V I D E O • A G E AP R I L 2 0 1 0 34 All companies have lofty goals and strategies with which they hope to achieve them. In most countries such strategies often require that a firm borrow large sums of money to generate more revenue, or that it use its cashflow to expand via acquisitions or by leveraging buyouts. In Italy, where money is never a problem because the State guarantees financing, strategies are more complex, requiring political skills and the occasional assist from friendly countries, like Spain. The symbiosis created between Italy and Spain — notably between Italy’s Mediaset and Spain’s Telefonica, plus Spain’s Antena 3, which is owned by Grupo Planeta-De Agostini (which in turn is controlled by Italy’s De Agostini), are cases in point, but for contrasting reasons. To understand why relationships and political skills trump money in Italy, it is helpful to recall the separate attempts made by American, Mexican and French companies to purchase Telecom Italia and Alitalia. In attempting to take over Italy’s telephone company, Telecom Italia, American AT&T teamed up with Mexican billionaire Carlos Slim (the world’s third-richest person) and went to Rome in 2007 with over $6 billion seeking 18 percent of Telecom Italia. At the unfamiliar sight of all that cash on the table, the Italians basically started laughing. Ultimately, Telecom Italia was assigned by the government to a group of Italian banks and to the politically friendly Telefonica, which, in order to gain indirect control of the company, invested just $3.14 billion into Telco, a holding company that currently owns 22.4 percent of Telecom Italia. Telefonica and Telecom Italia also have a working relationship in Germany to provide triple-play (TV, data and phone) services. In the past, the owner of Telecom Italia controlled less than one percent of the company’s shares. Before Telefonica’s involvement, control of Telecom Italia had been in the hands of a group that held just 0.3 percent of the shares. The control of sensitive Italian companies often goes to groups that are well connected politically and that don’t invest any of their own money. Instead, with the support of the government, they take out bank loans to acquire control through a scheme called “Chinese boxes” (the equivalent of Russian Matryoshka dolls). In Italy, it’s possible to use this system to control a company indirectly, while owning very few direct shares. Apparently, this Italian “business model” was not taken into account by the French, when AirFrance was looking to buy Alitalia in 2008, coming in with a cash offer of $1.7 billion. The French were essentially ridiculed for using money as a bargaining tool. Eventually, the Italian airline was assigned by the government to a politically influential Italian group that took out a $580 million loan to buy it. In Italy, just using cash to buy politically sensitive companies is counterproductive, especially if the potential buyers want to use their own money, and is therefore outside of any government control. And this modus operandi extends to media as well. When an entrepreneur without strong political connections was looking to buy shares of influential Italian daily Il Corriere della Sera on the open market with cash, he was arrested on some made-up charges before he could attain more than the 14 percent stake he had already managed to acquire. Now, we move on to a more TV Spain and Italy Team Up For TV of the Future A n A n a l y s i s (Continued on Page 36) SPAIN: LAND OF OPPORTUNITY BY GIOVANNI VERLINI As the days of Spain’s economic expansion have been replaced by a time marked by deep economic recession, the country’s broadcasting sector has quickly become a hunting ground for international media groups looking to expand their reach. During 2009, which has been widely described as advertising’s worst year in living memory, the country’s TV advertising spend shrank by 23.2 percent year-on-year, to a total of 2.368 billion euro. The two leading free-to-air commercial broadcasters Telecinco and Antena 3 took a combined 51.8 per cent (26.4 per cent for the former, 25.4 per cent for the latter). The other four broadcasters were left with the remaining 48.2 per cent, with state broadcaster TVE commanding a 18.4 per cent of the total, and the other TV networks — Cuatro, Forta and La Sexta — each getting between 11 and nine percent of the ad pie. A TV market shrinking at this pace, however, cannot sustain so many independent operators, and since desperate times call for desperate measures, the Spanish government moved quickly to do all it could to revive the broadcasting sector. In February 2009 the government made the decision to lift a ban on cross-ownership among broadcasting sales reps and announced a plan to reduce advertising on state-funded TV channels. These decisions were taken as a measure of support to commercial broadcasters in a dwindling market, in the hope that they would consolidate to take advantage of economies of scale. This year, the sector is starting to see the first results, though it is foreign investors that were already present in the Spanish marketplace that are taking advantage of the relaxation of antitrust legislation — perhaps an intended consequence of the government’s decision. Italian groups such as Mediaset and De Agostini, have been among the first to spot the opportunity and move in. Despite the country’s recent economic woes, Spain remains Europe’s fifth largest economy and represents an invaluable strategic market. For a group like Mediaset, whose controlled Telecinco is on course to take over Cuatro by the third quarter of the year, Spain could become a perfect springboard for expanding into the world’s vast Spanish speaking markets. Indeed MediasetTelecinco has already made its first move in this direction. In February 2008, Telecinco completed the acquisition of a 35.08 percent stake in Pegaso Television, which has an 83.34 per cent controlling interest in Caribevision TV Network, a newly established TV channel that broadcasts to the Hispanic communities in New York, Miami and Puerto Rico. Telecinco contributes its know-how in content, advertising and management. The stated aim of Caribevision TV Network is to cover the entire East Coast of the U.S., home to what is one of the wealthiest markets in the world for Spanish-language programs. Mediaset is not the only group trying to expand its presence in the world’s Spanish market. The Italian media group De Agostini, which controls Spain’s commercial broadcaster Antena 3, has been trying to take over La Sexta and create a rival group to the Telecinco-Cuatro behemoth. At press time, however, the deal is reported to have fallen through. It is not clear as yet what could happen to La Sexta, though it seems unlikely that with just an 8.6 percent TV ad market share, the broadcaster will be able to remain independent for long. Among La Sexta’s shareholders is Mexico’s Televisa, which retains a 40 percent share in the broadcaster. Even more difficult to predict is what the future holds for Forta, the Federation of Regional Organizations of Radio and Television. The network, which groups the broadcasters from the country’s 12 autonomous regions, currently enjoys a 10.3 percent TV ad market share. Much of what happens to it will depend on the political and economic future of the regions. If it will still be able to afford to operate independently depends on whether the recession turns out to be a prolonged one or not.
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