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FONDAZIONE ROSSELLI Institute for Media Economics

THE COMMUNICATIONS INDUSTRY IN ITALY 13th IEM REPORT

Public investment in the culture and telecommunications industry


Š 2011, Fondazione Rosselli

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FONDA ZIONE ROSSELLI

Fondazione Rosselli Institute for Media Economics

THE COMMUNICATIONS INDUSTRY IN ITALY 13th IEM REPORT Public investment in the culture and telecommunications industry


Editor

Flavia Barca Coordinator

Andrea Marzulli

Contributors

Flavia Barca - Daniela Ciavarelli - Andrea Marzulli -Luca Murrau Lorenzo Principali - William Ricci - Paola Savini - Roberto Triola Chiara Valmachino - Bruno Zambardino

Fondazione Rosselli and its Institute for Media Economics thanks the following for their support

And also

While the information and data included in this report have been accurately assembled, there is nevertheless no intent therein to offer explicit or implicit formal guarantees that the sources which provided the data are reliable or exhaustive. Information was gathered expressly for use in the research for this study and is based on the data and sources available at the time of the writing of this report, which reserves the right to provide updates or corrections at any given moment. Fondazione Rosselli does not, therefore, take any formal responsibility for the data and opinions expressed in this report or for any future use that others may make of it, e.g. use of the information or opinions contained in this report as the basis for commercial evaluations or business initiatives.


Index Introduction (7)

by Flavia Barca and Andrea Marzulli

Part I: Markets Television

by Andrea Marzulli

1. Introduction (15) - 2. Share and penetration (16) - 3. The market (23) - 4. The television advertising crisis in Europe and programming investment (26) Radio

by Chiara Valmachino

1. Overview (33) - 2. Advertising investment (39) - 3. International comparison (41) - 4. Distribution platforms and the future of radio: performance and trends (42) Cinema

by Bruno Zambardino

1. Production, distribution and exhibition (48) - 2. Market resources (52) - 3. A comparison with the European markets (60) Home video

by Andrea Marzulli

1. The Italian market (63) - 2. The international picture (66) Books

by Daniela Ciavarelli

1. Book production and reading habits (71) - 2. The value of the market (74) - 3. International comparisons (77) Newspapers and Magazines by Paola Savini

1. Introduction (80) - 2. Newspapers and magazines in Italy: an analysis of the principal indicators (82) - 3. Publishing companies: sources of revenue and profitability (86) - 4. The international picture (89) Directory

by Luca Murrau

1. The Italian market (94) - 2. The European Market (96) Recorded Music by William Ricci

1. The Italian market (99) - 2. The European market (103) - 3. The world market (105) Advertising

1.Advertising: overview 2009-2010 (108) - 2. The Italian media mix (111) - 3. International comparisons (115)

Fixed telecommunications and broadband by Lorenzo Principali

1. The market in fixed network and broadband services (120) - 2. Operators, investments and ultra broadband (126) - 3. The international picture (132) - 4. The functional separation of the networks (135) Mobile telecommunications by Lorenzo Principali

1. Market overview (141) - 2. Infrastructure and mobile virtual network operators (MVNOs) (143) - 3. Mobile broadband: content, traffic and investment (145) 4. International comparisons (148) Information technology by Roberto Triola

1. Introduction (152) - 2. IT businesses in Italy (154) - 3. The Italian market (156) - 4. International comparisons (162) Video games

by William Ricci

1. The Italian market (166) - 2. The European market (172) - 3. Consumer habits (173)


Part II: In-depth case studies Public investment in the cultural and telecommunications industry

by Flavia Barca, Andrea Marzulli, Luca Murrau, Lorenzo Principali and Bruno Zambardino

1 Introduction and methodology (178) 1.1. Introduction (178) 1.2. Notes on the methodology (182) 2 State aid for culture and telecommunications: European Union guidelines and initiatives (186) 2.1 The new Guidelines on State aid (186) 2.2 The exception provided for aid to culture and supporting measures (188) - 2.1.1 The waiver for culture (188) - 2.2.2 The support initiatives (191) 2.3 European actions in favour of telecommunications (195) - 2.3.1 The overall picture (195) - 2.3.2 State aid for broadband (197) - 2.3.3 Assisted broadband areas (199) 3 Public expenditure in Italy in telecommunications and culture in the Regional Public Accounts (RPA) system (201) 3.1 Introduction (201) 3.2 The overall picture (202) 3.3 Public spending on telecommunications (205) -3.3.1 Overall expenditure for the Italian territory (205) - 3.3.2 Expenditure by region (206) 3.4 Public spending on culture (208) - 3.4.1 Overall expenditure for the Italian territory (208) - 3.4.2 Expenditure divided by region (213) 4 Public funding for the communications industry in Italy (215) 4.1 Radio and TV (215) - 4.1.1 Introduction (215) - 4.1.2 Support for National public television (216) - 4.1.3 RAI Contracts with the Public Administration (220) - 4.1.4 Subsidies granted by the Communications Department of the Ministry for Economic Development (226) - 4.1.5 Subsidies from the Department of Information and Publishing in the Prime Minister’s Office (230) - 4.1.6 Refunds for free self-managed messages during electoral campaigns (233) - 4.1.7 Contributions for digital terrestrial television (236) 4.2 Newspaper industry (244) 4.3 Cinema and live entertainment (249) - 4.3.1 Introduction (249) - 4.3.2 Trends in FUS allocations and macro-tendencies (255) - 4.3.3 The most significant sectors: cinema, operatic and symphonic foundations, musical activities and theatre (259) - 4.3.4 Public investment in favour of national TV drama production and regional funds for the audiovisual sector (268) - 4.3.5 Extra FUS funds (270) - 4.3.6 ARCUS resources for culture and entertainment (272) - 4.3.7 The Lottery resources for the entertainment sector (279) - 4.3.8 The distribution of national public spending at regional level (282) 4.4 Public incentives for telecommunications infrastructures (286) - 4.4.1 Introduction (286) - 4.4.2 The main institutions promoting the spread of broadband (288) - 4.4.3 The main interventions on the national scale (290) - 4.4.4 The main interventions at a regional level (296) - 4.4.5 Resources allocated to bridge the digital divide (298) Bibliography (300) Additional considerations by Carla Bodo (302) by Maurizio Dècina (305) by André Lange (306) by Mario Morcellini (307) by Mariella Volpe (310) About the authors (312)


Introduction by Flavia Barca and Andrea Marzulli

A substantial downturn in 2009 and a generally weak recovery in 2010, although with exceptions in some areas. The performance of the Italian communications industry during the economic recession was not very different to that of the country’s economy in general. The dip experienced by this macro sector (with a catchment boundary open to methodological clarification) was 4.4% overall, a figure close to the 4.9% forecast in the previous IEM Report, which reflects a better-than-expected recovery in the last months of 2009. The total value of this sector amounted to 96.147 billion euros (down from 100.520 billion in 2008), slightly less than its worth in 2005. The final figure at end of 2010 was not expected to reach the 100 billion mark; indeed, given the difficulties experienced in the ICT sector it was forecast to remain well below that figure. Figure 1 - Communications industry revenue, 2005-2009 105.000 100.321 100.000

100.520

98.712 96.263

96.147

95.000

90.000

85.000

80.000 2005

2006

2007

2008

2009

Source: IEM elaboration of various figures.

The performance of various markets in 2009 leaves little room for considerations beyond the channels already used to read and interpret events of recent years. The very few segments that ended the year on a positive note include Internet advertising, which confirms its role in the repositioning of communications investments, though its considerable growth did suffer a slowdown. Cinema box office results were also in the black, confirming the market’s extraordinary anti-cyclical nature. But the movie theatre represents only the first step in the chain of product exploitation in this sector and does not guarantee similar performance for the windows that follow, such as home video, which is in sharp decline, or television, which Introduction 7


has seen advertising revenues drop and subscription revenues slow. The third sector to register a positive result was below-the-line advertising, a form of commercial communication where investment is usually less affected by the general economic situation than traditional advertising. The list of negatively performing markets includes all sectors directly affected by the advertising crisis, albeit on different levels. Seen in this context, the 3.4% dip in the television market, where the fall in advertising revenue was less marked than in other media and also partially compensated for by the growth of the pay-TV sector (albeit at lower levels), can even be viewed as a positive result. Radio was worse affected, as were newspapers and magazines, for whom direct sales did not compensate but actually worsened their final performance. The decline in the music and home video sectors continues, penalised by alternative Internet offers (i.e., in the broad sense, file sharing), which also negatively influence the performances of newspapers and directories. But the most worrying data comes from the considerable slowdown in the IT sector (-8%). This market is already seen as extremely underdeveloped in Italy and has been strongly affected by the contraction in demand from business. Figure 2 - Performance in the communications markets (% var. 2009 on 2008) Internet (advertising)

6,4

Cinema

4,2

Below-the-line advertising

1,5

Mobile TLC

-1,5

Fixed TLC

-3,3

Television

-3,4

Books

-4,3

Communications industry

-4.4

Radio

-7,8

IT

-8,1

Newspapers

-9,0

Directories

-9,7

Videogames

-10,6

Recorded music

-13,1

Magazines Home video Outdoor advertising -25,0

-14,1 -17,9 -18,9

-20,0

-15,0

-10,0

-5,0

0,0

5,0

10,0

Source: IEM elaboration of various figures.

Signs of recovery were spotted in 2010, but not in all the sectors. In advertising, Internet investment returned to double figures during the January-October period, while radio growth was over 10%, recovering almost all of its 2009 loss, and television advertising also rose by a comforting 6%. On the contrary, the decline of the daily newspaper has not stopped, with sales falling by almost 5%, and advertising in this sector down 2.6%. It is almost taken as read that this further decline is connected to the rise in new media as a way of accessing information. Given the disastrous past few years, the music industry can be satisfied with its 7.7% increase in the first part of 2010, as can home video, up 2%. The video game sector has also taken off again, rising almost 7% in the first five months of 2010. However, the ICT continues to worry, with a drop in fixed telecoms (-4%), mobiles (-1%) and IT (- 2.5%). Businesses are still reducing investment in technology upgrades, with a continuing negative effect on IT results, while the TLC sector mainly registered a drop in telephone

8

Introduction


revenues and, in the fixed telecoms sector, a fall off in added-value services. This report systematically compares the Italian communications markets with those in the major European countries, showing Italy’s to be proportionately less rich than their European counterparts, whose habits of cultural and technological consumption are often much more highly developed. One exception is television advertising, where the Italian market is the richest on the continent. While this market is the most concentrated in Europe, its leading position is also due to the results registered by the Italian public broadcaster (higher than European counterparts) and to calculations that include advertising revenue from local broadcasters, which are either minimal or non-existent in the other countries taken into consideration. Figure 3 - Performance in the communications markets (partial 2010 % var. same period on 2009) Cinema (box office)

26,0

Internet (advertising)

17,7

Radio (advertising)

10,2

Music (physical & digital)

7,7

Videogames (hw & sw)

6,9

Television (advertising)

6,3

Above-the-line advertising

3,8

Home video

2,0

Mobile TLC

-0,9

IT

-2,5

Newspapers (advertising)

-2,6

Fixed TLC Newspapers (copy sales) -10,0

-4,0 -4,7

-5,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

Notes: The timeframes referred to above are: Advertising & Daily newspapers: January – October; Cinema box office: January - August; Fixed & mobile TLC, Home Video, Music: January - June; Video games: January - May. The percentage of variation is based on a comparison of results with the same time frame in the previous year. Source: IEM elaboration of various data.

If the same totals are considered per capita, Italy’s standing would drop in several areas, to the advantage of the less-populated Spain. When the percentage variation year-on-year is considered, 2009 sees Spain in the unenviable position at the bottom of the table in almost all industry sectors. Italy, however, is the worst performer in the cinema box office (in spite of its previously mentioned positive performance) and the book publishing sectors. In many cases, Italy records the second worst result, just ahead of the bottom-ranking Spain. However, when considering all the sectors in the table, the dip in Italy’s overall performance is less than the year-on-year variation of both Spain and the United Kingdom, while France and Germany registered more contained losses: respectively -3.2% and -4.9%.

Introduction

9


Table 1 - Comparing European communications markets, by total value (2009) France Television (advertising)

Germany

3544

Italy

UK

3983

3640

3467

Spain

Italy Ranking 1

2343

Radio (advertising)

676

679

436

456

537

5

Cinema (box office)

1232

976

664

1059

668

5

Home video

1411

1633

680

2877

125

4

Books

4213

9691

3407

3821

3109

4

680

1099

226

1128

176

4

Recorded music Traditional advertising

10724

14068

8844

13989

5621

4

Fixed TLC (services)

20000

34200

15390

9900

6500

2

Mobile TLC (services)

20400

23600

17700

16710

13340

3

IT

53100

69000

18686

59700

14400

4

2441

2364

1129

3110

1200

5

Video games

Note: figures in millions of euros. Source: IEM elaboration of various data.

Table 2 - Comparing European communications markets, per capita (2009) France Television (advertising)

Germany

56,44

Italy

44,52

UK

65,99

55,88

Spain

Italy Ranking

49,90

1

Radio (advertising)

10,77

8,31

7,22

7,35

11,44

5

Cinema (box office)

19,62

11,94

11,00

17,07

14,23

5

Home video

22,47

19,97

11,27

46,37

2,66

4

Books

67,09

118,53

56,45

61,59

66,21

5

Recorded music

10,83

13,44

3,74

18,18

3,75

5

Traditional advertising

170,78

172,07

146,54

225,48

119,71

4

Fixed TLC (services)

318,50

418,31

255,00

159,57

138,43

3

Mobile TLC (services)

324,87

288,66

293,27

269,33

284,10

2

IT

845,63

843,96

309,61

962,26

306,68

4

38,87

28,91

18,71

50,13

25,56

5

Video games

Note: figures in euros. Source: IEM elaboration of various data.

Table 3 - Comparing European communications markets, % variation 2009 on 2008 France

Germany

UK

Spain

-9,8

-9,8

-11,7

-11,0

-22,7

Radio (advertising)

-8,9

-5,6

-7,8

-7,1

-16,4

7,9

22,8

4,2

11,1

7,9

-0,2

5,0

-17,9

-10,0

-36,9

Cinema (box office) Home video Books Recorded music Traditional advertising

3,9

0,8

-4,3

-2,9

-2,4

-2,6

-3,0

-13,1

1,9

-14,6

-10,7

-9,7

-11,7

-11,0

-20,9

Fixed TLC (services)

-0,5

-3,1

-2,4

-2,9

-8,5

Mobile TLC (services)

1,5

-7,1

-3,5

-3,2

-5,5

-3,8

-4,6

-8,1

-6,7

-8,9

-17,1

-14,2

-10,6

-16,2

-16,2

-3,2

-4,9

-6,4

-6,6

-10,1

IT Video games Total (of sectors in table)

Note: figures in percent. Source: IEM elaboration of various data.

10

Italy

Television (advertising)

Introduction


This scenario prompts the need for a rethink of Italian State policy on the communications industry, as for any other sector of the national economy. Public policy is not necessarily limited to the levels of State spending (including local entities) and how it is used to support and stimulate the communications industry, although many of those working in or involved with the sector at various levels tend to generally concentrate on the ‘how much’ and ‘to whom’. 2010 was a year marked by endless controversy over the cuts to State funding: from local councils to publishing, from the General Entertainment Fund (in Italian Fondo Unico per lo Spettacolo, FUS) to investment in broadband. On the other hand, this kind of controversy rears up every year when the Finance Act or budget cuts are being discussed (like those contained in a wide ranging piece of legislation which amasses many different kinds of provisions and amendments under one bill, called ‘milleproroghe’). This in itself signals the lack of a long-term, wide-ranging plan, which is replaced by a complex, multilayered system of public funding that is wrongly mistaken for stability but which, to put it more correctly, is actually ‘chronically unstable’. In 2010, however, the economic crisis was used as a way to legitimise particularly deep budget cuts, both now and in the future, applied across the board in all sectors receiving public funding. But these reductions lacked clear criteria used to decide what and how to cut, and these issues do not even appear to have been considered at all. However, this year’s IEM Report’s in-depth look at public investment in the culture and telecommunications industries is not prompted by journalistic spirit. Although, of course, the present situation has brought this topic to the attention of careful observers. Analysis of the spending trends in the public sector is a necessary tool on which to base a qualitative assessment of funding, its efficiency in terms of economic results in the territory and social redistribution of revenue and, therefore, its productivity and social functions. A reliable and efficient method of tracking spending data is actually the starting point for measuring the impact of funding in the sector and the territory, and to gain an understanding on how much of it can be considered truly productive, e.g., in supporting innovation in businesses or systems, as opposed to sustaining activities with little or no impact on the productive capability of the sector or the economy. Above all, since fewer and fewer public resources are being allocated to culture and telecommunications, waste is no longer tolerable and any amount invested needs to be linked to an assessment of its efficiency. The political decision makers deliberating public funding should also provide measures to constantly monitor the money spent because in too many cases investment has been provided with insufficient knowledge of a situation and without verifying its effectiveness. Monitoring itself is an added cost which, however, should be considered essential. Focusing attention on public funding seemed particularly relevant because its intrinsic nature defines and conditions creative, productive and distribution processes that give form and visibility to the culture system. The chosen scope for this analysis, however, is unusual compared with a traditional definition of culture. It encompasses a universe composed of culture and telecommunications, which includes live entertainment, cinema, television, radio and publishing, all included under the heading ‘culture’. This choice is dictated by the desire to reflect on culture defined as a point of interaction between various, closely interconnected sectors within the same industry, where creation is upstream on one end of the chain and distribution lies downstream on the other end. Reflecting on the economic foundations of culture by focusing on a ‘culture chain’ indicates a conceptual leap: moving away from ideas of culture judged as an intellectual product to be milked as merchandise and towards an idea of it being a product of intellect and knowledge able to generate wellbeing and development, in a virtuous cycle of innovation and technological advancements. The sectors that operate within this culture chain have been ‘helped’ by the State, to differing degrees and for varying reasons and lengths of time, to the extent in which State help is able

Introduction

11


to increase wellbeing within society by ‘force’, stimulating several crucial areas in the system, without interfering with natural laws of competition. The aim of the in-depth survey in this Report is to measure this State help, that is the amount of public spending in culture and telecommunications. It is a first step, to be used as a starting point for any reflection on merit or method. The Report’s mission is to present the figures and make them clear. This data has been elaborated with a comparative and diachronic analysis, which attempts to place the accounts in their context and, therefore, reflect the changes of previous years while comparing the various segments of the culture industry. We hope this will provide a useful prelude for further thought on the logics that determine spending policy and, thereby, lead to wider reasoning on State policy for culture.

12

Introduction


Part I Markets Television Radio Cinema Home-video Books Newspapers and magazines Directory Recorded music Advertising Fixed telecommunications and broadband Mobile telecommunications Information technology Video games Radio

13


Television

14


Television by Andrea Marzulli

1. Introduction The television market in Italy is finally feeling the effects of some of those structural changes that have already been in place for several years in the more advanced markets. The growing level of competition should certainly be seen as a positive trend. Although the drive for innovation may still appear weak, it can be hoped that some trends will settle over the next few years and mobilise market dynamics to the benefit of the essential purpose of television which is - always worth remembering - to satisfy the viewer’s demand for entertainment and information. The switch to digital, which offers a wealth of choice for the viewer and consequently fragmented ratings, has sparked off more decisive competitive practices than the Italian market has been used to. Traditional broadcasters are leading the new range of television products, on both digital and on-demand channels, and are reorganising their Internet presence (e.g. the Rai.tv and La7 portals and Video Mediaset) in response to the challenge presented by Over-the-top TV (TV content through broadband connection), which could have a potentially destabilising effect on the present status quo and usher in a progressive opening/ convergence of traditional television viewing with professional and semi-professional products on the web. While the advertising crisis is having a particularly adverse effect on the production market, which is especially hard on independent production, there is also a drive to find new solutions that was not present in easier, more fruitful times when the market was somewhat a world unto itself. Now the challenge is to find new ways to create efficient production budgets, tapping different sources of funding to allay financial pressure, and also to produce formats and productions that can deliver the audience figures that are no longer guaranteed. If the increase in competition actually leads to an increase in quality and a wider range of content will only be proved by the facts that emerge over the next few years. Furthermore, as the public service broadcasters throughout Europe remodel their funding sources to free themselves from the fluctuating advertising market, there will be limited growth in the medium term. Both France and Spain have changed course, opting for a BBCstyle model, which leaves Italy as the only large country where the public broadcaster has bilateral funding, from both licence fees and advertising. Giving up advertising revenues is certainly a necessary (although not sufficient) step towards improving quality and saving public broadcasters from the endless scrabble to produce ratings results. The elements of potential change, therefore, are many, though only some can be traced in the data that is presently available.

Television

15


2. Share and penetration The launch of the DTT (Digital Terrestrial Television) channels now available for an increasing number of Italian viewers is probably the main reason for the latest growth registered in the 2009 television audience, an increase that was also well distributed over all the time slots. It is also possible that the general fall in consumer sales has provided further incentive towards forms of consumption that cost nothing, or almost nothing, such as free-to-air television. The average amount of television viewed per day is a stable 3hours 59 minutes (up from 3h 49m in 2007) while the average audience watching the small screen over the entire 24-hour cycle is 9.44 million viewers. In the tricky prime time slot, the total number of viewers has risen to 24.42 million (although the rating does not reach 43%, in comparison with the 44% recorded in 2005). The biggest growth in the other time slots was registered in the morning, between 7a.m. and 12 noon. These are timeslots where the general interest broadcasters have intensified investment and effort as, with the increasing spread of DTT influence, the proliferation of choices compete to increase audience levels. Table 1: Audiences and share ratings in an average day, 2005-2009 2009 Time slot

2008

2007

2006

2005

Audience Rating Audience Rating Audience Rating Audience Rating Audience Rating (000) (%) (000) (%) (000) (%) (000) (%) (000) (%)

07.00-09.00

4,660

8.16

4,383

7.73

4,292

7.61

4,338

7.79

4,256

7.67

09.00-12.00

4,967

8.70

4,686

8.26

4,378

7.76

4,485

8.06

4,572

8.24

12.00-15.00

14,076

24.65

13,767

24.28

13,634

24.18

13,911

25.00

14,030

25.29

15.00-18.00

10,331

18.09

9,878

17.42

9,497

16.84

9,885

17.76

9,811

17.68

18.00-20.30

15,516

27.17

15,282

26.95

14,936

26.48

15,348

27.58

15,518

27.97

20.30-22.30

24,425

42.92

24,161

42.61

23,695

42.02

24,424

43.88

24,615

44.36

22.30-25.59

10,364

18.15

10,093

17.80

9,887

17.53

10,163

18.26

9,835

17.73

02.00-25.59

9,445

16.58

9,211

16.25

8,989

15.94

9,230

16.58

9,213

16.60

Average minutes watched daily

238.7

234.0

229.5

238.8

239.0

Source: IEM elaboration of Auditel data.

In 2009, little more than 1 share point separated the total audiences of RAI and Mediaset channels, with the public broadcaster in the lead. This marks the closest result between the broadcasters’ audiences for many years (one has to look back to 1993 to find a smaller difference: 45.9% vs. 44.5% - and in those 16 years, overall they have both lost approximately 10 points). While the consolidated trend shows general interest broadcasters losing audiences to the digital channels (some of which are forsaking the niche and single interest sectors and heading towards a semi-generalist configuration), new offers from the two major audience catchments partially compensate the losses. The 2009 results depend mostly on the efforts made by Mediaset to retain viewers for Canale 5, the channel responsible for gathering roughly 2/3 of Mediaset’s advertising revenues and the only general interest channel to have increased its share (from 20.33% to 20.65%). It is worth noting the drop in audience for RAI Due (-1.4%): the station was penalised by an ill-defined identity and by the transition to digital in various regions where it operated as a trail blazer (as did Rete 4 which, however, only lost 0.5%). Another point was won by “other terrestrial” broadcasters, especially by DTT channels not affiliated to RAI or Mediaset, as data relative to local broadcasters shows their difficulty in

16

Television


retaining audience. Another percentage point was gained by the satellite TV broadcasters, who appear to be consolidating the relationship with their audience, despite the fall in the overall number of subscribers. Table 2: Audience share in an average day, 2005-2009 Broadcaster RAI Uno

2009

2008

2007

2006

2005

21.17

21.80

22.49

23.15

23.00

09 vs 08

09 vs 05

-0.63

-1.83

RAI Due

9.20

10.60

10.48

11.35

11.37

-1.40

-2.17

RAI Tre

8.94

9.07

9.15

9.38

9.18

-0.13

-0.24

RAI digital channels

1.36

*0.82

.

.

.

0.54

-

sub-total RAI

40.67

42.29

42.12

43.88

43.55

-1.62

-2.88

Canale 5

20.65

20.33

20.60

20.95

21.84

0.32

-1.19

Italia 1

10.38

10.83

11.17

11.09

11.47

-0.45

-1.09

Rete 4

7.78

8.28

8.63

8.18

8.59

-0.50

-0.81

Mediaset digital channels

0.80

0.29

-

-

-

0.51

-

39.61

39.73

40.40

40.28

41.93

-0.12

-2.32

La7

sub-total Mediaset

3.01

3.08

2.97

3.02

2.71

-0.07

0.30

Other terrestrial

7.57

6.57

6.45

6.14

6.33

1.00

1.24

Other satellite Total

9.22

*8.33

8.05

6.75

5.51

0.89

3.71

100.00

100.00

100.00

100.00

100.00

-

-

Note: (*) in 2008, 0.48% of the RAI SAT channels, hosted at the time on the satellite channels, was shifted to the RAI digital channels and no longer included in “other satellite”. Source: IEM elaboration of Auditel and RAI figures.

Table 3: Prime time audience, 2005-2009 Broadcaster

2009

2008

2007

2006

2005

09 vs 08

09 vs 05

RAI Uno

22.34

22.67

23.28

24.22

23.91

-0.33

-1.57

RAI Due

10.04

10.70

10.28

10.51

10.63

-0.66

-0.59

RAI Tre

9.42

10.06

10.15

10.28

9.75

-0.64

-0.33

1.01

*0.57

.

.

.

0.44

-

Sub-total RAI

RAI digital channels

42.81

44.00

43.71

45.01

44.29

-1.19

-1.48

Canale 5

21.04

20.69

21.57

22.01

22.50

0.35

-1.46

Italia 1

9.77

10.29

10.73

10.53

11.51

-0.52

-1.74

Rete 4

7.80

8.57

8.35

8.05

8.80

-0.77

-1.00

Mediaset digital channels

0.56

.

.

.

.

-

-

39.17

39.55

40.65

40.59

42.81

-0.38

-3.64

2.63

2.62

2.30

2.42

2.06

0.01

0.57

Sub-total Mediaset La7 Other terrestrial

7.33

6.64

6.33

5.98

5.84

0.69

1.49

Other satellite

8.10

*7.19

7.01

6.01

4.99

0.91

3.11

100.00

100.00

100.00

100.00

100.00

-

-

Total

Note: time slot 20.30-22.30; (*) in 2008, 0.48% of the RAI SAT channels, hosted at the time on the satellite channels, was shifted to RAI digital and no longer included in “other satellite”. Source: IEM elaboration of Auditel data.

Share results for the prime time slots on the general interest channels are better than the allday results, with the exception of Italia 1, which drops below 10% for the first time in many years. Here too, Canale 5 is the only generalist channel to register growth, rising to over 21%. The digital channels are weaker in this time slot, as is habitual. In the past 5 years, RAI has only dropped 1.5 points compared with Mediaset’s fall of over 3.5 points, digital channels included.

Television

17


As the reach of the DTT channels gradually grows, so the overall share for digital channels increases. In 2009, the total share for the DTT and digital satellite monitored channels increased by over 2 points, rising from 9.3% to 11.5%. In June 2010, this share exceeded 14% (due in part to SKY’s broadcast of the entire cycle of the FIFA World Cup). Table 4 – Audience share, digital channels, 2008 - June 2010 (%) Broadcasters and broadcasting groups - SKY - Sports channels

June 2010

2009

2008

4.29

3.02

2.76

2.38*

1.12

0.92

- Cinema channels

1.44

1.28

1.24

- Other channels

0.47

0.62

0.58

- Fox

1.84

1.75

1.68

Newscorp (SKY+Fox)

6.13

4.77

4.44

RAI

3.11

1.36

0.82

- Boing

1.36

0.72

0.29

- Iris

0.58

0.03**

-

- Premium Calcio

0.03*

-

-

Mediaset (tot.)

1.97

0.80

0.29

Disney

0.91

0.86

0.75

Switchover Media

0.74

**0.27

-

Viacom – MTV Italia

0.60

0.36

0.31

Discovery

0.41

0.32

0.28

Turner Italia (Time Warner)

0.33

0.42

0.31

De Agostini

0.19

0.04

-

Sitcom

0.19

0.12

0.12

Axn (Sony)

0.12

0.08

0.05

La7D (Telecom Italia Media)

0.11

-

-

Eurosport (Groupe Tf1)

0.10

0.07

0.09

Digicast (Rcs Mediagroup)

0.09

0.06

0.07

Elemedia (Gruppo Espresso)

0.05

0.05

0.05

Other channels and groups

1.97

1.95

1.69

Total

14.02

11.53

9.27

Note: timescale 02:00-26:00, total households, individuals aged 4 and over. Table ordered by June 2010 share; (*) June 2010 reflects the broadcast of FIFA World Cup (which increased share for SKY's sports channels) and the end of Italy's Serie A season (which decreased share for Mediaset's Premium Calcio channels). In April 2010, SKY Sports (soccer and other sports) had a 1.40% share (0.34% for the SKY soccer channels alone) and Mediaset's Premium Calcio 0.62% (on a total share for Mediaset digital channels of 2.13%); (**) weighted annual result based only on the months monitored. Source: IEM elaboration of Auditel data.

Almost all the broadcasters recorded positive trends during 2009. The results for RAI and Mediaset have already been noted while SKY also increased its share to over 3%. In the early months of 2010 the general interest broadcasters’ DTT channels registered the greatest growth. While Boing (owned by Mediaset and TBSE) leads the digital channels, the RAI offer took over 3% of the total national share (and almost 7% in the fully digital regions). The departure of the RAI SAT package from SKY, and its consequent rebranding, turned out to be the catalyst for an increase in overall share, even if advertising revenues are not yet able to compensate for the loss in subscriber revenue (a couple more years are still needed for that). RAI Yoyo (previously pay) quickly overtook RAI Gulp in share (0.45% vs. 0.35% in June 2010) while RAI Premium and RAI Movie swiftly established themselves among the most watched digital channels (a truly remarkable result when considering they are only present in the fully digital regions), behind

18

Television


RAI 4 (0.81% in June 2010). Mediaset almost reaches 2%, thanks to the success of its channels Boing (1.36%) and Iris (0.58%). Among the minor broadcasting groups, Switchover Media is the big success story with its kids’ channel, K2, consistently recording over 0.50% (thanks in part to the syndicated analogue slots on local TV stations). DTT channels are, however, progressively taking share from the local broadcasters. Data from the fully digital regions show a 20-30% drop in net daily contacts for the principal broadcasters in each region. Though increases were registered in Tuscany, Marche, Sicily and Puglia. The larger local broadcasting groups, such as Telelombardia and Telenorba, who have invested in local original production, actually retained their audience. In general, however, there was an almost 5% drop in contacts in 2009, with an especially devastating effect on the smaller channels. The data appears to confirm that original, local, identifiable content is the main key to audience loyalty, a choice which is not available to all. The essential question of positioning in the LCN system is connected to the need to create audience loyalty through programmes the viewer will ‘actively’ seek out rather than ‘passively’ stumble across. Policy choices aside, this does appear to be the key issue, and one that is possibly even more important than the creation of spin-off single interest channels to broaden the offer, a process many broadcasters opted for, albeit with differing levels of quality and investment. Table 5: Average daily reach, local broadcasters, 2005-2009 (top 3 per region) Broadcaster

2009

2008

2007

2006

2005

Δ % 09-08

Δ % 09-05

Piedmont-Val d’Aosta Telecity Piemonte

337

411

411

410

459

-18,0

-26,6

Telecupole

261

302

316

333

371

-13,6

-29,6

Quarta Rete

190

280

318

325

343

-32,1

-44,6

Primo Canale

232

244

254

236

268

-4,9

-13,4

Telenord

154

129

122

112

142

19,4

8,5

Telecittà

88

88

99

103

122

0,0

-27,9

Liguria

Lombardia 1190

1190

1222

1177

1118

0,0

6,4

Antenna Tre

Telelombardia

874

961

1006

1093

982

-9,1

-11,0

Telenova

637

683

714

656

659

-6,7

-3,3

1091

1174

1197

1346

1318

-7,1

-17,2

Antenna Tre Nord Est

594

658

677

650

656

-9,7

-9,5

Rete Nord Telenuovo

540

533

561

621

645

1,3

-16,3

Veneto 7 Gold Telepadova

Trentino-Alto Adige Rttr

124

167

144

137

139

-25,7

-10,8

Tca

114

150

146

137

143

-24,0

-20,3

Friuli-Venezia Giulia Telefriuli

158

166

165

192

214

-4,8

-26,2

Rete Nord Telequattro

134

118

98

107

112

13,6

19,6

Emilia-Romagna 7 Gold Sesta Rete

564

579

658

663

559

-2,6

0,9

E’ Tv Emilia Romagna

386

395

402

418

-

-2,3

-

Telesanterno

154

177

192

202

224

-13,0

-31,3

Italia 7

450

434

468

411

3,7

9,5

Tuscany 481

Television

19


Rtv 38

367

356

Tvr Teleitalia

173

149

325

392

417

3,1

-12,0

-

-

-

16,1

-

138

140

156

26,3

10,9

Marche Tv Centro Marche

173

137

7 Gold Teleadriatica

98

80

55

60

-

22,5

-

E' Tv Marche

41

32

42

42

-

28,1

-

Umbria Tv

67

81

69

83

79

-17,3

-15,2

Rte 24

53

63

59

59

-

-15,9

-

Tef

34

32

-

-

-

6,3

-

376

393

466

-15,4

-41,0

Umbria

Lazio Tvr Voxson – Teleregione

275

325

Super 3

273

251

252

233

365

8,8

-25,2

Teleroma 56

135

187

226

212

244

-27,8

-44,7

Abruzzo Rete 8

137

132

138

118

121

3,8

13,2

7 Gold Antenna 10

125

131

133

110

92

-4,6

35,9

Telemolise

73

68

59

59

64

7,4

14,1

Teleregione Molise

25

-

-

-

-

-

-

1072

1229

1231

1209

1291

-12,8

-17,0

Teleoggi - Canale 9

510

593

710

729

758

-14,0

-32,7

Napoli Canale 21

448

459

438

380

371

-2,4

20,8

1407

1391

0,8

5,2

Molise

Campania Telecapri

Puglia & Basilicata Telenorba (Tn7)

1464

1452

1302

Teledue (Tn8)

635

586

536

502

495

8,4

28,3

Antenna Sud

260

243

212

226

229

7,0

13,5

8 Videocalabria

174

203

198

202

236

-14,3

-26,3

Reggio Tv

57

74

61

58

70

-23,0

-18,6

Teleuropa

52

64

54

-

-

-18,8

-

524

506

508

11,3

20,1

Calabria

Sicily Antenna Sicilia

610

548

Telecolor Italia 7

368

334

353

388

373

10,2

-1,3

Tgs

356

379

430

425

443

-6,1

-19,6

Sardinia Videolina Tcs 5 Stelle Sardegna Total contacts

395

474

561

559

580

-16,7

-31,9

47

81

127

147

142

-42,0

-66,9

19

39

59

-

-

-51,3

-

16788

17621

17851

18025

17776

-4,7

-5,6

Note: values expressed in thousands; results tables for previous years may have included broadcasters not present in the 2009 “Top 3”; only Auditel monitored broadcasters in 2009 have been taken into consideration, irrespective of previous years' results; in cases where monitoring did not cover all 12 months, the annual result is based on the average of the monitored months. Source: IEM elaboration of Auditel figures.

20

Television


The average audience and share results for the local broadcasters on a national scale (data easily compared with results for nationwide and digital broadcasters) demonstrate their present struggle. The three main nationwide networks show a significant drop in share (especially Odeon 24, affected by its inheritance of Odeon TV), as do the majority of the 10 leading local broadcasters, headed by Telenorba, which holds 0.28% of the Italian market (down from 0.3% in 2008). Telelombardia and Antenna Sicilia, however, are growing, with 2,000 and 3,000 viewers respectively. There is a sharp drop in audience for the local broadcasters in Campania and Sardinia, regions that have now switched entirely to digital. Table 6: Principal local TV stations and networks, average audience and share, 2008-2009 (all-day) 2009 Broadcaster

Area

Average audience

2008 Share

Average audience

Share

In syndication 7 Gold

National

43,410

0.30

47,613

0.52

Canale Italia

National

18,885

0.20

21,844

0.24

Odeon 24

National

486

0.01

15,452

*0.17

26,374

0.28

27,658

0.30

Local Telenorba

Puglia & Basilicata

Telecapri

Campania

15,521

0.16

17,796

0.20

TeleLombardia

Lombardy

14,661

0.16

12,460

0.14

Antenna Sicilia

Sicily

12,352

0.13

9,330

0.10

7 Gold Telepadova

Veneto

11,461

0.12

12,028

0.13

Nuova Antenna Tre

Lombardy

9,445

0.10

9,519

0.10

Teleoggi Canale 9

Campania

7,516

0.08

8,535

0.09

Videolina

Sardinia

6,890

0.07

9,486

0.1

Antenna Tre Nordest

Veneto

6,727

0.07

6,642

0.07

Napoli Canale 21

Campania

6,703

0.07

6,085

0.07

Note: (*) data relative to Odeon TV channel. Source: IEM elaboration of Auditel data.

Platforms and subscribers By the end of 2009, penetration of digital television had reached over 19 million households with televisions (over 80% of households) thanks to the increasing spread of DTT (up 7 million in 2009). Other digital platforms also registered growth, albeit smaller: digital satellite rose to 6.6 million families (in spite of a decrease in the pay audience), partly due to the diffusion of Tiv첫 Sat cards and the installation of dishes in areas where switch-off was particularly problematic. IPTV has reached just over 700,000 subscribers, thanks to a policy of keeping prices low to attract new clients. Although there has been a delay of several months in the planned switch-off in Northern Italy, digital penetration is destined to rise by end 2010 (by end April 2010, 16.88 million households accounted for 68.5% of penetration, with a total number of receivers, set-top boxes and integrated TV sets amounting to 27.46 million).

Television

21


Table 7: Penetration of TV distribution technology, 2006-2009 (first access) 2009 Households with TV

% 09

2008

2007

2006

24,28

100,00

23,60

23,50

23,40

6,60

27,18

6,35

5,93

5,43

(of which pay)

4,74

19,52

4,75

4,43

4,03

(of which free)

1,86

7,66

1,60

1,50

1,40

12,43

51,19

5,70

4,80

3,60

satellite

DTT ADSL /fibre optic (tot. Multichannel households) analogue terrestrial only

0,69

2,51

0,40

0,25

0,20

19,72

80,89

12,45

10,98

9,23

4,56

19,11

11,15

12,52

13,17

Note: values in millions. Source: AGCOM, ItMedia, Makno.

