Emperor of TV
Italy's Silvio Berlusconi is fighting for his political life -- and the fate of his media empire may hang in the balance.
By Stephan Faris, FORTUNE International

(FORTUNE Magazine) - One evening this winter the Italian talk-show host Enrico Mentana played a clip for his guest, Prime Minister Silvio Berlusconi, in which Oscar-winning actor Roberto Benigni mocked Berlusconi's five-year reign.

The Prime Minister was clearly irritated by the attacks. But as the show's director prepared to broadcast Berlusconi's fidgets and frowns, his media handler intervened. Without asking permission, he climbed onto the set to warn his boss that the cameras would soon be rolling. When they did, Berlusconi was all smiles.

The Prime Minister's people might be forgiven for acting as if he owns the place. After all, he does. Berlusconi isn't just Italy's Prime Minister; he is the country's richest man, and his business empire includes a 35.5 percent stake in Mediaset, the television company he founded in 1995 and on whose station he was appearing. Through that ownership and his political control of public TV, Berlusconi holds sway over six of Italy's seven main TV channels, which together command 87 percent of the viewing audience.

With elections scheduled for April 9, the opposition has been crying foul over Berlusconi's media power and vowing to dilute it. In the first six weeks of the year, before laws mandating equal airtime for political parties kicked in, Berlusconi was on TV about 13.5 hours, according to Klaus Davi & Co., a public relations agency in Italy. Meanwhile, center-left candidate Romano Prodi appeared for four hours, in coverage he says was unbalanced.

"In his half-hour, he has a beautiful speech with a big screen," says Prodi, a former Prime Minister. "In mine, they try to catch the moment when I am asleep or relaxed or badly dressed."

Behind in the polls by a few points, Berlusconi has held nothing back. In February, after a week of campaigning in which he compared himself to Napoleon and Jesus, he flew to Washington, D.C., where President George Bush praised him as a "strong leader."

The stakes are higher for Berlusconi than for ordinary incumbents: Defeat would not only mean losing the power and prestige of the country's highest office but could also translate into financial loss.

Divesting a media empire

The opposition's media-policy makers have zeroed in on two laws they want to overturn or amend. Their first move would be to tighten a 2004 conflict-of-interest law that forbids a company's officers to hold public office but places no restrictions on its owners. That would require Berlusconi, should he ever be reelected, to choose between leaving office and divesting his holdings.

In addition to Mediaset, the Berlusconi family company, Fininvest, owns Italy's largest book and magazine publisher, Mondadori; the financial services group Mediolanum; and the A.C. Milan football team. Berlusconi controls 63 percent of Fininvest, with the rest split among his five children. He holds no titles at any of his companies, but his son Pier Silvio is deputy chairman of Mediaset, his daughter Marina is chairwoman of Fininvest, and daughter Barbara is on the board of the holding company.

"If you are in politics, you must be out of business, at least in those areas that are regulated by the government," says Prodi, who would also reinstate Italy's inheritance tax, abolished by the Berlusconi government in 2001.

Such changes -- though potentially wrenching for Berlusconi, who is said to be worth $11 billion -- would have little impact on the bottom line at Mediaset, where revenue last year was $4.4 billion. More worrisome for the company is the center-left's plan to dismantle the duopoly that dominates Italy's television market.

When Berlusconi came to power in 2001, media companies were restricted from taking in more than 30 percent of a market's revenue, and television companies were barred from operating more than two national channels.

Mediaset, which owns three channels and rakes in 34 percent of all television revenue, exceeded those limits, and a constitutional court ordered that it move Retequattro, the smallest of its channels, to a satellite broadcast by the end of 2003. Berlusconi's government responded by introducing legislation to redraw the antitrust limits, allowing Mediaset to keep its third channel and replacing the caps on market share with a 20 percent ceiling on revenue from the entire communications sector -- everything from TV and radio earnings to book and music sales to box-office receipts and billboard advertising.

