Vivendi scraps Italy pay-TV merger

PARIS, France -- French-American media giant Vivendi Universal has scrapped plans to merge its loss-making Italian pay-TV unit Telepiu with rival Stream after Italian authorities attached conditions to the deal.

The move by Vivendi leaves the future of Italian pay-TV unclear and threatens to renew hostilities between rival media moguls Jean-Marie Messier, head of Vivendi, and News Corp. chief Rupert Murdoch, part-owner of Stream.

It also raises questions about how Vivendi will turn around its money-bleeding Italian operation. Telepiu's losses have weighed heavily on the company and some investors saw the Stream merger as a means of stemming those losses.

"The companies had already indicated that they could not accept more constraining conditions," Vivendi and its Canal Plus unit said in a statement. "Recent developments in the pay-television market have only reinforced their feeling that they cannot make additional concessions."

The deal would have created a single pay television body in Italy and ended a fierce battle for subscribers which hurt the two operators.

Agreed in February, it would have seen Telecom Italia sell its 50 percent stake in Stream to partner News Corp. Vivendi Universal, through its pay-TV unit Canal Plus, would then have bought 100 percent of Stream's capital and combined it with Telepiu.

But media industry sources told Reuters on Tuesday that Vivendi was unlikely to accept the conditions set by the Italian authorities, which would have restricted the length of Telepiu's soccer rights and banned exclusivity deals.

Vivendi said it had started talks with News Corp on the consequences of its decision, which promises to spark new tensions between Messier and Murdoch.

On Tuesday, Murdoch threatened to sue Vivendi if it abandoned the merger and on Wednesday a News Corp Europe spokeswoman said Murdoch's group was reexamining the February contract to assess its rights.

"We'll enforce our rights under the agreement," she said, adding that Stream remained in business as an "active competitor."

Telecom Italia clearly hopes that Murdoch will step in to bail out Stream, but that is seen as unlikely. Failing that Stream is threatened with closure.

"It is an option that is near the top of a one option list," an Italian industry source told Reuters.

That leaves the future of Italian pay-TV up in the air.

Italian communications minister Maurizio Gasparri, in comments carried by Italian news agency ANSA, said he would wait to see how Stream shareholders News Corp. and Telecom Italia reacted to Vivendi's decision.

"I am sure that (the regulator) entrusted with guaranteeing market transparency and balanced competition took its decisions for a reason, though I hope that to eliminate distortions one does not kill firms," Gasparri said according to ANSA.

Vivendi said it planned to focus on improving Telepiu's operational performance through cost cuts and by boosting average revenues per subscriber. But that could take time -- something Vivendi can ill afford right now.

Its stock ended five percent higher for a second straight session on Wednesday, but the shares have fallen 46 percent since the start of the year and Messier is under severe pressure to restructure loss-making operations, sell non-core assets and cut debt.