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Facing their own troubles, Berlusconi and Murdoch square off

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Milan — At the British parliamentary hearing into News Corp.’s phone-hacking scandal last month, Rupert Murdoch defended his family, arguing that it oversees a vast media empire — one that extended to Italy, where, he noted, there was “a particularly difficult situation and a particularly tricky competitor.”

As it happened, the trickster in question, Italian Prime Minister Silvio Berlusconi, was watching the televised hearing. But rather than taking offense, Murdoch’s onetime friend and now bitter rival called the head of Mediaset, the flagship television company in which Berlusconi has a controlling interest, to discuss Murdoch’s diminished physical state.

“He was touched,” said Fedele Confalonieri, Mediaset’s president, who is Berlusconi’s oldest friend. He and Berlusconi talked about how Murdoch “was changed. He looked older, less hair, and also he had some difficulties in hearing.” During an interview in the 19th-century corporate headquarters of Berlusconi’s media empire here, Confalonieri likened Murdoch to King Lear, then waxed philosophical, saying, “The humiliation of a mighty person is always something that touches you.”

Confalonieri asserts that Murdoch and Berlusconi are “good fellows,” but there may be other motives for the Italians’ expressions of compassion. Berlusconi and his generals have a vested interest in depicting Murdoch as a has-been who, as Confalonieri put it, has been “weakened from the point of view of morality” by a scandal that has revealed his “true nature” as “aggressive,” “not honest” and, if the accusations against his company are true, “shameful.”

This is a critical stage in the clash of the media tycoons. In the past, both billionaires have demonstrated their mastery of using the media’s power to gain political influence, and then using that influence to further the interests of their business empires in the heavily regulated media industry.

But now both Murdoch and Berlusconi have suffered a summer of scandal and setbacks that have weakened their political clout. Their shared need for good business news has only sharpened their rivalry over who will rule the Italian airwaves.

“As a media tycoon, you have to be involved in politics,” said Fabrizio Perretti, a professor at Bocconi University in Milan who studies the Italian media industry. “But when you are too close and favor one party, as Murdoch has done, or enter politics yourself, as Berlusconi has, at that point you risk losing all the things you had before.”

Murdoch is reeling from a scandal that has rocked his power in Britain and possibly beyond. In Italy, Murdoch owns Sky Italia, a satellite broadcaster that, since its founding in 2003, has come to dominate Italy’s pay-television business with about 5 million subscribers. Continued success and expansion here would go a long way toward quashing the notion that his is an empire in decline.

For his part, Berlusconi has to contend with Italy’s impending economic disaster while he continues to face a political scandal in which he is accused of paying an underage woman for sex. But several incidents in July directly affected the media business that is the source of his political power.

An Italian appeals court ordered the investment arm of Berlusconi’s company to pay $795 million in damages to a rival Italian media company for corruption in the acquisition of the Mondadori publishing company in the 1990s. Berlusconi, who has a track record of instituting laws tailor-made for his own protection, sought to insert a measure into Italy’s emergency austerity package that would have suspended the payment of such fines until the country’s supreme court issued a final ruling on his appeal. But this time, public pressure forced him to withdraw the provision. A few days later, Berlusconi lost a vote that would have protected one of his party’s members of Parliament from arrest on corruption charges.

As prime minister, Berlusconi oversees the government-run television networks, giving him direct or indirect control of six of the seven national channels — and also the political power to protect his business interests, which he has not been shy about using. Since 2005, Mediaset has also challenged Sky Italia in the pay-TV sector by seeking to convert subscribers to its digital terrestrial platform, which is an alternative to satellite and cable technologies. On Jan. 1, European Union restrictions will expire, allowing Sky to compete directly in Mediaset’s free-
television wheelhouse.

* * *

Sky’s headquarters are located in Santa Giulia, on the outskirts of Milan, in a tangle of scaffolding, construction cranes and half-built housing projects. The two-year-old, 18,000-square-meter building has a glass facade with SKY written across the front in bubble lettering. On Wednesday afternoon, scores of attractive young employees smoked and sipped coffee on a fifth-floor terrace. The gleaming white lobby featured promotions by Italian movie and soccer stars advertising the Italian version of DVR technology.

Executives at Sky Italia like to say that the building is a manifestation of their commitment to competing in Italy, and that when Berlusconi first laid eyes on it, he uttered an expletive. They argue that they have created thousands of jobs, introduced high-definition television to the country and provided Italian viewers with more choices in soccer coverage and entertainment programming than they ever thought possible.

“When we started in 2003, nearly every commentator said this was crazy,” said Andrea Scrosati, Sky’s vice president for production and promotions. He declared the company “very satisfied” with its performance in recent months, despite the “particular competitive environment” created by Berlusconi’s unique double role as professional rival and prime minister of the country. Scrosati argued that while News Corp.’s issues were serious, they were not as prominent for the Italian voter as some other scandals in the news. “Really, this is a country that has very big issues in this moment,” Scrosati said.