The technical complexity of the National Plan for Frequency Assignment approved by Italy’s communications watchdog, AGCOM (Resolution 300/10/Cons), led to delays in convening technical planning committees, shifting switch-off procedures back a month for the technical areas of Northern Italy (Lombardy, Emilia-Romagna, Veneto and Friuli-Venezia-Giulia while Liguria was postponed to early 2011). Local broadcasters have complained that the NPFA did not respect the frequency reserve of one-third, neither on a quantitative or a qualitative basis, and that the range is too narrow, especially in terms of international coordination of border frequencies. The Logical Channel Numbering Plan approved by AGCOM (Resolution 366/10/Cons) opted to start numbering with two digit figures, instead of three digits, thereby providing an advantage for the nationwide broadcasters (generalist and digital) and some local broadcasters, especially those who will be allocated a number between 10 and 19 through a system based on audience preferences. New and important regulatory changes included the possibility for SKY Italia to participate in the contest for the 5 digital dividend frequencies (with the obligation to offer programmes free-to-air) and the adoption of the Audiovisual Media Services Directive (Legislative Decree N.44, 15 March 2010), which amended the previous “Television Without Frontiers” Directive. The AMS directive introduces a common regulatory framework for linear and non-linear audiovisual services and allows for the use of product placement in television programmes. It also limits the amount of advertising on Pay-TV channels and intervenes in the codes of conduct for the attribution of residual rights to producers of independent content, linking this to the producers’ contribution to the funding of the production. Pay-TV in Italy in all its various forms of distribution and commercialisation now reaches 10 million clients. Competition from Pay DTT channels contributed to slow the growth of SKY Italia’s subscriber base, which counted 4.752 million at the end of 2008 and rose to 4.790 million by mid-2009. However, there were 4.740 million subscribers at end 2009, a figure that later dropped to 4.734 million in June 2010, equating to a loss of 56,000 subscribers in less than 12 months. Mediaset Premium’s PPV DTT added 800,000 new ‘active clients’ in 2009, bringing the total to over 3.7 million clients, compared to 2.9 million at end 2008. Approximately 1.8 million of these 3.7 million are subscribers while the others use pre-paid cards, which suggests a growing conversion from ‘active clients’ to proper subscribers. Dahlia, the channel targeting a male audience, ended 2009 with 450,000 subscribers, rising to 600,000 by mid 2010. Growth in subscriber numbers on other digital platforms, however, has stalled. IPTV reached 687,000, but by mid 2010 a dip was seen. Drops were also recorded in the number of subscribers to Mobile TV, estimated at 720,000 by end 2009 (compared with 790,000 at end 2008), although other sources suggest that less than half are actual users of TV via mobile phone.

22

Television


Table 8: Pay-TV subscribers, 2005-2009 Operator

Platform

SKY Italia

Satellite

Fastweb

2009

2008

2007

2006

2005

4.740

4.752

4.430

4.030

3.560

ADSL -fibre optics

213

****200

****190

****180

191

80

31

-

-

-

-

-

Alice Home Tv

ADSL

423

329

Infostrada Tv

ADSL

51

20

Tiscali Tv

ADSL

-

-

Tot. Households with Pay-TV

10

5.427

5.301

4.710

4.241

3.751

Mediaset Premium

DTT

*3.725

*2.911

*2.067

*1.560

nd

La7 Cartapiù

DTT

-

240

700

***715

nd

°°450

-

-

Dahlia Tv

DTT

La3 Tv

DVB.H – UMTS

Vodafone SKY Tv

DVB.H – UMTS

Tim Tv

DVB.H

Tot. Other Pay TV

°720 (°790)

**400

****4.895

****3.550

-

-

-

-

**300

nd

****3.070

-

-

2.525

-

Note: values in thousands at 31 January each year. (*) Number of “active clients”, including 228,000 EasyPay subscribers, at 30 September 2008 (official Mediaset data). By end 2009, Milano Finanza estimated EasyPay subscriptions at 1.8 million. DTT Pay clients not included in PayTV subscribers due to absence of official data differentiating between “subscribers” and “active clients”. (**) Source: 2007-AGCOM, 2008-Rethink. Other sources estimate mobile TV users in Italy at 850,000 (2007) and 1.2 million (2008), but it is probable that this reflects numbers of “owners of TV-ready terminals”, regardless of subscription. (***) Number of smart-cards activated since service launch (of 11 million cards sold). (****) Estimates. (°) Estimates from Assinform/Netconsulting; (°°) Of which approx. 20% are subscription. Source: IEM elaboration of data from AGCOM, Newscorp, Assinform, Rethink and Mediaset.

3. The market Resources The television market dropped 3.4% in 2009, measuring almost 8.5 billion euros in total against the 8.8 billion in 2008, an effect of the crisis in the advertising sector. Television advertising on both national and local broadcasters dropped 11.7% to below 4 billion euros and, for the first time in the history of commercial broadcasting, occupied less than 50% of the market, 46.9%, compared to 51.3% in 2008. Subscriber revenues reached over 200 million euros (almost 34%), of which over half was driven by DTT. The licence fee continues its slow progress, reaching 1.630 million euros and accounting for 19.2% of the market, despite the estimate by Associazione Contribuenti Italiani (association of Italian consumers) that over 40% of households do not pay the licence fee. Table 9: Resources available in the TV market, 2005-2009 Type

2009

2008

2007

2006

2005

∆ %09-08

∆ %09-05

Values in millions euros licence fee

1.630

1.603

1.567

1.491

1.483

1,7

9,9

Advertising

3.983

4.512

4.482

4.463

4.418

-11,7

-9,8

Pay-TV

2.873

2.671

2.384

2.221

1.717

7,6

67,3

Total

8.486

8.786

8.433

8.175

7.618

-3,4

11,4

Values in percentages licence fee

19,2

18,2

18,6

18,2

19,5

1,0

-0,3

Advertising

46,9

51,3

53,1

54,6

58,0

-4,4

-11,1

Pay-TV

33,9

30,4

28,3

27,2

22,5

3,5

11,4

Television

23


Total

100,0

100,0

100,0

100,0

100,0

-

-

Note: calculations in this and the following tables focus on revenues from the three sources detailed, ignoring for example, resale of rights to other operators and income from network operations. Source: IEM elaboration of network data, AGCOM, Assocomunicazione, FRT, Upa et al.

Broadcasters’ income When it comes to the partition of income among the big three, SKY leads the Italian market with 2.686 billion euros, of which 2.463 billion are subscriber fees. The drop in advertising revenues put RAI back to 2.552 billion and Mediaset to 2.592 billion. The public broadcaster registered a drop in advertising revenue above the market average (-17.2%) but managed to partially compensate with other activities1. Advertising revenue on Mediaset’s general interest channels was worth over 200 million euros in 2009, a 8.6% drop from 2008. Approximately 130 million euros were recovered through pay activities (which registered over 50% growth) and advertising revenues on digital channels2. Local television networks and stations and music channels (especially All Music, but also MTV) registered severe losses. The terrestrial broadcaster La7 increased by 13% while the Pay DTT channel Dahlia TV took 12 million euros in income in its first year of activity. Table 10 – Television broadcaster income, 2005-2009 Broadcaster

2009

2008

2007

2006

2005

Δ % 09-08

Δ % 09-05

Licence fee

1.630

1.603

1.567

1.491

1.483

1,7

9,9

RAI

1.630

1.603

1.567

1.491

1.483

1,7

9,9

Advertising

3.983

4.512

4.482

4.463

4.418

-11,7

-9,8

RAI

908

1.096

1.137

1.133

1.121

-17,2

-19,0

RTI - Mediaset

2.241

2.452

2.451

2.425

2.516

-8,6

-10,9

La7

91,7

81

91

84

75

13,2

22,3

MTV

45,7

63

67

67

71

-27,0

-35,6

Rete A – All Music

6,8

16

19

19

18

-57,5

-62,2

Sportitalia**

7,5

5,9

6

8

9

27,1

-16,7

SKY

223

232

200

192

144

-3,9

54,9

Other satellite channels*****

43

45

32

30

nd

-4,4

-

DTT

40,5

25,9

22,9

13

11

23,1

268,2

- RAI°°

14

10

8

nd

nd

40,0

-

- Mediaset free

10,3

9,1

6,0

6,5

6,2

13,2

66,1

1 The consolidated income of the RAI Group in 2009 was 3.178 billion euros (3.211 billion in 2007). Other revenues were provided by commercial activity (RAI Trade), film and home video (RAI Cinema and 01 Distribution), contracts for radio and television services abroad, radio advertising, RAI SAT revenues and other. Principal compensation for the loss in revenues was provided by ceding the rights to the FIFA World Cup in 2010 and 2014 (for 175 million euros). 2 The overall revenues for Mediaset amounted to 3,883 million euros in 2009 (4,199 million in 2008), of which 656 from the Spanish operation Telecinco (982 in 2008). The Spanish operation can be held responsible for the group’s entire loss. Revenues from the Italian companies were 3,219 million (3,229 million in 2008) of which 2,351 million from the free-to-air channels (including 2,241 from advertising on generalist channels), 219 as network operators (but with 125 million of intergroup revenues), 561 in the Pay sector (including 223 million from resale of rights and other revenues and 311 million from subscription sales) and 425 from other activities (including 105 in foreign sales by Medusa and Taodue, 61 from Mediashopping and 191 million in intergroup revenues). It should be considered, however, that the share of the advertising revenues passed to RTI (the holding group that owns Mediaset’s Italian TV channels) was 1,983 million. The Endemol group (1,189 million in global revenue in 2009, 1,301 in 2008) of which Mediaset indirectly owns 33% is not consolidated in the group’s balance sheet.

24

Television


- Mediaset pay

29,8

13,1

8,1

5,7

4,6

127,5

547,8

- Qoob (MTV)**

0,4

0,7

0,8

1

-

-42,9

-

Local broadcasters

*375

487

454

491

453

-23,0

-17,2

Dahlia

0,15

-

-

-

-

-

-

TLC operators***

0,7

1,2

2

1

nd

-41,7

-

Subscribers / PPV

2.873

2.671

2.384

2.221

1.717

7,6

67,3

SKY Italia

2.463

2.373

2.172

2.030

1.642

3,8

50,0

Mediaset Premium

311

199

125

84

36

56,3

763,9

La7 Cartapiù

-

11

12

10

6

-

-

Dahlia**

12

-

-

-

-

-

-

Conto Tv**

3

4

-

-

-

-25,0

-

-

TLC operators*** - Fastweb

84,1

- H3g

88

75

27

97 (****38)

-

- Other

-4,4

154,8

6

RAI sub-total

2.552

2.709

2.712

2.624

2.604

-5,8

-2,0

RTI-Mediaset sub-total

2.592

2.673

2.590

2.521

2.563

-3,0

1,1

SKY Italia sub-total

2.686

2.605

2.372

2.222

1.786

3,1

50,4

TI Media° sub-total

138

155

171

162

152

-11,3

-9,3

8.486

8.786

8.433

8.175

7.618

-3,4

11,4

Total

Note: values in millions of euros. (*) Assocumicazione estimated growth (Frt data used on the capital groups to 2008). (**) Estimates (other sources have 17.5 million for Dahlia). (***) IPTV and Mobile TV offers. (****) AGCOM indicated 97 million euros for 2006 in the 2007 report and 38 million in the 2008 report. (*****) Estimates by Assocomunicazione. (°) La7, MTV, Qoob, La7 Cartapiù (Alice Home TV cannot be extracted from TLC operators) for “sub-total Telecom Italia”. (°°) Including satellite channels to 2008. Source: IEM estimates and elaboration of company reports, AGCOM, Upa, Assocomunicazione, Frt et al.

Turning to new Pay-TV platforms, AGCOM values revenues from the operators active in DTT at 323 million, while Confindustria (Confederation of Italian Industries) estimates user spending at 377 million. The combined revenue from IPTV and Mobile TV operators is 84 million euros, while Confindustria has re-valued its previous estimates of user spending on these platforms at 188 million euros (127 million euros IPTV, 61 million euros Mobile TV). According to AGCOM, income from new platforms (satellite excluded) is estimated at 407 million euros, while user spending according to Confidustria comes to 565 million euros. Table 11 – Revenue for new Pay-TV platforms, 2007-2009 Market

AGCOM (operator revenue) 2009

DTT IPTV Mobile TV Total

2008

2007

323

210

137

84

**88

75

407

298

212

Confindustria (user spending) *2009

2008

2007

377

239

201

127

111

75

61

74

76

565

424

427

Note: figures in millions of euros, excluding advertising revenues. (*) Estimates. (**) AGCOM indicated 33 million euros in revenues from IPTV alone in 2008. Source: IEM elaboration of data from AGCOM, Confindustria Servizi Innovativi e Tecnologici, Assinform, Netconsulting.

Television

25


Estimates of the worth of the television advertising market vary considerably among sources, because of differing methods in calculating company investments and revenues from media outlets and because operators with smaller shares of the market (local and satellite broadcasters) can considerably vary the final results. Estimates range from 3.5 billion (AGCOM) to 4.7 billion euros ( Assocomunicazione - association of communications companies). Table 12: Comparison of television advertising data, 2008-2009 Source

2009

2008

Var. %

Note

AGCOM

3.541

3.929

-9,9

Net values for national terrestrial stations (share remitted to broadcaster). Underestimates local and satellite stations.

Assocomunicazione

4.756

5.296

-10,2

Gross values for national terrestrial stations including agency discounts. Underestimates local stations.

IEM

3.983

4.512

-11,7

Operator balance sheet data, integrated with other sources for local television and digital platforms.

Nielsen Media Research

4.359

4.851

-10,2

Net investment values for national terrestrial stations. Reduced scope for local and satellite stations.

Note: values in millions of euro. Source: IEM elaboration of AGCOM, Assocomunicazione, Upa, Nielsen Media Research data.

4. The television advertising crisis in Europe and programming investment At the end of the day, 2009 was a year of negative fluctuation for television advertising in all the major European countries, continuing the trend already registered at end of 2008. All countries recorded drops of around 10% (9.8% in France and Germany; 11% in UK; 11.7% in Italy), except for Spain where it was over 20% (Spain also registered the biggest fluctuation in 2008). The decrease had already begun to bite in the 2008 balance sheet for all countries, except Italy, which recorded the slightest of positive trends (although, conversely, without registering growth beyond 1% per-annum in the previous four years, unlike the other countries, which confirms the market’s greater lack of elasticity). Fig. 1: Growth in television advertising, 2006-2009 (%) 15,0

2006

2007

10,0

2008 7,3

5,1

4,7

5,0 1,0

0,0

3,2

3,1

1,0

0,4 0,7

-2,3

-2,9

-5,0 -10,0

-4,3 -9,8

-2,9

-9,8

-11,0

-11,7

-15,0

2009

8,8

-15,4

-20,0 -22,7

-25,0 Italy

Germany

France

Source: IEM elaboration of operator and advertising monitoring data.

26

Television

UK

Spain


One constant in all the countries is the negative result for the leading free-to-air channels (ITV, Telecinco, TF1, the Rtl Group in Germany) and the smaller free channels (such as M6, Five and Cuatro). This loss was generally compensated by the digital channels enjoying a period of audience growth. The best result on this front was registered by the French DTT free channels with a notable rise of 46%, while other countries where the consumer base is already more advanced, like the UK market, saw a drop in multichannel use which, while only a slight fall (-1.9%) contrasts with its 2005 result of +44%. The crisis also weighed heavily on the public broadcasters’ balance sheets, especially for France Télévision with the gradual exclusion of advertising spaces from its programming schedule. However, 405 million euros in income was a much more positive result than expected as the group had predicted a much worse outcome. The Spanish channel Tve also suffered, following the same trend to end 2009. RAI limited its losses to 17% by preserving its funding model. The television advertising crisis of the past two years has been borne better in Italy (where television advertising considerably outweighs print or internet advertising) than elsewhere, making the Italian market the richest at just below 4 billion euros. France, Germany and UK are stable around 3.5 billion euros while Spain has lost 1.2 billion in 2 years, by end of 2009 its market was worth 3.2 billion.

Table 13: France’s television advertising revenues, 2005-2009 Operators

2009

France 2 (public)

2008

2007

2006

2005

Δ % 09-08

Δ % 09-05

nd

310

427

442

428

France 3 (public)

nd

221

289

289

270

-

-

France 5 (public)

nd

18

36

34

33

-

-

405

549

752

765

731

-26,2

-44,6

Sub-total France Télévisions

-

-

Tf1

1429

1647

1718

1708

1648

-13,2

-13,3

M6

606

658

676

650

625

-11,0

-6,8

DTT free

338

232

109

40

18

45,7

1767,4

150

172

181

169

149

-12,8

0,7

3544

3930

4106

3977

3783

-9,8

-6,3

Cable and (digital)

satellite

Total

Note: values in millions of euros. Source: IEM elaboration of Npa Conseil data.

Table 14: Germany’s television advertising revenues, 2005-2009 Operators

2009

2008

2007

2006

2005

Δ % 09-08

Δ % 09-05

Ard (public)

141

171

168

177

158

-17,5

-10,8

Zdf (public)

112

123

117

125

102

-8,9

9,9

Rtl Group

1583

1872

1799

1802

1721

-15,5

-8,0

ProsiebenSat.1 Media

1511

1582

1791

1786

1717

-4,5

-12,0

Other (analogue+digital)

293

287

280

224

231

2,1

26,7

Total

3640

4035

4156

4114

3930

-9,8

-7,4

Note: values in millions of euros. Source: IEM elaboration of operator and Zaw data.

Television

27


Table 15: United Kingdom’s television advertising revenues, 2005-2009 Operators

2009

2008

2007

2006

2005

Δ % 09-08

Δ % 09-05

ITV 1

1238

1406

1532

1655

1880

-12,0

-34,1

Channel 4

601

699

760

748

796

-14,1

-24,6

Five

233

305

322

322

339

-23,5

-31,0

Multichannel (digital)

1395

1422

1333

1170

969

-1,9

44,0

- of which ITV digital

275

272

235

176

125

1,2

120,7

- of which C4 digital

192

190

167

140

99

0,8

94,3

- of which Five digital

49

64

48

21

0

-22,8

-

- of which Bskyb

346

368

395

384

369

-6,1

-6,4

Sub-total ITV

1513

1678

1767

1831

2005

-9,8

-24,5

Sub-total Channel 4

792

890

926

887

895

-10,9

-11,5

Sub-total Five

283

369

370

343

339

-23,4

-16,4

Total

3467

3896

4013

3894

3984

-11,0

-13,0

Note: values in millions of euros, calculated at average exchange rate for 2009 (0.8909 GBP = 1 euro). BSKYB data published 30 June annually. Source: IEM elaboration of operator and OFCOM data.

Table 16: Spain’s television advertising revenues, 2005-2009 Operators

2009

2008

2007

2006

2005

Δ % 09-08

Δ % 09-05

Tve (public)

422

597

715

693

709

-29,3

-40,5

Autonómicas (public)

238

320

355

345

381

-25,6

-37,5

Telecinco

590

893

1006

923

871

-33,9

-32,3

Antena Tres

555

659

802

804

800

-15,8

-30,6

Cuatro

249

293

273

173

21

-14,9

1109,7

La Sexta

189

157

120

45

-

20,0

-

Veo Tv (digital)

9

11

5

-

-

-15,2

-

Net Tv (digital)

22

9

<1

-

-

149,4

-

Local

9

38

51

47

42

-76,0

-78,4

Single interest (digital)

60

56

60

44

31

7,1

91,4

Total

2343

3032

3582

3291

3067

-22,7

-23,6

Note: values in millions of euros. Data available for the Spanish market often tends to underestimate local television and themed channels. Source: IEM elaboration of Cmt, Infoadex data.

The advertising crisis has had, and will continue to have significant consequences on the production market, especially for privately owned broadcasters whose income derives principally from commercial revenues and who represent a significant segment of the advertising market. Consequently, most European independent broadcasters cut their programming budgets by varying degrees, trying to find a balance that would conserve operating margins while preserving the appeal of their content, to retain their audience and avoid a negative cycle of loss. However, the programming cuts are having a particularly detrimental effect on original production content, whether created by independent or broadcaster-affiliated production companies. In times of cutbacks, broadcasters will obviously favour their affiliates and inhouse companies in an attempt to safeguard profit margins and increase any secondary income. An analysis of broadcasters in Italy, France and UK over the past three years demonstrates that the decrease in revenues has lead to cuts in programming investment and eroded the programming margin (the percentage by which programming costs eat into income from advertising revenue). This was particularly serious for British broadcasters who were headed for breaking point but were saved by the margins produced by the digital channels and other activities.

28

Television


Fig. 2: Percentage impact of programming costs on revenue, 2007-2009 (%) 100,0 86,9 87,1

90,0

2008

2009

82,1

77,7

80,0

2007

86,8 77,1

70,0 59,6

60,0

62,7 64,9

54,8 52,7

50,6 50,9

50,0

50,1

44,8

40,0 30,0 20,0 10,0 0,0 Itv 1

Channel 4

Tf1

Mediaset

M6

Source: IEM elaboration of company reports.

Profit margins have grown slender, especially in the British market, where tough competition in the domestic market means quality cannot be compromised. In spite of this, the biggest cuts were made by the broadcasters funded by advertising such as Channel 4 and ITV. For example Channel 4’s profit margins have halved in the past two years.

Fig. 3: Channel 4’s revenues and programming costs 2007-2009 (M£) 800 700

Advertising revenue

677

Cost of programming

620

600

522

509

535

465

500 400 300 200 100 0 2007

2008

2009

Source: IEM elaboration of Channel 4 company reports.

Television

29


Fig. 4: ITV 1’s revenues and programming costs, 2007-2009 (M£) 1400 Advertising revenues

1224

1200

Cost of programming

1127 951

1000

979

993 865

800 600 400 200 0 2007

2008

2009

Source: IEM elaboration of ITV company reports.

Margins are relatively higher in the French market where the relentless growth of digital channels is still a fairly recent phenomenon. In 2009, leading channel TF1 recovered 100 million of the +200 million euro loss in 2009’s advertising revenues from programming cuts, keeping the gross operating margin at 500 million euros. With lower revenues but historically high margins, the smaller channel M6 recovered +40 million euros through budget cuts, recouping part of the 50 million euros lost in advertising revenues. Fig. 5: TF1’s revenues and programming costs, 2007-2009 (M€) 2000 1800

Advertising revenue

1718

Cost of programming

1647

1600

1429

1400 1200

1024

1032

927

1000 800 600 400 200 0 2007

Source: IEM elaboration of TF1 company reports.

30

Television

2008

2009


Fig. 6: M6’s revenues and programming costs, 2007-2009 (M€) 800 Advertising revenue

676

700

658

Cost of programming 606

600 500 400

347

303

300

304

200 100 0 2007

2008

2009

Source: IEM elaboration of M6 company reports.

The same is true for our last case study, Mediaset. The group has always had higher margins than its European counterparts, operating in a market context that is only now starting to register digital competition in the ratings, although this presence has yet to be reflected by similar levels of advertising revenues. Few of the free-to-air digital channels reached break even and a good part of DTT income went to the Mediaset channels. However, in a situation where the generalist broadcasters lost 8.6% in advertising revenues, Mediaset programming cuts amounted to only 1.8% (20 million euros). These cuts were made in original drama production, which saw a drop in spending of 60-80 million euros in 2009 according to market estimates. Fig. 7: Mediaset’s revenues and programming costs, 2007-2009 (M€) 3000 Advertising revenue

2500

Cost of programming

2452

2451

2241

2000 1500

1239

1249

1227

1000 500 0 2007

2008

2009

Note: only generalist channels. Source: IEM elaboration of Mediaset company reports.

Television

31


Radio

32


Radio

by Chiara Valmachino

1. Overview According to Audiradio, the Italian radio sector counted 39.1 million listeners on an average day in 2009, which amounted to a 1.87% increase from the previous year. This data confirms the trend of constant growth, at an average rate of 1.25% per annum, which began in 2005 and stalled only once, in 2008 when there was a drop of 0.7% on the previous year.

Year 2005 2006 2007 2008 2009

Table 1 – Radio audience in Italy, 2005-2009 Listeners (000) Year on year variation % 37.205 1,76 37.995 2,12 38.654 1,73 38.381 -0,70 39.098 1,87

Note: listeners on an average day: individuals aged 11 years and over. Source: IEM elaboration of Audiradio figures.

Radio registers its peak number of listeners in the time slot between 6 and 9 a.m., where it reaches about 21.3 million people. The curve gradually declines over the late morning and then picks up again between 3 and 6 p.m. (with an approximate audience of 16.5 million), later dropping to 5.6 million listeners in the evening, between 9 p.m. and 12 midnight. Peak audience occurs during “drive time” - when people are travelling in their cars – which suggests that radio is prevalently listened to outside the home. According to Audiradio, on an average day at least 73% of listeners in 2009 used the radio outside the home and 60% in particular listened in the car. As previous IEM Reports have highlighted, portability is one of the key reasons for radio’s longlasting success, making it a versatile source of entertainment, that underscores and punctuates the day, used as an interstitial, adapting to the differing daily activities of a varied audience. The total number of listeners grew in 2009, as did radio penetration (i.e. number of radio listeners as a percentage of the 11+ population) in an average day, which settled at 73.1%, up from 72.3% in 2008. Radio’s core target is the young adult: over 80% of 15-44 year olds are radio users and the highest penetration – 83.7% - is registered in the 25-34 age range. The numbers drop steeply as Radio

33


people grow older, reaching 56.9% penetration in the over 65-year-olds. When compared with 2008, however, the 2009 figures demonstrate a slight ageing in the demographic profile of the radio user. Radioâ&#x20AC;&#x2122;s appeal drops in the 18-24 age range (-1.5% from 2008), remains steady among 25-34 year olds (-0.3%) and rises in all the older age groups. There is a 1.7% increase in penetration in the 45-54 age group and 1.5% in the over 65-year-olds. Audioradio data for 2009 confirms a prevalently male listenership, compared with previous years: 78.4% of males over the age of 11 are radio users, compared to 68.2% of women. Fig. 1: Percentage of radio penetration by age group (2009) 90

81.1

78.1

80

82.1

83.7

80.6 75.0

73.1

66.9

Rate of penetration

70

56.9

60 50 40 30 20 10 0

Total listeners 11-14 yrs 11+

15-17 yrs

18-24 yrs

25-34 yrs

35-44 yrs

45-54 yrs

55-64 yrs

65+ yrs

Age bracket

Source: IEM elaboration of Audiradio data.

Fig. 2: Percentage of radio penetration by gender, education and geographical area (2009) 0

20

40

60

73,1

Men

78,4

Women

68,2

University degrees/diplomas

77,9

Secondary school certificate Primary school certificate/none

geographical area

level of education

gender

Total (average %)

72,3 54

Northwest Northeast Centre South and islands

Note: Target, people aged 11 and over. Source: IEM elaboration of Audiradio data.

34

80

Radio

75 74,6 73,3 70,8

100


Penetration reaches its peak among people with diplomas or university degrees (77.9%) and drops to its lowest among those with no academic qualifications (54%, which represents a 1.6% decrease on 2008). Radio use is more frequent in the Northern Italian regions, where there is an average penetration of 74.8%, than in the Centre or South. Furthermore, a new kind of user emerged from the 2009 data. Compared with previous years, the 2009 listener is more ‘nomadic’, who probably tends to intertwine, alternate and accumulate different multiple sources from different platforms. The average amount of time spent listening to the radio, has dropped, by 7.3% from 179 to 166 minutes, the lowest number registered since 20051. Fig. 3 – Average radio listening time in Italy (2005-2009) 185 181 180 175

179

173 171

170 166 165 160 155 2005

2006

2007

2008

2009

Note: radio listening time (minutes) in average day, people aged 11 and over. Source: IEM elaboration of Audiradio data.

The Italian radio market consists of 18 national broadcasters, both publicly and privately owned, who mainly transmit in analogue terrestrial. Adding to the radio panorama are nationwide or pan-regional syndications (consortia of local stations who share advertising revenues and buy part of their programming from a superstation, broadcasting it simultaneously); community radios (both local and nationwide) and local stations. Identifying a precise number of local radio stations in FM is difficult. As the radio association FRT points out, the radio market has progressively become more concentrated over the years and frequencies used by smaller broadcasters are often bought up and incorporated into bigger networks without much fanfare. However, somewhat cautiously, FRT estimates that there were 930 local broadcasters on air (FM) in 2007. The principal radio operators in the Italian market can be divided into 3 categories: •

Public broadcaster:

1. RAI – Radio Televisione Italiana: RAI owns three national stations (Radiouno, Radiodue and Radiotre) whose infrastructure is handled by the group’s subsidiary company, RAI Way. The public broadcaster also owns the public utility radio Isoradio, which transmits traffic information and music mainly on ISO frequencies. •

Privately owned networks, whose core business is radio, including:

1. Gruppo Finelco (whose majority shareholder is company president Alberto Hazan) owns 1 In 2009, the privately owned Radio 105 registered the longest listening time, an average of 105 minutes per day. In second place was RAI Radiotre with 104 minutes, followed by the religious broadcaster Radio Maria at 97 minutes. The shortest listening time was recorded for Radio Radicale and M2o, with 58 minutes each on an average day.

Radio

35


three national stations: Radio 105, Radio Montecarlo (RMC) and Virgin Radio. Virgin Radio is the re-branded Play Radio channel bought from RCS Media Group in 2007. In exchange, RCS became a 34.6% shareholder in Finelco. In July 2009, the Finelco-RCS agreement was extended from 2012 to 2014. The new deal includes a 10 million euro increase in capital for Finelco, which corresponds with an increase of RCS shares in the group (to 37.2%) and gives RCS option rights to acquire the entire group between 2014 and 2015. 2. Radio Dimensione Suono (owned and managed by Eduardo Montefusco) broadcasts radio channel RDS 100% Grandi Successi nationwide and local stations Dimensione Suono Roma, Dimension Suono Due, Ram Power and Discoradio (bought in 2006). 3. Rtl 102.5 Hit Radio (founded by company president Lorenzo Suraco) controls the nationwide network RTL 102.5 and the TV channel of the same name (previously Hit Channel), which broadcasts free-to-air ‘radiovision’ on satellite and DTT. 4. Radio Italia owns the national network Radio Italia Solomusicaitaliana and from 2004 also used to run the satellite TV channel, Radio Italia TV until its closure in July 2009. Since 1 January 2010, Radio Italia’s advertising has been handled exclusively by Manzoni, a subsidiary of Gruppo L’Espresso, which also handles Elemedia’s radio channels. 5. Radio Maria Association broadcasts the religious channel, Radio Maria, which started out as a parish radio in Arcellasco d’Erba, Como and later became a national network. In 1998, the association founded the NGO World Family of Radio Maria involving 45 radio broadcasters worldwide to date. •

Radio networks that are subsidiaries of publishers whose core business is print media. These include the following:

1. Elemedia (owned by Gruppo L’Espresso) broadcasts three stations nationwide: Radio Deejay (general interest), Radio Capital (information and music) and M2o (music with a youth target). The group also owns the TV channel, Deejay TV, which replaced Allmusic in September 2009 and continued its programming. Deejay TV can be seen free-to-air on DTT and analogue. Allmusic was replaced on the SKY satellite pay-TV package by a new music channel, MyDeejay TV. 2. Monradio (belonging to Gruppo Mondadori) owns the general-interest channel Radio 101 (R101). It should be noted that Mondadori Pubblicità acquired the exclusive rights to manage the advertising revenues of the privately owned, Naples-based network Radio Kiss Kiss in March 2009. 3. Nuova Radio (owned by Gruppo Il Sole 24 Ore) manages the news-and-talk station, Radio 24. 4. RCS Mediagroup. As previously noted, the Milanese company is presently the minor shareholder in Gruppo Finelco to whom it ceded Play Radio in 2007. In December 2008, RCS ceded the brand Radio Italia Network to Domenico Zambarelli’s Next Group. The network resumed broadcasting across several regions in FM in January 2009. Analysis of the 2009 radio audience figures shows a general decrease in the number of contacts for national networks, down 5.5% from 2008, despite the previously mentioned overall increase in listeners. It seems probable that local and intra-regional stations detracted audience from the national networks. On the nationwide front, the only success stories were Radio Kiss Kiss (2.1%) and the Finelco networks Radio 105 (with an excellent 23.1% increase on 2008) and Virgin Radio (up 4.6%). The public broadcaster’s main channel, Radiouno, confirmed its leading position, held since 2005, with 6.2 million contacts on an average day. However, the 2009 results are down 9.1% from the previous year. The other RAI channels also registered a drop in listeners with Radiotre down 6.3% while Radiodue fell 23.1% from 4.9 to 3.8 million listeners, probably due to the

36

Radio


closure of the hit show Viva Radiodue hosted by Fiorello and Marco Baldini. Rtl 102.5 follows Radiouno in the national radio network league, as it did in 2008, with 5.3 million contacts, even though it suffered a drop of 2%. Coming in at third place is Radio Deejay, which lost 210,000 listeners in 2009, thereby contributing to the less than stellar results of Elemedia Gruppo, which registered a 5% loss for the second year running, although still retaining its position as the leading privately-owned network. Contrasting these results is the rise of the Finelco network, which registered a 4.8% overall growth on 2008’s figures, with excellent performances from Radio 105 (+530,000 listeners) and Virgin Radio, which managed to compensate for the Radio Montecarlo losses (-13.6%). Table 2: National radio networks’ audience share, average day (2005-2009) 2009

2008

2007

2006

2005

Yr on yr % 2008-09

RAI Radiouno (R)

6.250

6.876

6.744

6.720

6.399

2008-09

RTL 102.5

5.291

5.399

5.166

4.907

4.125

-2,00

Radio Deejay (E)

5.037

5.249

5.586

5.758

5.587

-4,04

RDS 100% Grandi Successi

5.034

5.263

5.014

4.965

4.505

-4,35

Radio 105 Network (F)

4.507

3.975

3.961

3.703

3.547

13,38

RAI Radiodue (R)

3.781

4.918

4.988

5.486

4.213

-23,12

Radio Italia Solo Musica Italiana

3.662

3.799

3.776

3.223

3.260

-3,61

Radio Kiss Kiss

2.290

2.242

2.374

1.724

1.355

2,14

Radio R101

1.990

2.080

1.952

1.381

n.d.

-4,33

Radio 24 - Il Sole 24 Ore

1.885

2.113

1.859

1.763

1.572

-10,79

RAI Radiotre (R)

1.868

1.993

1.943

1.914

1.858

-6,27

Virgin Radio (F)

1.786

1.707

n.d.

n.d.

n.d.

4,63

Radio Maria

1.608

1.715

1.806

1.694

1.829

-6,24

RMC Radio Montecarlo (F)

1.571

1.818

1.920

2.056

2.075

-13,59

Radio Capital (E)

1.520

1.623

1.857

2.039

1.980

-6,35

M2O (E)

1.292

1.469

1.416

1.066

1.007

-12,05

Isoradio (R)

969

1.181

1.177

1.115

1.086

-17,95

Radio Radicale

448

515

536

545

449

-13,01

12.868

14.968

14.852

15.235

13.556

-14,03

RAI Group (R) Elemedia Group (E)

7.849

8.341

8.859

8.863

8.574

-5,90

Finelco Group (F)

7.864

7.500

5.881

5.759

5.622

4,85

50.825

53.935

50.685

50.059

44.847**

-5,77

Total contacts * national broadcasters

Note: thousands of listeners in an average day; Public broadcaster in italics; (*) Contact data includes daily listening of more than one network; (**) Data not comparable because of absence of R101’s results for 2006. Source: IEM elaboration of Audiradio data.

It should be noted that Audiradio began to test a new method of data gathering in 2009, which was refined and amplified in its 2010 survey. Results garnered from traditional telephone interviews (120,000 individuals) have been integrated with a diary system used by a panel of 14,400 people. The new system also gathered listening information about an average day for the national broadcasters who signed up for it. The published data for early 2010, relative to the first quarter, show a radically modified

Radio

37


situation, which - if confirmed2 – could stimulate new ideas, even though the survey cannot simply be compared to previous results but requires further elaboration. Firstly, the total number of contacts for national radio networks, 58 million per average day, is much higher than totals for the previous five years, which registered numbers between 50 and 54 million. Performances by individual networks also register variations to the established status quo. In short, the first quarter of 2010 brought unexpected success with Radiouno recording 7.6 million listeners, placing it streets ahead of Radio Deejay, which overtakes Rtl 102.5 (stable at 5.5 million) to occupy second place with over 6 million contacts. Surprisingly, and in contrast to previous results, RAI’’s Radiodue comes in at fourth place with 5.3 million, followed by Finelco’s Radio 105 with 4.7 million listeners. The great leap forward taken by Radiotre, now reaching just over 3 million of contacts in an average day, completes a very positive result for the public broadcaster. All the stations in the 2009 Top Ten have seen their audience share improve, with the exception of RDS Radio Dimensione Suono, which has had heavy losses, dropping to 4.6 million listeners from the 5 million recorded in the previous 3-year period. Table 3: Audience figures for national radio broadcasters, average day (1st quarter 2010) Audience (1st quarter 2010) Rai Radiouno (R)

7.634

Radio Deejay (E)

6.276

RTL 102.5

5.533

Rai Radiodue (R)

5.280

Radio 105 Network (F)

4.764

RDS 100% Grandi Successi

4.658

Radio Italia Solo Musica Italiana

3.902

Rai Radiotre (R)

2.978

Radio Kiss Kiss

2.494

Radio R101

2.491

Radio 24 - Il Sole 24 Ore

2.371

Radio Capital (E)

2.251

RMC Radio Montecarlo (F)

1.731

Radio Maria *

1.626

Virgin Radio (F)

1.605

M2o (E)

1.031 986

Radio Radicale *

470

Total contacts **

Isoradio (R) * RAI Stations(R)

16.878

ELEMEDIA Stations (E)

9.558

FINELCO Stations (F)

8.100

Total listeners ** national broadcasters

58.081

Note: listeners in thousands, average day; public broadcaster in italics. (*) Radio Maria, Isoradio and Radio Radicale did not take part in the diary panel research, data relative to these channels is from telephone interviews only; (**) data includes the possibility of multiple channels listened to in the same day. Source: IEM elaboration of Audiradio data.

2 The Audiradio research method will probably be modified again in the near future. In July 2010, the board of directors charged the chairman with identifying the most reliable solutions for refining the results of this new research model, which has been criticised by various industry members since publication.

38

Radio


In a general analysis of the performances of the main privately-owned radio networks, on the one hand it should be noted that the Gruppo Elemedia network reached 9.5 million of contacts overall, which marks a great improvement from 7.8 million in 2009, although the successes of Radio Deejay and Radio Capital are balanced out by the lacklustre performance of M2o, which is stuck at approximately one million contacts. On the other hand, the results of Gruppo Finelco provide a marked contrast, having slightly increased, to 8.1 million, from the 7.9 million contacts in 2009. While Radio 105 keeps fifth place in the general ratings, Virgin Radio is stuck at 1.6 million listeners and has been ‘overtaken’ not only by its cousin, Radio Montecarlo, but also by Radio Capital.

