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18 April 2019

Sky Italia’s Mediaset pay TV purchase surprisingly blocked

Comcast’s absorption of Sky has met a little local difficulty in Italy where the regulator has unexpectedly blocked the acquisition of broadcaster Mediaset’s pay TV services and technology unit R2. This coincides with Mediaset being pre-occupied by considerations over possible cross-border alliances as part of a wider consolidation among European broadcasters driven ultimately by the Netflix phenomenon.

It had looked a done deal in December 2018 when Mediaset announced an agreement to sell 100% of R2, the company controlling the infrastructure for its pay TV service Mediaset Premium, to Sky Italia. This would allow Mediaset to retain control of its premium channels and continue managing the Mediaset Premium customer base. The stage had been set in April 2018 by a wider ranging deal between Mediaset and Sky where the latter would make Mediaset Premium channels as well as VoD content available to its satellite customers. The pair would collaborate closely over DTT transmission and create a combined DTT offering.

The deal included an option for Mediaset to sell its pay TV platform to Sky. This was expected to proceed following Mediaset’s failure to secure premium Serie A football rights, which instead went to Sky. Mediaset would then be left to focus on supplying its premium channels, but now the regulator appears to have ruled that Sky would be left too dominant or, at any rate, has imposed some conditions that the parties do not like. Both broadcasters have confirmed the decision not to go-ahead with the deal as a result of investigation by the Italian Antitrust Authority.

Certainly Sky Italia has strengthened its stranglehold on the country’s pay TV market with almost 80% or 4.8 million subscribers, according to communications authority Agcom. This follows the acquisition of Serie A football rights to broadcast 266 matches in Italy every season, or seven out of 10 Serie A games being played on a given day, for the three seasons 2018/2019 to 2020/2021, costing around €1.5 billion in TV rights over the period – with the precise figure depending on viewer numbers. Revenues for the year ending June 30 were up 3.8% on the previous year, while profits more than doubled from €41.6 million to almost €100 million, despite the outlay on rights.

On the face of it, this volte face on the sale to Sky has little to do with Mediaset’s grand ambitions to be a pivotal force in a pan European alliance involving some mergers as well as close collaborations. But Mediaset’s CEO, the former Italian president Pier Silvio Berlusconi, had earlier confirmed that Mediaset would go ahead and exercise its option to sell the R2 platform to Sky in the same breath as pointing towards a broader pan-European alliance or even consolidation. In this context R2 was seen as dead wood that might as well be cashed in.

This was all part of Mediaset’s so called “London plan” with the aim of creating a pan-European broadcaster to fend off competition not just from the online giants such as Netflix but even more so traditional rivals, especially the hated Vivendi from France. The London plan entailed building in the first instance a southern European powerhouse to resist the online invasion which began with an alliance with Vivendi involving the sale of the whole of its pay TV unit to the French media group. But this fell through and culminated in a bitter court battle, leaving Mediaset to pick up the pieces of its plan to realign around content and third distribution rather than direct pay TV subscriptions.

This led to the content-sharing deal with Sky Italia in March 2018 followed two months later by a contract with Telecom Italia to give the phone group’s customers access to its free-to-air channels from January 2019. Now Berlusconi has confirmed talks are under way with Netflix over possible content sale deals, following the lead of other broadcasters and operators.

Meanwhile, Mediaset has been forced to deny rumors it is holding talks with German broadcaster ProSiebenSat. about a possible merger, after its chairman Fedele Confalonieri had admitted a cross-border deal was still being studied. There have also been reports it will consolidate ownership of its Spanish operation as a first step towards this elusive pan-European broadcasting powerhouse.

It is definitely true that ProSiebenSat.1, Mediaset, the UK’s Channel 4, Greece’s Antenna Group, Portugal’s Impresa Group and TVN Discovery Poland have reiterated their commitment to use the European Media Alliance (EMA) as a platform for joint initiatives in video streaming, technology, and monetization. As Max Conze, CEO of ProSiebenSat.1, put it, “We all fundamentally believe that by international cooperation, we will obtain a competitive edge in our local markets. That is why we are now sending a strong signal of unity in addressing the most pressing issues our industry is facing. Together, we reach over 550 million possible viewers and users across Europe, leaving us with a perfect basis to scale our existing offerings and to leverage our innovative power.”

That sounds pretty close to a manifesto for an alliance and given the scale of the forces ranging against them, it looks only a matter of time before the EMA becomes more tightly integrated.