Berlusconi exit, harsh economy hit Mediaset, RAI as rivals loom

ROME — With Silvio Berlusconi no longer in the prime minister’s seat, a new media landscape is starting to take shape in Italy.

The changes are being prompted partly by the political shift under way after the TV tycoon-turned-pol’s resignation ended his third, and presumably last, mandate as the head of Italy’s government last year.

But those changes are also being caused by economic woes and the belated arrival in Italy of the digital era, the long-term ramifications of which are difficult to gauge, though their impact is already being felt.

As the country’s TV and film industries adapt to a scenario in which Berlusconi’s Mediaset TV empire — a symbol of the unholy mix of media and politics — and pubcaster RAI are beginning to lose their luster, the Italian film biz is being forced to wean itself off its dependence on Italy’s TV duopoly for production coin.

In early May, Mediaset posted an 85% drop in first-quarter net profit to €10.3 million ($13.4 million), with ad sales plummeting 10.2% — more than the Italian TV market’s average 6% drop during that period.

Media analyst Augusto Preta, head of ITMedia Consulting, says Mediaset’s free-to-air channels — Italia 1, Canale 5 and Rete 4 — are the hardest hit by the advertising dropoff, while its pay TV operation Mediaset Premium simply isn’t selling. “Mediaset’s business model is currently tough to sustain,” Preta says. “It’s clear things can’t stay where they are.”

Amid increased competition from Rupert Murdoch’s paybox satcaster Sky Italia, and with smaller digital terrestrial TV players surfacing, Mediaset is implementing a $325 million three-year cost-cutting plan.

Echoes of these cuts reverberated at the Cannes Film Festival, where Medusa, Mediaset’s film unit, was noticeably retrenching. On the Croisette, Mediaset/Medusa also came under fire from Riccardo Tozzi, head of Italy’s motion picture association, Anica, who lamented that, “After cutting €100 million ($125 million) for TV fiction this year, Mediaset’s film investments are grinding to a halt.”

Medusa has reduced its movie production and acquisition budget by 20%, to $70 million, for 2012.

Tozzi, a former Mediaset exec who now runs production company Cattleya, sees tough times ahead for the Italo film sector, since pubcaster RAI, Italy’s other big vertically integrated TV and film player, is also slashing production and acquisitions.

Ever since 1994, when Mediaset launched Medusa, prompting RAI to follow suit by setting up RAI Cinema, the two outfits have formed the cornerstone of the local film industry. Now that cornerstone is starting to crumble.

“We are going to have to find new forms of financing,” says Tozzi, who hopes the market will open up to new TV players within a drastically different scenario.

Problem is, it’s too early to speculate what that scenario might be.

But since Berlusconi resigned late last year, and with the country on the brink of bankruptcy amid swirling corruption and sex scandals, there have been several small but significant changes in the media sector that would not have happened when he was in power.

In April, the new government, headed by Mario Monti, decided to auction digital TV frequencies to open up the market, reversing the Berlusconi government’s plans to give the channels away for free, largely to incumbents, including Mediaset.

In early June, Monti picked an economist not aligned with any political party, Angelo Maria Cardani, who had served on Monti’s staff when he was European markets commissioner in Brussels, to head TV and telco regulator Agcom. Though doubts persist about its effectiveness, due to a politically influenced board, Agcom could play a key role in redefining the TV rules in Italy.

The same month, Monti cleared out the two top RAI execs, both political appointees from the Berlusconi era. He replaced them with Maria Tarantola, a former Bank of Italy exec, as the pubcaster’s prexy, and Luigi Gubitosi, a onetime CEO at mobile-phone operator Wind, as general manager.

There is hope the two outsiders will begin sweeping changes at the mammoth pubcaster, which is considered a monument to waste. Radical restructuring at RAI could certainly shake up the Italo terrestrial TV market.

Against this backdrop, Italy’s third terrestrial TV player, the much smaller broadcast channel La7, has been put up for sale by Telecom Italia. Sky Italia, Al Jazeera, Discovery Communications and Italy’s Gruppo Espresso and RCS Media Group are reportedly among potential buyers after the deadline to express preliminary interest closed June 22.

As for the new DTT licence auction, which is expected to be held in September, there are no clear indications whether Sky and Mediaset will be among bidders, or which other companies could be interested. But the sell-off is certainly a sensitive issue.

“Mediaset has proved paranoid about terrestrial licenses over the past few years, as if it wanted to lock up the market,” says Francois Godard, of Enders Analysis, noting market uncertainty didn’t prevent the launch and rise of Sky Italia.

Significantly, while Mediaset and RAI have been skimping on content lately, Sky Italia has beefed up its lineup, buying exclusive broadcast rights to Formula 1 races starting in 2013, in a deal believed to worth $81 million a year, twice the fee currently paid by RAI. Sky in June also announced that on Nov. 1, it is launching Sky Arte HD, Italy’s first channel dedicated to art and culture.

Sky Arte is touted as a showcase for Italy’s past and present heritage covering literature, photography, festivals, music, film, digital arts, graphics, painting, sculpture, design and other contempo art forms.

Its aim is to provide a media platform for artists, institutions and events, such as the Venice Art Biennale and Venice Film Festival, and to get more visibility nationally and internationally, in partnership with the world’s main art-themed TV stations.

Mediaset chairman Fedele Confalonieri was incensed by a recent Financial Times editorial in which Mediaset and RAI programs were blasted as “unimaginative,” while Murdoch’s Sky Italia was praised as Italy’s harbinger of innovation. Confalonieri slammed the FT piece for what he called “arrogance bordering on racism.”

Berlusconi, who launched commercial TV in Italy in the 1980s before going into politics in 1994, has reportedly been spending more time at the shop since his resignation, possibly trying to come up with a new game plan for the company in which he holds a 40% stake. But nobody knows what that game plan is: Mediaset, which did not respond to an interview request, is keeping mum.

“I think Mediaset will have to look to reinvent itself within the Internet world,” Preta says.

Other analysts, including Godard, simply see Mediaset’s profit margins shrinking, as competition increases, to levels in line with other European broadcasters. But they don’t expect it to attempt a radical reinvention anytime soon.

Still, the 76-year-old Berlusconi, a three time former prime minister, may have a few more surprises in store; he has recently hinted he may run for a fourth mandate in elections scheduled for spring. Though nobody expects him to win, he may remain a major player in Italian politics.

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