2. Advertising investment Nielsen Media Research estimated that advertising investment in the Italian mass media outlets (press, radio, television, cinema, internet and billboards) was worth 7.99 billion euros in 2009, a 13.2% drop from 2008. In this context, radio’s 7.7% loss at the end of the year is relatively modest, while the investments totalled 436.3 million euros, down from 472.9 million in 2008. Nielsen also estimates that the radio share of the advertising market in 2009 was 5.46%, a slight increase from the previous report. Table 4 – Radio: advertising investment, Italy (2005-2009)

Total advertising (*) Radio (**) Percentage % radio of total

Var. % 2008-09

2009

2008

2007

2006

2005

2004

7.994.277

9.214.314

8.978.580

8.553.825

8.460.442

8.116.241

-13,24

436.317

472.904

476.084

440.669

408.597

400.214

-7,7

5,46

5,13

5,3

5,15

4,83

4,93

-

Note: thousands of euros; (*) Includes investment in the following mass media; TV, press, radio, cinema, internet, billboards; (**) investment in nationwide radio stations. Source: IEM elaboration of Nielsen Media Research estimates.

It is worth noting that a comparison of advertising investment analysis by Nielsen Media Research and other sources highlights several discrepancies, mainly due to the different methods of calculating the data (at times considered gross, at others net of the sales commissions and/ or agency discounts)3. In any case, two important constants appear: all sources agree that the radio market was worth between 5 and 5.5% of the advertising market in 2009 and that advertising investment in radio in 2009 was down from 2008, by a percentage varying from around 8% (AGCOM, Nielsen, Fcp-Assoradio) to 11% (Assocomunicazione). The downturn in the advertising sector in Italy, which began in the second quarter 2008 as a consequence of the international economic crisis, showed signs of abating at the end of 2009. Nielsen Media Research estimates that the drop in total investment in December 2009 was only 1.6% compared with December 2008 while the radio market showed encouraging monthly performances, with a 24.6% increase on December 2008.

3 It should be remembered that, since January 2009, Nielsen Media Research has used data gathered by Osservatorio FCP (Federation of Advertising Agencies) - Assoradio as the basis for its estimates of the radio advertising market. Assoradio consolidates monthly advertising income data (supplied by the national agencies) eschewing the policy of applying an average rate of abatement to published rack rates, as Nielsen previously did.

Radio

39


Table 5 – Comparison of data for nationwide radio stations (2008-2009) Radio – total Radio – total investment 2009 investment 2008

Suorce

Variation %

% radio of all media investment 2009 (*)

Nielsen Media Research

436.317

472.904

-7,7

5,46

Fcp-Assoradio

370.859

402.037

-7,7

-

Agcom / Nielsen Media Research (**)

403.000

437.000

-7,8

5,32

-

396.530

-

-

443.000

498.000

-11

5

Agcom – IES (**) Assocomunicazione (***)

Note: Thousands of euros; investments in nationwide radio stations.; (*) Including investments in the following mass media: TV, press, nationwide radio, cinema, Internet, billboards; (**) The annual AGCOM report elaborates data supplied by Nielsen Media Research. AGCOM also produces a second analysis of the radio market with data taken from IES (Informatica Economica di Sistema); (***) Provisional estimates, produced over the year for the nationwide radios. If the local radios were included, the figure would be 589 million. Source: IEM elaboration of Nielsen Media Research, Fcp- Assoradio, AGCOM, Assocomunicazione estimates.

This hint at a cautious recovery was confirmed early the following year. Nielsen calculated a 4.35% increase in advertising investment in the mass media for the first quarter of 2010 compared with the same time period in 2009. Results for the radio sector were particularly encouraging, with 12.6% growth in the first quarter of 2010, due mainly to the success of commercial spot advertising. Table 6 – Radio: advertising investment, Italy (First quarter 2010) Total advertising (*) Radio (**)

I quarter 2010

I quarter 2009

Variation, year on year

%

1.959.338

4,35

104.726

93.031

12,6

Of which commercials

96.491

85.282

13,1

Of which other advertising

8.236

7.748

6,3

Note: Thousands of euros; (*) including investments in the following media: TV, press, radio, cinema, Internet, billboards; (**) investment in nationwide radio stations. Source: IEM elaboration of Nielsen Media Research estimates.

Assocomunicazione’s 2010 Comunicare Domani Report also notes that “in spite of the continuing difficulty in the economy and the investment market, the first solid signs of recovery have been seen […] in communications investments”. Assocomunicazione forecasts a slow but constant growth that should enable recovery of 2008 level investments in four years’ time. Overall growth for 2010 in advertising investment is estimated at around 2%. In this context, advertising on national radio networks should register a 4% increase on 2009, given impetus by the 4.5% growth in the private broadcaster sector, an increase that is more than double the public networks (+2.2%). Unlike other sources4, Assocomunicazione also measures investment in local radio. Calculating that the local radio market was worth 28% of radio investment in 2009, amounting to 171 million euros, Assocomunicazione predicts a continuation of the present situation for 2010, with investments worth 170 million euros, roughly 29% of the total.

4 AGCOM also produces data on advertising investment in local radio, integrating information from Informativa Economica di Sistema which is supplied by the principal local operators, with estimates on the remainder. The most recent figures available, however, date back to 2008 and record 182 million euros in local radio advertising, equal to 31.4% of total radio advertising.

40

Radio


Table 7 - Advertising investment in radio, Italy (forecast 2010) Forecast 2010

Year on year %

419.000

4

Public broadcasters

91.000

2,2

Private broadcasters

National networks

328.000

4,5

Local radio

170.000

0

Tot. radio

589.000

2,8

Note: Figures in thousands of euros. Source: IEM elaboration of Assocomunicazione data.

3. International comparison Advertising investment in radio worldwide came to 24.3 billion euros in 2009. According to Zenith Optimedia, this outcome was a 10.9% drop on 2008, a loss that was one percent more than the 9.8% average decrease in global advertising revenues, which totalled 319 billion euros in 2009. In Europe, the 2009 radio advertising market was worth 5.2 billion euros, equal to 21.4% of global investment in this media. Radio advertising in Europe in 2009 dropped 13.3% on the 2008 figures, while Eastern Europe, in particular, depreciated even further, recording a 25.6% fall on the performance in 2008. Table 8: Radio advertising investment, worldwide and in Europe (2008-2009) 2009

2008

Total advertising (world)

319.900

354.500

-9,8

Radio (worldwide)

24.300

27.300

-10,9

Radio (Europe)

5.200

6.000

-13,3

radio: Western Europe

4.300

4.800

-9,4

900

1.200

-25,6

radio: Eastern Europe

Î&#x201D;%

Note: figures in millions of euros. Source: Zenith Optimedia

It is difficult, and risky, to compare advertising spending data for the individual European markets because of the variations in data gathering methods and data analyses carried out by research companies in different countries. In general, it can be noted that in 2009, radio advertising represents a reduced proportion of the media mix in the two largest European markets: the UK (2.8% of the total 16.3 billion euro mass media advertising investment) and Germany (3.7% of the total 18.3 billion euro mass media advertising investment). The next largest player in the EU-5 market is Italy (where radio represents 5.46% of the mass media investment) followed by France (6.57%) and Spain, with the smallest advertising market at 5.6 billion euros, where radio has the most consistent share, 9.6% of total mass media advertising. The aforementioned economic crisis had negative repercussions on all the principal advertising markets in 2009, although in different proportions. The German radio market held up better than others, dropping only 5.6% (the equivalent of 40 million euros) on 2008, while the average total decrease of advertising spending in Germany was 9.8%. This is partly because investment from the automobile sector remained comparable to 2008, according to Nielsen Media Research, occupying one third of total radio ad-spending, namely 228.5 million euros.

Radio

41


Table 9: Advertising investment in the major European markets (2009) Tot. advertising

Radio

% radio on total

France

10.291

676

6,57

Germany

18.337

679

3,70

Italy

7.994

436

5,46

United Kingdom

16.275

456

2,80

Spain

5.621

537

9,55

Total

58.518

2.784

4,76

Note: Millions of euros, referring to net advertising investment; (*) Italian figures refer to nationwide radio broadcasters only; (**) UK data is net of sponsorships and branded content. Source: IEM elaboration of IREP, Zaw, Nielsen, Warc/AA, Infoadex data.

The radio market most negatively affected by the poor economic climate was Spain, which slowed down in 2008, after three years of growth between 2005 and 2007, and decreased by 16.3% in 2009. However, this loss was less than the overall 20.9% decrease in the so-called conventional media in Spain. In Italy, the UK and France, losses in 2009 settled at between 7 and 9%. However, while radio advertising investment in Italy has grown an average 1.7% p.a. over the past five years, in the UK and France radio appears to be undergoing a more serious crisis, as suggested by the average decreases in those countries between 2005 and 2009, 7% in the UK, 4% in France. Table 10: Radio â&#x20AC;&#x201C; Advertising investment in the major European markets (2005-2009) 2005

2006

2007

2008

2009

Î&#x201D;% 2008-09

Average growth

France

795

807

767

742

676

-8,89

-3,97

Germany

664

681

743

719

679

-5,56

0,56

Italy (*)

408

440

476

473

436

-7,82

1,67

Spain

610

637

678

642

537

-16,36

-3,14

United Kingdom (**)

609

549

555

491

456

-7,13

-6,98

Note: Figures in millions of euros, referring to net advertising investments; (*) Italian figures refer only to nationwide radio broadcasters; (**) UK data is net of sponsorship and branded content. Sources: IEM elaboration of Irep, Zaw, Nielsen, Warc/AA/Ofcom, Infoadex data.

Zenith Optimedia forecasts a cautious recovery in global advertising investment for 2010. According to estimates published in April, this recovery should come to around 2.2% overall. Ongoing recovery is occurring at varying speeds around the world, differing in individual countries and in the separate media sectors. However, Zenith forecasts a stagnant year for radio in 2010, (-0.5%). Radio advertising revenues worldwide should slowly begin to grow by 2.3% in 2011, in the context of a 4.1% increase in mass media advertising investments, with a further rise of 4.5% expected in 2011.

4. Distribution platforms and the future of radio: performance and trends The IEM annual Reports have often highlighted the extraordinary ability of radio to adapt to contemporary technological scenarios. A venerable medium, it has learnt to integrate with new technology and today can be used through:

42

Radio


audio receivers; both analogue (for traditional transmissions in FM and AM) and digital (e.g. DAB-T systems for digital terrestrial reception; DAB-S for direct satellite reception5; DRM);

television; whether digital, terrestrial (standard DVB-T), satellite (DVB-S), mobile (DVB-H) or cable (DVB-C);

mobile phone handsets, which receive analogue signals in FM, and increasingly offer web radio in streaming for use with Internet connections (3G, 3.5G, GPRS, WiFi);

computers and portable devices, for broadband reception of web and podcasts.

In general, the increase in platforms presents the opportunity for radio to extend its listenership, with the creation of more listening points than the present number of radio channels can provide and with an increased offer through new broadcasters. The UK regulator OFCOM, for example, estimates that there were 333 digital radio broadcasters in Italy, France, Germany and UK in 2007 and 717 in 2009 (a rise of 115%). Information from the UK is particularly relevant, where a huge increase in digital broadcasters over a two-year span, has brought the number from 172 to 423 (380 private and 43 public). Fig. 4 – Number of available channels on digital radio platforms (2007 and 2009) 450 2007

400

423

2009

350 300 250 200

172

150

113

107

116

100 50

65

46 8

0 France

Germany

Italy

UK

Note: Excluding webcast radio. Source: IEM elaboration of Idate/Ofcom data.

It should be noted that the different distribution platforms penetrate the markets at varying speeds. In Europe, in particular, there are three interconnected trends that are pronounced at the moment: 1. The resilience of analogue radio distribution; 2. The difficulty experienced by audio digital terrestrial networks in establishing themselves; 3. The success of radio via Internet. 5 The main provider of DAB-S (Digital Audio Broadcasting – Satellite) radio in USA and Canada is Xm/ Sirius, an operator created in 2008 with the merger of the two biggest providers, Xm and Sirius; DAB-S radio users in USA were 20 million in 2008. Outside of North America, the main provider of satellite radio was WorldSpace Inc. until its bankruptcy in 2008 (it was later bought, in March 2009, by its CEO and founder, Noah Samara). WorldSpace’s departure halted many European expansion projects, including the launch of satellite radio in Italy, announced in 2007, by WorldspaceItalia, a joint venture between Worldspace Inc. and Newsatellite Radio (part of the Class Editori group).

Radio

43


These common trends are accompanied by several developments that are specific to individual local markets. In Italy, for example, the mobile phone is a particularly popular device for listening to radio in FM and increasingly in streaming via the Internet6. OFCOM estimated that 22% of Italian adults with access to an Internet connection in 2008 used their mobile phones to listen to FM radio, compared to 16% of German and 13% of French adults. Recent research carried out by Aegis Media Expert and published in June 2009 by I Quaderni della Comunicazione stated that 21% of Italians between 15 and 64-years-old regularly use mobile phones or portable devices to listen to the radio.

Analogue and digital terrestrial radio “The future of radio”, a document published in 2008 by the Swedish TV and Radio Authority, states that analogue terrestrial FM radio offers lasting advantages, including a guaranteed reach over the territory, network stability and reliability, signal quality, economical transmission systems and accessibility – all factors that continue to satisfy both operators and users. The well-known limit to analogue distribution is, of course, the lack of frequencies still available for use, which limits development possibilities for radio. New channels and additional services could be established and guaranteed through the use of sound-radio based digital terrestrial technologies, which use the electromagnetic spectrum with greater efficiency. However, to date, radio’s switch to digital has been a complicated path, whose final destiny is still not yet clear. In this context, the standard European dish used for digital terrestrial radio transmission, DAB-T (Digital Audio Broadcasting - Terrestrial), has been fairly symbolic. Experimentation of the DAB system was started in 1995 by the European Union, which identified blocks of available frequencies (in VHF III and UHF-L bands) and allowed each nation to choose when to introduce the new technology. In Italy, the first development plan for DAB-T radio began in 2001. During the following decade, experimentation with DAB technology has continued, alongside testing of the more evolved technologies, DAB+ and DMB (Digital Multimedia Broadcasting), which transmits Mobile TV via DAB. At the same time, other digital terrestrial technology is being tested, including DRM (Digital Radio Mondiale), which uses AM frequencies for digital radio. In 2005, AGCOM published the first regulations for market behaviour and assigned digital frequencies. Various factors, however, have blocked a wholesale adoption of the system. In Italy, there is a combination of technological and logistical problems, including: •

the great expense of creating transmission centres able to provide countrywide coverage;

the scant availability of good receivers at reasonable prices;

the defects in the perceived audio quality, a problem later overcome with the implementation of the DAB+ system, introduced in 2006;

the delays in freeing up the identified frequencies, previously occupied by television broadcasters, and problems with the system standards for canalisation of the III band.

In November 2009, a new AGCOM regulation (Resolution 664/09/CONS) assigning digital frequencies to radio broadcasters was approved. The document assigned 14 frequency blocks in band III to radio, three intended for nationwide broadcasters and 11 for local radio stations. The three main Italian consortia of privately-owned radio networks authorised, along with RAI, to transmit in digital (Club DAB, C.R. DAB, Euro DAB) believe the new regulations are 6 Forrester Research believes that the Italian market, along with Austria, UK and the Nordic countries, leads the spread of mobile Internet services worldwide; the American group forecasts that over 60% of Italian mobile phone users will have a 3G or 3.5G handset by the end of 2010 and that Italy will be one of the first countries to adopt 3.5G services, reaching a 25% penetration by the end of 2013, as opposed to the forecast of 20% for France, Germany and Holland.

44

Radio


insufficient for an effective launch of DAB. The consortia also point out that the regulation actually penalises local stations by dictating the requisites for access to the rights for use of these digital frequencies. Furthermore, they believe that the National Plan for Assignment of Digital Frequencies, approved in June 2010, has kept insufficient frequencies in reserve for local radio stations, favouring television broadcasters instead. Development of DAB is proceeding in fits and starts even in those European markets that have avoided any head on debate about digitalising the FM analogue network (through, for example, HD radio format7 or FmeXtra) versus the adoption of new systems (such as DAB or DRM). In any case, no country has yet announced a date for the analogue signal switch off. Table 11: Digital terrestrial radio in the main European markets (France, Germany, United Kingdom)

France

• • • • •

Germany •

• •

United Kingdom

Testing of DRM, DAB, DAB+, DMB-T and HD radio has been ongoing for years. The 2007 Technical Forum organised by the Conseil Supérieur de l'Audiovisuel lead to the 2008 decision to adopt the DMB-T (Digital Multimedia Broadcasting) standard for digital radio, which also allows broadcast of mobile TV within the DAB network. By 2013, all radios for sale must be DMB-compatible. DAB-T radio has been transmitting since 1999, but with low penetration levels, with fewer than 500,000 receivers sold to date. The Commission for Financing of Audiovisual Media suspended public funding of DAB from January 2008 to end 2009 because of the scant results produced by the system. Re-start of digital radio was planned for spring 2008 with tests on DAB+, DRM and HD Radio. Digital DAB+ radio should be fully operational between end of 2010 and early 2011. Digital terrestrial radio has been transmitting in the UK since 1997. At end 2009, with 400 radio channels and 10 million DAB receivers sold, the British market was the leading DAB market in Europe. There are, however, observers who believe that without further innovation, such as the use of the more evolved DAB+ technology to replace first generation DAB, the digital terrestrial market is close to saturation. In contrast with other markets, in 2009 the British government announced analogue radio switch off by 2015. However, this was withdrawn in July 2010 by the Cameron government, thereby prolonging the FM standard for the indefinite future.

Radio via Internet: web-radio, podcasting and broadcasters’ websites For various reasons, radio via the Internet and podcasting appear to provide a valid alternative to digital terrestrial networks and are an essential complement to analogue radio networks. The main advantage of radio in streaming on the web is a potentially unlimited number of channels and programmes. Furthermore, accessibility, limited management costs and the possibility of broadcasting without having to apply for licences allows multiple operators to enter the market with niche channels and targeted programming. While web radio was previously used prevalently through fixed computers, today’s wireless technology complements an important characteristic of radio: portability. The combination of Internet and radio provided by the new generation of mobile phones, mentioned earlier, is a prime example of the new way of using web radio on the move. In this situation, podcasting offers the ideal complement to the radio via web. Files downloaded from the Internet can be listened to on a computer or on portable devices such as MP3 players, 7 The USA opted for the hybrid analogue-digital FM HD model as the way forward for digital radio; after a decade of unsuccessful experimentation of DAB-T in Canada, licences in L band were revoked in June 2010, probably to be replaced with the HD radio model.

Radio

45


as podcasting allows the consumer to choose when and what to listen to, an option not offered by web radio in streaming8. It should also be noted that Internet is not simply a distribution platform for radio channels but, increasingly, offers support for all radio broadcasters and other distribution platforms. Radio broadcasters’ websites encourage consumer loyalty and integrate radio content, providing the consumer with at least seven different options. The most recent Consumer Connection Source Research carried out by Aegis Media Expert organises these functions into the following categories: •

(Re)listen: listen to the radio or listen again after having heard it during a concert;

(Re)watch: watch music-related content and personalities from radio sector;

Search: find music (album, titles, songs, concerts...);

Deepen: enhance knowledge of the music world, with further reading, news, articles etc.;

Explore and discover: explore the world of music to discover new songs, artists, genres;

Live and Buy: buy songs, merchandising, concert tickets, for the full experience;

Share and discuss: share and discuss music interests with online communities.

8 Radio on broadband registers huge use in all the European markets. OFCOM reported that over 30% of adults with a household broadband connection in 2008 in the four main European markets (France, Germany, Italy and the UK) stated they listened to the radio through the internet, with Germany registering the highest results at 37%. Furthermore, 39% of Italian and 35% of British Internet users regularly listened to podcasts through the Internet at home. In June 2009, Aegis Media Expert estimated that approximately 5 million Italian Internet users regularly listened to the radio through the Internet while 1.3 million users downloaded podcast content every month.

46

Radio


Cinema

47


Cinema by Bruno Zambardino

1. Production, distribution and exhibition In the year 2009 there was a dramatic fall in the number of films produced with 100% Italian capital, totalling 97, which was 26 titles fewer compared with the previous year, equating to a drop of roughly 29%. Only 26 films received public funding, in comparison with 41 in 2008. There was a slight increase in the number of foreign co-productions, going from 31 to 34, thanks to a rise in Italian minority share co-productions. So the total number of films produced in 2009 (including co-productions) stood at 131, 23 fewer than in 2008, recording a drop of almost 20% in the two-year period, a lower percentage fall than for films that were entirely Italian productions. The reduction in films made was influenced by the 46% drop in public investment in Italian productions. In fact, the overall number of films that benefitted from public funding dropped from 56 to 38 titles. Table 1: Films produced in Italy, 2004-2009 2009

2008

2007

2006

2005

2004

Productions funded with 100% Italian capital

97

123

90

90

68

96

of which, receiving "cultural interest" public funding

11

23

19

15

6

32

1

10

4

2

6

9

Of which first and second films

14

8

6

4

2

_

Foreign co-productions

34

31

31

26

30

38

With a majority share

17

20

17

11

16

15

With a minority share

17

11

14

15

14

23

(of which, receiving "cultural interest" funding)

9

10

15

3

3

5

(of which first and second films or funded under ex Art. 8)

3

5

2

0

1

0

131

154

121

116

98

134

20

33

34

18

9

37

Of which those receiving funds allocated under ex Art. 8

Total films produced Of which, receiving "cultural interest" funding

1

10

4

2

7

9

Of which first and second films

17

13

8

4

2

_

Total films produced with public contributions

38

56

46

24

18

46

Funded under ex Art. 8

Source: IEM elaboration of ANICA data. The term â&#x20AC;&#x153;film producedâ&#x20AC;? is considered as submitted by censorship rating commission.

48

Cinema


A lower number of films were distributed in cinemas during the year 2009 for the first time, compared with the previous year (-5.6%), standing at a total of 355 titles. The share of Italian films distributed, including co-productions, fell to 32.4% of the total, a loss of 2 percentage points to the advantage of films made in the USA, which reached a share of 45% in spite of having 4 fewer titles distributed than in 2008. European and non-European films held their ground, after the sharp drop recorded in the previous two years, strengthening their share that now reaches 30%. If we also include runs of films spilling over from 2008, there were a total of 857 titles in 2009, of which 294 Italians (including co-productions), 313 Americans and 250 from Europe and other countries. If we take this larger sample into account, the difference between the American and Italian shares is just over 2 percent (36.5 % against 34.3%), compared with the 12.4% difference recorded for films released in 2009 alone. Table 2: Films distributed in Italy by country of origin, 2004-2009 2009

2008

2007

2006

2005

2004

Italy ( incl. co-prod.)

115

130

110

USA

159

163

154

81

83

355

Italy USA

Δ % 09-08 Δ % 09-04

100

98

106

-11,5

10,6

161

166

152

-2,5

4,6

106

124

128

113

-2,4

-28,3

376

370

385

392

369

-5,6

-3,8

32,4

34,6

29,7

26,0

25,0

28,2

-2,2

4,2

44,8

43,4

41,6

41,8

42,3

41,2

1,4

3,6

Other EU countries (excl. IT) and non-EU

22,8

22,1

28,6

32,2

32,7

30,6

0,7

-7,8

Total

100

100

100

100

100

100

-

-

Absolute figures

Other EU countries (excl. IT) and non-EU Total Percentages

Source: IEM elaboration of ANICA data (films actually released during the year in question).

There was a slight decrease in cinema admissions in Italy in 2009 (-1.6%), according to consolidated figures from the Italian Society of Authors and Publishers, SIAE, compared with 2008. However, in the face of the general crisis in consumption, the cinema market held up better than other sectors, confirming its anti-cyclical nature. Examining admissions by the nationality of the production, one can see that the Italian share (including co-productions) dropped by almost five points, going from 29.3% to 24.3%. The beneficiaries were films originating from America, with a share that exceeds 60%, a jump of two percent on the previous year, thus returning to the levels recorded in 2004. Italian production’s drop in share of the national market, amounting to a net loss of almost 5 million admissions (from 29 to 24 million), is due to factors relating to business trends in a cinema season that lacked domestic titles. In fact, distributors concentrated releases of many Italian films in the first months of 2010 (Io, Loro e Lara by Carlo Verdone, La prima cosa bella by Paolo Virzì, Baciami Ancora by Gabriele Muccino, Mine Vaganti by Ferzan Ozpetek, Happy Family by Gabriele Salvatores). Analysing the admissions for the first six months of 2010 one can see how home-grown films saw a renewed popularity with audiences, rising to a market share of 30% (compared with 25% recorded in the same period in 2009). In 2009 Italian co-productions also lost ground: the 69 titles (including runs continuing from the previous year) programmed in 2009 recorded 863,000 admissions compared with the 1.3 million people who saw the 74 films released in 2008. Non-Italian European films did better, strengthening their share which rose from 10% to 12%, amounting to 2 million spectators. There was also an increase, though more contained, in admissions for films of non-European or American origin, rising from 1.08 to 1.70%.

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49


Table 3: Italian theatre admissions (totals and by films country of origin) 2004-2009 2009 Tot. Admissions (SIAE)

2008

2007

2006

2005

2004

109.228.858 111.017.381 116.429.995 104.979.882 104.684.194 113.214.274

Δ% 09-08

Δ% 09-04

-1,6

-3,5

Percentage of admissions by films’ country of origin (Cinetel) Italian 100%

23,48

27,91

26,96

20,51

18,69

14,04

0,9

13,87

Italian coproductions

0,87

1,38

4,96

4,52

6,01

6,27

-3,6

-4,89

Total Italy

24,35

29,29

31,92

25,03

24,70

20,31

-2,6

8,98

Europe (excl. IT)

12,13

9,98

11,86

11,58

19,58

10,93

-1,9

-0,95

USA

61,83

59,64

54,89

61,33

53,78

61,91

4,7

-2,27

1,69

1,08

1,33

2,06

1,94

6,84

-0,2

-5,76

Other nationalities

Source: IEM elaboration on data from Cinetel and SIAE (including continuing runs released the previous year). Results up to 31.12.2009.

In 2009 there was a continuing downward trend in the total number of theatres, dropping by 2.2% on the previous year (-11.2% in the last six years), while the number of cinema screens saw persistent growth, standing at 3,202 (61 additional screens than in 2008), a rise of around 2%; the proportion of screens to theatres rose to 2.90 in 2009, confirming the rising spread of multiplexes and multi-screen cinemas. Table 4: Theatres and screens, 2004-2009 2009

2008

2007

2006

2005

2004

Δ% 09-08

Δ% 09-04

Theatres

1.104

1.129

1.164

1.210

1.275

1.243

-2,2

-11,2

Screens

3.202

3.141

3.086

3.062

3.016

2.802

1,9

14,3

2,90

2,78

2,65

2,53

2,37

2,25

0,12

0,65

Rel. Screens /theatres

Source: IEM elaboration of ANICA data.

The process of “genetic mutation” of cinema theatres is consolidating. The number of multiplexes and their relative screens rose by over 5% (+45.1% compared with 2004). There is a similar increase in their market share of admissions: after passing the 50% mark in 2008, they have consolidated their share of total admissions, going from 52.1% to 53.3%. The panorama for multi-screen cinemas (between 2 and 7 screens) has not seen any major changes: in the face of a basically stable number of operations (403) and a slight increase in screens (+2.7%), there has been a small drop in admissions (-1.1%) after the big decrease recorded in the previous two years. Multi-screens’ share of the market stood at 36.1%. The market share taken by single-screen cinemas is in constant, inexorable decline and has practically halved compared with 2004. In six years, these cinemas, down to 582 in 2009, have lost 10 million spectators (from 20.7 to 10.5 million). In the two-year period 2008-2009, singlescreen theatres have recorded a drop of just over one million admissions, yet there is a small sign of staying power compared with the haemorrhages recorded in the previous two years (when these cinemas lost 2.6 million spectators). This segment’s market share is becoming increasingly marginal, now covering just over 10% of total admissions. In six years, single-screen cinemas have seen their box office takings slide by more than half, going from 117 million euros in 2004 to 59.5 million in 2009. Italian and quality European films were particularly penalised by the changes in the theatrical panorama as these titles

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Cinema


find more distribution slots in city centre cinemas. The decline of urban theatres has, in fact, generated a progressive substitution of older audiences going to city centre cinemas with younger cinemagoers attending multiplexes1. Table 5: Multiplexes and multi-screen cinemas operating in Italy, 2004-2009 Multiplexes (8+ screens)

2009

2008

2007

2006

2005

2004

Δ% 09-4

Δ% 09-4

119

113

108

103

93

82

5,3

45,1

Total screens

1245

1184

1132

1080

981

844

5,2

47,5

Admissions (in millions)

52,8

51,8

51,1

43,7

40,6

39,6

1,9

33,3

(% of total admissions)

53,3

52,1

49,3

47,4

44,7

40,4

1,2

12,9

Multi-screens (2-7 screens)

403

404

398

394

403

383

-0,2

5,2

1381

1345

1296

1269

1256

1180

2,7

17,0

Total screens Admissions (in millions)

35,7

36,1

38,4

34,5

34,3

37,7

-1,1

-5,3

(% of total admissions)

36,1

36,3

37,0

37,8

37,8

38,5

-0,2

-2,4

Single-screens

582

612

658

713

779

778

-4,9

-25,2

Total screens

582

612

658

713

779

778

-4,9

-25,2

Admissions (in millions)

10,5

11,5

14,1

14,0

15,9

20,7

-8,7

-49,3

(% of total admissions)

10,6

11,5

13,6

15,2

17,6

21,1

-0,9

-10,5

Source: ANICA.

The digital switch-over in cinemas is in full swing, further encouraged by the positive results recorded for 3D screenings and in line with international trends2. At the end of April 2010, there were over 500 digital screens in Italy, illustrating the major growth over the two-year period, given that there were just 50 digital (2K) screens in July 2008. This phenomenon also puts a further brake on the exploitation of domestic films. Regions with the greatest spread of digital screens are led by Lombardy with 70, followed by Lazio (64), Piedmont (45) and Tuscany (40). Rome is Italy’s most digital city with 31 screens, followed by Milan with 18. Digital also offers city centre cinemas, including arthouse theatres, new opportunities and strategies, from the chance to offer more flexible quality programming to providing alternative kinds of content. According to sector professionals, with the confirmation of the tax credit system (which provides measures to support investment in updating technology in cinemas) the number of digital screens could break through the 1,000 mark by 2011, making it possible to hit the target of converting the whole exhibition sector to digital by 2012. The main impetus for this growth was 3D cinema in the 2009-2010 period, as mentioned before. So the percentage of screens equipped with 3D technology has risen from 54.4% in June 2009 to 68.8% in January 2010.

1 In order to counteract this trend, since 2006 the Italian Film Board has been supporting a special project called “Quality Screens”, in collaboration with ARCUS. Now in its fourth year, it is run by exhibitor and film industry bodies AGIS, ANEM, ACEC and FICE. The project gives economic incentives to theatres (672 screens are involved, showing 214 films with the necessary requisites) programming a certain number of quality Italian and European films, calculated on the basis of size of theatre and population catchment. A Cattid-Sapienza study conducted for AGIS proved the project’s effectiveness in supporting the national market share and, more generally, increased box office earnings as a result of the film’s longer lasting staying power within the circuit. Cfr. IV Quaderno ANICA “Cinema di Qualità. Analisi del progetto Schermi di Qualità (Editions from 2007 to 2009), curated by Ufficio Studi ANICA. 2 According to Media Salles, in January 2010, there were 4,693 digital screens, an increase of 206% on the previous year. The rate of penetration is equal to roughly 13% of the total screens in Europe, compared with the 4.1% in the previous year. Growth is highest in the five main European markets: France, with 19.3% of the total number of digital screens in Europe; the UK has 14.2%; Germany 12.6%; Italy 9.1% and Spain 5.1%.

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51


2. Market resources After four years of continual growth, Italian investment in film production fell into a lull in 2009, dropping to below 300 million euros and recording a 10% fall compared with the previous year. The downturn is the result of the big drop in public funding (-46.4% compared with 2008, including co-productions) and the deadlock in the fund guaranteeing access to credit (Fondo di garanzia). Entrepreneurial investment in the sector is stationary, with contributions resting the same as in 2008 (258 million euros). However, this progress seems more dynamic when looking at the figures over a longer period: in 6 years it has risen by 36%. The composition of investments is even more imbalanced than in the past, with 87.2% coming from private sources (in particular, the three major broadcasters) and the remaining 12.8% from the public purse. From 2004 (the year the “Urbani Law”3 came into force) to 2009, the volume of public resources has been cut by 60%. Nevertheless, starting from 2010, this will be partially compensated by the first sums of money provided by the Ministry of Culture for the authorisation of fiscal incentives, under the form of tax credits (see below). The average value of Italian investment per single film has risen significantly (+42% on the previous year) as a result of the effect caused by the lower number of films produced, exceeding the threshold of 3 million euros4. Table 6: Italian investment in production, 2004-2009 Investment in production

2009

2008

2007

2006

2005

2004

Δ% 08-0

100% Italian films

Δ% 09-04

218,9

253,3

221,1

187,6

152,1

197,4

-13,6

10,9

Of which public contributions

24,5

49,3

41,5

37,1

21,8

83,4

-50,3

-70,6

Average investment per film

2,26

2,06

2,46

2,08

2,24

2,06

9,6

9,5

Films co-produced

77,1

76,8

91,4

69,7

62,4

86,9

0,4

-11,3

Of which public contributions

13,6

21,7

21,5

6,2

7,7

11,4

-37,3

19,3

Average investment per film

2,27

2,48

2,95

2,68

2,08

2,29

-8,4

-1,0

Total Italian investment

296,0

330,2

312,5

257,3

214,4

284,4

-10,4

4,1

Of which from industry enterpreneurs

258,0

259,1

249,4

214

184,9

189,5

-0,4

36,1

(%)

87,2

78,5

79,8

83,2

86,2

66,6

8,7

20,6

Of which public contribution

38,1

70,9

63

43,3

29,5

94,9

-46,4

-60,0

(National cultural interest)

29,0

55,1

53,7

38,5

21,2

85,9

-47,4

-66,2

-

-

-

-

7,3

8,9

-

-

(Under former Art.8) (first and second films) (%) Average Italian investment per film

9,0

15,8

9,3

4,8

0,9

-

-43,0

-

12,8

21,5

20,2

16,8

13,8

33,4

-8,7

-20,6

3,051

2,144

2,582

2,218

2,188

2,122

42,3

43,8

Note: absolute figures in millions of euros. Source: IEM elaboration of ANICA data.

The share of the General Entertainment Fund (FUS, Fondo Unico per lo Spettacolo)5 supporting cinema activities (development, production, distribution, exhibition and promotion) was worth 75.8 million euros, an increase (+8.8%) on the previous year thanks to the overall rise in the fund as a whole and on a par with cinema’s share of the fund (18.5%). It should be 3 The regulations governing cinema are based on the Legislative Decree N. 28 of 22 January 2004 (“Reform of the regulation on cinematography, according to article 10 of the Law from 6 July 2002, N. 137) and on subsequent decrees implemented. 4 In 100% Italian films with the greatest commercial drive (with budgets over 1.5 million euros) the average investment has risen from 4.3 to 4.5 million euros. 5 Created under the Law of 30 April 1985 N. 163 “New regulation on State intervention in favour of entertainment”. The Ministry of Culture issues an annual allocation decree which, on the basis of the level of the overall fund established in the Budget (Finance Act) and the relative shares to be apportioned, fixes the funding to be given to each sector (opera, music, theatre, cinema, circuses and travelling shows).

52

Cinema


remembered that original budget for 2009 was subsequently increased thanks to a top up of 24 million euros6. The contraction of ordinary national resources in the industry reflects the general trend in the overall financing available in the Entertainment Fund. While the fund was slightly increased for the year 2010 compared with 2009 (+3.2%), it should be remembered that the three-year forecast contained in the last Budget, indicates a drastic cutback for the years 2011 and 2012, which would reduce the overall Fund to just over 304 million euros7. Table 7: Cinema’s share of the general entertainment fund (FUS), 2004-2010 Funding

2010

2009

2008

2007

2006

2005

Δ% 10-09

Δ% 10-05

Total FUS

409,7

397,0

470,0

441,3

427,3

464,6

3,2

-11,8

Of which funding for cinema

75,8

69,7

90,0

79,4

77,9

83,6

8,8

-9,3

Share of cinema / FUS %

18,5

18,5

19,5

18,0

18,2

18,0

-

-

Note: absolute figures in millions of euros. Source: IEM elaboration of data from the Ministry of Culture.

In 2009, the Italian Film Board at the Ministry of Culture made provision for funding and contributions to production amounting to an overall sum of 36.2 million euros, a decidedly lower volume of resources compared with the previous year (7 million euros less), in spite of the fact that the number of projects did not change8. In five years, the amount of funding has practically halved, going from around 74 million euros allocated in 2005 to just over 36 million in 2009. Looking at the situation in more detail, the Ministry funded 27 films judged to be of cultural interest (2 more than in 2008) for a total of 24.9 million euros and an average investment that falls below one million euros. The 27 first and second films judged as worthy to receive funding were overall financed to the tune of 9.6 million euros, a lower figure than the 10.8 million allocated to these films in 2008. In 2009, 6 fewer short films received public financing, while the screenplay development fund, worth 700,000 euros and the relative number of projects funded (20) were at the same levels as previous years. The average amount of funding in relation to the overall number of Ministry-supported projects has been progressively reduced over the last five years, standing at just under 370,000 euros. Table 8: Ministry investment in film production, 2005-2009 Funding

2005

2006

Num. films

Cultural interest

First and second films

Short films

54.000.000

17.996.000

1.599.200

Development 375.000

Total 73.970.200

37

26

40

15

118

Average

1.459.459

692.154

39.980

25.000

626.866

Funding

34.500.000

11.700.000

960.000

700.000

47.860.000

26

25

24

20

95

1.326.923

468.000

40.000

35.000

503.789

Num. films Average

6 In fact, in September 2009, the government decided to replenish the Entertainment Fund with an additional 60 million euros, divided up between the various entertainment sectors. Cinema received an extra 24 million, with production receiving 18 million and 6 million for exhibition. So cinema’s “integrated” share in 2009 amounts to around 94 million euros. 7 Law N. 191 from 23 December 2009. The three-year spending programme is outlined in Table C, attached to the Budget. The allocation of money refers to ordinary resources, to which supplementary funds are added. It should be noted that the planned figures for the years to come are often modified in the subsequent Finance Act for the following year, depending on the administration’s needs. 8 In actual fact, a higher number of films were recognised by the State. The table only contains figures relating to those receiving a financial contribution.

Cinema

53


Funding

2007

2008

2009

34.500.000

Num. films

12.000.000

1.080.000

700.000

48.280.000

27

26

27

20

100

Average

1.277.000

461.538

40.000

35.000

482.800

Funding

30.600.000

10.800.000

1.200.000

700.000

43.300.000

25

22

30

20

97

Average

Num. films

1.224.000

490.909

40.000

35.000

446.391

Funding

24.900.000

9.600.000

960.000

700.000

36.160.000

27

27

24

20

98

922.222

355.555

40.000

35.000

368.979

Num. films Average

Note: figures in euros. In some cases companies subsequently declined this financing. Source: ANICA elaboration of Ministry of Culture data (the outcomes decided by the Cinema Committee in the years in question).

