ROME — Vivendi and Italy’s Silvio Berlusconi-owned Mediaset have forged a pay-TV alliance with wide-ranging implications that sees the French media giant gain control of the Italian broadcaster’s Mediaset Premium pay-TV unit within a larger plan to create a potentially formidable pan-European content platform with enough scale to compete with Murdoch’s pan-European paybox Sky and with Netflix in Southern Europe.

The pact is a key plank of the expansion being pursued by Vivendi chairman Vincent Bollore (pictured), who has a longstanding close rapport with the Berlusconi family.

It sees the two partners swap 3.5% stakes and is subject to a three month due diligence period.

“The agreement with Mediaset confirms Vivendi’s intention to build strong positions in Southern Europe, a market that shares a similar Latin culture and roots,” Vivendi said in a statement.

Mediaset’s board gave the go-ahead today during a Milan board meeting and Vivendi supervisory board in Paris has also given it the green light.

Since Vivendi’s market worth is roughly six times greater than Mediaset’s equity value, Mediaset is making up the difference by giving Vivendi an 89% stake in its pay-TV business. Mediaset Premium has an equity value that is being estimated at roughly $900 million, according to sources.

Spanish telco giant Telefonica, which owns roughly 11% of Mediaset Premium, will also sell its stake to Vivendi.

The deal was brokered by Franco-Tunisian mogul Tarak Ben Ammar, who is a member of Vivendi’s supervisory board and a friend of both Bollore and Berlusconi.

Mediaset shares rose more than 5% on the Milan stock market on Friday. They’ve dropped in value by more than 18% over the past 12 months.

The next step will be the creation of an OTT platform merging Mediaset’s now separately operated Infinity Italy and Infinity Spain services with Vivendi’s German OTT service Watchever, a Mediaset statement said.

The Mediaset statement also said the deal paves the way to create “a new European content creation major” and will see Mediaset Premium enter “a big international pay-TV network” joining Vivendi’s payboxes in France, Poland, Africa, Central America and Asia.” Vivendi’s Canal Plus pay channels have been losing money in France.

But its real significance transcends pay-TV.

“Mediaset of course is heavily invested in channels, mainly terrestrial ones. But they have Mediaset Premium and Infinity, which are effectively SVOD over-the-top players,” said Guy Bisson at London-based Ampere Analysis. “I don’t think we are talking so much about building another Sky and trying to compete. I think we are talking about: ‘Let’s monetize our production assets and access to content that will allow us to be flexible, and let’s do that using more cost-effective platforms, like OTT and SVOD.’ In this perspective, the deal with Mediaset makes sense,” he added.

Besides being Italy’s largest commercial broadcaster, Mediaset also operates Medusa Film Group, an Italian movie market leader. There is “great potential synergy between Medusa and Studiocanal,” said IHT senior analyst Tim Westcott.

Bollore recently raised Vivendi’s stake in Italian telco Telecom Italia to 24.9%, forcing its CEO Marco Patuano to resign. He replaced him with another Italian, Flavio Cattaneo, who was the top manager at mammoth Italian pubcaster RAI during the time when Silvio Berlusconi was prime minister. It is not clear what Cattaneo’s role could be in the creation of a pan-European player, but there is speculation he could play an important one.

In an interview today with Italian financial daily Sole 24 Ore, De Puyfontaine said Vivendi’s plan is to build a “Latin media group with key partners in the telco sector. “We believe that a tighter relation between telecoms and our world — where competition comes from Google, Facebook and Netflix — is the right way to success,” he said.

“It’s all about content access,” Bisson underscored. “Global rights, global licensing, is so important now, if you want to expand. The pay-TV business was notoriously geographically limited; but the game has changed so extensively in the past two years.”

Two days ago at the Mip market in Cannes Vivendi launched into a mobile/digital content production unveiling Studio Plus, an innovative production label and service making short-format premium international series for mobiles.

Mediaset Premium, which has 2 million subscribers, recently posted Euros 84 million ($95 million) in losses. Sports are its key content. In 2014 Mediaset shelled out an estimated Euros 700 million ($795 million) for exclusive rights to broadcast Champions League soccer matches that helped boost viewership, but not as much as they expected, according to analysts.

The Vivendi deal allows Mediaset, which is Italy’s a top terrestrial TV player with a substantial presence in Spain, to “concentrate on content” and “clean up its domestic balance sheet,” said Italian investment bank Mediobanca in a note prior to the pact being finalized.

Meanwhile speculation is swirling that today’s Vivendi/Mediaset pact could mark the first step of Silvio Berlusconi and his family disinvesting from the empire which the media-mogul-turned pol began building in the 1970s. While that may be premature, it’s likely Vivendi will be increasing its stake in Mediaset down the line. The deal, however, includes a lock-up period of three years during which Vivendi will not be allowed to increase its stake in Mediaset beyond 5%.

Vivendi, which is the parent company of European film-TV group Studiocanal and Universal Music Group, had previously announced its “willingness to invest in Southern Europe,” as it stated in its February 18 earnings report that revealed a $7 billion cash pile, at least up until Dec. 31.

Anticipating the deal on Thursday, Italian newspaper Il Giornale, which is owned by the Berlusconi family, called the alliance “a marriage.”

Vivendi had at one point also considered buying Rupert Murdoch’s Sky paybox, Reuters reported, saying analysts have opined it would have been be too much of a stretch for Bollore.