"It's 20 percent of a figure nobody has been able to calculate," says Giuseppe Giulietti, a former head of the journalists' union at RAI, the state-owned TV network, and a member of Parliament for Democrats of the Left, the opposition's largest party. Where Mediaset would have had to cut its revenues, it could now safely double in size without exceeding the cap.

The law was seen as so favoring Mediaset that when President Carlo Ciampi refused to sign it, the company's shares dropped 5 percent. It was a politically charged but largely symbolic move. Emergency legislation extended Retequattro's life, and Parliament passed the law again in 2004 after lightly amending it.

The new law drew fire from the Council of Europe. Freedom House dropped its rating of press freedom in Italy to the lowest in Western Europe, ranking it alongside Bulgaria, Mongolia and the Philippines. The closest parallel is Thailand, where Prime Minister Thaksin Shinawatra, another media tycoon turned politician, controlled both public and private stations until he cashed out earlier this year for $1.8 billion.

Critics of the law say it does nothing to address media concentration in Italy, relying on the proliferation of digital channels to open a market squeezed shut by the dominant players.


"Technological development alone will not change the duopoly," says Paolo Gentiloni, head of media policy for the Margherita, the second-largest opposition party. Indeed, in 2000, the year before Berlusconi was elected, net profits at Mediaset were 424 million euros. Last year they reached 603 million euros, a 42 percent increase. During the same period, the Italian economy grew only 2.2 percent.

Prodi declined to specify how he would rewrite the law, but he says he would instruct his ministers to open the market. "I want more competitors," Prodi says. Gentiloni wants to restrict advertising revenues to 30 percent of the market and limit the number of frequencies a company can hold. That would be a blow to Mediaset, which last year captured 63 percent of the TV advertising market -- RAI makes the bulk of its revenue from a television tax -- and 35 percent of the Italian advertising market.

"There are some who say cap it at 20 percent," says Fabrizio Morri, who heads media issues for the Democrats of the Left. "We have an obligation, politically and morally, to allow other entrants into the market."

Berlusconi's woes could go deeper than Mediaset. Prodi says his first priority is to roll back reforms of the judicial system that he says were passed to free the Prime Minister from his legal troubles: "These have been absolutely tailored for him. The consequences are very negative."

Berlusconi has been tried seven times for graft but was acquitted or let off in each case when the statute of limitations expired. In March prosecutors announced they would seek to indict him for paying a British lawyer to give false testimony during previous trials, a charge both men deny. "I have nothing personal against Berlusconi," says Prodi. "I just want to set policies that are typical of any modern democratic country."

The reformers have their work cut out for them. In December, when it was clear he was trailing in the polls, Berlusconi changed the electoral law, returning Italy to a system of proportional representation and all but ensuring that a victory for the left would yield a small, fragmented majority.

Managing such a coalition would be a challenge for Prodi. While the left is united when it comes to Mediaset, the reforms could easily founder on disagreements about their impact on public television, long a source of political patronage.

Even out of government, Berlusconi would retain control of half of the country's TV stations, ample amplification for his message that the reforms are nothing but a political crusade. To Berlusconi's allies, Prodi's complaints of biased coverage are simply sour grapes from a candidate trying to compensate for poor stage presence.

"If you're running a marathon, it's easier to try to put a speed limit on the front-runner rather than run faster yourself," says Lucio Malan, the senator in charge of media policy for Berlusconi's center-right Forza Italia party.

"Prodi is not so good for us," says Fedele Confalonieri, chairman of Mediaset. "But don't forget that 50 percent of our shares are in the hands of foreign investors. Any government has to realize that acting against us would be acting against the market."

Mediaset has already weathered years of center-left government, including a referendum in 1995 that would have restricted it to one channel. Should Berlusconi lose the elections, Confalonieri says, Mediaset would lobby the left to temper its attack.

"Being honorable men, they can't do something so wrong as to destroy a company," he says. "And they are honorable men. I hope so." Top of page