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A new media empire: The Roman connection

2002-04-03Asia Times

ROME - Italy, for a long time the country with the lowest profile among the four largest European economies (with Germany, France and Britain), has been recently drawing more attention. Although this has not always occurred for the right reasons, some of the moves taking place could have far-reaching consequences for the whole continent.

The first, spectacular in both form and content, is the possible acquisition of the former German media giant Kirch. Mediaset, owned by Italian Prime Minister Silvio Berlusconi, is leading a group that together with Rupert Murdoch's Newscorp and Saudi Prince Alwaleed is buying out the German company, with its rights to broadcast German soccer league games. These rights are especially prized, as the German championship, together with the English and the Italian ones, are the best-selling sports events in Asia. The broadcasting rights for the English and Italian leagues are partly owned or within the grasp of the two buyers, Mediaset and Newscorp. The two companies have market shares, large or small, in almost all Western European countries, and with the acquisition of Kirch they could form a huge European media platform reaching the whole continent. Furthermore, with this platform and the soccer rights they can have a powerful wedge to enter the fast-growing Asian markets, and possibly even China.

This could be the beginning of a European challenge to the US giants AOL-Warner and Disney, as Murdoch has large interests in the United States and so does German media giant Bertellsman. In the Kirch bid, however, the big player is the Italian, as Murdoch so far has only small interests in continental Europe. Berlusconi, on the other hand, has solid footholds in Spain and France with TV stations El Cinco and Le Cinq, besides his dominant position in the Italian market, where he collects more than 70 percent of all advertising. With this powerful arm in action Mediaset could collect advertising on a continental base and vastly multiply its power.

This possibility casts a new shadow, of continental proportions, on Berlusconi's unresolved conflict of interest with his political role. Many German papers have loudly complained about his role in the Kirch acquisition, and arguably for this reason Murdoch has been seen as more of a protagonist in this enterprise.

Despite any screaming and yelling, it appears that the advance on Kirch will be hard to stop, as no one but Mediaset is coming up with the 800 billion euros (US$699 billion) needed to forestall the Kirch bankruptcy. Moreover, from a strategic European point of view, in the face of global media competition as Europe moves slowly toward economic integration, it is natural to build a European-sized media company able to compete with US ones. This move on Kirch therefore is not so much an Italian-British invasion of Germany as the building block of one of the first pan-European companies, which could be the real continental backbone of the European Union. The fact that Bertellsman, or any other large German publishing group, didn't counter the largely expected Italian action seems to revealing widespread consent to the purchase of Kirch. However, this doesn't solve the conflict of interest; on the contrary, it makes it more difficult for Berlusconi to carry on wearing the two hats of entrepreneur and politician.

The difficulties of wearing both these hats might help explain some of his political moves. And at least in the past there were strong business reasons behind Berlusconi's political actions, and vice versa. In the past couple of weeks he, as prime minister, has been confronting the Italian trade unions on the tricky and sensitive issue of reform of labor rights. The government wants to reform a law prohibiting the firing of an employee without "just cause". The reform, which at the moment would affect only a handful of jobs in the country, could create the momentum for the eventual end of the old system of lifetime employment.

On both the left and right of the Italian political spectrum there is widespread consensus on the need to reform the national welfare system. Many on the center-left have argued that Berlusconi should not confront the trade unions, but should talk with them to find soft solutions, which would spare Italy the pain of long-drawn-out diputes. Yet confrontation may just be Berlusconi's goal. With a rock-solid majority in parliament, the prime minister might be willing to emulate Margaret Thatcher's protracted arm-wrestling with the coal miners in Britain in the early 1980s.

Back then, the strikes and battles, while redicalizing the Labor Party, built up Thatcher's image, and middle-class consensus eventually downed all hopes of the left's recovery and paved the way to a long period of Conservative rule in Britain. Berlusconi might want to follow the same example, only this time the prize could be greater. If Berlusconi were to defeat the unions and start the reform of lifetime employment, it would be a model for all of Europe, where (except in Britain, thanks to Thatcher) entrepreneurs feel that the welfare system is the foremost barrier to the full recovery of the European economy. This in turn could buttress Berlusconi's stature as a European leader and help him solve the sticky issue of his continental conflicts of interest.

A peaceful agreement with the unions on reform might not do the trick, as it would save the unions from the utter defeat Berlusconi may be seeking. In this situation public fear of a new flare-up of the dormant yet still alive Red Brigade has given his government a trump card. The Red Brigade's killing last week of Marco Biagi, the government pundit who drafted the labor reform proposal, has helped some in the government tar with one brush the terrorists and union demonstrators. The struggle is still ongoing, but few in Italy see a real possibility of Berlusconi's defeat on the labor-reform issue, as even the unions are half-hearted in their defense of the indefensible old life-employment system and agree that labor should be more flexible. Therefore they walk a fine line, arguing for the reform of labor laws but trying to save the essence of the welfare system.

However, Berlusconi too walks a fine line, and success could further off than he might think. Italy is no Britain, and the influential Roman Catholic Church, with its tradition of social solidarity, might become nervous at the excessive arrogance of the government toward labor. Meanwhile other European players, on both left and right, may look askance at Berlusconi's new high business and political profile. And yet, strange as it may seem, this fight may well foreshadow many interesting developments in Europe and in the world. (2002-04-03 Asia Times)

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