The Tipping Point

April 2009

“What are a stegosaurus and a tyrannosaurus rex doing with their heads pointed up toward the sky? They are watching the meteor that is about to crash down on them.” With this quip, Paolo Landi, a professor of marketing and communications at the Politecnico di Milano university, summarizes, with some exaggeration, the crisis affecting the two Italian media giants—RAI and Mediaset—whose general-entertainment channels, according to the professor, are “moribund dinosaurs” on the way to extinction.

The meteor is a reference to the explosive impact News Corporation’s SKY Italia satellite platform has had on the Italian TV landscape. To understand just how massive a crater SKY Italia has left in its wake, 
a little bit of background is necessary.

To begin with, everything in Italian media is tied to politics—or rather, influenced and manipulated by politics. It has been this way since Rai Uno’s first broadcast signals went out in the ’50s, transmitted by state-run RAI. And with each new network that was launched, Rai Due in the ’60s and Rai Tre in the ’70s, 
a leading political party was assigned to run the channel.

In the ’80s, when Silvio Ber-lusconi jumped into the newly deregulated TV landscape, he launched three networks of his own: Canale 5, Italia 1 and Rete 4. A savvy businessman, he tapped into advertisers’ un-met needs, as RAI at the time ran only a very limited load of commercials. Berlusconi’s lucrative advertising business sparked the ire of RAI and several factions in parliament. He survived thanks to the protection of the Socialist prime minister at the time, Bettino Craxi.

Everyone in Italy old enough to remember recalls the incident in the ’80s when politically mo-tivated judges had Canale 5’s transmitters shut down. Unfortunately, they chose the wrong evening—the megahit Dallas was on and the wives of numerous politicians, along with most of the viewing public, were outraged. So was Berlusconi, who decried the unfairness of RAI’s monopoly on Italian television.

It wasn’t long before that monopoly turned into a duopoly as RAI and Mediaset learned to coexist. Together they garnered 90 percent of the viewing and a nearly equal 
percentage of the TV-advertising pie.

Several media companies tried to squeeze in between RAI and Mediaset: Globo with Telemontecarlo, later bought by the film producer Mario Cecchi Gori and, most recently, by Telecom Italia, the current owner of the channel, which has been renamed La7. None of these iterations, however, ever obtained more than a 5-percent audience share.

The political influence on Italian television, however, continues. Berlusconi has become prime minister and therefore his government controls RAI, while Berlusconi’s family owns a controlling share of Mediaset.

MAKING WAVES

Rupert Murdoch entered the Italian market in 2002 when he bought the pay-TV platform Telepiù from Vivendi Universal. Murdoch loves nothing more than going against the grain of the establishment and in Italy he has had his hands full.

He renamed the platform SKY Italia and brought in News Corp. executive Tom Mockridge to run it. Emiliano Calemzuk, who had been in charge of the Fox channels in Latin America, was brought in to launch a bouquet in Italy and the resulting Fox International Channels Italy brought a number of innovations to Italian viewers. First, they offered the best of American series, at a time when there were few slots for acquired programming on RAI or Mediaset.

This coincided with the new golden age of American drama, which yielded hits such as Desperate Housewives, Grey’s Anatomy, Lost, 24 and more. SKY offers these series either dubbed, subtitled or in English, which has never been done before. Often, episodes air only two months after the original U.S. airdate, instead of after the usual six-month time lag.

But perhaps SKY’s biggest contribution to the Italian TV market was that it breathed new life into the stagnant independent production community, which for too many years had been at the 
mercy of only two commissioners—RAI and Mediaset. SKY, in fact, offers homegrown reality shows and series. And, more important, it offers packages of live Italian league football games, a real subscriber draw.

SKY boasts 4.7 million subscribers and 170 channels that reach an estimated 14 million viewers. When SKY launched, the Italian pay-TV market had a 2-percent audience share. Today, it has a 9.27-
percent share of the audience and continues to pull viewers away from RAI and Mediaset—in particular, young viewers, a tribute to SKY’s marketing strategy.

While RAI and Mediaset have been secure in their dominance of the market, now they are starting to take notice of SKY. They don’t like what they see—competition—and they are taking action.

Right before the Christmas season, traditionally a time when consumers acquire pay-TV packages, either for themselves or as gifts, the government (read Berlusconi) raised the value-added tax on pay-TV subscriptions to 20 percent—definitely not a helpful move for SKY.

Recently, SKY hired the popular TV entertainer Rosario Fiorello away from RAI: a sign that SKY now wants to compete head-to-head with RAI and Mediaset in the genre that has been a historic staple of Italian television—variety.

Murdoch is reportedly considering acquiring a stake in Telecom Italia, which would enable SKY’s passage to broadband, a move that has been highly successful for SKY Italia’s sister service in the U.K., BSkyB.

RAI and Mediaset, meanwhile, have announced a joint venture—a digital terrestrial service called Tivù, modeled after the U.K.’s Freeview. Pier Silvio Berlusconi, the VP of Mediaset, has announced plans to pull Mediaset’s three networks from SKY’s package and RAI has done the same.

The intent here is to cut into SKY’s subscriber base. 
Besides the live football matches, Mediaset and RAI’s free-TV channels are a major attraction for SKY’s viewers.

Naturally, these developments have generated a lot 
of coverage in the Italian press. Pier Silvio Berlusconi has tried to put SKY’s viewership into perspective, explaining that Mediaset offers free general-entertainment television, while SKY offers thematic pay-TV channels. In fact, Canale 5 gets 23 percent of the audience, while SKY’s entire bouquet reaches less than 10 percent. “SKY can be seen by 4.7 million Italian families out of a total of 24 million,” he told the Corriere della Sera. “Sometimes the elite think their own tastes and habits are the same as everyone else’s.”

