BRISTOL, England — Winter is arriving in the Italian Alps, and Milan’s Silvio Scaglia is looking forward to one of his favorite diversions: uphill skiing.
It’s an apt pastime for the 46-year-old. He’s one of Europe’s new breed of rising pay TV moguls fighting against the old kings of the mountain, like satellite TV ruler Rupert Murdoch and his British BSkyB and Sky Italia operations.
Haven’t heard of Scaglia and his company, FastWeb? Murdoch sure has, and so has Italy’s other Silvio — prime minister and media magnate Silvio Berlusconi.
They’re both taking regulatory and commercial actions to slow Scaglia’s progress.
How about France’s Xavier Niel or Michael Boukobza and their company, Free? Two years ago they launched a service that was neither satellite nor cable but which has spawned imitators and prompted satellite operators who can’t beat them to join them.
What they all have in common, other than their relative obscurity, is that they are using alternative technologies like broadband Internet lines and digital airwaves to challenge costlier satellite operations and entrenched media heavies.
FastWeb and Free double as telecom companies providing Internet and phone services over the same lines that run programming to TV sets.
“More and more telco guys are getting into this game, and they are a disruptive factor, making pay TV more accessible and more competitive,” notes Charlie Davis, an analyst with London-based market research firm Ovum.
The leader of the pack is FastWeb chairman Scaglia, a man whose idea of winter fun is to forsake chair lifts in favor of trundling back up the slope, wrapping sealskins around his skis for grip. A telecom engineer by training and a former cell-phone industry exec, Scaglia started FastWeb (then called e.Biscom) in 1999 after successfully building up and leaving Italian mobile phone operator Omnitel — now part of the Vodafone empire.
With incredible timing, he raised $1.5 billion in a public stock offering on Milan’s Nuovo Mercato exchange, just before dot-coms tanked in 2000. Scaglia spent the money building a network of fast fiber lines reaching in some instances all the way to people’s homes.
He’s signed up nearly half a million subscribers to a service that also includes Internet access and phone calls. Hollywood loves him. He pays well for rights, and his videos on demand include Hollywood films, adult pics, Italian movies and archives from Italian pubcaster RAI.
Murdoch is less enamored. Earlier this year he won a court order denying FastWeb access to the Sky-owned Italian “Big Brother.”
FastWeb is challenging — the dispute centers around whether the content was covered by the European Commission’s discount mandate.
Murdoch cares because FastWeb’s success has undermined Sky Italia growth plans: Sky Italia was a year late in reaching its goal of 3 million subscribers, a number it managed to eke out only in late November. When it started operations in summer 2003 it had 2.3 million.
And Murdoch must be drooling over FastWeb’s ARPU (annual average revenue per user) of x903 ($1,200), easily one of the highest ARPUs of any TV or Internet providers in the world.
Murdoch is not the only tycoon to try to trip up Scaglia.
Berlusconi’s Mediaset TV powerhouse earlier this year jacked up the price it charges FastWeb to carry Mediaset’s three commercial stations — Canale 5, Italia 1 and Rete 4 — by 10 times, according to a person close to FastWeb.
For now, FastWeb is paying the rates, but the two sides are working out a lower price. The increase coincides with Mediaset’s own launch earlier this year of programming on Italy’s new digital terrestrial platform.
In an animated interview with Variety, 29-year-old Michael Boukobza, the chief executive of Free, proudly recalled how France’s minister of industry Patrick Devedjian recently visited Free’s Paris headquarters to help the company announce a doubling in the speed of its Internet-based TV/Net/phone service, which it sells for x30 ($40) per month.
A victorious smile filled Boukobza’s face as he mimicked the reaction of Thierry Breton, the CEO of rival France Telecom. “He called the minister and wanted to know, ‘What is this?’ ” Boukobza says, chuckling in a heavy French accent. “He said, ‘You don’t have to go to Free.’ ”
It’s a mark of Free’s impact that Breton was so upset. If not for the broadband service that Free launched in October, 2002, France Tel might not now be offering TV via broadband, which it rolled out in Lyon a year ago and in Paris last spring.
“It’s the drive of alternative carriers like Free that are causing incumbents like France Telecom to get into this,” says Susan Richardson, a market analyst with Gartner Group in London. Free’s triple play of TV, Internet and phone service also helped prompt another French telecom company, Neuf, to offer TV services last spring.
The push into TV via broadband has re-energized the pay TV industry in France, where satellite providers Canal Plus and TPS have struggled to increase subscriber numbers of late. (Canal Plus has 4.9 million subs, TPS has 1.2 million.)
In October, it launched a premium service in which subs pay an extra $20 per month for Canal Plus’ five digital channels including sports and a movies, and $15 a month for 80 channels of Canal Satellite.
Before that it offered about 100 channels, most of which are included in the $40 monthly Internet and phone fee. (It actually charges extra for about 20 of the “free” channels, ranging from a nominal 34 cents for BBC World, to $7 for the adult channel).
Channels include France TV’s 2, 3 and 5, MTV, CNN, CNBC, sports channels ESPN and Le Equip.
However, Free does not have rights to France’s popular commercial TV channels TF1 and M6. Another item missing from Free’s repertoire: video-on-demand.
Boukobza says Free will launch VOD in the first half of 2005 including a mix of Hollywood and French films.
How does a little-known alternative telecom company from Paris approach Hollywood? Boukobza isn’t saying.
Forrester’s Amsterdam-based analyst Helen Omwando doubts that all this maneuvering will pay off in the long haul. “These operations will lose money,” she says. “The costs they incur to operate are more than they get back from consumers. The economics don’t add up. It smacks of the dot-com days.”
That marks a potentially mountainous fall. But with determined moguls like Scaglia leading the way, these newcomers well might get to the top — and stay there.