Company Town : <i> Signore</i> Murdoch : Why the Mogul Wants to Spend $2 Billion on Italian TV

Rupert Murdoch’s News Corp. might be willing to pay more than $2 billion for Silvio Berlusconi’s TV interests, but that has little to do with the scantily clad women who dominate the light entertainment programs on the former Italian prime minister’s networks.

The strategic worth of Europe’s second-largest private media empire--with programming best described as brassy and news standards that would embarrass even Murdoch’s infamous British tabloids--is the key to current negotiations.

Mediaset owns the three private commercial networks in Italy and holds about 45% of the television audience. It offers Murdoch the chance to buy a chunk of the Southern European media market--a region that has been under-exploited by News Corp. and most of the other major media companies.

While Murdoch has his British-focused satellite empire BSkyB, which reaches most parts of Europe and alliances, and has interests in channels in the German and French markets, the traditionally poorer Southern Europe has been beyond his reach.

Days after securing a $2-billion investment from MCI last month, news broke that Murdoch had made a $2.8-billion bid for Mediaset--the media holding company of Berlusconi’s real estate, financial services and media conglomerate Fininvest.

Murdoch has since claimed that the size of the bid “was greatly exaggerated,” but he confirmed that he hopes to buy Berlusconi’s Italian television interests by September.

Analysts say Mediaset makes sense for Murdoch’s worldwide network, particularly since the British government introduced media-ownership guidelines last week that would restrict further News Corp. television expansion in Britain.

“You can see Murdoch shading in the European map, and now he has his eye on Italy,” said Paul Styles, London-based head of media consulting at KPMG Peat Marwick.

Italy, like most of Europe, has gone from state-dominated television to a deregulated market in the past decade. While media barons such as Murdoch and Germany’s Leo Kirch have spread their wings across the Continent, private television in Italy has been beyond anyone but Berlusconi’s reach.

Berlusconi started privately owned commercial television in Italy 15 years ago with only the three state-owned channels for competition. The television market was privatized just as gross national product for Italy’s 57-million population started to grow and advertising revenues soared.

Italy’s television has always been heavily political. The top executives at the state-owned stations, Radiotelevisione Italiana 1, 2 and 3 (RAI), are replaced almost every time the government changes. During Berlusconi’s reign, he not only replaced the board of RAI but also has always had the unblinking support of his own three networks.

Indeed, the news director and the person who reads the news on Berlusconi’s women’s channel, Emilio Fede, leaves little doubt about his relationship with his boss. “For me, Silvio Berlusconi is eternal,” he said during a newscast earlier this year. “I love Silvio Berlusconi,” he added for good measure. With planned changes in media ownership laws, the pressure has grown on Berlusconi to give up control of his media interests.

Morgan Stanley was retained to shop Berlusconi’s three national Mediaset networks--Canale 5, the family entertainment network; Retequattro, the women’s channel, and Italia 1, the youth and sports network--which between them hold a 43% share of the prime-time audience.

*

The three networks employ 4,500 people, primarily in Milan, and generate advertising worth $1.77 billion annually. Mediaset also controls Pubitalia, Italy’s largest media-buying agency, which places 85% of all commercial television advertising.

Mediaset’s 1993 reports show that revenues from television were at $2.4 billion with a pretax profit of $177 million. But Mediaset has debt of about $720 million.

Berlusconi’s terrestrial television channels are powerful. Its RAI opposition has been close to bankruptcy more than once in recent years. Italy has minimal cable and satellite penetration and only one pay television channel.

Light entertainment programs on Berlusconi’s networks account for four of the Top 10 positions in a prime-time ratings survey of Italian television last year. Local versions of “The Price Is Right” and “Wheel of Fortune” are big winners, as are U.S. imports such as “Beverly Hills 90210” and “The Bold and the Beautiful.”

But the Italian penchant for game shows and variety shows is unlikely to translate outside its borders. The real content value of Mediaset for an outside purchaser is the licensing agreements and programming rights it controls. Berlusconi cornered so much of the available U.S. material in the 1980s that the market for U.S. programs in Italy has remained flat in recent years.

Murdoch would boost the Fox presence on Mediaset channels and has made clear in talks with Berlusconi that he wants complete control of Mediaset. He is confident of completing a deal regardless of the outcome of a national referendum June 11.

The referendum seeks to limit ownership of television networks to one, compared to Berlusconi’s three; to restrict the number of channels an advertising agency can sell time for, and to cut down the number of commercial breaks during feature films--all of which would affect Pubitalia and Mediaset’s television networks. But Murdoch has had remarkable success in keeping national media laws from becoming obstacles to his deal making.

The three Italian networks are a snug fit with Murdoch’s interests.

“News Corp. is one of the first truly globalized media conglomerates . . . “ KPMG Peat Marwick’s Styles said. “It can amortize the value of the company the more its distribution mechanisms are extended. It has the building blocks with the Fox Network in the U.S., BSkyB in the U.K. and Star TV in Asia.”

“The Berlusconi channels make sense,” he said.