Pier Silvio Berlusconi: His Plans, Strategy

By Dom Serafini

If old timers do not recognize Mediaset's executive lineup any more, it is because Pier Silvio Berlusconi, the 34-year-old second-born son of TV pioneer and Italy's Prime Minister, Silvio Berlusconi, decided to put his own stamp on the multinational entertainment group. Even before he made his mark on programming, he succeeded in replacing the old guard with executives attuned to his views.

The new Berlusconi on the TV scene has a clear picture of his key objectives and he's forceful in implementing them: To guarantee high returns to Mediaset's shareholders, while creating a "compact company climate with a strong team spirit." To give you a better idea, he said, "Our philosophy is 'three networks: one TV.'"

Currently, according to Berlusconi, Mediaset "is the European broadcaster with the highest returns, even in the difficult economic environment of the past two years, and it will be more when the market will improve."

But how did the young Berlusconi sweep through a 15 billion euro conglom that, in addition to Italy's three major TV networks, now controls 52 percent of Spain's Telecinco?

In 1992, Pier Silvio Berlusconi entered Mediaset via its ad rep, Publitalia. Subsequently, he moved on to Italia-1, Mediaset's second national TV network and, in 1995, assumed roles in all three of the group's networks: Canale 5, the flagship web; Italia-1; and Rete-4, including (by the following year) their program scheduling. Since 2000 he has been vice president of Mediaset Group and president of R.T.I., the conglom's fully owned sub-holding that comprises all TV businesses and Internet activities.

Pier Silvio Berlusconi is also a board member of Fininvest, a private group that is headed by his older sister Maria Elvira (Marina) Berlusconi. This investment group, which owns 48.6 percent of the publicly traded Mediaset -- on the Milan stock exchange since 1996 -- is 96 percent controlled by the Berlusconi family. Fininvest also owns film company Medusa, soccer club A.C. Milan, insurance group Mediolanum, 51 percent of home video chain Blockbuster (with Viacom), and 50.3 percent of Italy's largest publishing company, Mondadori, which is headed by 37-year-old Marina Berlusconi.

According to published reports, Fininvest's net revenues in 2001 were 2,432 million euro, providing a 77 million euro profit after taxes.

This is the first interview that Pier Silvio Berlusconi has given to an international publication, perhaps indicating the start of a more prominent participation on the world stage?

Not really. "We're a well structured group with managers well qualified to follow these types of activities. For a company like ours, it would be a sign of weakness to ask its top executive to be very visible in order to increase its credibility. My international encounters do not take place in the spotlight."

Clearly, there is a big difference in outlook between the founding father and the second generation broadcaster.

So, in what terms do you think?

"In our business we think by seasons for the two main schedules: spring and fall, plus summer and Christmas holidays. We plan each season six months in advance, while program acquisition requires a three-year or even five-year outlook."

Can you outline your programming costs?
"In 2002, 55 percent of our programming investment was for acquisitions and 45 percent was for local productions. In 2003 our TV rights investment is budgeted at 600 million euro, 50 million euro less than in 2002."

Are you cutting star salaries by 50 percent?

"No one has ever indicated that. Naturally, for every new contract negotiation, we start from the concept that costs do not have to increase and our artists understand that. In the few cases that we weren't able to reach an agreement, the talent was replaced with other, less expensive talent who delivered better ratings."

Nevertheless, due to better cooperation between Mediaset and RAI, the bidding wars for stars and program acquisition is said to be a thing of the past, with enormous savings for both organizations.

Are you willing to talk about specific financial information?
Not a chance. "For strategic reasons we do not divulge financial figures divided by single networks." Another departure from the style of his father who, when VideoAge first interviewed him in 1981, was even willing to set up a meeting with his financial advisors to obtain more information for the privately held Fininvest.

According to the young Berlusconi, in 2002, Mediaset's three networks generated 2,431.8 million euro, the same as 2000 and 2001. In 2001, the group's net profits were 248.4 million euro, but its net financial position showed a 247.8 million euro deficit compared to a 125.3 million euro surplus in 2000, a result of financial investment and rights acquisitions. Starting with the 2003 financial report, Mediaset will consolidate Telecinco's operations, which, in 2001, consisted of net revenues of 556 million euro and net profits of 112.1 million euro.

Considering Mediaset's record ratings, is it true that your networks were instructed to be less aggressive so as not to embarrass RAI and your Prime Minister father, who indirectly influences RAI?
"If only it were true.... We are a commercial enterprise and with such a weak advertising market our managers are instructed to win the largest possible audiences so that costs are lower than the advertising revenues generated by the programs.... For the last two years, Canale 5 has been Italy's top-rated network. In the first three months of 2003, it has further increased its lead from RAI-1, the state broadcaster's first network. Canale 5 wins six primetimes per week over RAI-1."