Regional audiovisual funds A valuable source to complement national financing comes from the regional audiovisual funds. In recent years, regional authorities have been showing a growing interest in cinema and the audiovisual industry and their impact on the territory, both economically speaking and in terms of marketing. This interest has developed through the creation of Film Commissions, which are public agencies (rarely private or public-private) set up to attract audiovisual production to the local area, provide administrative assistance and often act as intermediaries in the supply and demand for professional skills and resources in the production industry. In the post-2005 period, many Regions established Film Funds to support production, usually tied to clauses requiring investment to be made in the specific territory. These funds are often managed by the Film Commissions, and as such represent a key tool to help them to accomplish their mission. Alternatively the funds are handled directly by the regional authorities, through the competent council department9. Table 9: Regional audiovisual production funds (2009) Fund

Budget

Film Commission Funds

8,57

F.C. Sicily Region

3,00

Friuli Venezia Giulia F.C.

2,09

F.C. Campania Region

1,80

Apulia F.C.

0,70

Piedmont Doc Film Fund (F.C. + Region)

0,50

Bologna F.C.

0,24

Emilia Romagna F.C.

0,14

Marche F.C.

0,10

Regional Authority Funds

6,44

Tuscany Region

4,50

Lazio Region (through FILAS)

1,29

Sardinia Region

0,65

Total regional funds

15,01

Note: figures in millions of euros. Source: Ente dello Spettacolo.

An initial assessment of the regional resources available for the audiovisual industry was carried out by the Fondazione Ente dello Spettacolo10 (Foundation promoting cinema culture in Italy). In 2009 the regional Film Funds had a total pool of resources amounting to 15 million 9 Cfr. A. Versace, L. Canova, T.M. Fabbri, F. Medolago Albani, “L’evoluzione del sostegno pubblico all’audiovisio” in L’industria della comunicazione in Italia. XI Rapporto IEM, Guerini e Associati, Milan 2008, also for an historical examination of regional audiovisual funding on an Italian and European level. 10 Fondazione Ente dello Spettacolo, Il mercato e l’industria del cinema in Italia. 2009 Report.

54

Cinema


euros, a figure that has more than tripled from the 4.9 million euros in 2007. These funds have almost compensated for the cuts in the national General Entertainment Fund/FUS (though without taking into consideration the additional national resources assigned outside the FUS, and remembering that the majority of regional resources are destined for TV drama) and are mainly allocated by the Film Commissions, though a considerable proportion of these resources (6.4 million euros, over 40%) are managed directly by the Regions.

Legal provisions supporting cinema The two most significant legislative measures were activated in 2010. The first, dated 30 July 2010, involved the Cabinet’s approval of the preliminary consideration of a government Bill. It regards the Ministry of Culture’s intervention in cinema activities, and is a major reform of the measures assisting cinema passed in 2004 (in the Urbani Law). The provisions foresee that from 2011, direct intervention from the State will be concentrated on first and second films, short films and documentaries11. It is unclear if and how they intend to revise the system governing access to contributions calculated on the percentage of box office takings and capital funding for cinema theatres. In the field of promotion, State intervention will be reserved purely for associations and events of national or international importance, with the aim of streamlining procedures and improving the management of resources, eliminating waste in the allocation of public funds. In addition, the composition of the Cinema Committee will be reduced in the light of its new, limited role. The Bill also makes changes to the classification of films by the censor: as well as films being classified to be seen by all, suitable only for over 14 years and for adults only (over 18 years), a new category will be introduced for films suitable only for 10 years and over12. The second measure is the three-year renewal of the tax incentives (at the moment the Cabinet has made a commitment to do this) for the years 2011-2013. These tax breaks have been seen as effective in the first phase of their application, garnering unanimous consensus among film industry professionals13. The provisions for tax breaks for companies, internal and external to the cinema sector (which, nevertheless, have different timescales) became fully operational between 2009 and 201014. The internal Tax Credit system came into law on 7 May 2009 and provides for an income tax credit for film production companies, set at 15% of the overall cost of the production of films recognised as Italian. The credit can amount to a maximum of 3.5 million euros a year for each tax year15. For executive production companies and the technical industries commissioned by foreign clients, the credit rises to 25% of the production’s budget, up to a maximum of 5 million euros per film16. 21 January 2010 was the date when the eagerly-awaited law to encourage investment from 11 The measures being discussed also include the introduction of a maximum of 20 contributions to the authors of original screenplays, with 5,000 euros given to each project. 12 This provision puts Italy in line with the majority of other countries and gives more precise and efficient safeguards for the sensitivities of infants and pre-teens, while at the same time the new category widens the audience for films that would otherwise be limited to over 14s. 13 If the measures are confirmed in their current regulatory framework, there will be no need to ask for new authorisation from the European Commission. 14 The complicated legal path for the provisions originated in the 2008 Budget, passed on 24 December 2007. The regulation marks a shift in the way public funding is attributed, moving the focus from direct contributions to indirect, automatic mechanisms that reduce the discretionary powers of the Cinema Committees, rewarding producers’ entrepreneurial skills and opening the market up to new private investment from outside the film industry. For more detail, see the previous edition of the IEM Report. 15 The benefit is always qualified by the need for the production to spend its budget on Italian territory, for an overall figure that must be no less than 80% of the tax credit figure for each production. 16 The measure was backdated to apply from 30 June 2008 and was fully operational from September 2009, when the application forms were published.

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55


those outside the film industry (also distributors and in part, exhibitors17) came into force, following the European Commission’s approval given on 22 July 2009. The external tax credit is recognised for investments in the production of films of “cultural interest” or with the requisites to be classified as Italian. “External” investors can benefit from a tax credit equating to 40% of their financial contribution, up to a maximum of one million euros for each tax period18. As a result of the opportunity to benefit from this incentive, the Intesa Sanpaolo banking group decided to invest 2.5 million euros in the new film by Paolo Sorrentino (This Must Be the Place)19. Two different percentages and maximum thresholds were set for film distribution companies, depending on the kind of film in question: 10%, up to a maximum of 2 million euros for budgets supporting the national distribution of Italian films; and 15% up to a maximum of 1.5 million euros if the film in question is also of cultural interest20. Both distributors and exhibitors can draw up partnership contracts (like companies outside the film industry) to participate and support the production of Italian films recognised as being of cultural interest. In this case, the tax credit rate is set at 20% of the financial contribution provided and can amount to a maximum of one million euros a year for each fiscal period. To be eligible for the tax breaks, the film projects must meet the necessary criteria as being of cultural value, evaluated through specific “cultural tests”21. As far as the internal tax credit is concerned, according to figures supplied by the Italian Film Board in 2010 there were 129 applications and 107 projects applying. The requests came from 79 companies, 6 of which were foreign operations. The amount of tax credit already authorised amounts to 6.7 million euros for 7 foreign films and 20 Italian pictures. In the two years the system has been operating (June 2008 – June 2010), film industry professionals applied for tax breaks totalling around 48 million euros, of which roughly 10 million euros from foreign producers. Overall, it has been calculated that on an annual basis, in the face of reduced taxes paid amounting to 77 million euros, the induced effect would actually generate more income for the State, to the tune of 173 million euros. A third, more general measure that also has implications for the cinema industry is the Decree issued by the Ministry of Culture regarding fair compensation in the field of copyright, which was passed in January 2010, putting into effect the Legislative Decree N.68/2003. The measure establishes new sums of money for the price rises, to be paid by manufacturers and importers, that must be applied to memory storage devices, for example blank recordable DVDs and USB Memory sticks/flash pen drives. The sums vary according to the capacity of these items, and 17 Nevertheless, incentives for the digital conversion of cinemas are excluded, since the European Commission decided to launch a public consultation on the matter. As a temporary measure, exhibitors are applying the socalled de minimis principle, imposing a maximum threshold for public contributions, within which funding does not classify as State aid (and so the Commission’s permission is not needed for payments below this ceiling). As a result of the economic crisis, the EU has raised de minimis threshold from 200,000 to 500,000 euros. 18 Once again in this case, the film production companies receiving these investments must spent 80% of these resources in the national territory, employing Italian workers, using Italian services and promoting training and apprenticeship in all technical areas of production (respecting the territorial criteria set out on a European community level). In addition, these investments cannot amount to a majority of the film’s budget (they can amount up to a ceiling of 49%), thus always leaving the film producer as the owner and manager of the “project”. Basically, the external player is encouraged to draw up a “partnership contract” with the producer, used to fix the percentage of the investment in proportion to the film’s total budget and the relative percentage of profit sharing, which cannot exceed 70% for external companies, again with a view to safeguarding the producer’s autonomy. 19 The investment was 10% of the total budget (28 million dollars) for the film, an international co-production between Italy (Lucky Red, Medusa and Indigo, each with a 20% share) France and Ireland. It is the first time in Italy that a bank has participated in the production of a film shouldering a business risk. 20 Under Article 7, Law. 22.1.2004, n.28. 21 Cultural tests are defined through the use of tables with certain kinds of specific content that are necessary for the film to be eligible, with a system of minimum and maximum points for each film, attributed through procedures that are mainly automatic. Proposed by the national Authorities, the “tests” are examined by the European Commission, to verify the concrete and effective link between the aid given and the cultural product that benefits from the aid.

56

Cinema


are also applicable for computers and mobile phones that allow users to record and/or watch audiovisual works protected under copyright law. These charges, falling under the heading “fair compensation”, are added to the fees paid to authors and publishers through the SIAE agency. Between the end of 2009 and the start of 2010, debate concentrated on two other issues, both linked to the spread of new platforms to exploit films and the search for new forms of funding22. The first is linked to the idea of creating a range of films that can be legally watched via or downloaded from the Internet. Some industry players see this as the only weapon against piracy. The second, which is related to the first, is a revision of the current system that regulates the commercial exploitation of a film through set time limits for releases, referred to as “windows”. The idea would be to make the system more flexible. These are probably matters that should be regulated by the industry itself through its various associations, before resulting in eventual legislative provisions.

Box office revenues According to consolidated SIAE data, box office revenues in 2009 recorded a rise of around 4.3% (27 million euros in absolute figures) compared with 2008, equating to a value of roughly 664.2 million euros. The increase can be attributed to the first releases of 3D films charged at higher ticket prices (about 20%). Starting from 2010, the year when the number of 3D film releases increased considerably, the gap between admissions and box office figures is destined to get progressively bigger, to the advantage of the American box office. Table 10: Cinema box office, 2004-2009 Tot. Takings (mil €)

2009

2008

2007

2006

2005

2004

( SIAE)

664,2

636,7

669,6

601,2

599,5

655,4

Δ % 09-08 Δ % 09-04 4,3

1,3

Source: IEM elaboration of SIAE data

Examining the percentage composition of takings by nationality of productions (according to Cinetel sources), the share of Italian films dropped by 5 points compared with 2009, standing at 23.4%. While this trend was the opposite for American films, which made up a further 3 points, giving them the highest market share in the last six years (63.5%). The downturn in the national market share translated into a loss of over 26 million euros (falling from 171.8 to 145.5 million euros). As has already been mentioned, this was also linked to a cinema season somewhat “lacking” in national films. Considering the fact that the majority of Italian titles were released in the first half of 2010, then that year should record a considerable recovery in domestic market share23. Non-Italian European productions saw a slight improvement in takings, equating to 11.5%; and the same was true for the market share of non-European films, which reached 1.6% in 2009. In 2009 Medusa won back the top slot in terms of takings, even though its figures dropped by about 11% on the previous year24. On the film distribution side, the Italian market is dominated by the American majors’ national operations (Universal/UIP, Warner Bros, Disney/Buena Vista, Fox and Sony,) which 22 In regard to this, the possibility of introducing a “French-style” system establishing a charge on the whole cinema industry chain seems to have been shelved. While there are active discussions on an eventual charge on cinema tickets to be managed by the industry Associations, which would be limited to the theatrical and home video sectors. At the beginning of the scheme, the resources generated would be given to urban cinemas and independent production. 23 This is confirmed by the Cinetel figures for the first six months of 2010, which record the share of the domestic market as returning to 30% (including co-productions), compared with the 25% recorded in the same period in 2009. The share taken by American films stood at 60%, as opposed to the 64% in the previous year. 24 In 2010 Medusa invested 90 million euros in films, for acquisitions and productions, of which 70 million euros were for Italian cinema.

Cinema

57


strengthened their overall market share, rising from 48.4% to 56.1%. Analysing the individual market shares, no homogeneous trends emerge. Universal UIP, which led the ratings in 2008, lost 30% in 2009. Whereas the opposite was the case for Sony Pictures (+131%), with box office takings rocketing from 30 to 70 million euros, also thanks to a stronger Italian slate (52 titles distributed, compared with 24 in 2008). 20th Century Fox also put in an excellent performance (+53%) which, what’s more, will benefit from the success of James Cameron’s film Avatar in 2010. Table 11: Percentage share of box office takings by nationality, 2004-2009 Origin

2009

100% Italian Co-productions

2008

2007

2006

2005

2004

22,6

27,7

26,9

20,5

18,7

14,0

0,8

1,3

4,8

4,3

6,0

6,3

Total Italian

23,4

29,0

31,7

24,8

24,7

20,3

Europe

11,5

9,8

11,6

11,2

19,6

10,9

USA

63,5

60,2

55,4

61,9

53,8

61,9

Other nationalities Total

1,6

1,0

1,3

2,1

1,9

6,9

100%

100%

100%

100%

100%

100%

Source: Cinetel.

The other Italian mini-major, 01 Distribution, saw a decisive backslide (-25%) with takings falling below 50 million euros, dropping from 3rd to 7th place in the listings. Filmauro also lost ground, going from 5th to 9th position. In overall terms, the box office takings for the company led by Aurelio De Laurentiis amounted to 35.6 million euros compared with the 47.3 million recorded in 200825. The most noteworthy performance came from Eagle Pictures26, which saw its takings over the two-year period rise by 80%, topping the 40 million euros mark. As far as independent companies were concerned, Bim saw takings rise by 6.4% and caught up with Lucky Red which, in contrast, lost almost 9%. The two companies both have a market share of 2.5%. The distribution sector continues to have the highest level of concentration, relegating the independents to a marginal position, where the leading companies exercise a strong financial weight on production, imposing their slates on exhibitors. A demonstration of the difficulties of the (re)positioning comes in the form of the historic name Mikado which, after the failed re-launch carried out by Franco Tatò, has returned under the total control of the De Agostini Group. As a result of Mikado’s debts this Group intends to put it back on the market27. Table 12: Distributors’ market shares 2009 Company

Takings 09

% 09

% 08

% 07

% 06

% 05

Δ% 09-08

Medusa

87.768.874

14,2

16,60

17,33

12,98

10,4

-10,9

Universal/UIP

83.077.041

13,4

19,68

13,11

13,07

19,95

-28,9

Warner Bros

75.664.780

12,2

9,59

13,64

7,45

13,97

32,8

Sony Pictures

69.675.764

11,2

5,08

6,35

9,25

6,68

131,0

Walt Disney/Buena Vista

61.490.021

9,9

7,67

9,25

12,03

8,90

35,0

20th Century Fox

58.020.156

9,4

6,37

11,00

11,77

5,94

53,4

01 Distribution

49.968.645

8,1

11,10

9,90

9,49

9,99

-24,2

Eagle Pictures

41.952.090

6,8

3,94

3,68

6,02

7,33

79,4

25 Filmauro continues lead the pack for the best average takings per film (approximately 7 million euros for 5 titles distributed) followed by Disney/Buena Vista (1.6 million for 37 titles released) and 20th Century Fox (1.5 million for 37 titles distributed). 26 The company is controlled by Tarak Ben Ammar’s Alliance Film Europe. 27 In 2009, the market share of the company founded by Luigi Musini and Roberto Cicutto (sold to the Novara Group in 2007) is equal to 0.27% of the total share of the top 20 distribution companies listed by box office returns.

58

Cinema


Filmauro

35.568.883

5,7

7,97

8,21

8,18

6,13

-24,9

Lucky Red

15.692.807

2,5

2,90

1,36

0,84

1,70

-8,8

Bim Distributione

15.476.735

2,5

2,45

0,87

2,39

1,76

6,4

Moviemax

13.421.538

2,2

2,35

1,86

1,09

0,70

-3,9

Others

12.096.576

2,0

4,57

1,88

4,44

5,28

-52,4

USA majors (UIP-WB-BV-Sony-Fox)

347.927.762

56,1

48,40

53,35

53,57

55,44

21,1

IT majors (Medusa-01 Distr)

137.737.519

22,2

27,70

27,23

22,47

20,39

-16,3

IT super-indies (Eagle-Filmauro)

77.520.973

12,5

11,91

11,89

14,20

13,46

9,6

Others

56.687.656

9,1

11,98

7,53

9,66

10,71

-20,3

619.873.910

100,0

100,00

100,00

100,00

100,00

4,4

Total

Source: Cinetel. Box office takings until 31.12.2009, including continuing runs.

The top 20 films for box office takings in 2009 represent around 42% of the entire market. Six Italian productions make it into the top 20 (one less than in 2008), 13 were USA films and one was from the UK. Domestically produced films have a 23.3% share of the top 20 takings, as opposed to the 35% share registered the previous year. The top two Italian films were distributed by independents, Filmauro (Natale a Beverly Hills) and Medusa (Cado dalle nubi). Table 13: Top 20 films in theatres in 2009 Title

Country

Takings (Mil. euros)

Distributor

Ice Age 3: Dawn of the Dinosaurs

USA

20th Century Fox Italia

29,690,712

Angels and Demons

Usa

Sony Pictures Italia

18.724.657

Harry Potter and the Half-Blood Prince

Uk

Warner Bros Italia

18.356.557

New Moon

Usa

Eagle Pictures

16.427.604

Natale a Beverly Hills

Ita

FilmAuro

16.339.019

UP

Usa

Walt Disnesy S.M.P Italya

15.345.556

2012

Usa

Sony Pictures Italia

14.311.547

Cado dalle Nubi

Ita

Medusa Film

12.787.555

Italians

Ita

FilmAuro

12.158.520

Seven Pounds

Usa

Sony Pictures Italia

11.258.003

A Christmas Carol

Usa

Walt Disnesy S.M.P Italya

11.001.542

The Curious Case of Benjamin Button

Usa

Warner Bros Italia

10.935.460

EX

Ita

01 Distribution

10.652.049

Baaria

Ita

Medusa Film

10.534.935

Inglourious Basterds

Usa

Universal

9.324.983

Gran Torino

Usa

Warner Bros Italia

9.127.986

Io & Marilyn

Ita

Medusa Film

8.883.362

Fast & Furious: New Model. Original Parts

Usa

Universal

8.323.487

Journey to the Center of the Earth

Usa

Universal

8.203.251

Transformers: Revenge of the Fallen

Usa

Universal

8.189.080

Total Italian films in the top 20

60.703.391

Total USA films in the top 20

199.872.474

Total top 20 films

260.575.865

Note: Italian films are in bold. Source: Cinetel, ANICA.

Cinema

59


3. A comparison with European markets Once again in 2009, a comparison with the other major European markets (France, Germany, the UK and Spain) shows the Italian system lagging behind, especially in reference to the traditional performance indicators. In fact, taking into account admissions and box office takings, the Italian market is on the same level as Spain, quite far behind Germany, the UK and France. In 2009, the French box office exceeded the historic threshold of 200 million tickets, with takings amounting to 1.2 billion euros (practically double the figures recorded in Italy). The number of domestic films produced in Italy, which had showed encouraging signs of growth until 2008, dropped in 2009 (falling from 154 to 131 titles) bucking the trends seen in other markets, apart from France, which nevertheless continues to maintain its leadership for volume of output. Looking at the number of times people go to the cinema in relation to the population, Italy is near the bottom of the table, with a pro-capita average of 1.9 screenings a year. Table 14: The cinema market in the major European countries, 1999-2009 2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

Tot. national films

230

240

228

203

240

203

212

200

204

171

181

Admissions (millions)

200,9

190,1

178,2

188,8

175,5

195,7

173,5

184,4

187,5

165,8

153,6

Average attendance

3,4

3,2

3

3,2

3

3,3

3

3,2

3,2

2,8

2,6

France

Total takings (Mil. €)

1232

1141,7 1060

1120,7

1031,9

1138,9

996,1

1030

1021

894

824

For national films (%)

35,6

45,1

36,1

44,6

36,3

38,4

34,6

34,6

41,4

28,1

32,5

For USA films (%)

51,7

43,9

50,1

44,7

46,5

48,3

52,9

50,2

46,6

63,2

54,4

9,2

12,1

8,8

15,5

9,4

5,3

8,4

7,5

6,1

11,1

For European films (%) 9,6 Germany Tot. national films

144

125

129

122

103

87

80

84

83

75

74

Admissions (millions)

146,3

129,4

125,4

136,7

127,3

156,7

149

163,9

177,9

152,5

149

Average attendance

1,8

1,6

1,5

1,7

1,5

1,9

1,8

2

2,2

1,9

1,8

Total takings (Mil. €)

976,1

794,7

757,9

814,4

745

892,9

850

960,1

987,2

824,5

808,4

For national films (%)

27,4

21

15,1

21,5

13,9

20,8

16,7

9,5

15,7

9,4

11,1

For USA films (%)

n.d

66,9

73,2

72

77,2

72,1

76,8

83

77

81,9

78,6

For European films (%) n.d

16,9

19,5

13,8

22,2

13,6

9,4

21,4

18,6

8,8

14,3

Italy Tot. national films

131

154

121

116

98

134

117

130

103

103

108

Admissions (millions)

109,3

111

116

105

104,7

113,2

105

111,5

110

100,9

103,5

Average attendance

1,9

1,9

1,9

1,8

1,9

2

1,9

1,9

1,9

1,8

1,8

Total takings (Mil. €)

664,1

636,7

669,6

601,2

559,5

655,4

608,6

654

600,7

545,8

532,9

For national films (%)

23,4

29

31,7

24,7

24,7

20,3

21,8

22,2

19,4

17,5

24,1

For USA films (%)

63,5

60,2

55,4

61,9

53,8

61,9

64,5

60,2

59,7

69,5

53,1

9,8

11,6

11,2

19,6

10,9

8,3

12,6

23,7

11,4

14,3

For European films (%) 11,5 UK* Tot. national films

125

126

127

134

164

174

196

119

83

90

103

Admissions (millions)

173,5

164,2

162,4

156,6

164,7

171,3

167,3

175,9

155,9

142,5

139,1

Average attendance

2,8

2,7

2,7

2,6

2,7

2,8

2,8

2,9

2,6

2,4

2,4

Total takings (Mil. €)

1059,3 953,5

921,5

855,3

864,3

864,3

832,8

847,4

724

654,4

631,9

For national films (%)

16,5

31,1

28,6

19,1

33

23,6

10,2

8,3

4,9

19,6

16,5

For USA films (%)

n.d.

65,2

67,7

77,1

63,1

73,2

73,5

71,3

73,9

75,3

80,5

2,3

1,8

1,2

3,1

1,3

2,5

1,2

4

1,5

1,6

For European films (%) n.d

60

Cinema


Spain Tot. national films

186

173

172

150

142

133

110

137

106

98

82

Admissions (millions)

109,5

107,8

116,9

121,7

127,6

143,9

137,5

140,7

146,8

135,3

131,3

Average attendance

2,4

2,4

2,6

2,8

2,9

3,5

3,3

3,4

3,7

3,4

3,3

Total takings (Mil. €)

667,8

619,3

643,7

636,2

635

691,6

639,4

625,9

616,4

536,3

495,9

For national films (%)

16

13,3

13,5

15,4

16,7

13,4

15,8

13,7

17,9

10,1

13,9

For USA films (%)

70,6

71,5

67,6

71,2

60,3

69,8

67,3

66,1

62,2

82,7

64,2

13,6

14,5

12,2

20,3

9,9

12

14,8

15

7,2

13,1

For European films (%) n.d

Note: (*) For the UK, an annual exchange rate for 2009 was used (equating to 0.89094 or 1.12241 euros per pound) supplied by the Italian Exchange Office from the Bank of Italy. Source: IEM elaboration of data from ANICA, SIAE, Cinetel and Centre National de la Cinématographie.

Analysing the trends in market share in the five countries, the only country to record progressive growth in the last three-year period is Germany28. In 2009, the market share for French films returned to the levels seen in 2007, resting at 35.6% after the surge recorded in 2008 (45.1%) thanks to the phenomenal success of the film Welcome to the Sticks. There was also a considerable drop in the share of Italian domestic productions (23.4%, dropping by over 5% compared with the performance the previous year)29. The figure for the UK was also very negative: the market share for its national films was halved in 2009, dropping from 31.1% to 16.5%, a sharp downturn on the growth recorded in the previous three years, placing it on a level with the domestic market share recorded for Spanish films (16%) which, on the contrary, gained almost 3% on 2008 levels. Fig. 1: Market share for national films, 1999-2009 50

France

Germany

Italy

UK

Spain

45 40 35 30 25 20 15 10 5 0 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: IEM elaboration of data from ANICA, SIAE, Cinetel and Centre National de la Cinématographie.

28 The figure for the National market share recorded in Germany in 2009 (27.4%) should be considered with caution, as it refers to admissions and not takings and includes co-productions made in the UK supported by American investment. The figure was taken from the CNC database, which had performed its own elaborations using the Lumière database overseen by the European Audiovisual Observatory in Strasburg. 29 As has already been mentioned, in the first half of 2010, the market share had already risen back to 30%, including co-productions.

Cinema

61


Home Video

62


Home Video by Andrea Marzulli

1. The Italian market Once again in 2009, as in 2008, the home video market in Italy witnessed a steep decline. The sum total for rentals and items sold dropped by nearly 19% (after a 20% drop in 2008) to under 100 million. As recently as 2006 the volumes were over 160 million. And, for the umpteenth year in a row, rentals were the hardest hit: now stabilised at 42.9 million, rentals declined by over 22 % last year and have more than halved since 2005. According to the Rimini CCIAA, as published in the 2010 Univideo Report, in 2009 nearly 500 video rental stores went out of business (in 2007-2008 the figure was over 400), with the total number of stores still operating estimated at 3,800 (a figure that seems too high, to tell the truth, when compared to the segment’s market value; according to Screen Digest, in 2008 the number of active rental outlets was 2,200). However, while individual stores and “bricks-and-mortar” chains are hurting the most – in the USA the videorental chain Blockbuster has filed for Chapter 11 bankruptcy protection, after its main competitor Hollywood Video went bust – their digital rival Netflix is enjoying a powerful upswing (with sales of 1.67 billion dollars in 2009) thanks to its online subscription video-on-demand service operating both the over-the-top model, and the home delivery / collection model for film rentals (a trend that confirms what previous editions of this report have pointed out: users find the “logistics” of physically going to the rental store more and more irksome). The steady decline of the sector is also due to the pressure exerted by many film distributors to extend the rental time window, as well as filesharing (by filesharing customers or the leading cyberlocker sites for remote storage, headed by Megavideo). In recent years, the rental/sales ratio has flipped to favour the latter, which has seen less of a decline (circa 24% in the last 5 years, compared with a drop of over 54% for rentals). More and more, video consumption now goes through the major intermediaries (which mainly only offer items to purchase not rent), rather than video stores. Of all sales channels, newsagents have been hit particularly hard in 2009: sales have fallen by 24%, further proof of the decline of the saturated market for add-ons (products sold along with newspapers or magazines). The negative trend seems less severe for Normal Trade, dropping 8% in 2009, although no figures for sales by outlet type have been made available to the public for years now. That said, sales have not ended the year in the black since 2006, although in the first half of 2010 sales did increase by 2% thanks to Blu-ray (the 2009 sales for which were under a million pieces – a figure that reveals Italy is very late in catching up with other major European countries in superseding DVDs: only 119,000 Blu-ray readers were sold in Italy in 2009).

Home video

63


Table 1: Sales/rentals (in millions), 2005-2009 2009 Rentals

42,9

2008 55,4

2007

2006

75,4

∆% 09-08

2005

86,2

94,2

∆% 09-05

-22,6

-54,5

- DVDs

42,8

55,3

75,2

81,8

86,8

-22,6

-50,7

- Blu-ray Discs

0,14

0,04

0,03

-

-

250,0

-

- VHS

-

0,1

0,2

4,4

7,4

-100,0

-100,0

Sales - DVDs

54,3

64,5

75,7

76,3

70,2

-15,8

-23,6

53,3

63,5

74,2

73,4

63,4

-16,1

-15,9

(of which Normal Trade)

29,5

32,3

37,5

37

33,5

-8,7

-11,9

(of which Newsagents)

23,8

31,2

36,7

36,4

29,9

-23,7

-20,4

0,9

0,4

0,1

-

-

125,0

-

- Blu-ray Discs - Other supports (UMDs, HD-DVDs)

0,1

0,5

0,1

0,1

0,04

-80,0

150,0

- VHS

-

*

1,2

2,9

6,8

-

-100,0

-

*

1

2,6

4,7

-

-100,0

(of which Normal Trade)

-

0,1

0,2

0,3

2,1

-100,0

-100,0

(Total Normal Trade)

(of which Newsagents)

30,5

33,2

38,8

39,6

38,2

-8,1

-20,2

(Total Newsagents)

23,8

31,3

36,9

36,7

32,0

-24,0

-25,6

(Total DVDs)

96,1

118,8

149,4

155,2

150,2

-19,1

-36,0

(Total VHS)

-

0,2

1,4

7,3

14,2

-100,0

-100,0

(Total Other Supports)

1,1

0,9

0,2

0,1

0,1

22,2

1000,0

Total rentals + sales

97,2

119,9

151,1

162,5

154,4

-18,9

-37,0

Note: data in millions of sales. Source: IEM elaboration of Prometeia and Univideo data.

The shrinking consumption is borne out by the economic figures: in 2009 the home video market reported a decline in market value of 17.9% compared with 2008, dropping from 828 to 680 million euros, the lowest value since 2001 (when it was 615 million). Rentals fell by 22.6%, dropping to roughly 115 million, almost entirely covered by DVD rentals, while Blu-ray accounts for another half a million euros. Sales through various channels declined by 15.3%, falling from 667 to 565 million. The negative trend mainly concerns Newsagents (-23%, to 201 million), compared with the 10.4% drop (to 364 million) for Normal Trade. The drop in the two segments’ market value, which was slightly higher than the fall in volumes, reflects a further decline in average prices (under 12 euros for DVDs, around 24 euros for Blu-ray). Blu-ray sales rose by 113%, from 9.7 to 20.7 million and the format represents 3.7% of the sales. Table 2: The home video market: market value at final prices (in millions of euros), 2005-2009

64

2009

2008

2007

2006

2005

∆ % 09-08

∆ % 09-05

Rentals

114,6

160,6

218,4

272,4

- VHS

-

0,2

0,2

12,0

315,0

-28,6

-63,6

19,8

-100,0

-100,0

- DVDs

114,1

160,3

218,1

- Blu-ray Discs

0,5

0,2

0,1

260,4

295,1

-28,8

-61,3

-

-

150,0

-

Sales

564,9

667,0

780,0

765

738

-15,3

-23,5

- VHS

0,3

(of which Normal Trade)

0,3

1,3

2,7

12

39

-76,9

-99,2

1,2

2,4

11

33

-75,0

-99,1

(of which Newsagents)

-

0,1

0,3

1

7

-100,0

-100,0

- DVDs

544,0

654,8

772,9

753

697

-16,9

-22,0

(of which Normal Trade)

343,2

394,3

466,5

453

436

-13,0

-21,3

(of which Newsagents)

200,7

260,5

306,4

300

262

-23,0

-23,4

Home Video


- Blu-ray Discs

20,7

9,7

3,0

-

-

113,4

-

UMDs

-

0,9

0,7

1,2

0,8

-100,0

-100,0

HD-DVDs

-

0,4

0,5

-

-

-100,0

-

(Total Normal Trade)

364,2

406,4

473,4

464

469

-10,4

-22,3

(Total Newsagents)

200,7

260,7

306,7

301

269

-23,0

-25,4

(Total VHS)

0,3

1,5

3,2

24

60

-80,0

-99,5

(Total DVDs)

658,1

815,0

991

1014

993

-19,3

-33,7

(Total Blu-ray Discs)

21,2

9,9

3,0

-

-

114,1

-

(Total other supports)

-

1,3

1,2

-100,0

-

Total market

679,6

827,6

998,4

-17,9

-38,2

1037

1099

Source: IEM elaboration of Prometeia and Univideo data.

In terms of content, films are naturally the main product type, with circa 56% of the market for DVD sales. This share has fallen slightly compared with previous years; it must be remembered, however, that the category includes only live action films, while animated films fall under the category of Animation, which is growing the fastest (from 20 to 26%). Indeed, in the context of a steeply declining market, children’s films and animated television cartoons outperform the other product categories. TV series reported a sizeable decline (in relative terms at least, considering the smaller size of the segment); usually packaged in more expensive cases, this category fell from 10 to 7.7% in two years. As far as the other segments are concerned, 2009 was a growth year for Music; for the record industry DVDs have become a way to fight digital file sharing, putting additional content on the market in addition to the audio content alone, which the industry hopes will have a greater appeal. Fig. 1: DVD sales by type of content (2007-2009, %) Film 100%

TV Series

Music

Specials

Animation

6

6

7

Promos

90% 80%

20 2 3

70% 60%

24

26 2 2

1 4

10

9

58

58

56

2007

2008

2009

8

50% 40% 30% 20% 10% 0%

Source: IEM elaboration of Prometeia and Univideo data.

With films as the leading home video product, and considering the major media groups’ control over the distribution process, the “clout” of the main players active in the sector prevalently reflects the market shares for theatrical exploitation: hence the Italian branches of the US majors top the charts for revenue (with over 60 million euros for Buena Vista). The leading Italian player is Medusa, with over 26 million euros in revenue (estimated home video revenue for the other main Italian player, 01 Distribution, is reported to be around 20 million), followed by Mondo Home Entertainment, with 23 million.

Home Video

65


Table 3: Revenue for some of the leading home video publishers Rank

Year

Revenue

1

Buena Vista Home Entertainment

Publisher

2008

61,2

Disney

Main shareholders

2

Twentieth Century Fox HE Italia

2007

49,0

Newscorp

3

Paramount Home Entertainment Italy

2008

34,2

Viacom

4

Universal Pictures Italy

2008

30,3

Comcast-Nbc Universal

5

Medusa Video

2008

26,6

Mediaset

6

Mondo Home Entertainment

2009

23,4

Mondo Tv

7

Sony Pictures Home Entertainment

2008

20,6

Sony

8

Cecchi Gori Home Video

2009

12,7

amministrazione straordinaria

9

Rai Trade

2008

*8,0

Rai

10

Filmauro

2007

*6,3

De Laurentiis

11

Dolmen Home Video

2009

4,1

De Agostini

Note: (*) only home video revenue. Data in millions of euros. Of the major active companies, data is unavailable for the RAI Group’s 01 Distribution (estimated at roughly 20 million euros), Warner HE, DNC HE. Source: IEM elaboration of data from the European Audiovisual Observatory, Ente dello Spettacolo and companies’ annual reports.

2. The international picture Contrary to most expectations – considering the fact that 2009 was marked by a full-blown recession and that home video, of all major media markets, is one that has been most affected by a structural crisis and a rethinking of business logic along the lines of new media – 2009 was actually not a negative year for all European countries. The figures for Italy were among the worst, second only to Spain (a country in which many media markets were hard hit in 2009, such as television). The Spanish market fell by 37% (as much as 58% for rentals alone), the biggest drop in the 5 major European countries. The UK performed better (with its 2.9 billion market being the strongest of all); its roughly 10% decline was split almost equally between rentals and sales. However, while the French market remained steady to a large extent (-0.2%, but +.6% for sales), in Germany the market actually increased by 5%, thanks to an excellent performance by the sales channel (+6.7%), which boosted values above their 2006 level. Table 4: The home video market in the major European countries, 2005-2009 2009

2008

2007

2006

2005

Italy

680

828

998

1037

1099

-17,9

-38,1

Rentals

115

161

218

272

315

-28,6

-63,5

% rentals out of total market

16,9

19,4

21,8

26,2

28,6

-12,8

-40,9

Sales

565

667

780

765

784

-15,3

-27,9

1411

1414

1543

1737

1889

-0,2

-25,3

France Rentals

20

31

47

78

105

-35,5

-81,0

% rentals out of total market

1,4

2,2

3,0

4,5

5,6

-35,3

-74,5

Sales

1391

1383

1496

1659

1784

0,6

-22,0

Germany

1633

1555

1605

1591

1686

5,0

-3,1

256

264

274

284

320

-3,0

-20,0

Rentals

66

∆ % 09-08 ∆ % 09-05

% rentals out of total market

15,7

17,0

17,1

17,9

19,0

-7,7

-17,4

Sales

1377

1291

1331

1307

1366

6,7

0,8

UK

2877

3196

3305

3256

3489

-10,0

-17,5

Rentals

223

246

334

382

448

-9,1

-50,1

% rentals out of total market

7,8

7,7

10,1

11,7

12,8

0,9

-39,5

Home Video


Sales

2654

2950

2971

2874

3041

Spain

125

198

272

276

292

-36,9

-57,2

16

38

52

76

93

-57,9

-82,8

% rentals out of total market

12,8

19,2

19,1

27,5

31,8

-33,3

-59,8

Sales

109

160

220

200

199

-31,9

-45,2

Rentals

-10,0

-12,7

Note: data in millions of euros (average exchange rate 2009 UK: 1 € = 0.89049 £). Source: IEM elaboration of Prometeia and Univideo data (Italy), Sevn, CNC-GFK (France), BVV (Germany), BVA, UKFC (UK) and UVE, SGAE, Screen Digest (Spain).

So much for the values. As far as volumes are concerned, France and Germany reported an increase of 9-10% in pieces sold, after years of decline (France) or stability (Germany). The Italian figures are troubling because the numbers (for both 2008 and 2005) are much more negative than those for the other major countries (barring Spain) and suggest a downward spiral in consumption. In France, by contrast, the shortening of the release window to 4 months revitalised Christmas sales and thus contributed to a particularly strong result, also due to price deregulation. In Germany, Blu-ray caught on much more quickly than in other countries. Table 5: Pieces sold in the major European countries, 2005-2009 2009

2008

2007

2006

2005

∆ % 09-08

∆ % 09-05

Italy

54

64

76

76

70

-16.3

-23.6

France

141

128

131

136

143

10

-1.7

Germany

113

104

104

103

104

9

8.1

UK

243

258

250

229

222

-5.8

9.5

Spain

16

21

28

30

34

-23.8

-52.9

Note: data in millions of pieces. Source: IEM elaboration of Prometeia, Univideo (Italy), CNC-GFK(France), BVV (Germany) and BVA (UK).