What is clearly of concern to RAI and Mediaset is the financial success of SKY Italia. The satellite platform posted revenues of $3.7 billion in 2008.

For as much attention as RAI and Mediaset are paying to SKY, many in the Italian media industry are saying that the two free-TV broadcasters should instead pay greater attention to their program schedules.

MORE OF THE SAME

For years now, the two have not deviated much from tried-and-true shows and formats. The government’s delay in appointing a new board of directors at RAI has not only brought all decision-making to a halt, but has also blocked investment in production. At Mediaset, there have been similar cutbacks on production.

The only novelty of the last few years has been reality shows. Grande Fratello (Big Brother) on Canale 5 and L’Isola dei Famosi on Rai Due are perfect examples of what the Italian media calls “glocal”: shows based on international formats and cast with super-local personalities, usually chosen to reflect a cross section of the various Italian regions—the baker, the laid-off airline flight attendant and the voluptuous lap dancer on Grande Fratello 9; the transsexual former member of parliament, the starlet, the janitor and the countess who claims to be a niece of Benito Mussolini on L’Isola dei Famosi.

The love affairs, love triangles and other interactions among the contestants provide ample fodder for gossip magazines, but even major newspapers offer pages and pages of coverage to these shows. And the networks that air them offer contestants ample exposure; they appear on talk shows, creating a chain of cross-promotion and added awareness for the series.

Talent shows also work well in prime time: X Factor on Rai Due and Amici on Canale 5 appeal to young cultured viewers, a very enticing group for advertisers. The other benefit of these shows is that they supply an infinite amount of content, at a relatively low cost, to edited versions and recaps of these contests that air during the daytime.

Variety shows, however, have lost their luster and appeal, stuck in formulas from the past, not being able to adapt to changing times. The major exceptions are the mega-event shows like the singing competition Festival di Sanremo. This year in its 59th edition, the festival, which ran for four evenings, captured an average of 12 million viewers, with peaks of 70-percent audience shares.

HOME SWEET HOME

What is performing well in prime time is Italian-made homegrown drama—in the form of mini-series, TV movies and series, even though the advertising slump has forced networks to cut their production budgets.

While medical series are not doing so well, bio-pics are thriving, as witnessed by the success of Coco Chanel, Einstein and Puccini, all on RAI. Classics like Pinocchio are also holding their own, as are cop shows and comedies such as Un Medico in Famiglia, based on a Spanish format, on Rai Uno, and I Cesaroni on Canale 5. These are able to attract the whole family around the TV set.

A few U.S. series continue to do well, although they are not scoring the high ratings they did in previous seasons. House is in the lead with a 20-percent share, followed by ER, now in its last season, and then NCIS, CSI and Cold Case, which are available both on free TV and on SKY. Some American imports premiere first on SKY, as is the case with Dexter, some first on free TV, as in Cold Case, and others are shared between the two.

During daytime, what’s working best is the “cooking and crying” combo. No reference here to onions—instead this is Italian media jargon for cooking shows and talk shows that deal with social issues. La Prova del Cuoco is a hit cooking show that airs at noon on Rai Uno. Equally popular is the talk show Uomini e Donne on Canale 5. Both shows reach 20-percent shares, numbers worthy of prime time.

With nearly 200 channels, SKY Italia offers first and foremost choice. And Fox Channels Italy (FCI) has a clear goal: target underserved audience niches. The strategy has paid off. FOX launched with the SKY Italia platform in 2003. “The goal from the beginning was to build a channel completely dedicated to series, one that could offer the best in inter-national scripted series, and in particular, American series, many in their first window in the Italian market,” says Fabrizio Salini, the VP and head of entertainment at FCI. “This allowed us to go after an audience group that was not at all targeted by the free-TV networks because the offering of TV series was really limited on free TV. We built the schedule around the series, created a destination and targeted youth and young adults. This was a complete innovation for the Italian market.”

FCI management quickly took note of the positive reception FOX was getting from viewers. “Over the course of the next three years, we launched three more channels: FOXLife, FOXCrime and FX,” continues Salini. “We identified the crime genre and we built a channel around it. We identified a target audience group for FOXLife, which is for a mainly female audience. And, finally, FX is completely dedicated to a male audience. These four channels have allowed us to cover the main target groups in the Italian satellite-TV audience.”

The audience loyalty generated by American series on FOX attracted enough attention and advertising revenue to allow production of the channel’s first original series, a comedy called Boris. Not only is it popular with viewers, it was given the award of best long-running series at the RomaFictionFest.

Another original series, Taglia e Cuci, a more traditional sitcom, premieres next month, and a cutting-edge comedy will air next spring. While scripted comedies are the mainstay of the original productions on FOX, its sister channel FOXLife airs several unscripted reality and magazine shows as well as docu-soaps. And FOXCrime recently premiered the drama Donne Assassine.

What has enhanced SKY Italia’s reputation is its newscast TG24, managed by the respected journalist Emilio Carelli, who began his career as a TV journalist with Mediaset back in the ’80s. The various editions of TG24 reach an average of 2 million viewers each day.

SKY’s football offerings are extremely popular and garner the highest ratings of any program on the platform, reaching audience share peaks of 15 percent.

And, of course, the six leading free-TV networks are a big draw for SKY subscribers, and this brings us back to RAI, Mediaset and their current feud with Rupert Murdoch. Silvio Berlusconi—who effectively controls both terrestrial broadcasters—and Murdoch are both first and foremost savvy businessmen. Media insiders in Italy are convinced that they will put their disagreements aside and find a way to peacefully coexist, just as RAI and Mediaset learned how to do decades ago. It is widely believed that these modern-day dinosaurs will evolve. Who stands to benefit? Italian viewers who will continue to have choice.