It’s Payback Time As The New Italian Government Tries To Cut Away At The Meat of Silvio Berlusconi’s Mediaset TV Empire Via A Proposed Bill That Mediaset’s Chairman Says Will Cause “Devastating Damage”

Under a new law being proposed to Parliament, Mediaset and the state-owned RAI broadcaster will be made to each move one of their three networks from the analog platform to digital by 2009.

The government says the idea is to free those analog licenses for competition, but Fedele Confalonieri, Mediaset chairman, sees it quite differently, calling it an act of “political vengeance.”

“A quarter of our revenue will fade away, plus our third channel will go digital,” Confalonieri complained to journalists this week.

As for RAI, which always has had terrible red ink problem, Berlusconi tried to privatize it a couple of years back, and during that period the red ink magically turned black. Prodi opposed the privatization, rather wanting to see RAI split into two entities – commercial and public broadcaster – and when the Berlusconi government saw that privatization wasn’t going anywhere the black ink suddenly turned very red again.

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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
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.

Berlusconi’s Disregard of the Italian TV Election Laws Nearly Won Him A Major Upset When He Should Have Lost Big, But Post Election He Got The Good News The Anti Trust Authority Cleared The €200 Million In State Subsidies For DTT Desktop Boxes, Distributed By His Brother, Necessary For His Mediaset Empire To Get Digital Broadcasts Going
If there is any doubt that Silvio Berlusconi knows how to work the media you simply have to look at his tactics during the recent election. Starting the unofficial campaign some eight points down he lost by just one-tenth of one per cent. It was a classic lesson in how to use the media.

What Is So Delicious About What Silvio Berlusconi Does Is That He Is So Blatant, So “In Your Face.” He Knows It. The Italians Know It. And He Gets Away With It.
If you’re prime minister of Italy facing a general election in April, and you’re behind in the polls you’d want to get as much positive television exposure as possible in the weeks leading up to the election. Right? Especially if you control one way or the other some 90% of Italian television! But you know that once Parliament is dissolved there are very tough rules in Italy equalizing television exposure time for candidates, and banning political adverts. So what do you do?

Italian Football Score: Berlusconi 1 Murdoch 0
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.

MediaSet and RAI together have about 90% of Italy’s television advertising market, 85% of the audience, and 90% of broadcasting frequencies. The Prodi government is anxious that two of RAI’s channels revert back to being supported just by the license fee, and that only a third channel will be advertising supported. RAI currently earns about 50% of its income from advertising and that is expected under the reforms to drop to around 33%.

The idea is that RAI’s advertising loss will be the gain of the new competitors coming into the market. To further protect the new entrants, both MediaSet and RAI will be capped at a 45% share of the television advertising market. RAI, with its one proposed advertising channel probably couldn’t get there, but Mediaset could probably surpass that, but the new law won’t let them.

Mediaset estimates if all the changes went through it would cost it around €400 million.

As Prime Minister, Berlusconi had Parliament approve subsidies for desktop decoders needed to get viewers for Italy’s fledgling digital service. Naturally those subsidies, which covered more than half the cost of the decoder, helped Mediaset get audience for its digital platforms. Also as Prime Minister, Berlusconi arranged secretly for the sale of the top Italian football games to be televised on the digital platform, and Mediaset gobbled up those rights before Sky Italia, holder of the exclusive satellite rights, even knew what was happening.

All of that made for an interesting relationship between Berlusconi, Italy’s richest man, and Rupert Murdoch, probably the world’s most powerful media baron.

When News Corp bought Sky Italia, it already had under a very expensive contract the main Italian soccer league games . In football-mad Italy coverage of those games added viewers, but Sky still operated under large losses until just this year. The last thing Murdoch needed then was for Berlusconi to arrange, at a cost far less than Sky was paying, digital rights to those same teams.

Sky sold football by a monthly package. Mediaset decided to do it on an a la carte basis for each game at around €3 a game. Would viewers desert the expensive Sky package for the game-by-game payment option. Seems not, but it was a trying time for Sky.

Sky was not enamored that the desktop subsidies were directly aimed at improving the audience of a competing TV platform – digital – and therefore it complained to the Italian competition authorities and also to the EU. The Italian competition authority just a few days after Berlusconi lost the election ruled the decoder subsidies were proper because they were applicable to all digital services, not just Mediaset, although Mediaset benefited by far the most. The EU has yet to make its ruling although Brussels is known for not liking government subsidies.

Prodi says his government opposes the desktop decoder subsidies but he would like to promote the digital platform so in a clever switch he has thrown support behind granting a €200 tax deduction to anyone who buys a new television set with the decoder integrated.

Berlusconi has always been wary of Murdoch. When the RAI privatization was announced one of the rules was that no one entity could buy more than 1% of RAI, and that was seen at the time as ensuring that Murdoch did not make a play.

So with that history the government is also making clear that it has no problem if Sky Italia enters the digital TV field, too, and becomes a prime Mediaset competitor. Current Italian anti-trust law (guess who got it passed) restricts Sky just to satellite broadcasting, but Sky is appealing that, too, to the EU.

Digital currently penetrates about 30% of Italian households, but by 2008 that figure is expected to reach at least 60%. And if Murdoch did enter the digital market, and if his Sky channels were to benefit financially from the new law (IT Media says Sky could benefit by €28 million Euros annually) then it could well be that Murdoch gets his own back on Berlusconi, and then some.

Berlusconi lost political office in April, and everything seems to have gone downhill ever since. None of this has done his health any good, and although he doesn’t look 70 years old, it all started catching up with him Sunday night when his blood pressure suddenly dropped dramatically while he was giving a speech being covered on live TV. He lost consciousness, collapsing into the arms of his bodyguards and personal doctor. He spent a couple of days in hospital for cardiac tests, and he has now returned home.

The trials and tribulations of a powerful media boss and politician still go on, however – he is due in a court on Friday where he is fighting fraud charges.