There is no doubt that file sharing has had dire effects on the home video market. In Italy and elsewhere, the debate concerns just how much damage has been done. In many cases, these calculations tend to quantify the damage by assigning market value to films shared or downloaded online, as well as physical copies that are counterfeited and sold. Another approach is to measure the actual substitution rate, which thus reduces the incidence of damage to the market. In any case, a comparison between the extent of illegal downloading and counterfeiting and the market trend shows that among major European countries there is a direct relationship between the number of copyright infringements and the decline of “legal” consumption over time. Spain is a perfect example, with the highest number of infringements (568 million in 2009, of which 539 million were downloads of films and TV series and 209 million were counterfeit pieces), and the biggest drop in sales/rentals between 2005 and 2009 (-57.9%). Italy follows close behind with, on one hand, 327 million infringements (228 million downloads and 99 million counterfeit pieces, the highest number of all countries studied with respect to “physical piracy”) and a 36.5% decrease in sales/rentals on the other. The country with the lowest number of infringements (Germany, with 164 million) is also the country with the lowest drop in the market (-1.8% in sales/rentals over the five-year period). Indeed, Germany and the UK are the only countries in which the number of infringements (in 2008) is less than the number of sales/rentals (in 2009) and where the market has been least affected (in the UK down 11.5%). This figure is higher than those for sales/rentals in France, Italy and Spain, where the market decline is greater.

Home Video

67


Fig. 2: Relationship between sales/rentals and file sharing/counterfeiting in the home video market

UK

DE

FR

IT

ES 29

539 314

71

162

9

152

99

6

224

228

252

153

97 16

-1,8% -11,5% -19,4%

-36,5%

-57,9% Download of film and TV series (millions of files) Physical counterfeits of films and TV series (millions of pieces)

Rentals/sales (in millions) Variation in rentals/sales 05-09 (%)

Note: data on downloads and counterfeiting refer to 2008, rentals/sales to 2009. Source. IEM elaboration of BVA, UKFC, CNC, BVV, Prometeia, Univideo, SGAE, and Tera Consultants data.

As an alternative to physical rental, the video-on-demand market is expanding at a fast pace in the leading European markets. In France (+54% last year, to 83 million euros) it has surpassed rental. And in Germany, although the figures are much lower (13 million euros in 2009), the increase, in any case, was over 45%. The UK is an exception to some extent; it is the strongest market, worth 139 million euros, though its growth was more modest (3.8%), due to an unexpected drop in TV-based VOD, which reported a decrease of nearly 5% (due to the decline in revenues for NVOD services, in favour of true VOD services such as Fetch TV and iTunes, which alone generates 55% of VOD online revenues in the UK). In the absence of accurate data for VOD revenues in Italy, we may rely on the most conservative estimates (Univideo, E-media, in previous versions of this Report), which put the online market at 4-5 million euros (while Confindustria estimates it as high as 40 million, including advertising). Table 6: The video-on-demand market in the UK and France, 2006-2009

68

2009

2008

2007

2006

â&#x2C6;&#x2020; % 09-08

United Kingdom

139,2

134,1

103,5

80,5

3,8

of which TV-based

121,3

127,1

97,7

nd

-4,6

of which online

16,8

7,0

6,2

nd

140,0

Home Video


France

82,3

53,3

29,1

14,0

54,4

of which TV-based

75,2

46,9

23,7

nd

60,3

of which online

7,1

6,4

5,4

nd

10,9

Germany

13,1

9,0

3,0

nd

45,6

Note: data in millions of euros (average exchange rate 2009 UK: 1 € = 0.89049 £). Source: Screen Digest, UKFC, CNC, BVV.

The shrinking home video market continues to penalise television production, further reducing the revenue sources for TV series beyond their primary exploitation on the domestic market (the export figures are not very strong either, little more than 10 million euros). This holds for Italian TV series, at least (after the category peaked at 10% in 2007, TV series’ counted for just 7.7% of DVD sales in 2009, only a small part of which were Italian). In France, as well, the figures for TV series continue to decline (272 million euros), as well as the proportion of French TV series out of total TV series available on home video (9.3%). Once again, for this indicator as well, Germany represents an exception to the negative trend; the sales value of TV series grew from 205 to 233 million euros, returning to 2004 levels. Table 7: TV series in the home video market in Italy, France and Germany (2004-2009) 2009

2008

2007

2006

2005

2004

564,9

654,8

772,9

753

697

616

value for TV series (in millions of euros)

42

59

77

63,1

46

41,2

TV series’ share of total market (%)

7,7

9

10

8,3

6,5

6,6

Italy market value: sales (in millions of euros)

France market value: sales (in millions of euros)

1390

1382

1481

1658

1786

1959

value for TV series (in millions of euros)

272

283

317

317

247

196

TV series’ share of total market (%)

19,6

20,5

21,2

19,1

13,8

9,9

Domestic TV series’ share of total TV series (%)

9,3

9,5

9,9

14,3

16,9

15,2

Germany market value: sales (in millions of euros)

1377

1291

1331

1307

1366

1440

value for TV series (in millions of euros)

233

205

222

183

177

233

TV series’ share of total market (%)

16,9

15,9

16,7

14,0

13,0

16,9

Source: IEM elaboration of data from Prometeia, Univideo (Italy), CNC-GFK (France) and BVV (Germany).

Home Video

69


Books

70

Libri


Books by Daniela Ciavarelli

1. Book production and reading habits Italy’s publishing industry had a difficult year in 2008, but it was hardly critical1. Compared with the previous year, book production held steady, with just a slight decrease, on the order of 0.5% (all editions), offset by a quite positive bottom line (11.5%) with respect to 2004. Overall, the number of titles published was just under 59,000, thanks to the recovery seen for first editions (see below). Accompanying this slight drop in the number of titles, however, was the ongoing negative trend for the overall print run, which fell to just over 213 million copies in 2008, a steep decline compared to both the previous year and the trend for the last five-year period.. In fact, the decrease respect to 2004 was 12.1%, while the circulation from 2007 to 2008 alone dropped by 9.4%. Consequently, the average print run per work plunged as well, by 21.2% compared to 2004 (that is, by 1,000 copies), and by 9% from 2007. Table 1: Book production in Italy (titles and print runs), 2004-2008 2008

2007

2006

2005

2004

Total (first editions, reprints and subsequent editions)

58.829

59.129

61.440

59.743

52.760

-0,5

11,5

Print run (in thousands)

213.163

235.389

268.097

261.054

242.639

-9,4

-12,1

3.623

3.981

4.364

4.373

4.599

-9,0

-21,2

Average print run per work

Δ % 08-07 Δ % 08-04

Source: IEM elaboration of ISTATand AIE data.

The fact that the market held steady was largely due to the increase in first editions, reaching nearly 38,000 titles, roughly 1,000 more than the previous year. First editions thus make up 64.3% of books published, in the face of a steady decline of reprints and subsequent editions. The figures for reprints reflect the ongoing negative trend that started in 2006, levelling off at just under 18,000 copies (30.6% of books published), while subsequent editions reversed the positive trend for 2007 and once more declined, from 6.6% to 5.1%. As Table 2 shows, this third and final type of edition always fluctuated over the six-year period, without delineating a clear trend.

1 When this chapter was written, 2008 was the last year for which figures for book production were available. The economic data in the rest of the chapter refer to the year 2009.

Books

71


Table 2: Book production in Italy by type of edition, 2002-2008 2008

2007

2006

2005

2004

2003

2002

Absolute values First edition

37.845

36.819

37.991

37.694

33.641

34.496

32.781

Reprint

17.991

18.431

19.999

18.596

16.440

16.417

19.083

Subsequent edition

2.993

3.879

3.450

3.453

2.679

3.353

2.760

Total

58.829

59.129

61.440

59.743

52.760

54.266

54.624

Percentage values First edition

64,3

62,27

61,83

63,09

63,76

63,57

60,01

Reprint

30,6

31,17

32,55

31,13

31,16

30,25

34,94

Subsequent edition

5,1

6,56

5,61

5,78

5,08

6,18

5,05

Total

100

100

100

100

100

100

100

Source: IEM elaboration of ISTAT and AIE data.

First editions showed nearly identical growth for the various genres: +257 titles in the scholastic segment, +230 in the children’s books segment and +539 in the miscellaneous segment, which includes manuals, essays, guides, illustrated books and art books, travel guides, university textbooks, specialised scientific and medical publications, reference books and encyclopaedias as well as narrative. In the miscellaneous and children’s books segments, first editions make up 67% and 72% respectively of the titles published, whereas for scholastic editions, this figure drops to 32.8%, given a lower turnover in this segment. Unlike first editions, which increased their share of all genres of work, reprints and subsequent editions witnessed a sharp parallel decline: in the miscellaneous segment in 2008, reprints accounted for 28.1% of the titles and subsequent editions for 5.1%. In the children and young adults segment as well, the share of reprints fell from 64% in 2007 to just over 60% in 2008; similarly, subsequent editions went from 7% to 3.3%, over a 50% drop. Reprints of scholastic books fell to 60.6% and subsequent editions to 6.6%. Table 3: Book production in Italy by edition type and genre, 2008 Edition type by genre

First edition

Subsequent edition

Reprint

Total

1.636

331

3.024

4.991

Absolute values Scholastic Children’s

2.939

136

996

4.071

Miscellaneous

33.270

2.526

13.971

49.767

Total

37.845

2.993

17.991

58.829

Scholastic

4,3

11

16,8

8,5

Children’s

7,8

4,6

5,5

6,9

Miscellaneous

87,9

84,4

77,7

84,6

Total

100

100

100

100

Percentage values

Genre of work by edition type (percentage values) Scholastic

32,8

6,6

60,6

100

Children’s

72,2

3,3

24,5

100

Miscellaneous

66,9

5,1

28,1

100

Total

64,3

5,1

30,6

100

Source: IEM elaboration of ISTAT data.

72

Books


In 2009, according to ISTAT’s multi-purpose survey “Aspects of Daily Life”, Italy’s reading population aged 6 and over climbed to 45.1% from 44% the previous year. It’s important to note that this increase is related to the so-called “heavy readers” (12 or more books a year), whose numbers grew by two percentage points to represent 15.2% of the reading population (calculated as those who had read at least one book in the past year); and is partially due to average readers as well (4-11 books). Consequently, the percentage of those who read up to three books a year declined (as we shall see below). The largest share of readers is to be found in the 11-17 age group (over 58%), with a peak between ages 11 and 14 (64.7%), which falls as readers get older. By the age of 35 the share of readers has dipped below 50%, dropping sharply from 65 upwards to an all-time low of 22.8% in the population aged 75 and over. Women read more than men do; in fact, the share of female readers is 51.6%, compared with 38.2% of men. This gender gap is present at all ages and is most pronounced between ages 20 and 24, when the share of female readers is over 66%, while male readers account for only 39.2%. The only age group for which the gender gap disappears is that of persons 75 and over, an age group in which reading as a leisure activity is reported by 23.3% of men and 22.5% of women. Educational level is a decisive factor in reading habits, which range from 80.6% of those who hold university degrees to a minimum of 28.4% of those who only have a primary school leaving certificate or no qualification at all. If, on the other hand, employment status is taken into account, above-average reading rates for ages 15 and older may be found among executives, businessmen and self-employed professionals (62.7%), students (65.2%), managerial staff and employees (68.1%). By contrast, the lowest reading levels are reported among manual workers (30.6%), individuals who have withdrawn from the workforce (33.2%) and housewives (35.9%). In terms of geographical distribution, the largest share of readers is found in Northern Italy, where nearly 52% of the population aged 6 and over has read at least one book in the 12 months prior to the survey, and in Central Italy (48%). In Southern Italy and the islands, by contrast, the reading population respectively falls to 34.2% and 35.4%,l.. Moreover, the Italian regions exhibit significant variations in reading habits; while Trentino-Alto Adige (60%) and Friuli-Venezia Giulia (56.7%) report the strongest reading figures, Marche, Umbria and all the southern regions are well under the national average. In particular, four regions come in last place: Sicily (31.5%), Campania (32.9%), Puglia (33.1%) and Calabria (34.3%). In terms of the size of their town or city, more readers are to be found in urban centres and highly urbanised areas, while their number declines the smaller the town they live in; in fact, from 51.3% in cities forming the hubs of a greater metropolitan area, the reading population falls to 40.5% in towns with just 2,001 to 10,000 inhabitants. The lightest readers (one to four books a year) are predominantly male (48.1%), children up to age 14 (over 48%), persons 75 and over (49.5%), persons with a secondary school diploma or a lower qualification (over 50%), manual workers (55.3%), first-time job seekers and housewives (over 51%), as well as residents in the Southern regions (57.6%) By contrast, the highest numbers of heavy readers (over twelve books a year) may be found among persons aged 65-74 (19.8%), women (16%), with a peak among women aged 65-74 (22.1%); holders of university degrees (24.4%), executives, businessmen and self-employed professionals (19.8%), as well as those who have left the workforce (18.7%) Geographically speaking, the largest shares of heavy readers are to be found in the Northwest (19.5%) and in the Northeast (1.3%).

Books

73


Table 4: Breakdown of reading habits in Italy, 1997-2009 Have read at least one book over the last 12 months (%)

per 100 readers 1-3 books

4-11 books

12+ books

1997

41,6

47,1

1998

41,9

47,8

1999

38,3

48,2

2000

38,6

49,5

2001

40,9

48,1

2002

41,4

48,3

2003

41,3

48,8

2005

42,3

47,5

2006

44,1

47,3

2007

43,1

46,2

2008

44,0

47,7

2009

45,1

44,9

39,9 40,5 38,9 38,4 39,0 39,1 38,8 39,0 39,8 40,8 39,1 39,9

13,0 11,7 12,9 12,1 12,9 12,6 12,4 13,5 12,9 13,3 13,2 15,2

Note: per 100 persons aged 6 and over. Source: ISTAT.

2. The value of the market For the second year in a row, the book publishing industry declined in value, to a total of 3.407 billion euros, a 4.3% drop compared with 2008. In spite of this, healthy sales were reported for the trade channels: Internet (+12%), large-scale retail and traditional bookshops (+2.5%), which accounted for 1.430 billion euros altogether. The bookshop channel is undergoing a profound transformation, which may explain why sales are holding steady. And after dipping by 2.9% in 2008, large-scale retail (book aisles in superstores and department stores) is back in the black again (+4%), clearly benefitting from the growing trend seeing families turning to large-scale retail outlets for their shopping needs. Indeed, the “chains” grew by over 4% in 2009, while “family run” bookstores saw almost no change (+0.6%). Online bookshops continue to boom, with sales up by 26.8% (the highest percentage for all trade channels), helped by the debut of new players on the market. Newsstands reported a slight upswing (+2.6%) in book sales, thanks to the rethinking of the channel along the lines of the franchise formula adopted by several large groups, and also to an assortment of books that go beyond paperbacks and super-cheap editions. This increase leaves out add-ons, which fell again in 2009 (by almost 4%), making for a drop of over 50% since 2005. Sales of collectibles also plunged by 31.5%, to 161 million euros. The scholastic market also slowed, with a further 1.4% slump in sales, most likely due to a greater adoption of used books as well as the effects of the Ministry of Education reform actually coming on stream, freezing textbook adoption for five years in primary schools and six years in secondary schools, with the requirement, coming into effect in 2012, that only textbooks available for downloading online may be used. The e-book market is still in its infancy. Despite the media roll-out that brought it to the readers’ attention and led to the growing adoption of e-readers (actually this was more in 2010 than in 2009), the e-book market was still worth just over 1 million euros, or 0.03% of the market in 2009.

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Table 5: The book publishing industry in Italy, 2005-2009 (in millions of euros) Large-scale retail (1)

2009

2008

2007

2006

2005

Δ% 09-08

Δ% 09-05

261

251

258,4

246,1

226,8

4,0

15,1

Newsstands (2)

19,5

19

18,5

16,5

20,5

2,6

-4,9

Other retail (3)

21,9

20,8

19,8

19,3

18,4

5,3

19,0

Internet (4)

101,2

90,4

71,3

52,1

40,1

11,9

152,4

Bookshops (5)

1068

1042

1048

1043,3

1034

2,5

3,3

E-books (estimated)

1,1

-

-

-

-

-

-

Scholastic

667

676,8

716,3

705,5

669

-1,4

-0,3

Museum Bookshops

23,6

26,2

28,4

25,4

21,9

-9,9

7,8

Instalment sales

213,4

268,1

311,8

308,4

315

-20,4

-32,3

Mail order

120

128,9

143,2

140,6

145

-6,9

-17,2

Book clubs

75

78,9

83,3

82,5

81,5

-4,9

-8,0

Direct sales to libraries

45

48

50,2

54,3

65,5

-6,3

-31,3

Exports

42

41,1

40,7

39,9

39,5

2,2

6,3

Collectibles and serialised books

161,1

235,2

293,2

307

342,3

-31,5

-52,9

Electronic publishing (CD ROM, DVD ROM)

264,5

348

330,5

336,9

326,5

-24,0

-19,0

Electronic (databanks)

97,8

75,2

70

60,5

51

30,1

91,8

95

84,6

79,8

78,1

76,5

12,3

24,2

50,5

40,7

38,2

35,4

33

24,1

53,0

publishing

Used books and remainders Non-book Special initiatives

80

85,8

101

118

115

-6,8

-30,4

3407,5

3560,7

3702,6

3670

3621,4

-4,3

-5,9

Add-ons (books) (6)

250,6

260,6

453,3

489

537,5

-3,8

-53,4

Total books and book addons

3658,2

3821,3

4155,9

4159

4158,9

-4,3

-12,0

TOTAL

Note: (1) book aisles in supermarkets, department stores, motorway restaurants, excluding bookshops in shopping centres; (2) excluding inserts, works published in instalments and collectibles: (3) on the occasion of trade fairs, temporary sales, market stalls; (4) sales through Italian websites only; (5) new books, adult and juvenile miscellaneous; (6) figures supplied by FIEG, based on data concerning 53 newspapers. Figures refer to book sales exclusively. Source: IEM elaboration of AIE data.

According to AIE (Associazione Italiana Editori, the Italian Publishers’ Association), there were 10,335 publishing houses registered in 2008, both active and inactive. In 2009, the number of active publishing houses was 7,009, including those with a single title. However, publishers with a stable, organised presence in all bookshops in Italy number 1,600, and the entire sector employs approximately 36,000 people. Compared to the previous year, the major players in the Italian publishing industry – Mondadori, Feltrinelli, RCS Media Group, Gems and Giunti – saw their share of the market increase by 0.2 percentage points, to over 60% of the market’s total value. In spite of a marginal decrease from 28.8% to 28.4%, the Mondadori Group remained the market leader. The reasons for that slight drop may be found in the fact that the Mondadori division fell 3.9% with respect to 2008, while the values for the other divisions held steady or grew slightly: Piemme, Sperling & Kupfer and the other members of the group remained stable, while Einaudi grew by 3.5%. By contrast, RCS (Rizzoli, Bompiani, Fabbri, Marsilio…) saw its share of the market decline Books

75


further to 12.6%, a 1.6% drop, while next on the list, the Mauri Spagnol Publishing Group (Longanesi, Salani, Guanda, Garzanti), as well as Giunti and Feltrinelli, boosted their shares compared with 2008: Gems was up by 4.5%, going from 8.9% to 9.3%; the Giunti Group increased its market share to 5.8%, while the Feltrinelli Group went from 3.9% to 4%, an increase of 2.6%. Table 6: Publishing groups by market share, 2007-2009 2009

2008

2007

The Mondadori Group

28,4

28,8

29,0

- of which Mondadori

14,5

15,1

14,3

- of which Einaudi

5,9

5,7

5,4

- of which Piemme

4,3

4,3

5,1

- of which Sperling & Kupfer

2,4

2,4

2,8

- of which others in The Mondadori Group

1,3

1,3

1,4

The RCS MediaGroup

12,6

12,8

13,6

The Gems - Mauri Spagnol Publishing Group

9,3

8,9

8,2

The Giunti Group

5,8

5,5

5,4

Feltrinelli

4,0

3,9

3,8

Other publishers

39,9

40,1

40,0

TOTAL

100,0

100,0

100,0

Note: figures in percent. 2009 shares calculated out of 1,171 million euros for trade channels (excluding large-scale retail). Source: Nielsen Bookscan.

The Mondadori Group confirmed its leadership role in terms of turnover as well, with sales of nearly 620 million euros, 426 million of which from the book division and 194 from the distribution sector, which manages the bookshop channel. However, both of these figures declined from the previous year, by 2% and 0.3% respectively. The Messaggerie Italiane Holding came in second place, with a turnover of 517 million euros in 2008, if both distribution and publishing are considered, a 2% increase over 2007. The third player in the sector was the Feltrinelli Group, with an overall turnover (retail plus publishing) of 460 million euros, a 21% rise over 2008. This represents the most significant variation compared with 2008, and, considering the fact that in the publishing industry most of Feltrinelliâ&#x20AC;&#x2122;s sales come from the retail channel, this growth could well be a response to the expansion of online sales and the care the group takes in the look and promotion of its bookshops, which customers have come to see as synonymous with quality and value for money. Table 7: Leading Italian publishing groups or book distributors by turnover Group

Activity

Year

Turnover

Mondadori

editoria, retail

2009

619,7

Mondadori Books

editoria

2009

425,7

Mondadori Retail

retail

2009

194,0

Messaggerie Italiane Holding

edit., distrib., retail

2008

*517,0

Feltrinelli

editoria + retail

2009

460,0

Giunti

editoria, retail

2008

190,9

De Agostini Editore

editoria, distrib.

2009

**186,0

Rcs Libri (only Italy miscellaneous)

editoria

2009

145,2

Zanichelli Editore

editoria

2008

135,5

Pearson Paravia Bruno Mondadori

editoria

2008

86,6

Note: (*) of which roughly 25% distribution of periodicals; (**) excluding collectibles and direct marketing, revenue from foreign sales cannot be listed separately. Source: Mbres, company data et al.

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The other active groups report turnovers that do not exceed 200 million euros, and the values are practically identical. According to the most recent corporate reports available (for 2008) Giunti generated a turnover of 191 million euros including retail and publishing, while the figure for De Agostini Editore was 186 milion, if publishing and distribution are considered. RCS Books, for which the figure refers to the “Italy miscellaneous” segment only, had a turnover of 145.2 million euros in 2009; Zanichelli Editore followed with 135.5 (2008); and lastly, the group Pearson Paravia Bruno Mondadori reported 86.6 million euros. For all three, only revenues from the publishing divisions are considered here.

3. International comparisons Of the five major European countries, Italy comes next-to-last in terms of the overall value of the publishing industry, and is bottom of the list as far as spending per capita is concerned, with little more than 60 euros a year. On the whole, the situation has changed very little compared with 2008, when Germany represented the sole exception - recording progress - coming in first place in terms of the values for revenue and spending per capita, well above the European average, which held steady at 64 euros per capita. In detail, Germans spent 118 euros a head in 2009, followed by the French (67), the Spanish (66), the British (61.6) and Italians (60.8). As mentioned earlier, these positive variations do not concern all five countries; indeed, the figures for sales per capita dropped not only in Italy but also in Spain and the UK in 2008, by 5.3 and 13.5% respectively. In terms of market value for 2009, Italy is the country with the most negative trend (-4.3%), ahead of both Spain and the UK In fact, sales revenue fell from 3,185 million euros to 3,109 million euros in 2008, a 2.4% drop; while in the UK it decreased from 3,936 to 3,821, an even greater 2.9% drop. The figures for France are significant as well; the country saw an increase in sales of nearly 4%, from 4,055 million euros to 4,213. Germany, however, is the undisputed leader of book sales, reporting a slight 0.8% increase that translated into sales approaching 9,700 million euros in 2009. Table 8: Value of book sales in Europe for the years 2006-2009 2009

2008

2007

2006

∆ % 09-08

Population (000)

sales per capita (€ 2009)

France

4.213

4.055

4.100

4.110

3,9

62.793

67,1

Germany

9.691

9.614

9.576

9.261

0,8

81.758

118,5

Italy

3.407

3.561

3.703

3.670

-4,3

60.402

60,8

Spain

3.109

3.185

3.157

3.015

-2,4

46.951

66,2

UK

3.821

3.936

3.950

3.784

-2,9

62.042

61,6

Note: data in millions of euros. UK data reflect average exchange in 2008 (1 euro = 0.89094 pounds). Source: IEM elaboration of GFK (France) Boersenblatt (Germany), AIE and Nielsen data (Italy: 2007 and 2008 AIE, for 2009 Nielsen estimates of growth rate), FGEE (Spain), Publishers Association (UK).

Books

77


Newspapers and Magazines


Newspapers and Magazines by Paola Savini

1. Introduction To a greater extent than in the previous year, over the course of 2009 the Italian newspaper industry grappled with the effects of the general economic crisis, on the one hand, and on the other, the more specific and probably more far-reaching effects of the ongoing transformation in the industrial cycle behind the production, distribution and consumption of news. The first half of 2010 shows no sign of a significant reversal of this trend, suggesting instead that the newspaper and magazine sector is in a state of permanent crisis and has been for the last five years, as the continuing attempts to legislate the sector attest – as partial and even contradictory as they often are – as does the survey by the Italian Antitrust Authority (l’Autorità Garante della Concorrenza e del Mercato, heretofore referred to as AGCM), the second1 in six years. The legislative response to the crisis specifically concerns two decrees, the Ministerial Decree of 21 October 20102, which implements the new agreements between publishers and the Italian Postal Service covering shipping rates for no-profit publications, and the Presidential Decree of 25 November 2010, No. 2233, which enacts the long-awaited regulations concerning direct State contributions to publishers. The latter modifies the criteria for calculating the contributions and introduces a proportional distribution of funds in the event that funding is insufficient, as well as introducing a greater control over the applications for these allowances. With regard to the Italian Antitrust Authority’s report, AGCM completed its survey No. 35 on 23 September 2009 (Survey concerning the Newspaper, Magazine and Multimedia Sector) by publishing the second part (The Distribution of Editorial Products) two years after the first (State Subsidies and the Limits on Media Concentration for Newspapers). By means of this report, AGCM “desired to provide its contribution to a rethinking of the way the press distribution sector operates, in order to highlight the competitive constraints that would seem to place unfair limitations on the ability of the sector to rise to present-day challenges”. In conclusion, AGCM expressed its hope for a total liberalisation of the market from sales to final users, in order to adapt to the changing needs behind the demand for editorial products. Indeed, in Italy newspaper circulation has dropped dramatically, to beneath the historic threshold of 5 million copies, with a drastic reduction in advertising revenues, which hit a record 1 Cf. the 2004 survey no. 20 – Newspaper and Magazine Distribution. Regulation No.13425. 2 Ministry of Economic Development Decree of 21 October 2010 concerning “Shipping rates for editorial products, excluding books sent by package shipment, by parties for which see Article 1 Section 1 of Decree-Law No. 353 of 24 December 2003, No. 353, converted, with modifications, into Law No. 46 of 27 February 2004”, Official Gazette No. 274 of 23 November 2010. 3 “Regulation concerning measures to simplify and reorganise the rules for allocating state contributions to publishers as per Article 44 of Decree-Law No. 112 of 25 June 2008, converted, with modifications, into Law No. 133 of 6 August 2008, Official Gazette No. 299 of 23 December 2010.

80 Newspapers and magazines


low of -16.4% at year’s end4. The attendant collapse in overall revenues was just as serious for the players in the sector: revenues have fallen by 20% in just one decade5. The negative trend is confirmed by the Italian Communications Regulatory Authority (l’Autorità per le Garanzie nelle Comunicazioni, heretofore referred to as AGCOM), whose census-like survey of the sector, aimed at identifying relevant markets in the framework of the Integrated System of Communications6, pegged the 2008 revenues for newspaper and magazine publishing, national press agencies, electronic publishing and directories at around 8.8 billion euros, compared with an estimated 9 billion in 2007 (-2.7% for this sector as a whole, considering that electronic publishing actually saw an increase of 18.5%). The picture that emerges proves that cost-cutting and rationalisation - regarding the number of publications themselves, but also personnel - represent the sole survival strategy for publishers today, operating in an increasingly fragmented newsgathering market, thanks to the wider range of choices available to users/readers7, which in turn allows for a clearer distinction between news analysis and breaking news, more and more often perceived to be commodities8. Moreover, in Italy the crisis in the sector is exacerbated by unfavourable conditions peculiar to the country that are well-known, such as the low penetration of newspapers amongst the population at large, an inefficient distribution network, and the fact that the advertising market is tipped in favour of television. That said, at an international level the Italian newspaper industry is in good company, with a large number of countries sharing the same fate: the outsourcing option for content production9, the vertical disintegration of the production – edition – print process, the rationalisation and concentration of production centres, and the uneasy coexistence between newspapers’ print and online editions, in a frantic search for business models that valorise contents published online, while simultaneously defending intellectual property10. To this list of trends must be added the diffusion of journalism models based on crowdsourcing, which are clearly far from being in a position, as yet, to compete with traditional ad-based publishing, but which are witnessing significant growth in both their adoption and their status, as is amply demonstrated by the case of ProPublica.org, winner of the Pulitzer Prize in Investigative Reporting in February 2010. It should be stressed that despite the abundance of negative indicators for the sector (in terms of readership, circulation, and number of persons employed, journalists and printers combined), in non-OECD countries the sector exhibits a healthy growth, with the global number of newspapers on the upswing even during the economic crisis; in fact, it has almost doubled since the year 200011. 4 Data provided by the Federation of Advertising Agencies (Federazione Concessionarie Pubblicità, heretofore referred to as FCP). 5 Data provided by the Italian Federation of Newspaper Publishers (Federazione Italiana Editori di Giornali, heretofore referred to as FIEG). 6 Cf. Attachment A to Resolution No. 555/10/CONS concerning “Procedure for identifying relevant markets in the framework of the Integrated System of Communications”, Official Gazette No. 267 of 15 November 2010. 7 Due less to the increase in the number of newspapers (not counting free newspapers) than to the boom in new sources, professionalised to a certain degree, in any case available on different devices, and above all via the Internet. 8 Cf. PricewaterhouseCoopers (2010). Global Entertainment & Media Outlook 2010-2014, 15 June 2010. 9 Which has inevitably transformed the journalist’s profession, as repeated interventions to redefine it show, such as the recent overhaul of the National Journalists’ Contract with the agreement signed on 26 March 2009 between FIEG and the National Federation of the Italian Press ( Federazione Nazionale della Stampa Italiana, or FNSI); or the Ministry of Labour Decree No. 47385 of 8 October 2009 concerning “Simplification of administrative procedures and reorganisation of the criteria for access to salary supplementation in favour of employees of companies operating in the publishing sector”. 10 Cf. the Carlo Lombardi Technical Observatory for Newspapers and News Agencies, 2010 Report on the Italian Newspaper Industry. In this regard, it should be noted that in June 2009 FIEG turned to the Italian Antitrust Authority requesting that it investigate a possible abuse of dominant position by the search engine Google concerning its service Google News (with alleged discrimination of non-subscribers in traditional searches) and also concerning the service AdSense (with a demand for greater transparency in its fee structure). 11 Cf. OECD (2010). The evolution of news and the Internet, DSTI/ICCP/IE (2009)14/FINAL. 11 June.

Newspapers and magazines

81


2. Newspapers and magazines in Italy: an analysis of the principal indicators 2.1 Newspaper print runs, circulation and sales Newspapers The indicators concerning the evolution of the circulation of paper editions of Italian daily newspapers are the first sign of the downturn in the sector. In fact, according to ADS figures (Accertamenti Diffusione Stampa – a newspaper circulation report, Table 1), in a sampling of 65 newspapers, print runs12 declined by 6.4% in 2009. The 2009 figure for circulation13 confirms the negative trend as well, dropping to 6,252,467 copies (-6.6%), while sales14 took even more of a beating, down 7% from 2008. Figure 1 shows the breakdown of printed copies: the yield for newspapers in 2009 amounted to 25.9% of the overall circulation. The yield-circulation ratio was 35%. Table 1: ADS- Newspaper print runs, circulation and sales, 2005-2009* 2005

2006

2007

2008

2009

∆% 09-08

∆% 09-05

Print run

8.910.045

9.266.232

9.278.070

9.053.245

8.466.674

-6,48%

-4,98%

Circulation

6.507.581

6.774.847

6.844.908

6.695.909

6.254.467

-6,59%

-3,89%

Sales

5.632.191

5.695.715

5.563.256

5.353.961

4.978.547

-7,01%

-11,61%

Note: (*) 12-month average. No. of certified newspapers not constant over the years. Source: IEM elaboration of ADS data.

Fig. 1: Breakdown of daily newspaper print run figures, 2009 Bulk sales 0.7% Paid subscriptions 5.7%

Free (free subs., gift copies, coupons) 7.2% Foreign circulation (pay + free.) 1.5% Yield (Italy + Abroad) 25.9%

Sales 59.0%

Source: IEM elaboration of ADS data. 12 By which is meant the total number of copies printed, except printing discards. Cf. www.adsnotizie.it/ glossario/index.php 13 By which is meant the total number of copies distributed in Italy and abroad, divided as follows: paid circulation (newsagency sales, paid subscriptions); bulk sales, membership fee subscriptions; free distribution (free coupons, free subscriptions, gift copies). Ibid. 14 The expression refers to the total number of copies sold.

82

Newspapers and magazines


A FIEG analysis of the evolution of newspaper print runs and sales in Italy, involving member companies15, also reports a downturn for both indicators: -5.9% for print runs and sales in 2009 compared with 2008. Indeed, for the five-year period under examination, with the exception of a mild recovery in 2006 (+1.1%), the findings for a non-homogeneous number of companies show a dramatic decrease of -9.12% for printed copies and as much as -11.35% for copies sold. Table 2: FIEG – Newspaper print unit runs and sales, 2005-2009* 2005

2006

2007

2008

2009

∆% 09-08

∆% 09-05

Print run

7.823.333

7.960.559

7.805.914

7.555.256

7.109.496

-5,90%

-9,12%

Sales**

5.461.811

5.510.325

5.399.837

5.145.647

4.842.054

-5,90%

-11,35%

Note: (*) daily average; (**) number of newspapers in 2009: 57; 2008=58; 2007 & 2006 = 54; 2005= 59. Source: IEM elaboration of FIEG data.

As far as the indicators presented herewith are concerned, the free newspaper segment deserves a separate discussion. In fact, 2009 was an extremely difficult year for the newspapers distributed free-of -charge in Italy, both in terms of advertising spending (which plunged 26.6% between 2008 and 2009) and in terms of the stability of the publishing companies (which faced daunting problems with day-to-day management and attracting advertising, in the case of virtually all papers). In Italy, the sector mainly consists of the free dailies Leggo, City, DNews, EPolis and Metro, which come out in some of the country’s major cities; with the addition of a few other papers with a local print run, this makes for a total of approximately 3.5 million copies distributed roughly 270 days a year16, a slight drop from 2008, when the Carlo Lombardi Technical Observatory Report estimated their number at circa 4 million copies.

Magazines As with newspapers, a marked decline was also seen for the indicators for magazine sales, print runs and circulation in 2009, proof that the recession affected the print media across the board. Compared with the newspaper segment, on the one hand magazines reported a sharp drop in sales of weeklies in the three-year period 2007-2009 (-10.15%) and a drastic decline for monthlies (-33.14%); while on the other hand there was certain evidence of rationalisation. Indeed, although print runs were not as adversely affected as sales, in this regard optimisation efforts appear to be significant, as shown by the 26% decrease in print runs for monthlies over the three-year period. As far as circulation is concerned, weeklies saw a drop of 1.9% in 2009, while monthlies were hit much harder, with a 3.9% decrease from 2008 to 2009. Hence the overall picture is that of a shrinking magazine market in general, considering the number of magazines published and their circulation. In fact, while the 55 weekly publications covered by the ADS report in 2000 accounted for nearly 15 million copies, in 2009 a survey extended to 62 publications indicated an average circulation well under 13 million; and as for monthlies, while the ADS publications (129) reported a circulation of 15 million copies in the year 2000, in 2009 131 publications accounted for 14.2 million. Table 3: Magazine print runs, circulation and sales, 2007-2009 2009

2008

2007

∆ % 09-08

∆ % 09-07

Weeklies Print runs

16.573.140

17.843.417

18.346.526

-7,12%

-9,67%

Circulation

12.350.040

12.599.736

13.684.164

-1,98%

-9,75%

Sales

9.953.470

10.186.984

11.078.393

-2,29%

-10,15%

Monthlies 15 16

Figures provided by the associated businesses. According to figures released by the publishers themselves, since only one paper, EPolis, is ADS-certified.

Newspapers and magazines

83


Print runs

20.154.730

25.571.857

27.269.639

-21,18%

-26,09%

Circulation

14.194.368

14.771.047

16.064.005

-3,90%

-11,64%

Sales

9.165.239

9.475.336

13.708.048

-3,27%

-33,14%

Note: (*) 12-month average. No. certified magazines not constant over the years. Source: IEM elaboration of ADS data.

2.2 Readership Newspapers If we turn our attention to readership, starting with the figures for autumn 2009, the circulation auditor Audipress felt the need to adjust the analysis of this key indicator to reflect both the quantity and quality of the readers’ contacts with newspapers, bearing in mind the shift in the demand towards online editions. Audipress thus adopted a new survey structure. The innovations introduced – which make comparison with previous years unworkable – include the extension of the survey time frame (to roughly 10 months), the four-monthly publication of the figures, and the reporting of findings regarding the duplication between print readership and visits to the papers’ websites. For the newspaper survey, the size of the annual sample rose to 33,000 interviews, while the survey base for the magazine survey consisted of 21,000 interviews. Moreover, to avoid releasing figures that did not correspond to users’ real experience of the editorial product, in both its print and online editions, Audipress decided against publishing the figures related to the newspaper readership trend for the second half of 2008 as well as the first three quarters of 2009, while the 2010/I edition derives from the cumulation of the samples for autumn 2009 (21 September – 20 December 2009) and the 1st cycle of 2010 (11 January – 28 March 2010). In any case, within the limitations of non-comparability mentioned above, the overall trend indicates that, over the course of the decade, newspaper readership on an average day nevertheless grew to over 24 million, or 46% of the population. Table 4: Newspapaer readership, 2010* 2003

2004

2005

2006

2007

2008 (I)

2010 (I)**

Average daily readership

20.439

20.534

21.410

22.494

22.798

23.278

24.108

- Men

12.458

12.450

12.965

13.440

13.651

13.940

//

- Women

7.981

8.084

8.445

9.055

9.147

9.337

//

Penetration

40,79

41,29

42,64

44,3

44,66

45,3

46,2

Note: (*) Readers on an average day; adults aged 14 and over; figures in thousands.(**) Figures not comparable with previous years. Source: IEM elaboration of Audipress data.

Table 5: Newspaper readership, print and online editions, 2010* Readers on an average day

Of which those who

(Absolute valuesi per 1,000)

(Absolute values per 1,000)

Total

Men

Women

Purchasing decision-makers

Population

52.179

25.107

27.072

24.641

Total readership per newspaper copy

24.108

14.232

9.876

9.695

3.076

Total newspaper readership

40.553

25.610

14.945

15.146

4.716

Total

Men

Women

3.438

1.278

Note: (*) Readers on an average day; adults aged 14 and over; figures in thousands. (**) Figures not comparable with previous years. Source: IEM elaboration of Audipress data.

84

Newspapers and magazines


Generally speaking, if the Audipress figures are compared with those provided by Audiweb, the survey that measures online audiences and provides quali-quantitative analysis concerning the use of online media, it emerges that every day 3-4 million Internet users, roughly 36% of the total, access newspaper websites. Moreover, these findings on the importance of the news obtained from newspapers, but also on the Web, are borne out by another survey carried out by GFK Eurisko for AGCOM17, in March 2010, which shows that although television remains the medium of choice for the active Italian population when it comes to obtaining news (89.1% of the population, in fact, turns to television for news, 86% for international news and 90% for national news), daily newspapers are the news medium chosen by 61.6% of the active population, and they serve a special role when it comes to local news. Newspapers are followed by the Internet, which, vice versa, tends to be used for gathering information concerning international news (20% of the active population), while radio trails behind all the other media.

