Media giants in Italy merger talks

A new pay-TV force will be created in one of Europe's most crucial television markets if the French media company Vivendi Universal and Rupert Murdoch's News Corp go ahead with a merger of their Italian digital television units.

It would make sense for them to get together

Mike Hilton
ABN Amro analyst

Sources close to the companies say they are in advanced talks to do so, though both groups remain tight-lipped about any plans.

What is clear, say experts, is that there is no room for two pay-TV operators in Italy.

And given that both the giants are extremely hungry for a bite of the relatively undeveloped Italian pay-TV market, they will have to either work together or fight head-on.

Sensible deal

Both companies have suffered severe losses from their Stream and Telepiu pay-TV units.

Rupert Murdoch will have to inject more cash if he wants a controlling stake in a new group

A merger would make sense because both companies' losses would be reduced.

Not least because bidding wars for the rights to broadcast football matches would become a thing of the past if they were to join forces.

Vivendi's Telepiu and News Corp's Stream have both spent vast sums to try to secure such exclusive rights.

Control

"It would make sense for them to get together," said ABN Amro analyst Mike Hilton.

The real issue is whether anti-trust authorities will allow a single Italian pay-TV player

Source close to the companies

But to do so, the two companies' bosses would have to agree on how to split the market.

If this was to be done on the basis of subscriber numbers, News Corp would end up with about one third of the company with Vivendi getting two thirds.

This is unlikely to satisfy News Corp's Rupert Murdoch who is unlikely to yield control willingly to Vivendi's chief executive Jean-Marie Messier.

This could be avoided if Mr Murdoch injected about half a billion dollars to boost his share to about half.

Regulatory hurdles

"But the real issue is whether anti-trust authorities will allow a single Italian pay-TV player," said a source close to the companies.

"I can't see the regulators allowing a merger," said Mr Hilton.

"Both Stream and Telepiu launched digital services recently and to say that there isn't a big enough market for two players just doesn't fly. It's still early days and I don't think regulators will fall for that," said one analyst.

Only just over one in ten Italian homes have multi-channel TV, compared to about four in ten in the UK and many more in Scandinavia.

So even though the market is small now, it could be both huge and hugely profitable in the near future.

Telecom Italia

If a deal does go ahead, News Corp's partner in Stream, Telecom Italia, may pull out.

The telecoms group has reportedly long wished to do so in order to cut its losses.

However, Telecom Italia is not involved in any talks as yet, according to sources close to the group.