Kate Bulkley, Media Analyst.

D-Day for Europe's media players?

By Kate Bulkley

Cable & Satellite Europe

www.informamedia.com

01 Jan 1999

The call to London's PR guru Sir Tim Bell came on Friday, November 20, 1998: Rupert Murdoch wanted a press conference the following Monday to announce his new company News Corp Europe (NCE). NCE will create, buy and manage primarily TV companies in Europe. Murdoch wanted all the European press present and was especially keen for the Italians to show - they are considered crucial to his plans.

It was a lightening strike: On Monday at 11.30 am, promptly, Murdoch and Letizia Moratti, ex-head of Italian broadcaster RAI and the chief executive of the new company, were in a garden behind the Savoy Hotel juggling a sign inscribed 'News Corp. Europe'.

Murdoch himself did not supply much detail on NCE, despite the uncharacteristic access given to the press to one of the media's biggest players. However, he had a point. After several years of vain attempts to break into pay-TV on the continent, Murdoch saw that a series of events in Italy could offer a way into the European market.

The chief TV players in the Italian market are in a position of stalemate over digital pay-TV in the country. RAI, Telecom Italia, Canal Plus-controlled Telepiu - the main pay-TV operator with 1.1 million subscribers - and Silvio Berlusconi's Mediaset, owner of the three biggest commercial broadcasters and a 10 per cent stakeholder in Telepiu, are at loggerheads. The argument centres around whether there should be one or two pay-TV platforms, and who should own them? The deadlock seemed to beg for another force and what bolder new player than Murdoch?

But, despite the optimistic plans relayed at the press conference, there are hurdles to Murdoch galvanising a second digital pay-TV platform to rival Telepiu's D+. Many Italian politicians are loath to let Murdoch in; but, Murdoch hopes that the well-connected Moratti will help ease concerns.

Adding fuel to fire, the fact that Canal Plus's Telepiu has already signed exclusive pay-TV deals with the leading Italian soccer clubs, Murdoch is likely to offer the entire Italian league more money - to the tune of about $2.5 billion - for the rights to all the matches for the next five years. He will thereby set the league's power to negotiate TV rights against individual clubs. Here again, having Moratti on his side may help: she is the sister-in-law of Massimo Moratti, the president of one of Italy's biggest teams Inter-Milan. But the Italian state may have the last word: a proposed new rule could block a single broadcaster from owning over 30 per cent of the TV rights to any sport.

Murdoch's biggest gamble, however, is with his chosen partner Telecom Italia (Telecom). Murdoch wants it to control the new company. He expects that Telecom - reeling from a management breakdown that sent its previous CEO packing last November - under its new head, Franco Bernabe, is likely to be eager to make a decision about something soon. So far, Telecom's digital TV strategy has been a loser: a mere 80,000 subscribers have signed up to cable TV venture, Stream, which is forecast to have lost up to Lira400 billion (around $200 million) in 1998.

Murdoch is offering Telecom a digital strategy on a platter. Telecom would be in control and linked with one of the world's most successful pay-TV players. But, in the days following the press conference, Bernabe decided that the deal deserved a re-think, especially concerning the money his company would be expected to spend.

Murdoch's new Euro company could be seen as a sort of D-Day for European media players. Murdoch is even employing the "soft underbelly strategy," promoted by Winston Churchill during World War Two: come in through Italy and the rest, including Europe's most lucrative media market Germany, will follow.

Certainly, the company with the most to lose from a Murdoch invasion is France's Canal Plus. Murdoch wants to make his first beachhead Italy, but the other likely targets also count Canal Plus as the dominant player: Canal Plus runs pay-TV in Spain, Scandinavia, the Benelux and Poland, not to mention France, where its main competitor is TPS, a rival digital DTH pay-TV service controlled by broadcaster TF1. Small wonder then that TF1 is a 10 per cent partner in Murdoch's planned Italian venture. It would seem only a matter of time before NCE becomes an equity partner in TPS.

NCE will likely be the new home for Murdoch's stakes in Germany's VOX, a channel owned with Bertelsmann and the Kirch Gruppe, as well as TM3, a niche broadcaster, which Murdoch says could become the basis for a package of German pay-TV channels - which with typical Murdochian sang froid, would compete with the pay-TV channels run by Kirch and Bertelsmann in Germany.

It's complexities like this that confound any true understanding of Murdoch's Euro strategy. Here's another one: In a deal dubbed 'Traviata', Murdoch and Mediaset are talking seriously about taking stakes in the cash-starved pay-TV interests of the Kirch Gruppe. Yet in Italy, Murdoch and Mediaset stand - at the time of going to press - in opposing pay-TV camps.

All this is really vintage Murdoch: try a lot of different things and see which of them works out. He's not known as the world's most aggressive and successful media baron for nothing.

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