News Corp is set to become the sole pay-TV operator in Italy following an agreement to buy Telepiu from Vivendi Universal's Canal Plus division for up to Euros1.5bn.
The deal, agreed in London this weekend, is expected to mean Telepiu will be merged with Stream, the smaller pay-operator that News Corp previously bought. That would eliminate costly battles for subscribers and reduce pressure to bid up sports and film rights.
Like previous attempts to bring the two platforms together, the latest proposal will also be subject to regulatory approval. But with two previous deals both collapsed and mounting losses at both companies, many observers see this as the last chance for pay-TV in Italy. Approval may hinge on who News Corp brings in as a partner.
News Corp, which operates BSkyB, Europe's pay-TV leader, says it will reduce its stake in the combined venture to 50%. This may be achieved either by Telecom Italia, its existing partner in Stream, raising its holding or by other investors being brought in.
The terms of the deal are not entirely clear. It seems that News Corp will pay Euros1bn with a further Euros500m paid as reimbursement for sports rights. Vivendi Universal says that the Euros1.5bn total includes Euros750m of debt repayment and the rest in cash. News Corp says the deal involves Euros450m will be paid on completion with the rest stretched over five years. News Corp said that the deal was struck at a value of $600 for each Telepiu's 1.5 million subscribers, the same as an earlier deal, while claimed it will be getting Euros1,000 each, a figure only achieved by including the football rights.
Also significant, the two companies agreed to call off their ongoing legal fight which has seen Vivendi Universal claim that News Corp's NDS technology subsidiary had cracked its subscriber management codes and publish them on the internet. Piracy of Canal Plus' encryption codes was at its highest in Italy.
That Vivendi Universal has had to concede so much ground - under one earlier scenario Vivendi Universal was to have bought Stream - is testimony to the growing financial and management pressures on Vivendi Universal . It says the deal will reduce its Euros17bn debts by Euros1.2bn and allow it to cash in Euros300m of receivables. In the last financial year Telepiu accounted for two thirds of the Canal Plus group's total losses, although it only represented 10% of subscribers.
The combined operation, News Corp's first major foothold in continental Europe, will have to cut costs and boost subscriptions if it is to become profitable. Analysts calculate that it needs upwards of 3.5 million subscribers to break even. That compares with the 2.35m paying customers that the two have at present (Stream has 800,000 and lost some Euros400m last year) and an estimated two million who access the signals illegally.
Potential investors include HdP/Rizzoli Corriere della Sera and the De Agostini group. But they may be wary of committing until the new operation shows signs of turning the corner financially.
The moves were also accompanied by a reshuffling of Vivendi Universal's supervisory board (see separate story).