Magazines The approach chosen by Audipress for the newspaper segment, as described above, also holds true for the magazine segment, at least as far as the methodology is concerned. What should be emphasised, however â&#x20AC;&#x201C; and this is intuitively obvious, no doubt â&#x20AC;&#x201C; is that the impact of the digital revolution has had a different effect on this editorial product (cf. Table 7), due to the type and frequency of the news provided by magazines. The Audipress figures indicate that in the first half of 2010 magazine readership essentially held steady, compared to the last few years under study. This is confirmed by magazine penetration amongst the population, although, again, it must be remembered that the sampled data over the years are not comparable. If the focus shifts to gender, the female population continues to be the main target audience for magazines, both weeklies and monthlies. Table 6: Magazine readership 2010* 2005

2006

2007

2008 I

2010 I**

Readership of weeklies

25.409

23.930

24.019

23.634

23.723

- Men

10.634

9.571

9.514

9.420

9.230

- Women

14.775

14.358

14.505

14.214

14.493

50,6

47,13

47,05

46,0

45,0

Penetration (%) Readership of monthlies

24.014

22.462

21.537

21.554

21.957

- Men

11.720

10.958

10.428

10.700

10.697

- Women

12.294

11.503

11.109

10.854

11.260

Penetration (%)

47,83

44,24

42,19

41,9

42,0

Total magazine readership

34.207

32.689

32.483

32.352

32.763

- Men

15.650

14.691

14.471

14.586

14.592

- Women

18.557

17.999

18.012

17.766

18.171

Penetration (%)

68,13

64,38

63,63

62,9

62,9

Note: (*) Average number of readers; adults aged 14 and over; figures in thousands (**). Figures not comparable with previous years. Source: IEM elaboration of Audipress data.

17

Cf. Attachment B to Resolution No. 555/10/CONS, op. cit.

Newspapers and magazines

85


Table 7: Magazine readership 2010* Readership in the most recent period

Of which also those who visited the paper’s corresponding website

(Absolute Values Per 1,000)

(Absolute Values Per 1,000)

Total

Men

Women

Purchasing decision-makers

Population

52.179

25.107

27.072

24.641

Total weeklies readership per copy

23.723

9.230

14.493

12.188

Total

Men

Women

656

262

729

Total readership weeklies

46.799

16.074

30.724

24.958

916

Total monthlies readership per copy

21.957

10.697

11.260

9.740

1.772

Total readership monthlies

51.441

24.162

27.277

23.083

2.773

Total Magazine Readership

32.763

14.592

18.171

15.681

2.260

2.016

762 242

Note: (*) Average number of readers; adults aged 14 and over; figures in thousands.(**) Figures not comparable with previous years. Source: IEM elaboration of Audipress data.

3. Publishing companies: sources of revenue and profitability Newspapers While in 2000 advertising revenues represented 58% of newspapers’ total revenue, nine years later that share had fallen to 41.8%, or practically the same level as 2004. Driving the downward trend was the troubled advertising market (and the economic crisis in general). Figure 2 shows the uneven trend for the ratio between advertising revenue and total sales revenue (including sales of secondary products as well) in the Italian newspaper industry, in a survey of the entire membership of publishers belonging to FIEG. This fluctuating trend clearly illustrates the publishers’ need to be able to accurately appraise both the sale of advertising space and copy sales, which are still the main revenue sources for the ad-based publishing model, since no publishing model to date has ever been shown to be successful without relying on one of these two revenue components (indeed, the recent decline, on a European scale, in readership of free newspapers is emblematic in this regard)18. And while the demand for news is more and more unpredictable and in a state of flux (due to structural reasons19 as well as the changing consumer habits of a new generation of readers), the manoeuvres surrounding advertising space (raising the number of pages and ad spaces, and the increase/decrease in the rates for both) represent the basic lever of corporate success: which is why, in just ten years, the average rates for advertising space in a newspaper fell from 42.29 euros in 2000 to 21.05 euros (at 2009 prices) in 200920. In 2009, falling sales and shrinking advertising spending were behind a striking decline in sales revenues: from 3.35 billion euros in 2008 to 3.05 billion in 2009. Moreover, besides the fact that advertising rates were in free fall and sales-per-copy dropped, sales of secondary products, which had previously represented a significant share of corporate revenue (as much as 15%, for example, in 2006) now reached the saturation point (-23.3% in 2007 and -42.9% in 2008, equal to 10.3% of total revenues; the figures for 2009 are not available).

18 19 20

86

Cf. the section “The international picture”. Due to the fact that subscriptions make up a very low share of the total, amounting to roughly 9% of sales. Source: ASIG Service elaboration of FCP Press Observatory data.

Newspapers and magazines


Fig. 2: Newspaper revenues – Advertising to sales ratio 2000-2009 Advertising revenues Ricavi pubblicitari

Revenue fromesales and subscriptions Ricavi da vendite abbonamenti 58,88%

58,02%

56,94% 56,06%

53,74%

54,25%

53,78%

52,66% 51,05%

49,28% 47,34% 46,26%

46,56%

2005

2006

51,28%

49,20% 45,75%

43,06% 43,94%

41,12%

41,98%

2000

2001

2002

2003

2004

2007

2008

2009

Source: IEM elaboration of FIEG data.

If we now turn our attention to the trend for advertising spending (1.510 billion in 2009, down 16.8% from 2008, at current prices, or -17.4% at 2009 prices), Table 8 shows not only the negative trend for the indicator (at current prices, -9.9% at 2008 prices); it also underscores the fact that certain types of spending have declined significantly (as is the case for national commercial advertising, which, exactly as in 2008, fell by 17.8%!) Again, as mentioned above, the case of free newspapers is emblematic: down 26.6% in 2009 from 2008’s figures. Table 8: Newspaper advertising spending* 2005-2009 2005

2006

2007

2008

2009

∆% 09-08

∆% 09-05

Newspapers (Total)

1.741.746 1.747.620 1.901.359 1.816.448 1.510.912

-16,8%

-13,3%

Paid newspapers (Total)

1.713.705 1.716.413 1.773.073 1.676.234 1.407.988

-16,0%

-17,8%

-17,8%

-22,7%

National commercial

923.686

947.956

972.438

868.350

714.007

Local

451.673

443.254

465.861

482.019

416.374

-13,6%

-7,8%

Classifieds +other

338.346

325.203

334.774

325.865

277.607

-14,8%

-18,0%

Free newspapers (total)**

28.041

31.207

128.286

140.214

102.924

-26,6%

National commercial

28.041

30.163

95.597

103.705

73.998

-28,6%

Local

0

0

28.900

33.913

27.280

-19,6%

Classifieds +other

0

1.044

3.789

2.596

1.646

-36,6%

163,9%

Note: figures in thousands of euros; (*) at current prices; (**) the free newspaper delta percentage for the different survey areas over the years under study is not provided (from 2003 to 2006 survey included only City/Metro/Leggo— Milan edition; as of January 2007 all editions of City/Metro/Leggo/24 Minuti; as of May 2007 EPolis). Source: IEM elaboration of Nielsen AdEx data.

Moreover, according to FCP-Assoquotidiani data21, 2009 saw an increase of 15.7% in national commercial advertising space sold in paid newspapers (with total sales stable), against a 16.4% decrease in revenues deriving from those sales. The latter figure indicates just how far newspaper publishers have gone in pursuing a low-rate policy for advertising space in the effort to keep their clients and attract new ones, as the 50% drop in the average cost-per-advertising space over 10 years makes abundantly clear. In just one year, the rates for advertising space fell by an average of 18%. Indeed, for FIEG member companies in 2009, the aggregate gross operating margin – derived from the difference between revenues and industrial costs – fell drastically (-89.7%, an estimated 21

FCP groups together both Agencies and Direct Handlers working in the advertising space sales sector.

Newspapers and magazines

87


16.2 million euros), further proof of the truly critical overall situation in which the publishers surveyed find themselves. And the alarm is just as great for ongoing operations as it is for more extraordinary expenditure; the companies surveyed in the FIEG study demonstrated a GOM to sales ratio as low as 0.5%. As far as operating costs are concerned, while they grew at a steady pace over the last three-year period (+1.1% in 2005, +3.1% in 2006, +6.1% in 2007), 2008 was the first year when costs fell sharply instead (-6.9%), with the 2009 figures in line with this decrease (-5%). Table 9: Newspaper industry – revenues and operating costos 2005-2009 2005

2006

2007

2008

2009*

∆% 09-08

∆% 09-05

Publishing revenues

3.462.402

3.556.655

3.507.632

3.348.300

3.046.953

-9,00%

-12,00%

Operating costs

3.174.984

3.273.251

3.246.065

3.190.205

3.030.695

-5,00%

-4,54%

287.418

283.404

261.567

158.095

16.258

-89,72%

-94,34%

8,30%

7,97%

7,46%

4,72%

0,53%

-88,70%

-93,57%

GOM GOM/sales

Note: figures in millions of euros on a sample of 66 newspapers; (*) estimated. Source: IEM elaboration of FIEG data.

Magazines The figure of 3.359 billion euros that represents the revenues (sales + advertising) for the magazine publishing sector indicates, in this case as well, a highly significant downward trend compared with the previous year (-14%). Specifically, the decrease corresponds to -29.5% for advertising and -9% for copy sales. Figure 3 shows that over the nine-year period, the advertising revenues-to-sales ratio was far more constant for the monthly and weekly sector than it was for newspapers. However, it also shows that the ongoing crisis in the advertising market pegged the 2009 revenues for the sector to copy sales (with attempts at increasing sales and cover price), which accounted for 78.5% of total revenues. Table 10: Magazines – evolution of publishing revenues, 2003-2009* Year

Advertising

∆% YoY

Sales

2003 2004 2005

∆% YoY

Total

∆% YoY

964.422

-

3.214.740

-

4.179.162

-

968.254

0,4%

3.260.114

1,4%

4.228.368

1,2%

1.004.611

3,8%

3.117.207

-4,4%

4.121.818

-2,5%

2006

1.056.695

5,2%

3.077.303

-1,3%

4.133.998

0,3%

2007

1.083.188

2,5%

3.015.757

-2,0%

4.098.945

-0,8%

2008

1.024.006

-5,5%

2.898.539

-3,9%

3.912.092

-4,6%

2009**

721.924

-29,5%

2.637.670

-9,0%

3.359.594

-14,1%

Note: figures in thousands of euros; (**) estimated. Source: IEM elaboration of FCP-FIEG Press Observatory and Tradelab data.

Table 11: Evolution of net advertising spending, 2005-2009 Magazines

2005

2006

2007

2008

2009

∆% 09-08

∆% 09-05

1.222.562

1.296.024

1.328.475

1.231.481

877.572

-28,74%

-28,22%

Note: Figures in thousands of euros. Source: IEM elaboration of Nielsen AdEx data.

88

Newspapers and magazines


Fig. 3: Magazine revenues – advertising to sales ratio, 2000-2009 Totalcomplessivi sales revenue Ricavi da vendita 72,51% 65,90%

65,82%

34,10%

34,18% 27,49%

2000

2001

2002

Advertising revenues Ricavi pubblicitari 78,51%

75,44%

77,22%

75,63%

74,44%

73,57%

73,70%

24,56%

22,78%

24,37%

25,56%

26,43%

26,30%

2003

2004

2005

2006

2007

21,49%

2008

2009

Note: FIEG estimate for 2009. Source: IEM elaboration of FIEG data.

In line with the general economic trend, advertising spending in the sector had risen in the years 2003-2007 (Table 10), stemming the decline in sales revenue to a certain extent. However, in 2008 the first major slump in the five-year-period occurred, leading to a 28.7% drop in spending in the sector in 2009. Of the two macro-typologies of magazines, it is evident that monthlies were harder hit in 2009; in a reversal of the previous trend, monthlies’ ad revenues fell by 32.3% compared with a figure of -25.8% for the cession of advertising space, whereas weeklies saw their revenues fall by 27.5%, against a 15.1% decline in ad spaces.

4. The international picture A comparative analysis of the indicators for the newspapers publishing sector – bearing in mind the limitations of a comparison based on survey methods that are not homogeneous – reveals that the negative trend in Italy holds true for many other European countries and nonEuropean countries as well. Free newspapers, for example, which have seen their circulation decline in Italy, as we have seen above, have experienced the same decline in the rest of Europe22, where their (estimated) circulation fell by 19% in 2009, dropping from 26.2 to 21.3 million copies, with an overall decrease in the number of newspapers as well: just 82 were registered in 2010, in 29 European countries, compared with a total of 115 active in 32 countries in 2008. This substantial decline is also confirmed by the circulation figures (updated for 2008) for the countries analysed by the World Association of Newspapers, with the only increases seen in Luxembourg, where the free newspaper boom started in 2008 (+72.8% overall); Portugal (+2-4%, also driven by free newspapers); and Austria (+6.4%, significantly boosted by free newspapers). Paid newspaper circulation, by contrast, fell in every country. Table 12: Average daily newspaper circulation in European countries, 2006-2008 Countries

Paid

Free

Total

∆% 08-07

2006

2007

2008

2006

2007

2008

2006

2007

2008

Luxembourg*

304,8

304,8

297

0

53,5

322,3

304,8

358,3

619,3

72,8%

Sweden

466,2

449

436,4

158,8

152,5

138,7

Norway

601,2

580,3

570,6

0

0

Finland

514,7

491

482,8

46,3

45,7

22

37,9

625

601,5

575,1

-4,4%

601,2

580,3

570,6

-1,7%

561

536,7

520,7

-3,0%

Cf. the monthly newsletters available at www.newspaperinnovation.com

Newspapers and magazines

89


Denmark

287,3

279,8

262,6

478,8

367,5

222,4

766,1

647,3

485

Austria

340,7

344,8

331,7

Holland

287

267,9

270,1

-25,1%

95,2

83,4

124,1

435,9

428,2

455,8

6,4%

70,3

129,5

124,1

357,3

397,4

394,2

-0,8%

51,4

385,3

358,5

358,7

0,1%

300,2

292,2

283,1

-3,1%

United Kingdom*

335,4

308

307,3

49,9

50,5

Germany

297,9

290,5

283,1

2,3

1,7

Ireland

245,2

236,1

236,3

50,6

46,5

41,4

295,8

282,6

277,7

-1,7%

Spain

109,8

109,5

106,4

132,5

120,2

108,2

242,3

229,7

214,6

-6,6%

USA

241,2

212,6

200,3

18,2

13,1

11,5

259,4

225,7

211,8

-6,2%

France

155,8

153,9

152

42,9

51,6

53,8

198,7

205,6

205,8

0,1%

Belgium*

163,4

161,3

160,9

25,9

28,2

29

189,3

189

189,9

0,5%

116

112,4

86

77,8

81

85,6

193,8

193,4

171,6

-11,3%

144,6

135,2

133

32,3

34,4

32,5

176,9

169,6

165,5

-2,4%

Italy* Hungary Portugal

74,7

74,7

67,1

39,2

62,7

73,6

113,9

137,4

140,7

2,4%

Poland

138,9

123,3

114,5

39,9

15,7

15,4

178,8

139

129,9

-6,5%

Note: circulation per 1,000 adult inhabitants (aged 16 and over, with certain exceptions marked with*). Source: IEM elaboration of FIEG/WAN data.

Italy continues to distinguish itself from the rest of the European countries in the ratio between sales of subscription copies and newsagency sales. The fact that subscriptions are relegated to an utterly marginal position in Italy remains one of the greatest obstacles to market growth. By contrast, in those countries where subscriptions largely represent the most common vehicle for newspaper circulation (in Northern Europe above all), the newspaper industry benefits from the substantial advantage of a demand whose dimensions are much better understood, making it easier to devise production plans that are less vulnerable to fluctuations (Tables 13 and 14). Table 13: Newspaper circulation channels in major countries (2008) Countries

Subscription

Newsagents

Table 14: Magazine circulation channels in major countries (2008) Countries

Subscription

Newsagents

Holland

90

8

Finland

95

5

Finland

88

12

Sweden

90

10

Denmark

84

16

USA

87

13

Norway

78

22

Denmark

85

15

Sweden

76

19

Austria (2006)

68

32

Luxembourg

70

10

Hungary

60

40

Austria

67

12

Holland

58

42

Germany

65

35

Germany

49

51

Hungary

65

33

France

36

64

Belgium

49

51

Italy

36

64

France

31

69

Norway

30

70

8

92

Spain

23

72

Spain

Poland

19

79

Source: IEM elaboration of FIEG/WAN data.

Ireland

9

91

Italy

9

91

Source: IEM elaboration of FIEG/WAN data

In any case, the crisis is being keenly felt in foreign countries as well, and shows no signs of being a passing phenomenon23. The United States may serve as a case study, in its general outlines, for 23 Total expenditure for consumer magazines fell by 10.6% in 2009, according to PricewaterhouseCoopersâ&#x20AC;&#x2122; estimates. Cf. PricewaterhouseCoopers (2010), op. cit. The same source has estimated the global publishing market at 164 billion dollars.

90

Newspapers and magazines


signs of possible evolutions in the European market, and its indicator for advertising spending appears emblematic (Figure 5). Indeed, the indicator suggests that the crisis has spread to include online editions as well as the print media (-11.8% from 2009 to 2008). Fig. 4: USA - Newspaper advertising spending 2000-2009 Print TOT

On-line TOT

% YoY print

% YoY on-line

60.000

40% 31,48%

31,46%

30%

26,70%

-0,50%

30.000

3,90%

1,90%

18,80%

3.166

20% -1,80%

3.109

5,10%

2.664

1.541

1.216

40.000

2.027

50.000

1,51% -1,68%

-9,00%

10% -11,80%

20.000

0%

2.743

-9,40% -17,70%

-10% -20%

-28,60%

44.305

44.102

44.939

46.703

47.408

46.611

42.209

34.740

24.821

-30%

48.670

10.000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

-40%

Note: figures in millions of US$. Source: IEM elaboration of NAA data.

Moreover, the figures show a plunge in newspaper circulation in the US that started in the ’90s; indeed, in a survey of the leading 25 American newspapers, only the Wall Street Journal’s circulation, to all extents and purposes, held steady (0.7%) at the year’s end. Other legendary papers paid a heavier price for the shift in news consumption habits to other media supplying editorial content (primarly cable TV and Internet), a shift that translated into an overall decline of 6.1% on 2008’s performance. Fig. 5: Newspaper circulation* and number of newspapers published - USA 1940-2009

40.000

1387

1408

1422

1437

1452

1457

1456

1457

1468

1480 62.328

1400

1000 800 600 400 45.653

50.742

52.329

53.345

54.626

55.185

55.186

62.202

62.108

1600

1200

48.597

41.132

45.000

1800

55.578

50.000

2000

55.773

53.829

55.000

1745

1748

1763 58.882

60.000

1611

Titles 1772

65.000

1878

000 copies

1940 1950 1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

200 0

Note: * excluding Sunday editions. Source: IEM elaboration of Editor and Publisher International Yearbook.

And in spite of the fact that the total number of newspapers whose circulation at end-December 2009 was tallied (Figure 5) appears to be very nearly in line with the slight downward trend typical of the last decade, the figures for newspaper closures in the US paint a far darker picture: Newspapers and magazines

91


there were 21 fewer in 2009 compared with 2008, according to Editor and Publisher data; while 143 print newspapers folded in 2009, as per a survey by the blog www.newspaperlayoffs.com, 13 of which replaced their print version with an exclusively online version. Most recently, 40 folded in 2010. Not even the UK is immune from the negative trend, which has hit local newspapers in particular, while total circulation of paid newspapers fell by 2.2% in 2009 (in March 2010, according to ABC data, the Daily Telegraph and The Independent saw their circulations fall by 10%; The Times and The Guardian by 16%; with The Financial Times least affected at -6.4%).

92

Newspapers and magazines


Directory

93


Directory by Luca Murrau

1. The Italian market In 2010, the Italian market had to face the negative effects of the financial crisis, which led to reductions in revenues. To counteract the crisis, the large Italian directories sought new forms of strategic integration for their activities, with the aim of creating new synergies. The main Italian directory group, Seat Pagine Gialle, tried to contain the effects of the economic crisis on its turnover through the increase of revenues coming from its internet-based activities, seeking an increase in the rate of penetration in its existing online client base and in the number of newly acquired clients. In particular, such a strategy was supported by the launch of new online marketing products and services as well as by the sale of multimedia packages. At the same time, the group carried out structural changes to reduce operational costs, based on containing current expenses and redesigning some of the main operational processes. The difficult economic situation, which had negative repercussions on the traditional advertising market (which also continued to contract in 2009), nevertheless allowed a strong expansion of advertising and online services that led to consumers using new tools and new ways of searching for information. Consequently, in the second half of 2009, Seat Pagine Gialle adopted a new vision of its market of reference, including, in addition to the traditional off-line and online divisions, on-line marketing services (through the creation of websites according to the strategies of positioning Seat clients inside the Internet â&#x20AC;&#x2DC;ecosystemâ&#x20AC;&#x2122; with the aim of improving visibility, the measurement and analysis of the contacts generated through the web, etc.). In Italy, Seat Pagine Gialleâ&#x20AC;&#x2122;s share in the advertising market of printed and on-line directories is estimated at approximately 84%. In 2009, the group continued the process of strategic restructuring of its portfolio of subsidiaries that it had started in 2008. Such a process led to the decision, in June 2009, to leave the Turkish joint-venture Katalog Yayin ve Tanitim Hizmetleri A.S. and, in September, to leave the French market of directory assistance with the sale of the French company 118 000 SAS through the German subsidiary Telegate AG. As far as the most recent economic-financial results of the group are concerned, in the first half of 2010, the consolidated revenues decreased by 8.7% compared with the same period the previous year (463.22 million euros against the 507.325 million euros in the first half of 2009), partially compensated by the growth of online revenues in Italy (which showed an increase of approximately 60%). Year-on-year, however, in 2009 the sales revenues and performance reached 952.2 million euros: a drop compared to 2008, where the consolidated revenues were 1.0587 billion euros, with the performance of the online activities in Italy limiting losses. In the financial markets, Seat Pagine Gialle shares closed at the end of December 2009 at a price of 0.16 euros, approximately a 65.9% decrease compared with the price of 0.48 euros on January 1st 2009. The drop in price mainly occurred in the first months of the year; during the second half of 2009, the share price actually increased slightly (+1.2%), like other companies

94 Directory


in the directory sector (in Europe, the performance of Yell and Pages Jaunes shares were particularly positive). Seat Pagine Gialle shares reached their yearly peak (1.13 euros) around the days when a capital increase became operational, concluded on April 30th 2009 with the total subscription of shares offered. The negative performance of the shares, especially significant if compared to the performance of shares in the media market, was influenced by the structure of the Enterprise Value of the company, mainly constituted by the ‘indebtedness’ component. Slight reductions in the Enterprise Value of the company (decreased by 14.8% in 2009) are translated into more and more significant reductions of its market value represented by the stock-prices. This value was also penalised by the de-rating of the company and by the crisis in the financial markets. Table 1: Core products % incidence on total revenues, 2009 Paper

Quota

PAGINEGIALLE

Directory of Italian businesses

PAGINEBIANCHE

Residential telephone directory

27,8

Other paper products

37,1

Internet

0,1

PAGINEGIALLE.IT

Search engine specialised in commercial searches

Other Internet products

20,4

Telephone 89.24.24 Pronto PAGINEGIALLE

Provides value-added directory assistance services

12.40 Pronto PAGINEBIANCHE

Provides information about numbers in the directory

4,8

Total core revenues Totale ricavi core

90,2

Source: IEM elaboration of SEAT Pagine Gialle data

To respond to the objective of creating synergies that allow the use of new strategies to combat the restrictions in the market caused by the crisis, in 2010, Seat Pagine Gialle started a strategic partnership with SKY Italia. The first result of this partnership was the stipulation of a commercial agreement between the two companies that allowed small businesses to advertise on SKY during football matches. In the context of an evolution of the offer provided by Seat Pagine Gialle, from a multichannel perspective, this deal put the television channel (as well as printed, web and telephone directories) at the disposition of the SMEs, to guarantee maximum support and effectiveness to its clients’ communication and marketing strategies. The resulting synergy created by the partnership did allow the promotion of the local businesses to television audiences that are strongly localised, and at the same time, characterised by socio-demographic profiles that are very appealing to advertising investors. In virtue of the agreement, Seat Pagine Gialle thus became the first directory in the world to sell television advertising to its own core clients, constituted by small and medium-sized businesses. A further change in the structure of the directories market was - following the liquidation of Pagine Italia in 2008 - the progressive growth of Pagine Sì: the Umbrian company, operational since the end of 1996 in the multimedia advertising publishing and telephone directories sector, which recorded revenues of over 21 million euros in 2009, a higher figure than the 18 million euros recorded in 2008. But the really extraordinary thing is that this company has seen non-stop growth for thirteen years and has obtained an average increase in revenues of 20% since 2005.

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Table 2: Economic results of the main Italian operators Revenue

2009

2008

2007

2006

2005

2004

2003

% 09-08

% 09-03

Total SEAT – Pagine Gialle

952,2

1058,7

1090,2

1077,6

1061,9

1060,4

1056,7

-10,06

-9,89

21

18

nd

nd

nd

nd

nd

16,67

-

Pagine Sì

Note: data in millions of euros. Source: IEM elaboration of SEAT Pagine Gialle and Pagine Sì data.

Since 1996, the company has increasingly focused on offering services and information, both in printed form and through PagineSi online, free-of-charge, as is the delivery of telephone directories. The ElencoSì has been distributed in new provinces of the Centre and the North, thus expanding the company’s area of operations. Another significant player active in business information is Guida Monaci, the company working in the B2B sector founded by Tito Monaci in 1870. In the last few years, the group has succeeded in keeping pace with innovation optimising the use of its website, which has not only become a full-blown portal but also a point of reference for companies thanks to tools like the area “Information services for companies”, the publication of promotional videos directly on the home page and the sections “Bulletins”, “Case History” and “Articles” whose contents concern the commercial products sold by the different companies to be found in the database, thus becoming an additional further promotional vehicle. Following a 2008 agreement with Siseco, a company specialised in creating personalised computer solutions in CRM, CIM & IP Contact Management, has meant that its databank is easier to consult by companies. In 2010, Guida Monaci came onto the market with a new business model organised into two areas: Multimedia Publishing and Business Intelligence.

2. The European market The leading players on the directories markets abroad have also had to deal with the effects of the international financial crisis, which has led to a reduction in revenues. Companies have responded to this mainly through strategies that strengthen their products and the services they offer on Internet, which continues to offer competitors prospects and opportunities of growth. One of the main European directories, the French group Pages Jaunes, saw its revenues decrease by 2.4% in 2009 compared with the previous year. The French group’s operations are organised in two sectors: 1. Pages Jaunes in France: which are the activities of the group in France related to the publication and the distribution of directories and the sale of advertising space both in printed directories (Pages Jaunes, L’Annuaire) and online (“pagesjaunes.fr”). They also include the creation and hosting of Internet sites, telephone and text message helplines, the activity of online Small Ads (“annoncesjaunes.fr”) and several other activities like the publication of PagesPro and QuiDonc directories. 2. International & Subsidiaries: the subsidiary activities of the group, which mainly comprise the publication of directories for consumers and which operate outside France (Spain, Luxemburg and Morocco) and the development of complementary activities related to the publication of directories, like the Mappy geographical services and the direct marketing activities of Pages Jaunes Marketing Services. This sector also includes the Internet advertising activities of Horyzon Média. The overall turnover of the group amounted to 1.1639 billion euros in 2009, compared with 1.1928 billion euros in 2008. In a market that is under great pressure because of the crisis, the size of the reduction in revenues was considerably lessened by the growth of Internet services, whose turnover rose in 2009 to represent 42.3% of overall revenues (39.5% in 2008). The group’s websites in France, “pagesjanues.fr”, “mapping.com”, “annoncesjaunes.fr” and “pagespro.com”, recorded 7% growth in terms of the number of hits on the figures for 2008 and, taken together, they are the sixth most visited site in France. Both of the group’s activity sectors saw a contraction in revenues, but it was the Pages Jaunes

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sector aimed at the foreign market (nevertheless constituting a small part - 5% - of overall revenues) that performed particularly negatively. Between 2008 and 2009 it saw a 17.2% drop in revenues, compared with the reduction of 1.2% in the national sector, which actually represents nearly all of the group’s business. During 2009, the Pages Jaunes group continued to optimise costs in its various sectors of activity. It completed the reorganisation of QDQ Media in Spain and the recapitalisation of Pages Jaunes Petites Annonces, carrying out actions to cut and optimise costs. At the same time, the group continued its investment in the technology, commercial and marketing sectors, which are crucial activities in the group’s strategy. The biggest British directory, Yell Group, after an increase in revenues in 2009, recorded a decrease in proceeds in 2010, dropping 11.5% on the previous year. Yell Group is one of the main international directories that operates in printed, online and telephone activities in the advertising market in the UK, United States, Spain and Latin America. A partial counterbalance to the reduction in revenues of the group - entirely due to the negative performance of the UK group’s printed directories – came from the positive performance of its Internet activities, which saw their share of total revenue increase to 20% in 2010, compared with 15% in 2009. The initiatives aimed at producing savings in costs have, on the one hand, reduced the negative impact of the fall in revenues and, on the other, compensated for the greater resources devoted to additional investments aimed at recovery. Table 3: Overall revenues of the main foreign directories (millions of euros) Directory Pages Jaunes Group Yell Group*

2010

2009

2008

Var. % 10/09

Var. % 08/09

-

1.164,00

2.450,84

2.768,58

1.192,90

-

-2,42

2561,68

-11,48

8,07

Note: (*) the financial year of the group ends on 31 March each year. Source: IEM elaboration of data from the financial statements of Pages Jaunes and Yell Group

In 2009 Yell Group completed the refinancing process that had started following the signing of an agreement on 27 April 2006 (“Old Facilities Agreement”) with Citigroup Global Markets Limited, Deutsche Bank AG, Goldman Sachs International, HSBC Bank and other financial institutions, which allowed Yell Group to obtain long-term loans and favourable conditions of access to credit. This was replaced by the “New Facilities Agreement” that came into effect on 30 November 2009. Again, in the year 2009 Yell Group launched an online video channel, provided by VideoJug, one of the most important experts in the production of short video contents. In addition, Yell stipulated a strategic alliance with Google with the aim of furnishing advanced and sophisticated marketing services to more than 450,000 SMEs in the UK. In 2010, Yell Group launched a series of dynamic services for small businesses available online through the new Yellowbook360 Business Center, which helps companies to grow their business, increase their visibility, and offers them a variety of marketing products and support services on the portal yellowbook.com.

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Recorded music

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Recorded music by William Ricci

1. The Italian market High hopes for the digital music markets were sadly dashed over the course of 2009, a year which saw Italy, Europe and the World register a new drop in revenues due to a complex mix of factors, one of the major causes being undoubtedly file sharing. Before taking a closer look at the reasons that make a trend reversal so problematic, we shall start by describing the current situation in Italy based on sales numbers. As in previous years, the trends based on different industry data sources tend to vary quite considerably, with SIAE1 (Italian Society of Authors and Publishers) and FIMI2 (Italian Music Industry Federation), in particular, reporting sales figures that are often at odds3. SIAE reported an approx. 10% increase in recorded music sales between 2007 and 2008 in contrast to FIMI, which recorded a 22% drop, a figure essentially in line with the fall in value. The drop in quantity continued through 2009 with a further contraction, which FIMI estimated at around 18% with just over 15 million units sold. Fig. 1: The Italian record market, 2003-2009-millions of units (album or equivalent) 120 102,7

Fimi

99,7

100

91,5

40

M&D

Siae

88,4 80,3

80 60

Ifpi

93,5

50,08 38,9 38,3

52,1 33,6 37

51,1

40,5

37,5 31,9 27,5

24,1

20

18,8

15,3

0 2003

2004

2005

2006

2007

2008

2009

Source: IEM elaboration of FIMI, IFPI, M&D and SIAE data.

If the data is subdivided into categories, several positive elements come to light, such as the excellent results posted for sales of singles, up by 100%, driven by the sale of CDs which, with 1 Italian Society of Authors and Publishers, Dati di vendita dei supporti fonografici per il 2008, 2010. 2 Italian Music Industry Federation, Dati di mercato – anno 2009, 2010. 3 The enormous different between the FIMI figures and those from SIAE can be partially interpreted from a look at the nature of the information. As the only national society collecting artists’ copyright fees, it has a detailed breakdown of the sales’ licences granted. FIMI monitors the main companies’ “sell-in” figures.

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99


as many as 550 thousand copies sold, rose by as much as 99%. This does in part reflect a change in tastes of the average music listener as well as in music company strategies, which today tend to revolve around the exploitation of the single rather than promoting the more organic and complex music listening experience provided by the album. Performance in value terms has sadly not reversed the decline that has been affecting the recording industry ever since 2003. The downward slide in 2009 was constant and registered both by FIMI and its international counterpart IFPI (International Federation of the Phonographic Industry) respectively reporting drops of 19% and 17%. Analysis of the FIMI data, which provides more detailed components, shows that almost all physical units register a big drop in turnover. This is particularly true of the CD album sector, the biggest earner in the physical support market with revenues of 114.1 million euros, which dragged the entire sector down by approximately 24% and total turnover figures of almost 124 million euros. Some encouragement was however to be gained from the 7% growth posted by CD singles, which meant a 5% increase for the entire singles market and almost 2 million euros in total generated turnover. Fig. 2: The Italian recorded music industry, 2003-2009, millions of euros* 700 Fimi 535

M&D

Ifpi (retail)

535 478

500 400

Ifpi (trade)

574

600

402 370 333

392 344 306

390

300

392

364

343 305

306 274

301 266 222

260 219 178

200

226 181 144

100 0 2003

2004

2005

2006

2007

2008

2009

Note: The IFPI (trade) information for 2009 was calculated based on the average 2009 dollar/euro exchange rate of 0.72. Source: Italian Exchange Office. IFPI original amount: 252 million dollars and IEM elaboration and estimates based on FIMI, IFPI and M&D data.

Fig. 3: The Italian digital & physical recorded music market, 2005-2009, millions of euros 450

450 400

12 24

350 300

Musica & Dischi digital

27

200 150

340 276

100

14

197

14

200 150

233

12

250 29

378

Fimi physical

350 300

25

250

400

16 293

208

162

50

50

124

0

0 2005

2006

2007

2008

2009

The Italian recorded music market based on FIMI figures: 144 million euros in 2009 (124 physical & 20 digital)

2005

Recorded music

2006

2007

2008

2009

The recorded music market in Italy based on Musica & Dischi figures: 226 million euros in 2009 (197 physical & 29 digital).

Source: IEM elaboration and estimates based on FIMI and M&D data

100

20

258

100


The figure above is of course inclusive of the digital market which, despite its ongoing growth since 2005, cannot yet compensate for the serious economic losses that its physical counterpart registers every year. The FIMI data clearly shows how the physical market fall off is getting progressively worse, dropping by â&#x20AC;&#x201C;22% between 2008 and 2007 and then by â&#x20AC;&#x201C;23% between 2008 and 2009, and while the total volume of physical and digital sales combined manages to stem the haemorrhage slightly (-20% in 2008 and -19% in 2009) it is certainly unable to reverse the overall market trend. It would appear, therefore, that a difficult future lies ahead for the recording industry in Italy and the only hope for the market lies not so much in a levelling off of the physical sectorâ&#x20AC;&#x2122;s downward spiral, which is instead only likely to get worse, but rather in a substantial growth in the various forms of digital exploitation that could reverse the market trend and ultimately take over the entire recorded music sector. However, this very complex digital world does also have its problems. In spite of an overall growth in 2009 of 27% compared to 2008 with over 20 million euros in turnover, digital distribution via mobile platforms has not taken off. From 2006 onwards, sales of music via smartphone have constantly decreased, dropping from over 9.6 million euro to just under 4 million euros, (-30% in 2008 alone). This performance undermines the commonly held belief that the Italian market is extremely open and receptive to the new products and opportunities offered by mobile platforms, while instead providing ample proof of the strong attraction for PC and Notebook-based platforms, which have seen a 34% increase in music sales through online purchases and subscriptions to web service providers. This trend can probably be accounted for by a shift in consumer behaviour that has favoured online home downloading of music, which is subsequently transferred onto the increasingly popular mobile devices such as iPods and Mp3 players. Fig. 4: Value of the digital, mobile and internet music market in Italy 2006-2009, millions of euros 25 internet

mobile

advertising

Total digital

20,4

20 16,1 14,6

14,5

15

12,1 9,6

10 5

8,0

5,6

5,4

4,2

9

3,9 0,7

0 2006

2007

2008*

2009*

Note: The total also includes other revenue streams: the 2008/9 internet and mobile data also includes service subscriptions. Source: IEM elaboration of FIMI data

Another factor that needs to be taken into consideration is the growing importance of advertising (and copyright) revenue produced by distributing content via streaming. For the first time in 2009 these previously unconsidered business models generated over 700,000 euros (about 0.7% of the total). This process can partly be attributed to the recent agreements reached between YouTube and SIAE on an online streaming distribution model that generates profits for every single copyright-protected product accessed. The agreement envisages a model for the allocation of advertising revenues that includes the content owners4 and guarantees them a minimum return. These new business models based on the exploitation of the opportunities provided by the Internet could in the future lead to a stabilisation of a market that is still 4 Claudio Tamburrino, Youtube e SIAE, licenza di monetizzare (Youtube and SIAE, a license to cash in), Punto Informatico, 2010.

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101


fairly unexplored thanks to the possibility of generating income through systems of copyright protection, despite the fact that the enjoyment of the protected content remains free. Indeed, the remarkable 27% growth in music streaming via computers in 2009 certainly deserves to be stressed, along with the excellent performance recorded by music album downloads (+32%), in stark contrast to traditional album market, but most significant of all is the vast and constantly growing number of potential consumers, numbers that are partly whittled away by the practice of illegal file sharing (approx. 23% of internet users), which is however seeing harder times since the 2009 Italian High Court ruling, which has enabled magistrates to block internet access when there is evidence of illegal practices5. The Pirate Bay6 case in particular, made it clear that the providersâ&#x20AC;&#x2122; full collaboration is urgently required to contrast and block the growth of music exploitation models which are both illegal and damaging to the market. Table 1: Digital Market, Italy, euros

Mobile Downloads

Online Downloads

Euro 4.749.625

4.083.239

666.386

16%

4.512.826

3.417.218

1.095.608

32%

33.875

14.413

19.462

135%

Music videos

153

328

-175

-53%

Streaming

Other

1.915.970

1.510.830

405.140

27%

TOTAL

11.212.449

9.026.028

2.186.421

24%

Master Ringtones

1.569.705

2.754.518

-1.184.813

-43%

Singles

1.944.567

1.925.662

18.905

1%

Ringback Tunes

108.357

121.409

-13.052

-11%

Music videos

77.489

150.917

-73.428

-49%

Other products

27.085

310.357

-283.272

-91%

Streaming

87.731

148.249

-60.518

-41%

3.814.934

5.411.112

-1.596.178

-29%

Subscriptions (independent services) - Online

978.619

30.454

948.165

3113%

Subscriptions (independent services) - Mobile

158.954

208.151

-49.197

-24%

Subscriptions (dependent services )

411.640

0

411.640

100%

1.549.213

238.605

1.310.608

549%

734.722

0

734.722

100%

2.168.260

346.433

1.821.827

526%

Advertising

Subscriptions Uncashed down payments & one-off payments

Uncashed down payments & one-off payments

Other

Other digital music content

TOTAL Value of Digital Market

966.534

1.109.659

-143.125

-13%

20.446.113

16.131.837

4.314.276

27%

Source: IEM elaboration of FIMI data.