A tour of the facilities showcased state-of-the-art technology. In one control room, two dozen flat-screen televisions displayed digital grids of small pictures so technicians could monitor all of Sky’s 220 channels at a glance. An alarm sounded whenever any of the channels had a technical problem. Downstairs, robot­ically controlled cameras taped a sports-news program, workers set up seats for a live broadcast promoting the network’s 2012 Olympic coverage and leggy young women awaiting auditions paced nervously in front of Studio 5. An empty studio, bathed in red light, sat ready for Milan feeds to the broadcaster’s Rome-based news show, which has carved out a niche in polarized Italy by delivering generally objective reports.

Sky Italia is not operating in a balanced political environment. Its executives have complained that a law passed in December 2008 by Berlusconi’s government hiked their tax rates to damage Sky and boost Mediaset. Other regulations and proposed restrictions objected to by Sky included a reduction of advertising allowed on pay TV, which has led to a deluge of Sky advertising in the nation’s train stations and on roadside billboards.

Sky executives also argue that Berlusconi’s government narrowed the window for adult programming on Sky’s channels, which Sky considers a curious paroxysm of morality given the prevalence of exposed female flesh on Berlusconi’s channels.

Yet Sky’s success in signing up new subscribers despite such obstacles has boosted its prestige within a suddenly sullied empire. That good standing was reflected on July 15, when Murdoch appointed the company’s respected chief executive, Tom Mockridge, to head News Corp.’s teetering British operation, News International.

Mockridge — who last June decried Berlusconi’s attempt to restrict media use of leaked wiretaps as “wrong” — replaced Rebekah Brooks, who was arrested in connection with the scandal. On Aug. 1, James Murdoch released a statement introducing Sky’s new chief executive, Andrea Zappia, writing, “I look forward very much to working with him as we take Sky Italia into its next phase of development.”

* * *

Berlusconi’s son, Pier Silvio, is Mediaset’s vice chairman, and he hopes to restrain James Murdoch’s development.

“They met, I think, two years ago,” Confalonieri said of the two scions. “And they didn’t hit it off.”

That is hardly surprising given the breakdown in communication between their fathers.

“It is curious, the relationship with Mr. Rupert,” said Confalonieri. “Because we were friends.”

In 1993, Berlusconi expressed public interest in selling Mediaset to Murdoch, though the two men could never settle on a price. Berlusconi’s boosters insist that the prime minister decided against the sale because Pier Silvio expressed a keen interest in carrying on the family business. Berlusconi’s associates refer to this flirting with Murdoch as evidence of Berlusconi’s early intentions to rid himself of his conflict of interest as he considered entering politics. Berlusconi’s detractors consider the talks mere window-dressing.

In any case, the negotiations allowed the two moguls to forge something of a friendship over lunches at Berlusconi’s villa in Sardinia. Berlusconi bought Murdoch’s boat, the Morning Glory, and Berlusconi’s government allowed Murdoch to consolidate satellite providers and create Sky Italia.

Relations soured when Berlusconi entered the pay-television market using digital terrestrial technology.

“This is the origin of our conflict,” Confalonieri said. “I remember we met [Murdoch] in New York and he was obviously not very happy because we were a competitor.”

Any remaining warmth between the two ended after Berlusconi’s government passed a decree that raised Sky’s taxes. The Murdoch-owned Times of London enthusiastically covered Berlusconi’s 2009 relationship with an 18-year-old model.

That year, Berlusconi made the billionaire breakup official by telling Mediaset’s Canale 5, “I don’t mean to be nasty, but unfortunately with the [tax] episode there was a breakdown in relations with the Sky group and with Murdoch’s group, which has published a series of very critical articles attacking me.”

Murdoch, whose Sky Italia lost business at the end of 2009, responded at the time by telling his own Fox Business Network, “I don’t control what the editor of the Times says in London or the Economist, which have been attacking him, saying it’s a disgrace to have him as prime minister for the last five years.” He showed up at Sky Italia headquarters to denounce the tax in the midst of a global recession.

Ads appeared on Sky excoriating the Berlusconi government, and an effort was made to poach Berlusconi’s top talent, including Rosario Fiorello, a popular Sicilian showman.

At his palace in Rome, Berlusconi sought in vain to persuade the entertainer not to work for “the enemy,” as Fiorello recounted to Italian reporters.

In the interview in Milan, Confalonieri denied that Mediaset has ever benefited from Berlusconi’s role as head of state.

“Of course Mr. Berlusconi has a conflict of interest,” Confalonieri said. “But it is so clear and so transparent.”

By contrast, Confalonieri depicted Murdoch’s influence as more sinister. He argued that slipping into 10 Downing Street through the back door to sway the British government, or presenting a perspective in Italy more in line with Berlus­coni’s detractors in the left-leaning opposition, was at least as bad.

“So the tricky competitor can be something like in tennis: The ball can be on both sides of the net.”

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