set to bleed to death I told you so!!!!!

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    Murdoch dives into Italian pay TV fiasco
    By Carolyn Cummins
    June 10 2002

    News Corp profits could bleed by up to $450 million following the $US1.4 billion ($2.44 billion) deal to buy an Italian television business, Telepiu, from Vivendi Universal.

    The deal comes only three weeks after Vivendi's chief executive officer Jean-Marie Messier dropped a plan to buy Stream from News Corp and merge it with Telepiu.

    Australian analysts expect the deal will put News Corp's shares under pressure when trading resumes tomorrow while the market digests Rupert Murdoch's latest spending spree.

    Analysts said the heavy costs to be borne by News Corp would come from integrating Telepiu into its overall pay TV business, which is already feeling the pressure of its money-losing Stream operation.

    One said yesterday that exorbitant broadcast-rights deals with Italian soccer clubs, heavy digital costs and low subscriber numbers had kept Stream in the red for the past two years.



    News Corp shares have fallen from $13.72 in mid May to last Friday's close of $12.25, down 21c on the day.

    In late May Macquarie Equities warned it would downgrade its recommendation of "outperform" if News "were to rekindle a strategy [in Italy] which has already clearly failed once".

    Some brokers have suggested the continuing loss faced by News Corp through its Italian strategy could go as high as $US350 million.

    "Only a month ago Rupert was saying he would not spend any more and here he is doing another deal," one analyst said.

    "It will be a further drain on News Corp's profits, much like BSkyB [News Corp's UK cable TV arm] was for many years, although it is now a very good business.

    "Let's hope the Italian operation works out the same - but News Corp is facing increasingly sceptical investors."

    Under the deal signed on Saturday, News Corp will pay €1.5 billion ($2.47 billion) through a combination of cash and debt, making News Corp Italy's only pay TV operator.

    The price comprises €750 million in cash and €750 million in debt that would be assumed by News Corp. Mr Murdoch will merge Telepiu with his Stream SpA unit, almost tripling News Corp's Italian subscribers to 2.35 million. Stream has 850,000 clients.

    Telepiu has been losing money since it was created in 1997 by Canal Plus, Europe's biggest payTV company. The unit accounted for most of Canal Plus's €370 million loss last year.

    Analysts said that Italy's high piracy rate was hurting both companies.

    As part of the purchase, News Corp would pay €500 million to reimburse Italian Serie A soccer rights as well as broadcasting licences, News Corp spokeswoman Alison Clark said.

    In its statement, Canal Plus said that the deal valued each of its 1.5 million subscribers at €1000. But News Corp said that on the basis of the €1 billion paid excluding the soccer rights reimbursement, the valuation was "the same price Stream subscribers were valued when Canal Plus planned to buy Stream".

    The sale of Telepiu puts an end to about a year of talks, and disputes, between Mr Messier and Mr Murdoch over who would control the Italian pay television market.

    "The sale of Telepiu, which accounts for only 10 per cent of our subscribers in Europe, is a first demonstration of our willingness to bring Canal Plus back on track for profit and growth and focus on the most promising markets," Mr Messier said in a release.

    The agreement must be approved by Italian regulatory authorities. Both companies said they would drop lawsuits filed against each other once the purchase is completed. No timetable was given.

    Among the cases to be dropped would be Canal Plus's March filing of a $US1 billion piracy suit against News Corp's NDS Group. Canal had accused NDS of pilfering its "smart card" technology, which enables viewers to access pay-per-view digital television programs in Europe.

    The purchase of Telepiu also needed the approval of Telecom Italia, which owns half of Stream, News Corp said.

    News Corp is buying Telepiu with a group of unspecified investors and said it would own half of the combined Telepiu-Stream business.

    Last month Vivendi completed the sale of its stake in BSkyB. Mr Messier dropped a plan to buy Stream the day after Vivendi got clearance to do so from Italian authorities, claiming the regulators had imposed new conditions on the purchase. Mr Murdoch had objected.

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