Syndication growth, RAI's new phase, Berlusconi's IPOs.

Italin broadcasting is entering an autumn full of surprises. Following are four areas of concern:

At the October 15, 1993, board meeting, the new RAI administration will formally present its revised action plan. It is expected that a dear picture could emerge possibly by the end of this month. Meanwhile, RAI has to now devote one evening per network to culture. Reportedly, Silvio Berlusconi's networks are following the same RAI cultural outline. Conversely, RAI is to appoint a u riffled program buyer serving all three networks. a role similar to that of Daniele Lorenzano for Berlusconi. The RAI executive with similar responsibilities to this role is the well liked and respected Luigi Valentini. However. It is not dear if Valentini will eventually be appointed to these more powerful duties.

Also unclear is the fate of the three presidents of RAIs networks: the often criticized head of RAI-I Carlo Fuscagni; Glampaolo Soda no, the media darling head of RAI-2; and the brilliant but "strange" Angelo Guglielmi of RAI-3.

Meanwhile out is Giovanni Salvi, RAIs deputy president who was the bane of American distributors' existence.

Syndication

The former six ad-hoc networks (also called consortiums or circuits) have now shrunk to truce main entities: Cinquestelle, Odeon, and Italia Sette. In the process, their operations have taken the semblance of a syndication business served by four distributors: Cardinal Pictures, Doro TV, Distribution Parallele, and the large WBSD associated with Waner Bros.

According to WBSD's CFO Harco Scaffardi, the syndication ad revenues for 1993-94 (Sept. to June) are set at $188 million, expected to grow to $280 million in '94-'95 and $313 million by '95-'96. The number of TV stations capable of handling syndication is estimated at 160 throughout the country. Of these, 45 are associated with Cinquestelle, 30 with Odeon and with Italia Sette. Cinquestelle is now the only entity that connects its affiliates via satellite (Eutelsat) hookups and its programs are also furnished by RAI's Sacis.

Recently, Odeon and Cinquestelle merged to form a group called RTA, which is now taking 5 per cent of the total syndication TV audience, leaving Italia Sette with a rating of 1.3 per cent, and the other TV independent stations sharing the remaining 3.7 per cent. In effect, RTA is reaching 50 per cent of the total syndication audience. According to published reports, RTNs share of the advertising pie is expected to reach $62 million in 1994.

WBSD, however, doesn't syndicate market-by-market but rather operates on a syndication-barter deal, mainly with the RTA station group. True syndication is performed by smaller distributors who sell for cash programs to stations that cover large areas and are not associated with a consortium.

Today in Italy there are minor networks that cover a good portion of the country (Telemontecarlo, Rete A), semi-national networks (Telecapri, Music TV) and regional TV stations (Retecapri, Telelomhardia), in addition to some 140 small-town TV stations (Tele Giulianova,Isola TV).

Pay TV

Italy's PTT minister Maurizio Pagani has decreed that by 1994 Italy's Pay-TV services Tele Piu 1 and Tele Piu 2 have to be fed via cable or, as an alternative, via direct-to-home satellite. The fateofTele Piu 3 has been shortened and it soon will close down.

Unfortunately, though. Tele Piu's more suitable satellite, the Olympus, is no longer active (lost or possibly destroyed) and it is practically impossible to launch a new satellite on such short notice.

Similarly, wiring the country for cable is just as long a process, even if the domestic telephone company claims to have a large fiber-optic network already in place. Reportedly, the American AT&T is also interested in wiring the Italian peninsula for cable.

In any case, all this is getting Tele Pin in deep trouble to the point that its president Mario Zanone-Poma called minister Paganl's rule "persecutoria!". The little hope left for Tele Piu is the possibility that an existing satellite project. the SARIT. could be quickly launched if key players such as RAI, IRI. PTT, Silvio Berlusconi and others would form a consortinto, as suggested by SARITs president Andrea Pucci, to finance the $440 million project.

According to various reports, the problems of Tele Pin also stem from the widely perceived notion that it secretly belongs, and it is certainly run, by Beriusconl. On his part, Berlusconi maintains that he only has a minority interest in Tele Piu and he is collecting a management fee.

Silvio Berlusconl

One can only have admiration for the resoluteness of Silvio Berlusconi, Italy's largest private broadcaster and media magnate.

Despite all the adversities recently besieging him, few doubt that he will once again, triumph. But consider what he's wrestling with: corruption charges of close associates, two IPO's, new adverse broadcast rules, damaging reports of huge unsecured debts. potential loss of one 'IV network and loss of political support, a crumbling relationship with the Cecchi-God for the jointly owned Penta and investments in the Pay-TV service, personal attacks by sectors of the media and a running feud with RAI and with a government that wants to virtually kill Pay-TV services.

This in addition to recent limits on sponsorship costing him some $300 million a year, a nagging national recession, a recently resolved strife with ONCE, the former partner of Spain's Tele Cinco; various budget reductions, including a $13.5 million cut from his 1993 production schedule; and, most recently. allegations of improprieties while seeking to squelch a damaging book about him.

Nevertheless, he has not lost the confidence of the investment community that will finally see two subdivisions of one of Berlusconi's four sectors, go public. Berlusconi's umbrella organization, Fininvest, is involved in retailing, communications, insurance and sports. A few years ago, he divested from the construction sector which was passed on to his brother Paolo.

The communication division is divided into cinema/video. television/music, publishing and advertising. The very profitable publishing division, comprising Mondadori and Silvio Beriusconi Editore (SBF.), is first to be quoted on the Milan Stock Exchange under SBE. Up to 49 per cent of the SBE stock is expected to be floated, bringing in an estimated 5375 million.

As far as TV is concerned, Berlusconi's two-year old IPO prepared by investment company Goldman Sachs (also his current financial adviser), has now been revised under a "Big TV" banner. Apparently, the new plan has a solution to the myriad of conflicts of interests raised by the original prospectus.

According to reports, Berlusconi's new TV entity to be eventually quoted 'on the stock exchange will include his three TV networks (RTI), the advertising division (Publitalla) and a program library. This division generates an estimated 51.8 billion per year and, if all of the stock would be. floated, it could be valued at an estimated 54 billion.

It is expected that, here too, Berlusconi will keep "mathematical control" of Big TV.

Fininvest's foreign TV investments, production facilities, music labels, cinema and other related companies could also be part of this Big TV unit.

It is estimated that Fininvest's total annual revenues now reach $7 billion. and profits of $15 million. Market capitalization is set at least at 55 billion with a n estimated 53.8 billion of debt (official figures given are 52.5 billion). However, media companies tend to be evaluated by cash flow and growth potential rather than by earnings, and the Big TV division's "cash cow" is Publitalia.