Mediaset combines pay TV activity with Sky in wide-ranging deal

Mediaset has struck a wide-ranging pay TV deal with Sky that puts a likely end to long-running speculation about a rapprochement with Vivendi. The deal announced at the end of last week will see Sky make nine cinema and TV series channels from Mediaset Premium available to its satellite customers at no additional charge, along with a raft of on-demand content from Warner, Universal and Medusa.

The reciprocal agreement will see Sky create a new digital-terrestrial pay TV offering of its own that will be made available to Italian DTT viewers via Mediaset’s transmission capacity. The Sky DTT offering will combine a selection of Sky and Fox’s channels along with Mediaset Premium’s channels.

Under the terms of the deal, Sky will initially carry Mediaset’s five movie channels and four TV series offerings on its satellite platform at no extra charge, together with a raft of on-demand content available to its customers.

Sky Cinema Pack customers will have access to Premium Cinema, Premium Cinema +24, Premium Cinema Energy, Premium Cinema Emotion and Premium Cinema Comedy, while Sky Family Pack customers will have access to Premium Action, Premium Crime and Premium Joi.

In a second phase, Sky Italia will rent bandwidth from the DTT multiplexes operated by Mediaset-owned Ei Towers to deliver a DTT pay offering. From June 1, Sky and Mediaset will provide a combined DTT service with Mediaset’s cinema and series offerings sitting alongside Sky’s sports channels.

“The strategic agreement signed today by Sky and Mediaset is full of good news for TV lovers. By next summer, Sky subscribers will be able to enjoy the entire Mediaset Premium’s cinema and TV series offer, all in HD, included in their subscription and at no additional charge. It will almost be like having two pay TV offers for the price of one. After the launch of Sky Q and the announcement of the partnership with Netflix, this agreement confirms Sky’s resolve to offer Italian viewers the best possible television experience. The other good news is for non-Sky subs,” said Andria Zappia, CEO of Sky Italia.

“Thanks to this new partnership we will offer greater freedom of choice to prospect customers willing to sign up for a pay TV service, launching in June an offer specifically designed for DTT. Being able to bring an increasingly extensive and complete TV offer into our subscribers’ homes while ensuring the utmost freedom of choice makes us all very proud. And I would like to take this opportunity to thank our customers as their trust encourages us to improve our service every day.”

Analysts at Berenberg said that the deal would be “positive for both sides, but particularly for Mediaset”, which has been suffering from depressed profitability in Italy. Berenberg said that the agreement “could have a similar effect as an outright sale of the pay TV platform” – the deal that Mediaset had originally agreed with Vivendi, but which fell apart when Vivendi pulled out unilaterally, leading to a prolonged and ongoing legal battle between the pair.

Berenberg noted that the agreement includes an option for Mediaset to sell a new company created for the DTT platform outright to Sky, exercisable in November 2018.

The analysts predict that the sale of the DTT platform is likely if, as expected, Mediaset fails to secure the rights to include Serie A football in its offering because it will only pay a price that supports its profitability goals. In this case, Mediaset could detach itself from the platform element of operating a pay TV service and focus on the supply of premium channels alone.

The agreement also means that Mediaset likely no longer needs to secure a separate distribution agreement with Vivendi-controlled Telecom Italia given that Sky already has a distribution agreement in place with the telco. Sky has also struck a deal with Open Fiber to develop its own fibre broadband offering.

Despite the ongoing litigation, Vivendi and Telecom Italia had seen a deal with Mediaset as a key building block in the telco’s strategy.

Berenberg raised its recommendation on Mediaset to Buy, with target of €3.80 on the basis of a deal that will see Sky pay €60-70 million a year to Mediaset in affiliate and service fees, with an additional potential €20 million a year to be paid from 2019 for the carriage on DTT of Sky’s free-to-air channels assuming now sale of the new DTT company to Sky. The analysts estimated that, in total, Mediaset could gain about €100 million a year from the agreement.