In what direction are your programs going?
We're very satisfied with our mix, which was fine-tuned in the last few years -- a general interests mix. But, besides the viewership, every program that we broadcast has to guarantee a positive margin between costs and ad revenues. For this reason, we have to contain the costs of dramas."

Among his friends, Pier Silvio is nicknamed "Dudi." It is said that he goes to his office in the networks' studios in Cologno Monzese, outside Milan, at 9:30 a.m. where he stays until 10 p.m., breaking only for lunch with his close advisors, who include Alessandro Salem and Niccoló Querci.

Some of his executives report that he likes to get involved in everything, down to what the logos look like. Although single, he has a 13 year-old daughter who's not in the spotlight and about whom little is known.

Many of his father's old friends now complain that Pier Silvio has not encouraged their access to him. Apparently, the young Berlusconi is not afraid to square off even with talent and executives who had his father's strong backing. Much has been made of his dispute with Maurizio Costanzo, a powerful but calcified host-producer, and Enrico Mentana, the volatile and self-centered anchorman and news director of Canale 5.

In the case of Costanzo, Pier Silvio succeeded in doing what former Canale 5 president, the well regarded Giampaolo Sodano, could not achieve. After a power struggle with the "old guard," who sided with Costanzo, Sodano resigned and Costanzo briefly took over as head of Canale 5 and MediaTrade, then Mediaset's production and distribution arm. Despite his firm stand where financial matters are concerned, it is said that the young Berlusconi is often star-struck and that he really admires his TV personalities.

But even before he started putting his stamp on Mediaset, Pier Silvio had his voice heard when, allied with his sister Marina, he twice derailed the sale -- the last time of up to 30 percent -- of Mediaset to Rupert Murdoch's News Corp.

Nevertheless, Pier Silvio will soon have to deal with Murdoch and his deputy COO, 31-year-old son Lachlan, when News Corp. re-launches the recently acquired Tele Piú (satellite) and Stream (cable TV) pay-TV services as Sky Italia, with an enhanced digital platform including an Italian-language 24-hour news service.

According to analysts, Murdoch's strategy in Italy is to first increase the current 2.2 million legal subscribers by converting into paying customers at least three million TV households that now pirate the satellite signals. Eventually, Sky Italia aims to bring the number of satellite dishes in the country to seven million from the currently estimated six million. To Berlusconi, this could represent an audience loss of about 10 percent average (26 percent of the Sky Italia universe), considering that in the U.K., Murdoch's B-SkyB is taking up to 22 percent of the audience from terrestrial TV networks. In addition, 12 percent of B-SkyB's revenues come from advertising, which for Berlusconi could mean a larger ad time inventory inflating the Italian market -- Mediaset currently puts on the market 360,000 seconds of ad time per week and RAI 72,000 -- and generating lower ad rates. Another risk could come if Murdoch starts bidding for top Italian stars -- an action considered unlikely since Italian viewers are said to be willing to pay for a TV subscription or PPV-VOD service only for soccer games.

For Berlusconi, Murdoch's triple challenge (audience loss, reduced ad revenues and lower ad rates) could be partially resolved if Mediaset's ad rep, Publitalia, would handle the advertising sales, thus collecting 30 percent between commissions and fees and, therefore, protecting Mediaset even on Murdoch's upside.

However, Pier Silvio Berlusconi downplayed the whole scenario: "It is difficult to make predictions on the evolution of the Sky Italia market shares. It seems that the estimates publicized by Sky Italia are lower than those mentioned [above]. As far as Publitalia is concerned, at the moment the law prohibits us to sale advertising for Sky Italia."

But Murdoch is not Pier Silvio's only challenge: he has to deal with the digital TV revolution, with Rete-4 at risk of being stripped of its terrestrial frequencies, as well as the re-launching of international program sales and the launching of Mediaset International's TV services.

The increased presence at trade shows, including the L.A. Screenings, of MediaTrade -- Mediaset's program sales arm that will soon be replaced by the R.T.I. brand -- is a clear indication of the group's move into international sales, handled until recently by Germany's Beta.

Combining the strength of Mediaset's Telecinco in Spain and Italy's influence in South America, one could envision a renewed thrust in Latin American co-production and program sales.

"Our objective," said Berlusconi, "is to exploit our program rights to the maximum, well aware that our content cannot be comparable to the American."

In regard to the wider global plans for Mediaset International, there is a second, but not yet approved, attempt at developing a worldwide TV satellite channel for Italians living abroad consisting of the best of Mediaset's three terrestrial TV networks, plus library material.

"Having profitability as our only objective, we'll be ready to launch an international channel as soon as the revenue feasibility will be comparable with costs. Until then, the project stays in the drawers."

