Pay-as-you-go recharges Italian TV

With profits falling, broadcaster gets flexible

MILAN You’d expect it to be all gloom and doom at Silvio Berlusconi’s Mediaset broadcast group, which reported first-quarter profits down a headline-grabbing 50% to $82 million this month.

But there is a ray of sunshine at the Italo prime minister’s broadcast group, thanks to his son, Mediaset VP Pier Silvio. His idea of on-demand, a la carte pay TV, hatched in 2004, is helping the company fight the recession.

For a country where long-term financial commitments are an anathema and in which most people use rechargeable “top-up” cards to pay for their cell phones, his system has allowed viewers to buy access to a single soccer match with a pre-paid or rechargeable card, called a top-up card, here — without getting locked into a pay TV contract.

Sold in stores, newsstands and lottery outlets, the cards slot into an easily available $30 decoder that gives access to pay TV content.

This pay-as-you-go TV service been so successful that Mediaset intends to expand the concept — and take on incumbent paybox Sky Italia, controlled by Rupert Murdoch’s News Corp.

It will offer its own subscription system in July, with contracts as short as three months.

Subscribers can choose the basic Gallery package of six film channels, including the Disney Channel, Premium Cinema and the new Studio Gallery channel, which shows much of U’s back-catalogue, for just $8 a month. There’s also the soccer package, Calcio, showing live Champions League matches, plus the Fantasy Network package of four children’s channels.

The discount price for all three is $22 a month for the first six months. But subscribers can reduce this by picking and choosing what they want.

A Mediaset spokesman says the plan is to “retain the top-up cards for those who want them but to offer more choice in terms of subscriptions for people who want greater convenience.”

“These more flexible payments definitely appeal to Italians,” says Italo broadcast expert Fabrizio Perretti of Milan’s Bocconi Business School.

Mediaset’s revenue from top-up payments has soared to $100 million, up 64% on the first three months of 2008. It had 3.3 million active pre-pay cards in the first quarter of the year, up 14% on the quarter ending in December. It’s catching up with Sky Italia, which had 4.8 million subscribers on yearly contracts in the first quarter of this year, up 7% on the same period in 2008.

“Italians like to think that they’re in control of their spending,” says TV analyst Alessandro Bai-Badino of Deutsche Bank. “And many don’t like the idea of paying for a whole year, especially when it comes to the summer. From June to August, many of them are outside or at the beach or watching TV in bars.”

But the three-month subscription period is cunning for another reason. The commitment is short enough not to scare off customers but, say analysts, it’s long enough to protect Mediaset earnings in years like this one, when interest in the soccer league waned after Inter Milan dominated play, beating Berlusconi’s AC Milan. Even Il Cavaliere, as the media mogul is known here, can’t win them all.

However, he certainly seems to be closing the gap with Murdoch’s satcaster in the pay TV stakes.

Italo punters buying digital-ready TVs will be given tempting free introductory Mediaset Premium cards to stick into their decoders as the country goes digital.

In addition, antiquated competition laws dictate that Sky Italia, which once had the pay TV monopoly, is limited to two-year films deals.

Mediaset can buy the rights to broadcast blockbusters for up to four years and advertise them for next to nothing on its widely watched terrestrial channels, Perretti says.

Sky Italia must buy up expensive advertising time on terrestrial webs to tubthump its service.

However, it has a much wider offering, at 168 channels.

A Sky Italia spokesman noted, too, that customers are now able to cancel their annual subscriptions by giving one month’s notice.