April 3, 2018 / 7:31 AM / 2 years ago

Italy's Mediaset starts reshaping pay-TV with Sky agreement

MILAN (Reuters) - Italy’s Mediaset has started reshaping its struggling pay-TV business after the group signed a content deal with Sky’s SKYB.L Italy unit and a source said it would not bid for Serie A soccer match broadcasting rights.

FILE PHOTO: The Mediaset tower in Cologno Monzese, near Milan, Italy, April 8, 2016. REUTERS/Stefano Rellandini/File Photo

The Milan-based TV group, controlled by former prime minister Silvio Berlusconi, started rethinking its strategy for its Premium pay-TV unit after a 2016 deal to sell it to French media giant Vivendi (VIV.PA) fell through three months later.

“As well as increasing profitability, (the deal with Sky) ends the uncertainty as to the future of Premium, which has been a significant cause of share price volatility in the past,” analysts at Berenberg said in a research note.

After the commercial accord with Sky, Mediaset is not interested in making a bid to buy the TV rights to air Italy’s top flight Serie A matches from Spain’s Mediapro, a source close to the matter told Reuters on Tuesday.

But a Mediaset spokesperson said the group was interested in the rights and would evaluate offers made by Mediapro in “an opportunistic way”. Mediapro declined to comment.

Mediaset already said it would scale down its operations away from expensive sports content after Premium had failed to make a return on its large investments for rights to air Champions League and Serie A matches and lost market share to Sky, its major competitor.

Under the deal signed with Sky Italia on Friday, nine of Mediaset’s Premium pay-TV channels will be aired on Sky Italia’s satellite platform, while Sky will be able to offer its services, including sports matches, on Premium’s digital platform.

Fabio Pavan, analyst for Mediobanca Securities, estimated Mediaset would “get fresh money from the agreement... some 60 to 70 million euros (extra revenues) per year”.

The deal also gives Mediaset the option later this year to give Sky control of a newly created company, which will hold technical, maintenance and administrative assets of Premium, potentially ridding itself of the more costly parts of the unit.

The source said Premium staff would be moved across to the new company from June and that there would be a “progressive soft migration of Premium clients towards Sky.”

Berenberg added that if Mediaset did not secure Serie A rights it would have a purely editorial role in relation to its Premium channels, producing and managing their content, and outsourcing all other services to the new company.

The market welcomed the unexpected deal, with shares in the Milan based-TV group soaring as much as 7 percent on Tuesday when stocks resumed trading after the Easter break. Shares closed up 6.43 percent.

But the accord, which demonstrates Mediaset still carving out its own deals, could isolate France’s Vivendi - which holds a stake of just under 30 percent of Mediaset and is Telecom Italia’s top shareholder.

Vivendi wants to create a European media giant to fend off rivalry from online providers such as Netflix.

It could also complicate a bitter legal war between Vivendi and Mediaset, started after the French group’s decision to walk away from the pay-TV deal the two groups had reached in 2016.

Additional reporting by Francesca Landini in Milan and Alberto Sisto in Rome; Editing by Mark Potter and Alexandra Hudson

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