102

Difference %

Album

TOTAL

5 6

Difference

Single

TOTAL

Advertising

Euro

IFPI, IFPI Digital Music Report 2010, 2010. Italian version. Swedish torrent file search engine.

Recorded music


2. The European market According to the IFPI7, markets throughout Europe registered a negative downturn, with the exception of the United Kingdom which, with its 1.570 billion dollars in turnover, improved its performance by 1.9% compared with 2008. The British situation is a very particular one. It’s historically prominent role both in Europe and worldwide (market leader in Europe and ranked third behind the US and Japan on a global scale) have also enabled it to maintain its position as one of the main sources of musical inspiration and music production. As in Asia last year8, the UK has tested the digital market’s ability to compensate for economic loss in the physical support sector. The traditional market (including copyright revenues) dropped by approx. 1% compared to a 17% increase in digital sales, adding further credence to the notion that the future for the music industry currently lies in the ability to satisfy the demand for digital content and a readiness to boost sales and electronic access in this area. It is also worthwhile pointing out how the British social fabric manages to support the production of music in line with worldwide tastes and the discovery and fostering of artistic talent, a case in point being Susan Boyle whose debut album I Dreamed a Dream (Syco – Columbia) was the highest selling album in the world in 20099.

1.574

Italy

Spain

1.533

1.580

France

1.212

246

252

305

287

948

974 328

393

327

383

369

428

1.000 500

Germany 1.544

1.893 1.126

1.411

1.248

1.500

1.457

2.000

UK 1.698

2.054

2.500

2.162

Fig. 5: European music recording industry turnover, 2005-2009. Millions of dollars. Trade.

0 2005

2006

2007

2008

2009

Source: IEM elaboration of IFPI data.

Other European markets, however, confirmed the negative trend that has been afflicting them since 2007. Italy experienced one of the worst downturns of all (-17% over 2008) with Spain being the only country to post even worse figures for 2009. More specifically, the German and French markets managed to cut their losses, falling back by just 3% and 2.7% respectively compared with 2008. Spain however, with its mere 246 million dollars’ worth of turnover, down 14% on the previous year, ranked a distant last in terms of value among the five main European markets. Even though the digital markets did not entirely compensate for the losses in the traditional markets (except in the UK), they did provide some good news, with consistently positive trends since 2005. The only drop was registered by the French market, down 2% from 2008 with 131 million dollars in turnover. Growth in Germany and Spain was instead very positive, up 27% and 23% respectively with Germany, in particular leading the pack, with over 40 different 7 International Federation of the Phonographic Industry, L’économie de la production musicale – edition 2010, 2010. 8 William Ricci, “Musica Registrata”, in Barca F. (edited by), L’Industria della Comunicazione in Italia. Dodicesimo Rapporto (The Communication Industry in Italy, Twelfth IEM Report), Guerini, Milano. 9 The British Recorded Music Industry, The Market – Useful facts. Source: http://www.bpi.co.uk/musicbusiness/article/the-market.aspx.

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103


digital music download service providers including Amazon Mp3 and iTunes Germany10. The UK and Italy also showed good growth, both up 17% compared to 2008, but whereas in Italy this by no means compensated for the serious losses incurred in the physical sector, in Britain the digital sales revenue managed to compensate for loss in physical sales revenue, albeit by a slim margin. Fig. 6: European digital music sales, 2005-2009. Millions of dollars. Trade 350 UK

Germany

France

Italy

Spain

300 252

250 200

163

150 100

295

156 131

133 122

123 94 39

50

76

70 67

69 28

16

33 32

28 26

25 24

23 16

3

0 2005

2006

2007

2008

2009

Note: Italy 2008: information based on the growth trend shown by FIMI data for 2008 as applied to IFPI figures for 2007; Spain 2008: information based on the growth trend shown by Promusicae in 2008 as applied to the IFPI figures for 2007. Source: IEM elaboration of IFPI data.

The liquid market is composed of online and mobile components. There is, unfortunately, no detailed information available for the UK and German markets, although in the past these have seen the online digital sector gain a clear advantage over the mobile service sector. Between 2005 and 2007, there has been progressive growth in the online quota, which has reached 69% in Germany and 71% in the UK. Given the strong digital connotations of these markets and their considerable impact on turnover totals, they should be taken as virtuous models, whose visions and strategies it is worthwhile copying, which would seem to indicate that it is advisable to favour online service provision models seeing as they have proven to be more profitable than the mobile ones. Table 2: Digital Music Market, Europe, 2005-2009, Online and Mobile quotas Online Mobile

2009

2008

2007I

2006I

2005

online

mobile

online

mobile

online

mobile

online

mobile

UK

N/A

N/A

N/A

N/A

71%

29%

70%

30%

62%

38%

GERMANY

N/A

N/A

N/A

N/A

69%

31%

69%

31%

66%

34%

58%**

42%**

39%

61%

38%

62%

47%

53%

FRANCE

50.5%** 37.9%**

ITALY

59.3*** 19.1%*** 59%***

SPAIN

53%****

41%***

47%**** 37%**** 63%****

online

mobile

44%

56%

24%

76%

31%

69%

N/A

N/A

22%

78%

N/A

N/A

Note: The sum of the mobile and online share for the French and Italian 2009 data is less than 100 because the total of the respective digital markets includes revenues generated by other sources. (Italy: Ad-Supported Income, Unearned Advances & One-Off Payments, Other Digital Music Content; France: Streaming). Source: IFPI, * IFPI data refers to the first six months of the year; **Syndicat National de lâ&#x20AC;&#x2122;Edition Phonograpique; ***FIMI; ****Promusicae;

By way of confirmation of the above observations we think it is important to report the drop in online share posted in France, which for 2009 coincides perfectly with the decrease in value recorded for that digital market (-2%). Both Italy and Spain also see their online business overtake mobile in volume terms and the latter particularly, as a component part of its 23% growth in digital sales, saw its online business rise from 37% to 53% in 2009, further proof 10

104

IFPI, IFPI Digital Music Report 2010, 2010. Italian version.

Recorded music


of how strategically important good management of digital web service provision can be, particularly if it goes hand-in-hand with effective measures against illegal file sharing practices. In conclusion, we would like to point out how the slight growth of the online share in Italy, +0.3% between 2008 and 2009 over mobile, is mostly ascribable to the bad performance of the mobile sector, which as previously mentioned shrunk by 30% between 2008 and 2009.

3. The world market The global market recession in this field has not let up either. In 2009, recorded music generated turnover worth just over 17 billion dollars, a 7% drop on 2008. Unfortunately this is the most serious fall off since 2006 and demonstrates the international markets’ difficulty in properly managing the new digital distribution opportunities. In 2009, the two largest world markets, USA and Japan, saw their revenues fall by almost 11%. This accounted for 80% of the overall world drop in sales, which without these specific losses in revenue would only have fallen back by approx. 3.2%11. Among the reasons for this we must certainly include the repercussions of the serious economic crisis and the consequent drop in consumer spending, particularly in the US. If one looks at the shares of the world music industry owned by the various recording companies, the Universal Music Group still holds a leading position with over 27% of overall turnover followed by Sony Music Entertainment with almost 21%, Warner Music Group with 15% and EMI with 12.2%. Independent labels’ share of the market is suffering a relentless contraction, dropping from the 27.1% of the market share earned in 2007 to the 24.7% figure posted in 200912. Table 3: Record industry, worldwide, 2005-2009, millions of dollars. Trade. Value

2009

var%

2008

var%

2007

var%

2006

var%

2005

17.026

-7,2%

18.347

-5,4%

19.398

-0,9%

19.587

-5%

20.795

Source: IEM elaboration of IFPI data.

As might be expected, the global digital market is still rising in value, although its growth trends are decreasing considerably. Compared to the previous years (+ 107% in 2006, +35% in 2007 & 2008) total digital revenues in 2009 ‘only’ increased by 9.2%, with turnover climbing to just over 4.3 billion dollars. This is partly explained by the lacklustre performance of North America, a continent which is both strategically and economically crucial (and which recorded an increase of just 1.1%), despite an overall increase in digital distribution services and greater level of penetration in the country’s many markets. Revenues from the digital market in the first half of 2009 break down as follows: 61.9% went to the uncontested leader iTunes, aided by a shrewd industrial policy that links the download system to the copyrighted reproduction system used on iPods. Trailing far behind are its other competitors: Amazon Mp3, Rhapsody, Zune Marketplace and Napster with market shares of 7.6%, 3.7%, 2.6%, 1.5%13 respectively. Table 4: Worldwide digital music revenue, 2005 -2009, millions of dollars. Trade. Value

2009

var%

2008

var%

2007

var%

2006

var%

2005

4.307

9,2%

3.944

35,5%

2.909

35%

2.154

107%

1.039

Source: IEM elaboration of IFPI data.

The only truly positive note in the global situation is the growing incidence of the digital market on total market value. From 2005 onwards the revenue share attributable to digital use 11 Robert Andrews, ’09 Music Sales Shed $1 Billion; U.S. Downloads Stagnant, paid Content: UK, 2010. 12 Editorial, Sony Music makes gain on dominant Universal in 2009, Music & Copyright’s Blog, 2010. Source: http://musicandcopyright.wordpress.com/ 13 Editorial ( NPD data), NPD Musica Market Share – Report For The First Half 2009, RouteNote Blog, 2009. Source: http://routenote.com/blog/npd-group-music-marketshare-report-for-the-first-half-of-2009/

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105


and exploitation has grown from 5% to 25%. However, it should be noted that the 2009 results are mainly due to a drastic decrease in the physical market (-12.7% over 2008, net of copyright revenue), rather than an increase in digital, which has shown much more substantial growth in the past. Fig.7: Music industry worldwide, physical - digital, 2005-2009, %. Trade. 25.000 Physical and performing rights

5%

20.000

11%

15% 21%

15.000 10.000

Digital

25%

95%

89%

85%

79%

5.000

75%

2005

2006

2007

2008

2009

Source: IEM elaboration of IFPI data.

Hope, therefore, remains that digital revenue may compensate for the losses suffered by the physical market sector in the future. Various countries have seen an increase in total market value thanks to excellent performance shown by components of the digital market in 2009, not only in the UK (the only European example) but also in Mexico, Thailand, Australia and South Korea14. Of course, the widespread growth of the digital market is clearly hindered by illegal forms of digital exploitation, as well as the contraction in consumer spending owing to the recession. Not surprisingly, John Kennedy, CEO of IFPI has often expressed his approval of the introduction of drastic measures against those responsible for fostering a climate of impunity towards those engaging in illegal practices, citing as examples the legislation introduced in Taiwan, South Korea and France and the process by which these countries are attempting to make ISPs take responsibility for these practices, while at the same time calling for help from the State15. We can, therefore, report the positive increase in general revenues generated by the exploitation of copyright which, taking advantage of web technologies and products in other entertainment sectors (e.g. videogames such as Guitar hero and Rock Band), have increased turnover by 7.6%, generating approximately 785 million dollars in 2009 and almost a 5% share of the entire recording industry.

14 15

106

Robert Andrews, â&#x20AC;&#x2122;09 Music Sales Shed $1 Billion; U.S. Downloads Stagnant, paid Content: UK, 2010. IFPI, IFPI Digital Music Report 2010, 2010. Italian version.

Recorded music


Advertising

Musica registrata

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Advertising 1. Advertising: overview 2009-2010 The economic downturn that characterised late 2008 and 2009 very slowly began to loosen its grip in the first half of 2010, when the first signs of positive growth were shown in the international economy and on the advertising market. However, at the current rate of recovery it is likely that it will be close to 5 years before the market rises to return to the levels of 2008. In this context, advertising proved – once again - to be extremely sensitive to the general economic situation. In Italy, as in the rest of the world, the drop was far sharper than the country’s GDP wealth marker yet while the economic recovery is particularly sluggish, the advertising market is finding its feet more rapidly. What’s however without doubt is that where the drop in GDP in 2009 was around 5%, in advertising it was over 13 percentage points. The scenario was different for below-the-line communication, which continued to show a positive performance and has partially compensated for the overall loss in the market, settling at just under (though almost in line with) the sloping GDP curve. Fig. 1: Advertising investment and GDP curves, Italy (1990-2009) 25,0 GDP 20,0 ADVERTISING SPENDING (CLASSIC COMMUNICATION METHODS)

15,0

ADVERTISING & RELATIONAL (MARKETING SPENDING)

10,0 5,0 0,0 1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

-5,0 -10,0 -15,0

Source: IEM elaboration of data from FMI (GDP at present prices); Nielsen Media Research; IAB, Interactive Advertising Bureau; UPA.

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If we take into consideration the investments in the traditional advertising media alone (press, television, radio, billboards, cinema and Internet), the worldwide market, according to Zenith Optimedia figures, has dropped by 10.2%, with an overall market turnover of 443.7 billion dollars compared to the 494 billion of 2008. Zenith Optimedia forecast a very slow recovery over 2010, ending in a final turnover increase of 0.9%. Growth should become more robust in the next two years with increases of close to 4% in 2011 and 5% in 2012, although even then, the expected results in 2012 results will not overtake 2008 levels. Fig. 2: Advertising investment worldwide (2005-2012F) 600,0

15 Global advertising (bn $)

492,7 12,6

500,0

Var. % yoy

494,0

437,5

443,7

487,4

465,1

447,7

10

409,8 6,8

400,0

5 4,8

3,9

300,0

0

0,9

0,3

200,0

-5

100,0

-10 -10,2

0,0

-15 2005

2006

2007

2008

2009

2010E

2011F

2012F

Note: billions of US$ at current prices (average exchange rate for 2008). Source: IEM elaboration of Zenith Optimedia data.

Fig. 3: Advertising investment worldwide, by macro areas (2007-2011F) North America Central-Eastern Europe

2011F

156

2010E

153

2009

157

2008

180

2007

Western Europe Latin America

20%

114

109

108

106

107

121

40%

60%

30

35

21

28

33

19

104

28

31

18

107

35

30

20

31

105

125

188

0%

Asia-Pacific Africa-Middle East-RoW

80%

27 17

100%

Note: billions of US$ at current prices (average exchange rate for 2008). Source: IEM elaboration of Zenith Optimedia data.

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In the more mature world markets, such as North America and Western Europe, the fall was particularly intense and 2010 spending is still forecast at below 2009 levels with slow recovery over the two subsequent years. This also holds true for Central and Eastern Europe. The Latin American and Asia-Pacific markets will be more dynamic, driven by the good performances of Brazil and China (which could even be termed excellent considering the world economic context). In particular, the Asian market should, for the first time ever, end ahead of Western Europe in 2010 in value terms. While mass media communication on the Italian market registered a poor performance in 2009, dropping 13.3% according to a mix of Nielsen, UPA and Assocomunicazione data, the below-the-line performance was actually up by 1.5% (UPA estimate). Italyâ&#x20AC;&#x2122;s national economy fell by 5%, while the market share of above-the-line advertising investment dropped further, by another 0.6% of the GDP, below the bottom line. The market share of non-media communication, such as direct marketing, promotions, P.R., sponsorships and events, which was estimated to account for over 50% of commercial communication investment overall by Assocomunicazione and UPA (Table 1), grew to 0.77% of GDP, creating an aggregate advertising communications total equal to 1.36% of GDP in 2009 (Fig. 4), dropping slightly compared to 2008. Fig. 4: Advertising investment, above & below-the-line/GDP - Italy (1999-2009) 1,80%

Above-the-line investments/GDP

1,60%

Below-the-line investments/GDP

1,40% 1,20%

0,83%

0,84%

1,00%

0,85%

0,81%

0,78%

0,76%

0,68%

0,64%

0,64%

0,65%

2001

2002

2003

2004

0,73%

0,73%

0,72%

0,77%

0,66%

0,67%

0,67%

0,65%

0,59%

2005

2006

2007

2008

2009

0,74%

0,80% 0,60% 0,66%

0,70%

0,40% 0,20% 0,00% 1999

2000

Source: IEM elaboration of FMI (GDP at current prices); Nielsen Media Research; IAB, Interactive Advertising Bureau; UPA data.

The market evolution, as the solid performance of the below-the-line component demonstrates, essentially revolves around the cross contamination of the different sectors of the advertising business (the key word here being â&#x20AC;&#x153;integration), and its ability to react to market changes with increasing speed, without jeopardising certain fundamental strategic aspects such as the increasing engagement with the consumer. Direct response, or below-the-line communication, such as direct marketing, events, sponsorships, promotions and P.R., provide excellent ways of fulfilling this demand and have registered a 1.5% increase in 2009, accounting for 54% of overall communications spending (almost 10.5 billion euros). Even though it is difficult to identify and analyse such fragmented and diverse segments, Assocomunicazione expects an overall growth of 2.5% in this area for 20101.

1 Ref. Assocomunicazione, Comunicare Domani, 2010. It should be noted that Assocomunicazione estimates the direct marketing sector to be worth almost double the UPA forecast. UPAâ&#x20AC;&#x2122;s more conservative estimate has been used for these analyses.

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Tab. 1: Allocation of above and below-the-line investments, Italy (2005-2009) 2009

2008

% Share

M€

2007

% Share

M€

2006

2005

M€

% Share

M€

% Share

M€

% Share

Δ% Δ% 09-08 09-05

8.843

45,8

10.196

49,8

10.178

50,3

9.567

49,6

9.250

49,5

Total BTL 10.445

54,2

10.293

50,2

10.042

49,7

9.709

50,4

9.419

50,5

1,48

10,89

TOTAL

100,0

20.489

100,0

20.220

100,0

19.276

100,0

18.669

100,0

-5,86

3,32

Total ATL

19.288

-13,27 -4,40

Source: IEM elaboration of Nielsen Media Research, IAB, UPA, Assocomunicazione data.

Tab. 2: - Relational marketing investment in Italy (2005-2009) 2009

2008

2007

2006

2005

Δ% Δ% 09-08 09-05

M€

% Share

M€

% Share

M€

% Share

M€

% Share

M€

% Share

Direct Response

2.425

23,22

2.425

23,56

2.372

23,62

2.314

23,83

2.271

24,11

0,00

6,78

Promotions

4.350

41,65

4.300

41,78

4.185

41,67

4.059

41,81

3.937

41,80

1,16

10,49

P.R.

2.150

20,58

2.103

20,43

2.040

20,31

1.927

19,85

1.842

19,56

2,23

16,72

Sponsorship/ 1.520 Events

14,55

1.465

14,23

1.445

14,39

1.409

14,51

1.369

14,53

3,75

11,03

100

10.293

100

10.042

100

9.709

100

9.419

100

1,48

10,89

TOTAL

10.445

Source: IEM elaboration of UPA, Assocomunicazione data.

2. The Italian media mix The hardest hit by the 2009 economic crisis among the traditional forms of media advertising was undoubtedly press advertising which, according to Nielsen data (Table 4), dropped by 21.6% on its 2008 performance, the result of a 16% fall in daily newspaper advertising and 28.7% for magazines. The seemingly irreversible negative trend in press advertising (for the most ascribable to changes in news consumption habits, digital content distribution and the difficulty in cashing in on access to daily news websites and an even steeper drop in printed copies sold), was compounded by the economic downturn and the drop in investments, with available resources being mostly siphoned off towards media that guaranteed a higher level of coverage such as television, which only dipped by 10%. The same argument holds true for magazines, which are financed by lower spending advertisers and therefore more sensitive to negative economic factors. Nielsen reported that press advertising accounted for 29.9% of above-the-line (ATL) advertising by end 2009, down from 34.4% in 2008. If these figures are then combined with those recorded by other institutes, these same indicators become 31.8% for 2008 and 27% for 2009. With reduced advertising in other media, television’s share of ATL investment according to Nielsen rose to 54.5%. As UPA and Assocomunicazione data elaboration assigns higher values to radio and billboard investment and also takes into consideration IAB (Interactive Advertising Bureau) data on web based advertising, these institutes estimate the television share to amount to 49.2% of the market. Whereas the impact of 3D programming added to the efforts to improve cinema advertising in this format have bolstered investment in this marginal market, which has limited its losses to 4% and, besides the Internet, was the highest performing media in 2009, with a total investment of 55.7 million euros, which according to Nielsen accounts for 0.7% of total advertising investments. UPA and Assocomunicazione estimate that external advertising (billboards, posters, urban Advertising

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decor, airports, signs etc.) was worth 619 million, equivalent to a -19% difference. Nielsen data, limited to billboards2, reported a greater loss of -25%, which was partially compensated for statistically with revenues of 99 million euros from so called “out of home” or transit advertising: dynamic communication on public transport and in airports. However, the most important figure was undoubtedly the one posted by advertising promoted via the new digital technologies, which seem capable of breathing a new lease of life into the sector. The only advertising medium to post a positive result, albeit down compared to previous years, was the Internet, a term used here to embrace display advertising, paid search, directory on line and mobile advertising. IAB reported the total value of these investments to equal 849 million euros, an increase of 6.4% on 2008, while Nielsen registered a 7.3% increase up to 585 million euros. Tab. 3: Media mix Italy, 2005-2009 (%) 2009

2008

2007

2006

2005

% 09-08

% 09-05

Press daily newspapers

17,09

17,82

18,78

18,27

18,83

-0,73

-1,74

Press magazines

9,92

12,08

13,05

13,55

13,22

-2,15

-3,29

Television

49,29

47,58

46,38

48,07

50,47

1,71

-1,18

Radio

6,48

6,65

6,53

6,17

6,02

-0,17

0,46

Billboards etc.

6,99

7,47

7,89

8,05

8,21

-0,48

-1,22

Cinema

0,63

0,57

0,69

0,80

0,90

0,06

-0,27

Internet

9,60

7,83

6,68

5,10

2,36

1,77

7,24

Source: IEM elaboration of Nielsen, UPA and Assocomunicazione data.

Tab. 4: Traditional media advertising investment in Italy (2005-2009) 2009 Media

2008

2007

2006

2005

∆% ∆% 09-08 09-05

M€

% Share

M€

% Share

35,97

3.043,64

35,58

2.964,31

35,04

-21,64

-19,43

1.773,07

19,75

1.716,41

20,07

1.713,71

20,26

-16,00

-17,84

1,59

128,29

1,43

31,21

0,36

28,04

0,33

-26,60 267,03

1.231,48

13,98

1.328,48

14,80

1.296,02

15,15

1.222,56

14,45

-28,74

-28,22

54,53

4.687,40

53,19

4.720,29

52,57

4.598,78

53,76

4.668,74

55,18

-10,15

-6,64

5,46

487,66

5,53

476,08

5,30

440,67

5,15

408,60

4,83

-7,74

6,78

169,60

2,12

227,20

2,58

200,65

2,23

196,96

2,30

198,70

2,35

-25,35

-14,64

55,75

0,70

58,32

0,66

69,79

0,78

76,19

0,89

83,04

0,98

-4,41

-32,86

585,19

7,32

321,19

3,64

281,93

3,14

197,58

2,31

137,06

1,62

5,15

326,96

7.994,28

100

8.811,81

100

8.978,58

100

8.553,83

100

8.460,44

100

-9,28

-5,51

M€

% Share

34,39

3.229,83

1.658,34

18,82

1,29

140,21

10,98

4.358,94 436,32

M€

M€

% Share

29,88

3.030,03

17,61

% Share

Total Printed press 2.388,49

Daily newspapers 1.407,99

Free press 102,92

Magazines 877,57

Television Radio Billboards etc. Cinema Internet TOTAL

2 Since May 2009, the Nielsen AdEx databank has been monitoring information on transit advertising managed by IGPDecaux on public transport vehicles, metros, airports and buses. The separate data for this item is included in Table 4.

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Main variations compared to Nielsen data Radio (Assocomunicazione) 573

-

678

-

665

-

590

-

557

-

-15,49

2,87

-

803

-

770

-

759

-

-18,90

-18,58

-

680

-

488

-

218

-

6,39

289,45

Billboards (Assocomunicazione) 618

-

762

Internet + Mobile (IAB Italia) 849

-

798

Note: Information for Internet, supplied by Assointernet and IAB Italia, includes display, search and other types of advertising; The number of cinema screens reported in 2008 is not comparable with the number of screens from previous years.; data on billboard advertising reflects new monitoring methods adopted in the range of years; the total investment in Table 3 does not correspond to the total in Table 1 because Table 3 uses Nielsen data only. Research data from other institutes has been inserted to reflect the highest differences in results.

The negative curve for print media continued over the first six months of 2010, resulting in a further loss of 3.5% on the already steep drop recorded in the first half of the previous year. Paid circulation daily newspapers essentially maintained their standing with a positive performance of + 0.5%, though one canâ&#x20AC;&#x2122;t avoid pointing to significant differences within the sector (national advertising in the press kept its head above water, but advertising in the local press was down, even though it lost less the previous year compared to nationwide dailies, while the classifieds dropped by 5% continuing their migration towards the Internet). In contrast, the free press recorded a drop of 8%, with nationwide advertising faring worst, and magazines continued their unstoppable decline, losing a further 9%. Tab 5: Traditional Advertising media investment in Italy (1st H 2010 vs 1st H 2009) Jan.-June. 2010

Jan.-June. 2009

1.173,94

1.216,45

-3,5

Paid circulation daily newspapers

712,26

708,83

0,5

Nationwide advertising

366,30

352,54

3,9

Local advertising

209,15

211,76

-1,2

Classified & service ads

Total Print press

Î&#x201D;% 1H 10 â&#x20AC;&#x201C; 1H 09

136,81

144,53

-5,3

Free/Pay press

48,99

53,38

-8,2

Nationwide advertising

35,93

39,50

-9,1

Local advertising

12,35

13,14

-6,0

0,72

0,74

-2,4

412,69

454,24

-9,1

Classified & service ads Magazines TV

2.558,15

2.385,19

7,3

Radio

249,61

217,43

14,8

Commercials

231,10

200,20

15,4

18,51

17,23

7,5

175,40

153,11

14,6

Billboards etc.

74,63

68,40

9,1

Cinema

23,29

23,21

0,3

Cards*

3,50

3,49

0,3

Other advertising Internet (excluding search)

Direct Mail*

258,18

247,03

Out Of Home TV*

4,92

4,59

7,3

Transit*

58,42

56,23

3,8

4.580,04

4.375,19

4,7

Total

4,5

Note: millions of euros; (*) new results from Nielsen regarding below-the-line communication. Source: IEM elaboration of Nielsen Media Research data.

Positive signs of recovery were instead to be found in radio advertising (+15%) and billboards (+9%) and the same can be said for web display advertising (+14.6%) and television, which posted a 7% recovery spread over various sectors: 5% in major network advertising and over Advertising

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40% from satellite channels. All the principal commodity producers reduced their above-the-line advertising investments in 2009, though there were some significant exceptions in the minor advertisers for leisure time and travel. The first half of 2010 however registered positive signs across the board, in particular for primary consumer areas such as food, distribution, household and toiletries. Tab. 6: Above-the-line Advertising investment by commodity sector (2006 â&#x20AC;&#x201C; 1st H 2010) Settori Merceologici

2006

% 07-06

2007

% 08-07

2008

% 09-08

2009

1H10

Î&#x201D;% 1H101H09

Foods 1.062,16

3,76 1.103,67

928,69

8,55 1.015,57

1,59 1.121,27

-6,50

1.052,79

600,62

10,0

Cars -4,38

971,05

-19,28

814,09

476,85

1,1

Telecoms 648,94

13,69

751,83

3,28

776,52

-7,16

724,65

411,31

2,3

462,05

21,93

591,81

2,00

603,63

-29,07

467,68

238,62

5,1

458,44

1,30

464,49

-3,36

448,86

-16,34

385,83

228,38

9,2

362,79

15,02

426,90

21,61

519,14

-20,65

430,27

217,05

-0,7

282,57

11,96

320,93

49,69

480,42

-16,77

411,44

213,70

17,6

441,58

6,57

472,65

20,65

570,23

-25,80

453,29

208,21

-4,2

305,04

3,88

317,36

8,22

343,44

-3,90

330,56

196,41

11,6

317,73

16,23

379,27

-4,22

363,26

-16,83

310,92

174,87

7,5

8,60

306,62

-7,93

282,29

-7,92

261,58

164,11

16,9

217,25

16,04

258,73

8,96

281,92

-4,61

269,50

161,88

-3,1

279,98

11,46

316,22

12,71

356,40

-14,01

312,61

155,87

-1,4

161,15

10,88

180,82

22,77

221,99

9,58

245,52

99,11

-16,0

134,99

2,12

137,92

67,34

230,79

10,07

256,62

98,68

2,4

106,58

3,48

110,42

26,10

139,24

1,76

141,73

91,24

6,9

100,59

35,58

156,14

25,67

196,22

-40,81

139,35

87,78

20,5

154,36

10,98

173,41

26,48

219,32

-24,35

176,38

79,17

-1,6

88,34

43,80

157,18

-7,39

145,57

-21,56

119,75

71,92

27,7

148,22

27,28

203,81

-12,71

177,90

-35,65

131,15

57,59

25,7

Clothing Drinks/Alcohol Financial/Insurance Distribution Media/Publishing Toiletries Personal care Household management 280,25 Pharmaceutical/Hygiene Home Tourism/Travel Institutions Leisure time Industry/Building Professional Services Household electrical appliances Personal objects Motorbikes/vehicles

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60,01

11,23

67,60

6,60

72,06

-19,38

60,36

35,52

-0,4

60,43

37,43

96,58

25,80

121,50

-16,48

104,31

35,46

7,6

83,21

11,89

94,44

11,65

105,44

-18,86

88,71

28,71

28,6

57,52

14,02

66,90

185,49

190,99

-19,68

159,59

56,89

13,2

Toys/School related articles IT /Photography Various Note: millions of euros; Categories ranked by 1st H 2010 results. Source: IEM elaboration of Nielsen Media Research data.

3. International comparisons For benchmark purposes, comparisons with advertising investments in the other major European countries reveal that France, the United Kingdom and Germany also fell by approximately 10% overall in 2009, the only exception being Spain which lost over 20%. In all these countries press advertising dropped more than television (except in Spain where television fared worse than daily newspapers), and magazines suffered heavier losses than daily newspapers, (with the exception of France). Internet is the only media to register a positive, albeit single-digit increase in all these countries (between 7 and 8%). While each country has a traditionally different media mix with specific local tendencies such as the strong daily press in Germany and, to a lesser degree, in the UK and the predominance of television in Italy, advertising in broadcasting generally outshone the performance of press communication while the Internet performed better across the board. In the United Kingdom, where the economic pinch was particularly painful, the Internet has in fact overtaken both broadcasting and press advertising and now represents almost 30% of spending with 4 billion euros in turnover. In Germany, the Internet represents 19% of the mass media advertising market, in third place behind television and daily newspapers, and is worth 2.7 billion euros in net revenues. In France, Internet advertising is worth almost 2 billion euros holds an 18% share of the market. Investment in the Internet is decidedly lower in Italy (849 million) and Spain (654 million) with market quotas of 9.6% and 11.6% respectively. Tab. 7: Traditional media advertising investment in the Big 5 European countries (2009) Media

Germany M€

United Kingdom

% Share

M €*

% Share

France M€

Italy

% Share

M€

Spain

% Share

M€

% Share

Press

6.245

44,4

4.941

35,3

3.750

35,0

2.389

27,0

1.645

29,3

Daily

3.694

26,3

3.652

26,1

2.043

19,1

1.511

17,1

1.174

20,9

Magazines

2.551

18,1

1.289

9,2

1.707

15,9

878

9,9

471

8,4

Television

3.640

25,9

3.520

25,2

3.094

28,9

4.359

49,3

2.368

42,1

Radio

679

4,8

485

3,5

710

6,6

573

6,5

537

9,6

Billboards

738

5,2

878

6,3

1.127

10,5

618

7,0

401

7,1

Cinema

72

0,5

199

1,4

77

0,7

56

0,6

15

0,3

Internet

2.696

19,2

3.967

28,4

1.966

18,3

849

9,6

654

11,6

14.068

100

13.989

100

10.724

100

8.843

100

5.621

100

Total

Note: millions of euros; supplements and Sunday editions included in Magazines; (*) average exchange rate for 2009 (1€=0,89094£), source Bank of Italy Exchange office. Source: IEM elaboration of WARC, IREP/France Pub, Infoadex, ZAW, Nielsen, Assocomunicazione, IAB data.

The recession and the fluctuation of the euro-sterling exchange rate allowed Germany to bump the United Kingdom from its leading position in the mass media advertising market. The German market dropped to just below 14 billion euros, approx. 100 million euros more than the UK. This is particularly due to the entrenched position of German press advertising, which registered considerably lower losses: over the course of the last two years German daily Advertising

115


newspapers lost about 1/5 of their advertising revenue while their British counterparts suffered a turnover contraction of 1/3 (figures which are matched by the inversely proportional increase in the distribution of Internet advertising in the two countries). Across all the European countries, the decline of print media, the rise of the Internet and the challenge to televisionâ&#x20AC;&#x2122;s leading position are the main shifts recorded in the composition of internal spending in the traditional media (nominally including the Internet). Other relevant factors to consider are the role of radio, the need for new advertising strategies for cinema and the relevance of billboard advertising in changing urban landscapes. What one can certainly say is that the strong position now occupied by the Internet is an undeniable indicator of the ability of advertising investors to respond to new challenges and opportunities, while in contrast one can see that investments in Southern European are still sluggish. Tab. 8: Traditional media advertising in France, (2005-2009) Television

2009

2008

2007

2006

2005

% 09-08

% 09-05

3094

3476

3617

3495

3313

-11,0

-6,6

710

779

805

848

836

-8,9

-15,1

Radio Daily newspapers

2043

2527

2629

2636

2537

-19,2

-19,5

Magazines

1707

2071

2162

2236

2243

-17,6

-23,9

Billboards etc.

1127

1265

1237

1221

1223

-10,9

-7,8

Cinema

77

75

89

82

78

2,7

-1,3

Internet

1966

1821

1537

729

382

8,0

414,7

10724

12014

12076

11247

10612

-10,7

1,1

Total

Note: millions of euros. Source: IEM elaboration of IREP/France Pub. data.

Tab. 9: Traditional media advertising in Germany, (2005-2009) Television Radio

2009

2008

2007

2006

2005

% 09-08

% 09-05

3640

4036

4156

4114

3930

-9,8

-7,4

679

720

743

681

664

-5,7

2,2

Daily newspapers

3694

4373

4567

4533

4477

-15,5

-17,5

Magazines

2551

3077

3198

3162

3037

-17,1

-16,0

Billboards etc.

738

805

820

787

769

-8,4

-4,1

Cinema

72

77

106

118

132

-6,5

-45,9

Internet

2696

2498

2093

1500

682

7,9

295,3

14068

15585

15684

14895

13691

-9,7

2,8

Total

Note: millions of euros; Sunday editions and supplements included in magazines. Source: IEM elaboration of Zaw data.

Tab. 10: Traditional media advertising in the United Kingdom, (2005-2009) 2009

2008

2007

2006

2005

3520

3895

4014

3886

4058

-9,6

-13,3

485

548

586

575

595

-11,5

-18,5

Daily newspapers

3652

4509

5247

5271

5507

-19,0

-33,7

Magazines

1289

1779

1974

2052

2122

-27,6

-39,3

878

1054

1095

1217

1171

-16,7

-25,0

Television Radio

Billboards etc.

% 09-08

Cinema

199

229

231

211

211

-13,2

-5,9

Internet

3967

3703

3156

2263

1533

7,1

158,7

13989

15716

16304

15474

15196

-11,0

-7,9

Total

Note: millions of average exchange rate in 2009: 1â&#x201A;Ź = 0,89094ÂŁ. Source: IEM elaboration of Warc. data.

116

% 09-05

Advertising


Fig. 5: Pro capita media advertising investment (2005-2009)

2005

2006

2007

2008

2009

251,4 255,3

UK

268,3 257,9 228,9

166,1 180,7

Germany

190,3 189,2 170,9

175,0 184,8

France

189,5 187,5 167,4

166,6 180,9

Spain

197,4 175,4 138,7

145,6 147,1

Italy

154,4 151,6 137,5

0,0

50,0

100,0

150,0

200,0

250,0

300,0

Note: euros. Source: IEM elaboration of data from previous tables and CIA World Factbook.

Advertising

117


Tab. 11: Traditional media advertising in Spain, (2005-2009) Television Radio Daily newspapers

2009

2008

2007

2006

2005

% 09-08

% 09-05

2368

3082

3469

3188

2951

-23,2

-19,8

537

642

678

637

610

-16,3

-11,9

1174

1508

1894

1791

1666

-22,1

-29,5

Magazines

471

721

855

811

794

-34,7

-40,7

Billboards etc.

401

518

568

529

494

-22,6

-18,7

Cinema

15

21

38

41

43

-26,7

-64,1

Internet

654

610

482

310

162

7,2

302,8

5621

7103

7985

7307

6721

-20,9

-16,4

Total

Note: dati in milioni di euro. Domenicali inclusi in Periodici. Fonte: elaborazioni IEM su dati Infoadex.

Of course the pro capita investment indicator fell for all European countries in 2009, with the United Kingdom - the past and present leader - spending 229 euros a head for the year, down from 268 in 2007, followed by France and Germany at roughly 170 euros, Italy and Spain at just below 140, in spite of Spainâ&#x20AC;&#x2122;s 2007 growth to 197 euros, which at the time had earned it second place behind the UK.

118

Advertising


Fixed Telecommunications and broadband

Musica registrata

119


Fixed telecommunications and broadband By Lorenzo Principali

1. The market in fixed network and broadband services The trends observed in recent years continue to become more marked in the telecommunications market: together with a gradual decrease in the weighting of fixed telephony and, in parallel with an increase in mobile services, the spread of broadband (either fixed or wireless), the resulting reduction in the digital divide either on a regional basis or regarding the ICT capabilities of the population and the policies regarding the creation of a new generation network are assuming an ever-increasing importance. Fixed telecommunications have also felt the effects of the financial crisis, seeing volumes decrease by around 2.3% compared with 2008. As reported in previous years, the market in fixed telecoms has the least positive performance (dropping by 3.3%), whereas greater resistance is noted in the mobile sector (down 1.54%). Table 1: The telecommunications market in Italy 2009

2008

2007

2006

2005

â&#x2C6;&#x2020; % 09-08

Cagr 09-05

Fixed telephony

19.070

19.730

20.130

20.398

20.490

-3,35

-1,78%

Mobile telephony

24.015

24.390

24.070

23.642

22.625

-1,54

1,50%

Total telecommunications

43.085

44.120

44.200

44.040

43.115

-2,35

-0,02%

Note: Figures in millions of euros. Source: IEM elaboration of Assinform/Net Consulting data.

