Despite Silvio Berlusconi's Ouster, Mediaset Rides
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But with Teflon Don’s armor pierced, the net faces a more competitive climate

As Silvio Berlusconi faces a likely acceleration of his ongoing political demise, his Mediaset TV empire looks to be on the comeback trail. But without its leader in a position of political influence, the financial fortunes of Italy’s top commercial broadcaster may face an eventual downturn.

Berlusconi was expelled from the Italian Senate on Nov. 27 after being convicted of tax fraud in August in a case pertaining to Mediaset’s dealings with Hollywood. Italian law prevents the 77-year-old three-time prime minister, who dominated the country for nearly two decades, from holding or running for public office for six years.

During his time in power, Berlusconi appointees stunted the growth of pubcaster RAI, Mediaset’s main rival. He hampered feevee competitor Sky Italia by saddling it with a value-added tax hike.

Still, though he is out of parliament, Berlusconi remains in politics as head of his just-relaunched Forza Italia party, now among the opposition.

Since the start of 2013, Mediaset stock has more than doubled in value, due to an upbeat outlook for TV ad growth in Italy and Spain in 2014-15. Credit Suisse has forecast a 6.5% ad revenue increase in Italy in 2014, following several years of double-digit drops and an escalating economic crisis that forced Berlusconi to resign as prime minister in 2011.

On Nov. 12, with Berlusconi’s expected ouster in the offing, Mediaset posted a net $36.3 million loss in the first nine months of 2013, due to Italy’s still-depressed ad market. Those results were significantly better than expected, thanks to draconian cost-cutting at the media conglom, and the fact that ad spending is already on the uptick in Spain, where Mediaset Espana is a major player.

In Italy, Mediaset commands a whopping 62% share of the country’s TV ad market, despite the fact that it goes neck-and-neck in the ratings with pubcaster RAI, its main free-to-air rival.

This huge piece of the ad pie has been the cornerstone of Mediaset’s growth. But without Berlusconi’s political clout, competition from pubcaster RAI, which had been controlled by Berlusconi ministers, could increase in coming years, as could requirements that Mediaset share more of its revs.

“I think it’s inevitable that going forward, there is going to be mounting pressure to modify Italy’s TV regulatory framework quite radically to take away part of the €1.7 billion ($2.3 billion) that Mediaset currently reaps from advertising, and redistribute it elsewhere,” predicts Claudio Aspesi, an analyst at Sanford C. Bernstein.

In fact, Mediaset’s share has already started to shrink. As Aspesi points out, the Mario Monti government that succeeded Berlusconi in 2011 appointed new RAI management. The pubcaster immediately became more aggressive, offering discounts to advertisers in pursuit of a greater market share. Indeed, RAI’s gains impacted Mediaset’s 2012 balance sheet, with Mediaset reporting its first annual loss since going public in 1996.

Aspesi cautions that wide-ranging short-term changes in Italy’s media landscape are unlikely. “Berlusconi’s influence certainly hasn’t evaporated overnight,” he says.

But Mediaset is expected to become more vulnerable in the pay TV field, where its Premium DTT paybox service is already struggling against Rupert Murdoch’s Sky Italia, which has been freed from the cloud of deliberately adverse legislation. In fact, the fundamental issue Italy now needs to face is the continued absence of a conflict of interest law that allowed Berlusconi to go into politics in the first place without placing Mediaset in a blind trust.

“The Berlusconi era will only end when his friends and enemies decide to put basic democratic rules back on the agenda,” read a recent Corriere della Sera editorial by author Francesco Piccolo, who penned the screenplay for helmer Nanni Moretti’s quasi prophetic anti-Berlusconi pic “The Caiman.”

“His era may really be about to end, but the conditions for another man like Berlusconi to come along are still there,” Piccolo wrote. “And this is one thing that we could not blame on him.”

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