Besides the economic gain, the allure of reaching the Italian diaspora lies in their ability to vote in the mother country's parliamentary elections. The service is likely to be headed by Mediaset veterans Carlo Vetrugno and Silvio Carini. Once it receives the go-ahead, it is possible that instead of competing with the well established RAI International, Mediaset International would ride on the same platform, offering subscribers a better value for their money. On this aspect, as not to leave any stone unturned, Mediaset International is reportedly in negotiations with Echo Star, RAI International's U.S. satellite platform; the Australian-based TARBS; and Corus' TeleLatino of Canada. TARBS is the distributor of eight Italian satellite TV channels in Australia, including the Vatican's TelePace, RAI International and Italian Network News. This latter service will be phased out once Sky Italia begins its news channel service.

RAI International's recent reorganization could offer a clue to Mediaset International's future plans. The eight-year-old RAI International has been spun-off from RAI into a majority-owned RAI corporation with investors that could include sheik Saleh Kamel's Dallah Al Baraka of Saudi Arabia. Sheik Saleh is the exclusive distributor of RAI International in the Americas. Another Saudi, investor Al Waleed bin Talal, owns 2.6 percent of Mediaset and five percent of News Corp.

And it is with prince Al Waleed that Mediaset and News Corp.'s interests could, once again, intertwine. Murdoch, besides approaching RAI International, could well ask Pier Silvio to have his Mediaset International carried on his worldwide satellite platforms (B-SkyB, Star-TV, J-SkyB, Sky Brazil, etc.).

In addition, one of RAI International's board members is Debora Bergamini, Silvio Berlusconi's former personal assistant, and Sky Italia is the platform for the seven RAI Sat thematic channels. To head the new RAI International is Carlo Sartori, who's also the secretary general of PrixItalia.

Another of Pier Silvio Berlusconi's challenges is to fend off political and institutional efforts to have one of Mediaset's TV networks, Rete-4, turned into a satellite service in order to liberate its terrestrial frequencies, which were previously allocated mainly to Europa 7, a TV network that has a license but no frequencies to transmit with.

This is because, according to a controversial law, RAI and Mediaset cannot control more than 20 percent of the total national TV networks. Under this law, now in the arduous process of being rescinded, RAI has to convert its RAI-3 TV channel into a non-commercial network.

One solution, advocated by some analysts, is to convert Rete-4 into a multiplex for 5 digital TV channels.

This move would achieve several goals:

1) Keep Rete-4's terrestrial frequencies, since there is pressure from all sides to bring Italy into the digital era, starting with digital terrestrial television. This a real challenge for the sector because there are no frequencies available for the digital transition. According to journalist Marco Mele of the Italian financial daily Il Sole 24 Ore, Mediaset has allocated 100 million euro for digital TV, including the acquisition of TV frequencies from other licensees. Reportedly, to cover 90 percent of the Italian territory, 1,100 frequencies are needed for transmitters and repeaters. Mele reported that the cost per frequency can reach as high as 1.5 euro per viewer served in regions like Lombardy and Ligury. Under these circumstances, the cost for the frequency to set up a national multiplex is estimated at 65 million to 75 million euro, a sum that Mediaset would be saving.

This is also the sum that Murdoch would be expecting for each of his two Italian terrestrial analog TV networks that came with the Tele Piú and Stream merge -- Tele Piú-Bianco and Tele Piú-Nero -- which have to be sold off in accordance with the approval for Sky Italia.

2) Save an estimated 250 million euro per year for programming and other Rete-4 costs.

3) Reduce the ad inventory on the market by 28 percent, therefore increasing the rate cards by an estimated 15 percent. This latter increase will compensate for the estimated 270 million euro in advertising losses from Rete-4. More realistically, though, Rete-4's annual ad revenues could reach 240 million euro or 30 million euro per share point, considering that it has a daily eight percent average share, which goes down to a 6.24 percent share during primetime.

4) Generate added revenues by renting two of its multiplex channels to RAI or other national TV networks. It is pointed out as an example that, before the U.K.'s BBC moved its digital channels over to the Astra-2 satellite, it paid B-SkyB £85 million during a five-year period.

Other revenues would be expected from the use of one digital channel as a pay-service, which could also compete with Sky Italia. Finally, by having its two networks, Canale 5 and Italia-1, on the digital platform, their overall profitability could increase. As indicated by B-SkyB president Richard Freudenstein, in 2002, the U.K.'s commercial network, ITV, generated an additional £40 million in advertising revenues for merely being carried on the satellite digital platform.

However, Pier Silvio Berlusconi has a different and very clear picture: "[Italy's] Constitutional Court has ratified Rete-4's legitimacy as an analogic TV network for 2003 and even beyond if technological developments allow it to increase the number of broadcast channels. We're working in this direction: We'll develop two multiplexes for digital terrestrial TV and we'll keep all our analogic TV networks."