After months of on-off talks, negotiations concerning a merger of Itlay's two pay-TV operators appear now to be in the home straight. Such a merger would be expected to have a deflationary effect on the cost of film rights in the Italian television market.

French sources close to Vivendi Universal, which controls Telepiu, said that Vivendi and News Corp, controller of rival Stream, expect to sign a letter of intent before a Vivendi board meeting next week (Apr 24).

Telecom Italia CEO, Roberto Colannino also confirmed that his company is considering withdrawing its investment from Stream, which expects to post losses of around $270 million this year. Telepiu, which is owned by Vivendi Universal and Canal Plus is expected to run up debt of more than $300 million in 2001.

Telepiu and Stream's financial woes stem from the high cost of rights to first-division soccer matches, a core programming strand. While both pay-tv operations currently have multi-year contracts with Italian clubs, a merger is expected to help lower prices that are not convered by subscribers' cash.

The path ahead is not without obstacles, however. Significantly, the arch rivals would have to seek approval from European and national antitrust authorities. A few years ago, a European watchdog blocked plans for the two companies to create a single digital platform with Rai, Mediaset and the Cecchi Gori Group, which until last year owned a stake in Stream.

Some Italian government officials have already expressed support for the merger, but the local film industry is concerned about the impact on film funding. "Soccer contracts will probably be renegotiated if there is a merger, and there could also be less money for film," says Marco Chimenz, from Rome-based Cattleya.

Others believe that the prices paid for movie pay-tv rights could also be driven down by a single platform. Currently, Telepiu is one of the biggest private investors in Italian cinema, having pledged $43m to the industry over the next couple of years.