italian general elections by less than one percentage point three months ago could well cost Silvio Berlusconi dearly. Italy’s richest businessman and former prime minister has seen his Constitutional reforms that he rammed through Parliament before the election rejected in a referendum, the government says it is going to overhaul media laws that just happen to favor his Mediaset, a judge has ordered him to stand trial for tax fraud concerning alleged Mediaset financial shenanigans, and a Spanish court is looking at tax fraud concerning his holdings in Telecinco.
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That about sums it up

Not that Berlusconi is any stranger to the Italian court system. He has faced trial eight times and was found guilty three times in 1997 and 1998 for corruption, illegally financing political parties and fraud charges. But he has yet to spend a day in jail with those verdicts either overturned on appeal or made void because of the statute of limitations.

Not wanting to run foul of that time limitations law this time around, a judge has decided that Berlusconi, along with 13 others, should stand trial for tax fraud, false accounting, and misusing company assets with the trial set to begin November 21.

The basic prosecution claim is that Berlusconi’s Mediaset used offshore companies owned by the parent Finninvest to buy the rights to US movies, and then those companies sold those rights in turn to Mediaset at greatly increased prices. That resulted in Mediaset’s profits in Italy being far lower than if they had purchased the rights at the original offshore price. Lower profit in Italy meant less Italian taxes, and thus the tax fraud and money laundering charges.

Mediaset owns three national television stations and controls Spain’s Telecinco. In 2005 it posted a €603 million profit.

Now that Berlusconi’s immunity as a head of government is gone, a Spanish judge has opened proceedings investigating a €108 million alleged tax fraud in the early 1990s concerning holdings in Telecinco.

As if all that was not enough for Berlusconi, his business empire is also under attack from the government that threw him out of office.

Communications Minister Paolo Gentiloni said the new centre-left government wanted to completely overhaul Italy’s media laws, and their first target would be how sports broadcast rights were handled.

In Italy, each club negotiates separately with a broadcaster for exclusive rights to their games, depending on the platform – satellite, terrestrial or digital. What that means is that the best clubs – such as Berlusconi’s AC Milan – do very very well out of the negotiations whereas smaller clubs do very poorly. The government wants a collective form of negotiating so the monies to clubs are more even. And it wants to reduce the current three-year terms of rights contracts.

Berlusconi’s Mediaset signed contracts last year with several top football teams for an a la carte digital delivery to compete against Sky Italia’s contract for satellite broadcast. At the time of the signing there was no forewarning that digital rights were even on offer.

But what will hurt Mediaset even more is that the government says it will stop subsidizing the desktop boxes necessary to receive Mediaset’s digital service. Italian competition authorities had actually found the subsidy did not violate competition laws since any digital provider would benefit from the subsidized boxes, but in reality it was Mediaset that was making out like a bandit. Different numbers were tossed around, but it is thought the state subsidy covered at least 60% of the cost of the box, if not more.

Sky Italia still has a protest against the box subsidy before the European Union.

And if all that wasn’t bad enough, the new government says it is going to push back the date from when the country should turn all-digital. Under Berlusconi it was to have happened in 2008 – great for Mediaset and its digital platform – but the government now says it will turn off analogue somewhere between 2010 and 2012.

And ever mindful how much power Berlusconi had in the television world – besides Mediaset he also had great power over state broadcaster RAI so that it could be said he controlled some 90% of Italian television  -- the government intends to see that could never happen again.

The government is looking at splitting RAI into three -- a commercial broadcaster, a public broadcaster, and a network operator. The new government, when in opposition, had opposed Berlusconi’s plan to privatize RAI as one company – with no one entity allowed to have more than 1% of the shares (that was to stop Rupert Murdoch having any ideas) but the privatization fell apart when RAI’s finances that one moment looked fantastic soon turned to pathetic.

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How could those finances have changed so dramatically in just a few months? Here’s a simple tale of how things are done in Italy. “It was simple,” said a senior Italian media executive at the time. “When they wanted to privatize RAI the broadcaster was shown to be making big profits; when they found that privatization would run into too much trouble suddenly they presented figures showing huge losses, knowing that no investor would be interested any more. And that was the end of the privatization.”

And Berlusconi has lost out, also, over Constitutional reform. Shortly before the general election Berlusconi had rushed through Parliament a series of Constitutional reforms that gave more power to Italy’s 20 regions. In reality it meant the rich northern regions would get richer, and the poorer southern regions would do less well. Berlusconi’s major coalition partner is the Northern League that insisted on the reforms.

The problem was that the passage through Parliament just before the elections did not get the required two-thirds support so it had to go to a referendum. And the populace turned down the reforms by 62%-38%.

It seems just nothing has gone right since the election loss.

Now the guessing game being played in Italy is how long can Berlusconi remain the head of the center-right coalition? Is it the beginning of the end?

If ever there was a cat with nine lives it is Silvio Berlusconi, and no one should  count him out, yet.

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Even More Bad News for Silvio Berlusconi - July 24, 2006

Not only does former premier Silvia Berlusconi have problems from the new Italian government that seeks to weaken his dominance of private broadcasting in Italy, but now the EU has chipped in by declaring that a media law that Berlusconi had forced through Parliament on a confidence vote stifles competition and gave Berlusconi’s Mediaset an unfair advantage in expanding into digital terrestrial television.

Usually governments don’t like getting such notices from Brussels but this suits the new center-left government of Romano Prodi perfectly. Italy has two months to respond on how it will handle the EUs objections and Communications Minister Paolo Gentiloni says he aims to revise the law to provide “more pluralism and more competition.”

In two other actions, the Italian government took aim at Berlusconi’s Mediaset empire. Berlusconi had decreed that analogue transmissions would be turned off in 2006 and that suited Mediaset just fine since it had invested heavily in digital terrestrial transmissions and was helped by a Berlusconi-sponsored government subsidy on the set top boxes necessary to receive the digital signal. The new government has now decreed analogue won’t get turned off until 2012.

And the government has proposed new legislation concerning soccer television rights to ensure that all clubs share more evenly. In recent years under Berlusconi each team negotiated its own soccer TV package, and naturally the best teams got the most money – including his AC Milan -- and the unsuccessful teams got the least. Under the new bill at least 50% of money paid by media firms should be distributed equally among all the teams.