Italian producers are up in arms after discovering that Rupert Murdoch's Sky Italia will invest far less on Italian film than the Euros 50m previously thought.

It has emerged that Italy's only pay-tv platform aims to spend a total of Euros 50m on all acquisitions from Italian distributors - including Hollywood titles - and will therefore only invest a fraction on local titles.

Sky's budget will be used to buy films from small independent distributors but also from leading Italian powerhouses Medusa, the distributor behind the Lord Of The Rings trilogy, as well as Rai's O1 Distribution, whose upcoming slate includes Martin Scorsese's The Aviator, and Eagle Pictures, which almost exclusively distributes US titles.

As a result, industry insiders estimate that only 20% of Sky Italia's budget - around Euros10m - will actually be spent on Italian film. In August, Sky had announced that it would invest Euros 50m in the Italian industry.

Several producers told that Sky was "very vague" about this investment.

Sky Italia has already heavily cut pay-tv acquisition prices. According to several sources, prices are now down by "around 50%" on prices previously paid by Telepiu.

Sky is also believed to have re-negotiated contracts which former rival pay-tv platforms Stream and Telepiu had drawn up with US studios, which run for at least 2 or 3 more years.

Angelo Barbagallo, president of Italy's national association of independent producers, API, said news of Sky Italia's intentions had begun to emerge after the company's announcement in August of a Euros 50m investment in the local industry.

"Sky has been quite open about their plans," Barbagallo said. "But it's a monopolistic situation, and they don't have any obligations. What is really scandalous, however, is that Italians and the Italian government haven't done anything about it yet."

Barbagallo points out that under Italian law, Italian broadcasters must invest 10% of their advertising revenue on acquisitions and pre-acquisitions of Italian and European titles.

However, the law, which was established in the 1990s, doesn't make any special provisions for pay-tv networks. "Under the law, pay-tv broadcasters are put in the same group as free-tv networks. But that's a huge mistake. Sky's money comes from subscribers, much more than from advertising. The law has to be modified - and what's scandalous is that this hasn't been done yet ," Barbagallo said.

Barbagallo, a partner of Nanni Moretti's Sacher Film, said API had appealed to Europe's antitrust body before it greenlit Rupert Murdoch's entry on the Italian market. However, the European watchdog said regulations governing Sky's obligation to invest in Italian film had to be made by Italian authorities.

"We don't want to be treated like a colony," Barbagallo said. "But this isn't a crusade. We want to have a friendly discussion with Sky Italia."

"Italian cinema is doing much better than in the past. But the theatrical market isn't growing, there is a crisis in free-tv investment and the home video market isn't as good as in other territories because of rampant piracy," he added. "So if we don't get pay-tv investments, it will be dramatic. Not just for the local film industry, but also for our cultural identity and for the viewer."

In the meantime, a number of Italian industry insiders were up in arms after discovering the low-down on Sky's investments. "We're extremely worried. They misled us. They're monopolists and they don't have any obligations. It's outrageous. In France Canal Plus had an obligation to support the local industry. And all this is happening at a moment when Italian cinema is catching up, and pay-tv networks should be investing," one producer said.

"I'm also completely dumbfounded by the lack of political awareness surrounding this issue," he added.

Another industry insider explained: "We were very happy about Sky Italia's entry into the Italian market. But what's really irritating is its discrimination towards Italians. They have taken advantage of us on two accounts: firstly, they realised that we didn't present a united front. When Sky came onto the market, all the Italians just decided to wait and see what would happen. We didn't come up with our own demands."

Secondly, the source said, "Sky Italia is taking advantage of our weakness. They're cutting costs by halving the prices of films they buy from us. We don't have any choice; we can't waste time in negotiations because the rights we own will expire. But they're not acting that way with the US studios. Even if they try to re-negotiate with them, the US studios can buy time."

Sky Italia did not respond to calls on Tuesday. However, during a Eurovision conference held in Rome earlier this week, Sky Italia's head of cinema, Osvaldo De Santis, did confirm that Sky would not get involved in local production. "Sky doesn't want to compete directly with productions from RAI, Mediaset, Cecchi Gori, or any other producer," he said.

Meanwhile, API Secretary General Rossella Mercurio said API is planning to discuss the issue during a conference to be held in Rome on November 20-21 on the impact of Pay-TV on the film market.