Market Insight

Mediaset hit by declines in Italy and Spain

March 27, 2013

Tim Westcott Tim Westcott Director, Research and Analysis, Programming

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Mediaset reported a €500m decline (12 per cent) in annual revenues last year as its advertising-funded broadcasting divisions in Italy and Spain were battered by the difficult macroeconomic climate.

In its home market of Italy, Mediaset's net advertising revenues fell 15.9 per cent to €1,985.3m, while in Spain net revenues were 12 per cent off the year before at €886.7m. Revenues for Mediaset Premium, its digital terrestrial pay TV division, fell one per cent to €518m. Other revenues - including films and TV production and distribution - fell 20 per cent.

Mediaset took a charge of €307.8m relating to impairments of its sports rights which pushed the company into the red for the first time since it went public in the 1990s. To save costs, the company has reduced its headcount by 390, with sales house Publitalia losing around 70 posts.

On a more positive note, Mediaset's main rival in Italy, Rai, has performed even worse, with ad sales revenues declining 23.5 per cent. The company also claimed it had slightly improved market share against Rai and other rivals Sky Italia and la7. Its free and pay DTT channels also increased their share of the commercial target audience in primetime from six per cent to 7.3 per cent.

Advertising in Italy remains volatile as economic and political uncertainty put a brake on advertising spend. The IHS economic forecasting unit, Global Insight, expects Italian real GDP to shrink by 1.1 per cent in 2013. Political instability around the Italian general election is another barrier to growth. Q1 2013 TV advertising  sees no improvement over Q4 2012. This is despite an early Easter which has a positive comparative effect versus 2012. We expect the quarter to close with a TV NAR decline of 17.8 per cent. Yet, the decline eases going forward and we expect Q2 to trend around -5 per cent. The uncertainty prior to the election has had a stronger impact on business confidence than the post-election political hangover. For the full year, we forecast TV NAR in Italy to decline by 4.9 per cent.

Management did not report any subscriber numbers for Mediaset Premium, but said they were flat and would remain so for the rest of the year. This is in line with our forecasts, which remain unchanged at 3.29m clients (made up of one-year subscriptions and other packages) at the end of 2012.

The day after Mediaset's results announcement, its share price increased - which might seem perverse after such lacklustre results. However, this rosy view of the business reflects hopes that when a recovery comes, Mediaset will be well placed. Apart from increasing its market share against Rai, the company has used the crisis to improve its financial position, reducing debt and slashing costs. In addition, Italy remains a fairly stable TV market with Rai and Mediaset dominating. (Spain has also consolidated with Mediaset Espana absorbing Cuatro and rival Antena 3 TV merging with la Sexta). The rationalisation of its Publitalia sales teams to sell advertising across different properties will also position the company to benefit from new media sales (although internet advertising growth slowed significantly last year).

While pay TV remains a fairly small part of Mediaset's activity, the stagnation of Mediaset Premium is clearly a disappointment. Mediaset no longer reports separate profit and loss numbers for the DTT service, but the new contract for rights to Serie A which came into effect in the second half of 2012 pushed the business further into the red, with its payments increasing from €218m a season to €268m. Wheras previously Mediaset acquired rights from football clubs direct and was able to offset costs by selling the rights to Sky Italia and other operators, it now plays a flat licence fee.

Satellite pay TV platform Sky Italia shed subscribers each quarter last year, ending 2012 with 4.83m. However, apart from a much larger customer base, the News Corp-owned platform commands much higher ARPU - €43.90 as of Q4 2012 compared to €11.46 for Mediaset Premium, according to IHS Screen Digest estimates. Mediaset said that after raising prices in ten per cent in January is looking to achieve growth though higher ARPU despite a flat outlook for subscriptions.


Italy Spain
La7 Mediaset Rai Sky Italia
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