Vivendi Universal and Rupert Murdoch's News Corp are in advanced talks about merging their Italian digital TV units to create a single pay-TV force in Italy, according to sources close to the companies.
The two media giants have been exploring the possibility of joining forces in Italy to help stem losses hemorrhaging from their Stream and Telepiu pay TV units but are aware they may have to overcome serious regulatory hurdles, the sources said.
"It's quite obvious that there's no room for two pay TV operators in Italy," one source close to the companies told Reuters. "But the real issue is whether anti-trust authorities will allow a single Italian pay-TV player."
Both Vivendi Universal and News Corp declined to comment.
The sources said Vivendi chief executive Jean-Marie Messier was gunning for two-thirds control of a merged Italian satellite TV company but analysts were sceptical Murdoch would be willing to give up control in one of Europe's key television markets.
The sources also said the plan could see News Corp's joint venture partner in Stream, Telecom Italia, finally exit the pay-TV operator - a move analysts say the telecoms group has been eager to make after swallowing hefty start-up costs.
"It would make sense for them to get together but people like Messier and Murdoch want control and there's no in between," said Mike Hilton, analyst at ABN Amro. "Irrespective of that, I can't see the regulators allowing a merger."
Some analysts noted that multi-channel television has a relatively low penetration of some 11 percent of homes in Italy compared to around 40 percent in Britain.
And in a market void of cable television, the European Commission could take a tough stance, they added.
Last year, the Commission forced Vivendi to sell its 20 percent stake in pay-TV operator British Sky Broadcasting as a condition for its merger with Canada's Seagram. Vivendi owns one of Europe's top pay-TV operators Canal Plus.
"Vivendi and News Corp have been in on/off talks about Telepiu and Stream for ages. If they were to overcome regulatory hurdles it would be a good deal but it could be a tough one to get through," said an industry source.