With regard to network services (Table 2) the downward trend in the fixed sector over the fiveyear period 2005-2009 was exacerbated in the past year and, even though there was constant growth in the mobile segment in the same 2009 period, it was not in a position to offset the decrease in the services market as whole. Table 2: The market in fixed and mobile network services, 2005 â&#x20AC;&#x201C; 2009 2009

2008

2007

2006

2005

Fixed

15.390

15.770

16.070

16.310

16.545

â&#x2C6;&#x2020; % 09-08 -2,41

-1,79%

Mobile

18.825

18.760

18.510

18.040

17.170

0,35

2,33%

Total

34.215

34.530

34.580

34.350

33.635

-0,91

0,43%

Note: Figures in millions of euros. Source: IEM elaboration of Assinform/Net Consulting data.

120

Fixed telecommunications and broadband

Cagr 09-05


The figures for the past five-year period (Fig.1) illustrate how the total fixed network services market has progressively decreased in importance, whilst a parallel growth in the mobile segment has been recorded, with the gap between the two sectors amounting to around 3.5 billion euros annually in 2009. Fig. 1: The market in fixed and mobile network services, 2005 - 2009 20.000 fix network

mobile network

19.000

18.825

18.760

18.510 18.040

18.000 17.170

17.000

16.465

16.310

16.070 15.770

16.000

15.390

15.000 14.000 2005

2006

2007

2008

2009

Note: Figures in millions of euros. Source: IEM elaboration of Assinform/Net Consulting data

In further detail (Tab.3), the negative trend for fixed network services is due to three factors: firstly, the collapse of the classic telephony market (down 7.3% on 2008 and dropping almost 6% on average annually over the last five-year period), which results from the gradual spread of flat-rate tariffs; secondly the sudden drop in prices thanks to increasing competition between operators; and finally the predictable slow-down of growth in subscribers to broadband Internet services. While this area has recorded consistent expansion (up 4.5% on 2008), it has not succeeded in off-setting the downturn in fixed telephony since it saw distinctly lower rates of growth in 2009 than the average rate recorded in the past five-year period (7.9% between 2005 and 2009). In addition, if on the one hand the data transmission market appears to be in crisis, now amounting to 1.1 billion euros (down 5% on 2008, in line with the average annual drop recorded in the five-year period), on the other hand, the increase in value-added services continues, recording a year-on-year rise of 3% to 4.8%, mainly due to business clients. Table 3: The market in fixed network telecommunications services 2005-2009 Telephony

2009

2008

2007

2006

2005

7.780

8.390

9.010

9.490

9.950

∆ % 09-08 -7,27

Cagr 09-05 -5,97%

Value Added Services*

3.270

3.120

3.030

2.920

2.745

4,81

4,47%

Internet Access

3.240

3.100

2.780

2.570

2.390

4,52

7,90%

Data Transmission

1.100

1.160

1.250

1.330

1.380

-5,17

-5,51%

15.390

15.770

16.070

16.310

16.645

-2,41

-1,94%

Total

Note: Figures in millions of euros; (*) includes ‘infotainment’ and personalised services, games and communications services. Source: IEM elaboration of Assinform/Net Consulting data.

Analysing the fixed network voice services by destination (Table 4), the general drop in vocal telephony is highly evident, however, there are marked declines in some areas: in addition to the collapse in dial-up connections to the Internet (progressively superseded by broadband connections) international calls have also fallen by nearly one-fifth, probably the result of lower roaming tariffs and the spreading use of VoIP, via users’ broadband connections. There has been a consistent drop in calls from fixed-lines-to-mobiles. Figures over the five-year period highlight the progressive evolution in people’s call patterns. Users are becoming more and Fixed telecommunications and broadband

121


more careful in their search for the most convenient pricing packages and so try to ensure that where they are calling from matches where they are calling to (fixed-line-to-fixed-line and mobile-to-mobile). Table 4: Traffic in fixed network voice services by destination 2005-2009 2009

2008

2007

2006

2005

∆ % 09- 08

Cagr 09-05

Local

48,0

50,0

52,0

54,3

52,3

-4,08

-2,14%

National

30,7

30,5

29,5

27,0

40,2

0,72

-6,52%

Fixed-to-mobile

13,4

14,9

15,8

16,8

20,1

-10,33

-9,69%

Internet dial-up

7,8

12,0

17,4

31,9

n.d.

-34,72

-

International

3,8

4,7

4,7

5,1

3,6

-19,11

1,43%

103,7

112,1

119,4

135,1

116,2

-7,52

-2,81%

Total

Note: figures in thousands of minutes. Source: IEM elaboration of AGCOM data.

Looking in detail at the spread of broadband across the population (Fig. 2), it can be observed that, following a period of double-digit growth, broadband access numbers are tending to stabilise, falling from a 46% rise in 2006 to a 10.9% increase in 2008. Nonetheless, in 2009, broadband connections grew by 9.8%, reaching a 12.3 million share, and showing a better tenure than could have been expected by looking at the 2005-2009 trend. Fig. 2: Access to broadband in Italy by fixed network 2005 – 2010 50%

14 Million of accesses 12

Var. %

12,3

11,2

44,6%

40%

10,1

10

35%

8,5

8 6

45%

30%

6,8

25% 25,0%

20%

4,7 18,8%

4

15% 10,9%

2

10% 9,8%

0

5% 0%

gen-05

gen-06

gen-07

gen-08

gen-09

gen-10

Source: IEM elaboration of AGCOM data.

When considering the good performance of broadband, in any event, it should be stressed that the rate of broadband subscribers in Italy and the relative rate of growth are not satisfactory compared to some other European countries1. The data on broadband penetration in Italian households produces rather different values depending on which sources are analysed (Table 5): if, according to AGCOM, broadband achieved a 43% share of households (up 2.7% over 2008), the percentages supplied by Between (39%)2 and above all from ISTAT (34.5%)3 are lower. Regarding the other two sources, these variances are due to diverse sampling methods (the first uses a 4,000-household sample, the second a 19,000 sample), both as regards reporting timelines (June 2010 versus February 2009) and the reporting or otherwise of the connections through mobile devices (Between estimates these to be around one-and-a-half million units, separating them from fixed network connections, whilst AGCOM does not seem to take that into account). 1 Cf. paragraph 3. 2 Between Report “La domanda di connettività e servizi a Banda Larga nelle famiglie italiane” (The demand for broadband services and connectivity in Italian households), June 2010. 3 ISTAT Report “Cittadini e nuove tecnologie” (Citizens and new technologies), December 2009.

122

Fixed telecommunications and broadband


Table 5: Comparison of figures for fixed network broadband penetration in Italian households (%) Broadband penetration in Italian households

Source

2009

2008

AGCOM

43

40,3

Between

39

36

34,5

27,6

ISTAT Elaboration by IEM from various sources.

To avoid the variances that arise from calculating in terms of households, European authorities use data on penetration-per-inhabitant, even though this methodology overestimates the degree to which Italy lags behind other European countries due to the very substantial percentage of over 65 year-olds in the total population. Setting aside such considerations, in terms of penetration-per-inhabitant as of April 2010 Italian broadband shows a spread equivalent to 20.6% of the population (Table 6), a long way behind the values in other major European countries and above all those in Scandinavian countries4. Table 6: Comparison of fixed network broadband penetration in Italian households Year

Penetration (%)

Broadband access (in millions)

Population (no. of inhabitants)

Jan 2006

11,6

6,8

58.751.711

Jan 2007

14,4

8,5

59.131.287

Jan 2008

17,0

10,1

59.619.290

Jan 2009

18,7

11,2

60.045.068

Jan 2010

20,4

12,3

60.340.328

Apr 2010

20,6

12,5

60.418.559

Source: IEM elaboration of AGCOM data (broadband access) and ISTAT (individuals residing in Italy).

A review of the other variables connected to broadband development, namely the spread of Internet and PCs across the country, again produces different results according to the sources being examined. Between estimates Internet and PC growth at rates of 1% and 2% respectively per year, which would create a serious risk of saturation in the broadband market when broadband reaches the whole of the digitally literate populace (or, to be precise, those having at least a computer). The ISTAT data are more encouraging, revealing a noticeable increase in all areas, and actually higher than the expectations created by the trend in past years: the spread of personal computers, having reached its lowest level of growth in 2008 (up 2.3%) made a turnaround and recorded an upward leap of over 4%. In a similar fashion the spread of Internet would appear to have seen a rise of over five percentage points, thus helping to spur on the critical mass for broadband penetration, growing by nearly seven percentage points compared to the 5% in 20085.

4 Cf. paragraph 3. 5 The category “connections to the internet” includes both broadband and narrowband connections and dial-up mode. Currently neither Italy nor Europe has a fixed and universally recognised threshold for transmission capacity above which a connection can be defined as “broadband”. The European institutions, in the Recommendation by the Commission regarding the market in electronic communications products and services subject to ex ante regulation under directive 2002/21/EC state that “Internet services at higher or broadband level are distinguished by allowing an entry-level digital capacity for final users greater than 128 kbit/s.”, for this reason broadband tends to be defined as all connections with a greater capacity than this threshold, which is that of ISDN. In any event, considering that the value appears extremely low in the light of rapid technological advances, the new threshold could be inferred from the Digital Agenda, which set an objective to cover the entire population by 2013, considering as basic broadband capacity connections ≥2Mb/s (cf. IP/10/581, 19 May 2010).

Fixed telecommunications and broadband

123


Table 7: Households with PCs, Internet and broadband (%) Source

Technology

Istat

Between

2009

2008

2007

2006

Bb

34,5

27,6

22,6

11,6

Internet

47,3

42

38,8

34,5

Pc

54,3

50,2

47,8

43,9

Bb

39

36

32

25

Internet

42

42

40

39

Pc

52

50

48

46

Elaboration by IEM from various sources.

Even if one takes the most positive outlook, the comparison (Eurostat data) between frequent use of the Internet and digital illiteracy (individuals who have never used a computer), if on the one hand there is a steady spread of digital competence throughout the population (over 40% of Italians log on to the Internet at least once a week), on the other hand it can clearly be seen that the percentage of those excluded from the e-society is certainly still too high. Fig. 3: *Use of Internet and computers in Italy 2006 â&#x20AC;&#x201C; 2009 (%) 60 54 49

50

Individuals who connect to the Internet at least once a week Individuals who never use a computer 45

43

42

40

37 34 31

30 20 10 0 2006

2007

2008

2009

Source: IEM elaboration of Eurostat data.

On the ground, Between and Epitiro estimate fixed network coverage for Italy as equivalent to 96% of the population, reaching nearly 99% in urban areas (areas with more than 500 inhabitants per km2) and dropping below 85% in rural areas (those with fewer than 100 inhabitants per km2). The overall coverage drops to 92% taking into consideration the inhabitants who, in addition to being recorded as falling within the radius of an Internet service-enabled telephone exchange, do not face any additional technical obstacles6. An even lower value, equivalent to 87% of the population emerges when excluding users linked to lines that are too far from exchanges, connected to obsolete equipment or to telephone exchanges that do not supply services with a nominal bandwidth higher than 2 Mbps. There are 6,500 Municipalities where the coverage amounts to over 95% of the population, whilst 750 have coverage ranging between 95% and 5%. Finally, around 850 Municipalities remain firmly on the wrong side of the digital divide (less than 5% of inhabitants have broadband connections).

6

124

Broadband Quality Index Report, Between and Epitiro, January 2010.

Fixed telecommunications and broadband


Table 8: Overall coverage of broadband in relation to population (% by residential area) Overall coverage (% of population)

Located in urban areas *

Located in suburban areas *

Located in rural areas*

96%

99%

95%

85%

Note:*urban areas: > 500 inhabitants per km2; suburban areas: 100-500 inhabitants/km2; rural areas: <100 inhabitants/km2. Source: IEM elaboration of Between – Epitiro data (January 2010).

Table 9: Overall broadband coverage in relation to population (% by place of residence – municipalities) Overall coverage (% of population)

Coverage >95%

Coverage between 6 and 95%

Coverage <5%

Municipalities covered

6500

750

850

Source: IEM elaboration of Between – Epitiro data (January 2010).

With regard to regional rates of broadband adoption, AGCOM estimates penetration rates that still tend to differ on a case-by-case basis: Lazio, Campania and Lombardy can lay claim to the best results - reaching nearly 50% of households, whilst in Calabria and Basilicata fewer than one-in-three households are broadband subscribers. Molise lags behind with a rate which scarcely reaches more than one–household-in-four. Table 10: Spread of broadband access (March 2010, % of households) Piedmont

39,9

Molise

26,7

Valle d’Aosta

36,5

Campania

48,3

Lombardy

47,7

Puglia

39,7

Trentino-Alto Adige

36,9

Basilicata

31,8

Veneto

39,9

Calabria

31,6

Friuli-Venezia Giulia

39,4

Sicily

40,4

Liguria

42,8

Sardinia

39,6

Emilia-Romagna

41,9

ITALY

Tuscany

42,4

Major municipalities

54,6

Umbria

36,5

Northwest

44,9

Marche

42,2

Northeast

40,4

Lazio

51,5

Centre

46,3

Abruzzo

37,0

South and Islands

40,7

43

Source: AGCOM.

As regards bandwidth capacity, average speed of broadband lines is still rather ineffective: nearly 23% travels at less than two megabits per second (Mb/s), while high-speed broadband subscribers (above nominal 10 Mb/s7) do not amount to even 7% of the total connections. Even if alternative operators to the incumbent service provider show higher percentages of basic broadband speed connections (only 13% of subscribers are for speeds less than 2Mb/s), the percentages for high capacity connections appear decidedly modest (less than 3%).

7 The data supplied by AGCOM refers to the operators’ declared bandwidth capacity. Since these appear in many cases to be lower than the actual capacity, AGCOM has created a certified software for ADSL with the support of the Fondazione Ugo Bordoni and the Istituto superiore delle communicazioni (ISCTI) – the Italian institute for communications and information technology - which is freely distributed over the Internet to allow subscribers to check the actual connection speed offered by operators. Moreover, thanks to a tie-up with supermoney.eu, users can compare ADSL prices on the market by means of a fixed benchmark by profile and location. If by using these tools users discover that there are failings in what they are being promised in ADSL offers, they are able to exercise their right of recall since results obtained using the certified software have a legal standing.

Fixed telecommunications and broadband

125


Fig. 4: Broadband line capacity in Italy (2009) ≥ 10 Mbps

100%

≥ 2 Mbps and <10 Mbps

7,7

5,8

69,5

71

22,8

23,2

Total accesses

DSL lines

≥ 144 Kbps and < 2 Mbps 2,9

90% 80% 70% 60%

83,7

50% 40% 30% 20% 10%

13,4

0% New entrants

Source: IEM elaboration of AGCOM data.

2. Operators, investments and ultra broadband The incumbent’s market share increased again in 2009, though with different values in the various segments considered. The lowest value is found in the market share for fixed vocal telephony (switched networks and broadband) where Telecom Italia dropped below 55% (with a peak of 54.6% for the residential sector). The operators who benefit from this fall are Fastweb, Wind and Vodafone: the first succeeded in holding 16.5% of the sector (up 12% on 2008) whilst Wind strengthened its own third place with an 8.4% share. Vodafone, with a year-onyear growth of over 12% snapped at the heels of British Telecom, which specialises in business clients and holds a 13% market share for this type of user, making it the third overall operator in the business segment. The total value of the fixed telephony market fell to 8.16 billion euros (down 300 million euros compared with 2008). This drop was entirely due to the business division: the residential sector was not in a position to make up for the shortfall, even though it rose from 4.14 to 4.16 billion euros annually. Table 11: Market share in fixed vocal telephony (% volume), 2005-2008 2009

2008

2007

2006

2005

∆ % 09-08

Cagr 09-05

Telecom Italia

54,9

57,3

59,6

59,6

63,9

-4,19

-3,72%

Fastweb

16,5

14,7

12,3

9,5

5,8

12,24

29,87%

8,4

7,7

7,4

9,4

9,2

9,09

-2,25%

Wind BT Italia

6,4

6,7

6,9

6,7

6,1

-4,48

1,21%

Vodafone Italia

6,2

5,5

5,8

5,9

6,3

12,73

-0,40%

Tiscali

2,8

3

2,6

2

1,1

-6,67

26,31%

Other

4,7

5,2

5,4

6,9

7,6

-9,62

-11,32%

Total

100

100

100

100

100

-

-

Source: IEM elaboration of AGCOM data.

If you look at the overall figure for residential and business costs in fixed-line telecoms services, the Telecom Italia share is higher, standing at 64.1% in 2009, though that was a drop of 2 percentage points over the previous year. The annual figures for the whole sector dropped from 16.6 to 16.2 billion euros, however, Fastweb, Wind and Vodafone gained ground: the first in the list was up by 1.5% and had the best annual performance, almost reaching 10% overall share.

126

Fixed telecommunications and broadband


Wind’s share was 7.7% whilst Vodafone gains ground on British Telecom, which nevertheless saw a rise of 0.1% in its reference segment. In the business sector, the competition of other licensed operators appears overall fiercer, as can be shown by the drop in the incumbent’s share from 63.7% to 61.5%: Fastweb has overtaken BT to gain second place (11.7% as against 11.6%). Table 12: Final user costs per operator (%) User costs Telecom Italia Fastweb

Residential segment

Business segment

2009

2008

2009

2008

2009

2008

64,1

66,1

66,7

68,8

61,5

63,6

9,9

8,4

8,1

7,1

11,7

9,6

Wind

7,7

7,0

12,4

11,2

3,2

3,1

BT Italia

5,8

6,0

0

0

11,6

11,5

Vodafone Italia

4,3

3,4

7,7

6,4

0,8

0,6

Tiscali

1,8

1,7

3,3

2,8

0,5

0,6

Others

7,3

6,5

3,2

2,3

11,1

10,6

Total % Total (billions of euros)

100

100

100

100

100

100

16,66

16,2

7,96

8,05

8,7

8,15

Source: AGCOM

Nevertheless, it is in the broadband sector where competition is highest: overall turnover rose to 3.94 million euros in 2009 (up 7.7% on the previous year), Telecom Italia’s market share dropped to 45.6% of broadband revenue Wind gained more than one percentage point, taking it close to 10% overall, whilst Vodafone, which gained nearly two percentage points in market share, overtook British Telecom. The latter was down 0.4%, while for Tiscali the drop was 0.2%. Fastweb strengthened its second place: as well as achieving its highest level of business customers (32.3%), it narrowed the gap with Telecom Italia by nearly seven percentage points in 2009 alone and achieved a 28.4% share of the broadband market. Table 13: Revenues from final services on broadband networks (%) Total 2009

Of which Residential 2008

2009

2008

Of which Business 2009

2008

Telecom Italia

45,6

48,3

42,6

43,5

48,7

52,6

Fastweb

28,4

27,8

24,7

25,6

32,3

29,8

9,8

8,7

15,5

14,1

3,8

3,8

Wind Vodafone Italia

4,7

2,8

6,9

5

2,3

0,8

Tiscali

4,6

4,8

7,7

9,1

1,2

0,9

BT Italia

3,4

3,8

0

0

6,9

7,2

Others

3,6

3,8

2,5

2,6

4,7

4,8

Total

100

100

100

100

100

100

3,94

3,68

2,02

1,76

1,92

1,92

Total (billions of euros) Source: AGCOM

Analysis of physical access to the network show that Telecom Italia’s market share has decreased perceptibly: it dropped by over five percentage points in scarcely 15 months and now holds a 73.5% market share. Conversely, the other licensed operators have made steady progress – in just over a year they have increased their share to nearly 6 million – an increase of more than one million units. In addition, access in full unbundling has grown, increasing by more than 700 thousand units, with a decrease in overall access (total lines including telephony). This confirms the progressive move to the use of mobile connections.

Fixed telecommunications and broadband

127


Table 14: Physical access to fixed network (in thousands) Dic 08

Dic 09

Mar 10

17.372

16.116

15.931

OLO Access

4.667

5.583

5.730

Full Unbundling

Telecom Italia Access

3.664

4.273

4.366

Virtual ULL

183

102

97

Fibre

248

269

271

Naked DSL Overall Access Telecom Italia Share(%)

572

939

996

22.039

21.699

21.661

78,8

74,3

73,5

Fonte: Agcom.

The fixed network segment has increased noticeably for investments in fixed assets, a clear countertrend to the mobile market and the whole Italian economy: Telecom Italia maintains its primacy in absolute terms, marking a 1.8% increase over 2008, but in percentage terms the other operators are growing to a greater degree, their volumes have increased more than 12% and are now worth nearly 1.5 billion euros. Table 15: Investment in fixed assets 2005 – 2009 Incumbent

OLO

Total fixed %OLO of total network

Increase Incumbent Year-on-Year

Increase % OLO Yearon-Year

2009

2.356

1.435

3.791

37,9

1,82

12,11

2008

2.314

1.280

3.594

35,6

-11,91

13,78

2007

2.627

1.125

3.752

30,0

14,17

-12,66

2006

2.301

1.288

3.589

35,9

-1,58

3,29

2005

2.338

1.247

3.585

34,8

-

-

Note: figures expressed in millions of euros. Source: IEM elaboration of AGCOM data.

Part of such investments by operators is for trials in ultra broadband: after Telecom Italia completed its Alicefibra trials in Milan (50 Mb/s), it began testing 100 Mb/s bandwidth in May on some one-thousand users in Rome, whilst Fastweb launched the ‘Fibra100’ connection in the capital last September as well as in other major Italian cities8. Ultra broadband is distinguished from basic broadband and extended broadband by the means of the greater capacity for data transmission, rising from 30 to 100 Mb/s, for the quality of the service and the symmetry of data transmission (in upload and download), as well as the pre-eminent use of fibre optic infrastructure (even if wireless connections are possible)9. It is useful to note that whilst the definition of basic broadband means an asymmetric connection capacity of 2 Mb/s (the download capacity is greater than for upload) based on the connections in copper wire or wireless and on the principle of best effort (the quality of service is not guaranteed), useful for ensuring services such as basic e-government, e-banking, e-learning and e-health, extended broadband includes links between 7 and 20 Mb/s, which guarantees neither symmetry nor speed but does allow all file transfers (audio, video and a reasonable transmission capacity for television signals) from Web 2.0. 8 The Telecom scheme plans to extend 100Mb/s coverage from Rome’s Prati district to around 80,000 homes in the capital by the end of 2010 and to around 350,000 homes by the end of 2012, according to the standards/ norms introduced by the Municipality of Rome’s new regulations on the digging up of roads, ( Regolamento Scavi Ris. 105 of 23 November 2009). On a national level, the project aims to reach 1,3000,000 users located in 13 cities by 2012 and 10 million customers by 2014. During the hearing, Telecom CEO Franco Barnabè officially requested authorisation to proceed with the launch of its 100MB/s offering to Rome, Milan, Catania, Bari, Venice and Turin by the end of 2010, with complete coverage for some 520,000 homes. The Fastweb offering supplies users with 100Mb/s download capacity and 10Mb/s upload and is available to homes already connected to fibre optics in Rome, Genoa, Turin, Bologna, Naples and Bari. The cost varies between 10 to 15 euros extra in relation to normal broadband subscription, according to the basic type of subscription. 9 Elaboration by F. Ananasso, Broadband Summit – Rome, 31 March 2010

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In Italy fibre optic coverage is still relatively limited at regional level and concentrated in large urban centres, which means it covers a relatively high percentage of the population and there are a reasonable number of subscribers for this technology (above all compared to other countries, cf. Table 17). At the same time many initiatives arose to create local fibre optic networks, at a regional level (Emilia, Friuli, Piedmont, Sardinia and Sicily) and provincial or municipal level (Modena, Bologna, Imola, Forlì, Cesena, Rimini, Riccione, Ravenna, Ferrara, Parma, Piacenza, Reggio Emilia, Genoa and Milan). These are now deployed over a total of 18,600 km, added to which is Lombardy’s ultra broadband scheme (which aims to connect 167 municipalities, excluding Milan), the UniCasNet scheme (connected to 5 University di Cassino sites), the Valle d’Aosta NGN regional development scheme and the ultra broadband connections of the industrial districts in the Province of Lucca and the Mantua Citizens’ Network (TEANET). Table 16: Local fibre optic networks (2009) Region

Manager LEPIDA

ACANTHO EMILIA ROMAGNA (HERA) BT ENIA TEL

Infrastructure (km)

Note

3000

Regional network (mainly for public authorities)

2000

Provinces of Modena, Bologna, Imola, Forlì, Cesena,Rimini, Riccione, Ravenna and Ferrara

850

Provinces of Parma, Piacenza, and Reggio Emilia

DELTA WEB

250

Ferrara and province

FRIULI VENEZIA

G. INSIEL (ex MERCURIO)

1200

LIGURIA

SASTERNET

250

METROWEB

2255

LOMBARDY

PIEDMONT

Regional Network Genoa Municipality MAN and neighbourhood networks (Province of Milan) Long-distance networks

ABM ICT

400

Bergamo and province

AEMCOM

235

Cremona (city and hinterland) Areas at risk of digital exclusion

"WI-PIE" Project

1670

Patti Territoriali Project

430

Province of Turin

AEMnet

140

Turin

SARDINIA

RETE TELEMATICAREGIONALE

1190

Network to connect various public authority offices.

SICILY

SICILIA e-INNOVAZIONE

3100

Regional and regional capital network

TUSCANY

TERRE CABLATE

650

Siena and province

NETSPRING

100

Grosseto and province (P.A.)

TRENTINO ALTO ADIGE

TRENTINO NETWORK

800

Trento and province

VENETO

AGSM

150

Verona

Source: ISBUL.

In any event, the local nature of these initiatives makes centralised coordination of regional cabling difficult, even though this may be required to optimise allocation of resources to disadvantaged areas. To close this gap, in the light of results emerging from the ISBUL programm10, AGCOM appears to intend to create a benchmark for regional initiatives linked 10 The ISBUL (Infrastructure and services for broadband and ultra broadband) research programme, which began in December 2008 and was completed in May 2010, was launched by AGCOM and managed by its Studies, Research and Training directorate in collaboration with some of the leading Italian Universities. Sub-divided into three ‘macro-areas’ the project analysed the possibility to complete a NGN network in Italy in relation to the frameworks covering infrastructure and technical, economic and regulatory and also regulatory and legal issues, establishing accurate modelling of costs and performance of workable technological solutions, of the sustainability of the stakeholders’ business models, the competitive impact and the consequences that achieving infrastructure of this nature might have on regulation. Estimates and projections of the macroeconomic impact of investments and

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to ultra broadband, to initiate an “Inventory Mapping” (IMAP) process to obtain detailed knowledge of the redeployment of the fibre optic access networks and to set down the basis for the competent authorities to create a New Generation Infrastructure Register (RING). Italy enjoys a relatively advantageous position compared to other European countries with regard to fibre optic cabling of the country, both as regards the number of people it reaches and subscriber numbers: in this category Fastweb is in the top three operators in Europe and among the world’s top ten. Table 17: The spread of fibre optic networks in Europe: top ten European countries Country

2008

Residences covered June 2009

Subscribers

Subscribers at December at June 2009

% growth Residences Ratio of residences between covered covered/non December 2008 December 2008 subscribers - June 2009

Russia

724.000

630.000

7.500.000

6.300.000

9,7

14,92

Sweden

478.900

401.310

1.000.000

910.000

47,9

19,33

Italy

324.500

305.980

2.133.000

2.110.200

15,2

6,05

France

252.900

182.660

5.389.000

4.455.200

4,7

38,45

Norway

204.550

180.070

332.000

274.500

61,6

13,59

Netherlands

174.500

166.170

455.500

385.500

38,3

5,01

Denmark

143.700

90.190

629.000

622.000

22,8

59,33

Germany

66.000

60.590

418.000

281.800

15,8

8,93

Slovenia

62.000

50.000

370.000

282.000

16,8

24,00

Spain

33.000

29.000

258.000

298.000

12,8

13,79

Source: IEM elaboration of AGCOM (Studies and Research Centre), ISBUL, Beeline and Idate data.

As regards the correlation between home passed (premises connected to ultra broadband) and actual subscribers, Italy shows a higher percentage in relation to other major European countries (15.2%), excluding Germany (15.8%), which however has a much lower number of connections (66,000 as against 320,000). However, the share of Italian subscribers to ‘fibre’ has not grown noticeably in recent years (up 6% for 2008, but in real terms barely 19,000 units), whilst the plan to create a new generation network in a jerky manner between hard braking and rapid acceleration has not yet been defined. From a regulatory perspective, the NGN Technical Committee for Italy has approved guidelines for the fibre optic network infrastructure model. In this context it has led to discussions between OLO and the incumbent operator: the former prefer P2P (point-to-point) technology, which in their opinion is more efficient, in order to stimulate competition in unbundling the fibre optic and services sector. This seems to be the direction being taken by the European Union in light of the Commission Recommendation regarding regulated access to new generation networks (NGA)11. This accentuates the Fibre To The Home (FTTH) networks’ capacity to further open up competition regarding services, on the limit of deregulation, on the need to make investments on a regional basis only after close analysis of the market and the requirement for a cost-oriented bitstream offer. Telecom Italia’s vision, which prefers GPON12 technology, is inspired however by the principles on which the recent regulatory decisions by France, Spain and the United Kingdom are based, and considers both the coexistence phase between the copper wire and fibre networks and the phase when copper will be progressively disabled. The the effects of the NGN public policies were also supplied. 11 European Commission Recommendation of 20 November 2010. 12 The GPON (Gigabit PON) network categories can be “applied both to the FTTH (Fibre To The Home), in which the individual ONT (individual open network terminal) for individual customers, and to architecture with a high degree of sharing of the optical terminal (ONU, Optical Network Unit), namely FTTB (Fibre To The Building), FTTC (Fibre To The Curb) or FTTCab (Fibre To The Cabinet): the network access for the latter two can provide for deployment of the copper wire network, thus benefiting extensive coverage of the final stretch of the network and considerably reducing the need to lay new fibre” Source: R. Mercinelli, P. Solina, Notiziario Tecnico Telecom Italia, pages 64-65, April 2007.

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Fixed telecommunications and broadband


incumbent proposes to adopt different solutions according to different demands recorded in different parts of the country, suggesting that, because of the access obligation to all operators, if joint investment has not been possible with more subjects in fixed areas, the network should be opened to price competition regulated by AGCOM, but not necessarily correlated to costs. A mechanism of this kind would tie up the wholesale price not only with the operating costs but also with the business risk and thus maintain competition whilst at the same time ensuring investments are profitable. AGCOM plans to publish the NGN rules by December 2010. The documents being drawn up will be submitted to public consultation prior to forwarding to the offices of the European Commission. In the meanwhile at the so-called ‘Tavolo Romani’, a summit held in Rome, agreement was reached between the operators on the network architecture: the basic infrastructure allows for a conduit to be developed to transport the fibre, which will allow GPON technology to be used (the technology of choice for Telecom Italia) and point-to-point (favoured by OLO), thus ensuring maximum harmonisation with existing infrastructure. The new network should be developed jointly with the operators together with the government and local authorities. To harmonise operations, the communications department of the Ministry for Economic Development has made a census of existing fibre optic infrastructure in Italy and investment plans to develop this in the next three years, with the aim of identifying and developing the new generation networks across the country13. The investment node remains open: whilst the OLO continue to propose an allocation of 2.5 billion euros to cover 15 cities by 2015, Telecom Italia has revised its own allocation upwards to around 2.65 billion euros for the three-year period 2010-201214. According to ISBUL the investments to be made for the NGN networks are extensive – between three and 15 billion euros according to the technology (or technology mix) used and the population covered. Table 18: NGN Impact on the national economy Direct effect Type of network

Investments

mixed P2P/GPON

15,5

FTTH P2P FTTB GPON

Population and coverage

Indirect effect

Total effect

Potential Aggregate employment Minimum Maximum Minimum Minimum demand € (individ. € bn. € bn. € bn. € bn. bn. Units)

91%

20,25

311.087

89,6

765,5

109,9

785,7

13,3

50%

17,38

248.121

49,2

420,6

66,6

438

3

20%

3,92

57.131

19,7

168,2

23,6

172,2

Fonte: Isbul.

All three hypotheses allow for an increase in the fee and as a result the cost of the broadband service bills for users’, a factor which might create problems in sustaining such investments. For this reason a specific analysis would be required to evaluate the willingness of subscribers to pay more for a better service. It can be seen at present (Fig. 5) that the price of the subscription is not a major obstacle to taking up broadband, whereas a large proportion of the public who do not have broadband connections perceive it as pointless. These results confirm the real necessity of promoting computer literacy by means of policies to stimulate demand and improvement in the quality of e-government services. The economic returns estimated by ISBUL in terms of demand, jobs (an overall increase of between 57,000 and 310,000 posts) and related industries (the forecasts estimate growth between 23 and 700 billion euros) confirm that the Italy can not relinquish investment in the next generation network. 13 Source: Communications Department of the Economic Development Ministry, 29 September 2010 14 The annual spending in the segment of access to the fixed network, both in copper wire and fibre optic, has increased, going from the current figure of 817 million euros (2009) to around 900 million euros for 2012, making a total investment in 2012, equal to 2.65 billion euros.

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131


Fig. 5: Obstacles to broadband adoption (%) 70 60

60

50 40 30 21

20

16

10

6

3

0 Pointless

Coverage

Cost

Complexity

Other

Note: Family not possessing a broadband connection. Source: IEM elaboration of Between data (2008)

3. The international picture The fixed network services market of the European big five dropped around 2% in 2009, a slightly more negative trend in regard of the sectorâ&#x20AC;&#x2122;s performance in the preceding five years (down 1.7%). Thanks to the robustness of its domestic market, France is the country that has suffered least from the crisis, confirming its long-term performance (the amounts are almost identical to the previous five-year period), whilst all the others present negative values over the five-year period from 2005-2009: Germany, which has the largest market in Europe, lost over 4 billion euros, with 1 billion being lost in 2009 alone, whilst Italy, although it consolidated its third-place ranking, decreased at a slightly higher rate than during the previous five years. It lost nearly 2.5 percentage points against an average drop of 1.9%. In the United Kingdom, in line with the trend of recent years, there has also been a clear drop (down 2.9%), whilst Spain has suffered greatly from the 2009 crisis, with a fall of 8.5% compared with the 5.9% average decrease over the preceding five years. Table 19: Fixed network telecoms services market 2005-2009 France

2009

2008

2007

2006

2005

20,0

20,1

20,1

20,0

20,0

â&#x2C6;&#x2020; % 08-09 -0,2

Cagr 09-05 0,0%

Germany

34,2

35,3

36,8

38,3

38,5

-3,1

-2,9%

Italy

15,4

15,8

16,1

16,3

16,6

-2,4

-1,9%

9,9

10,2

10,4

10,7

11,1

-2,9

-2,8%

United Kingdom Spain

6,5

7,1

7,2

7,5

8,3

-8,5

-5,9%

Total

87,2

89,0

90,6

92,3

93,3

-1,9

-1,7%

Note: Figures in millions of euros. Source: IEM elaboration of ARCEP, VATM, AGCOM, OFCOM and CMT data.

With regard to the market share held by the European incumbents, Telecom Italia is still the major player to hold the greatest number of broadband lines in percentage terms, even if at the same time it recorded the greatest rate of reduction (nearly 10 percentage points down on January 2007). The performance of both France Telecom and Deutsche Telekom has fluctuated, currently expressed in respective market shares of 46.2% and 46.8%, whilst Telefonica, after years of slight growth which peaked at 56.7%, recorded 55.6% in 2009. Apart from British Telecom, which only gained 4 percentage points over 2007 (rising from 23.7% to 27.2%), as regards total active lines, the incumbents in the five major countries enjoyed a higher rate of growth in their own countries of origin overall than the average rate for European incumbents (45.2%).

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Fixed telecommunications and broadband


Table 20: Market Share of broadband access held by the incumbent (07-09) Country

lug-09

gen-09

France

46.2%

47.2%

lug-08 47.2%

gen-08 47.7%

lug-07 46.8%

gen-07 46.2%

Germany

46.8%

47.0%

46.0%

46.1%

46.4%

48.0%

Italy

57.8%

59.8%

61.3%

63.6%

64.8%

66.6%

United Kingdom

27.2%

25.4%

25.6%

25.8%

25.7%

23.7%

Spain

55.6%

56.7%

56.3%

56.1%

55.8%

55.9%

EU27

45.2%

45.5%

45.7%

46.1%

46.8%

46.9%

Note: Amounts given are of percentages held by the incumbent in relation to all total active lines. Source: IEM elaboration of European Commission data, July 2009.

On the other hand, Italy is the only country that has not suffered the crisis in fixed network infrastructure investments: in the face of a drop in French and German funds of around 10% (9.76% and 9.23% respectively) and the Spanish collapse (-17%), Italy’s investments grew 5.5% in 2008. It is the only country showing positive progress over the past five years (up 1.41%). Table 21: Investments in fixed network infrastructure 2005-2009 2009

2008

2007

2006

2005

∆ % 08-09

Cagr 09-05

France

3,70

4,10

3,80

3,80

3,70

-9,76

0,00%

Germany

5,90

6,50

6,50

6,60

6,40

-9,23

-2,01%

Italy

3,79

3,59

3,75

3,59

3,59

5,48

1,41%

Spain

4,28

5,17

5,79

5,69

5,51

-17,31

-6,16%

Total

17,67

19,37

19,84

19,67

19,20

-8,77

-2,06%

Note: Figures in millions of euros. Source: IEM elaboration of ARCEP, VATM, AGCOM and CMT data.

In any event, from the point of view of broadband infrastructure capacity, an international comparison shows various gaps in Italy: more than 22% of subscribers have broadband with a threshhold of less than 2Mb/s compared with 15% in Germany, 12% in Spain and 3% in the United Kingdom, which is finalising its scheme to give all UK citizens a basic broadband connection. Fig. 6: Broadband line capacity in major European countries (2009) ≥ 10 Mbps

100% 90%

≥ 2 Mbps and <10 Mbps 7,7

≥ 144 Kbps and < 2 Mbps 6,1

13,3

22,9

80% 70% 60% 50%

69,5 90,8

62,1

74,5

40% 30% 20% 10%

14,9

22,8 3,2

0% Germany

Italy

UK

12,2

Spain

Fonte: elaborazione Iem su dati Eurostat e Agcom. Note: dati in milioni di euro.

In addition, Italy does not have a particularly positive presence in high speed connections (scarcely 7.7% are connected to extended broadband), only just beating the UK (6.1%, but it does have a very high rate of access for 2-10 Mb/s capacity, accessed by over 90% of users in

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133


the United Kingdom), but less than Spain (13.3%) and Germany (22.9%) which benefits from widespread digital cable connections. It is very clear that Italy lags behind in the use of new technologies by members of the public (Table 21). According to Eurostat, the share of individuals who can be counted as Internet users15 scarcely exceeds 42%, as against 54% in Spain, which is now 12 points ahead (it was 8 points in 2006). France has done decidedly better in the last three years; cybernauts have risen from 39% to 65% of the population (up 26% since 2006 compared with an 11-point Italian increase in the same period). Germany and the United Kingdom appear to be ahead â&#x20AC;&#x201C; with nearly ž of the population computer literate (71% and 76%) whilst the average percentage in Europe of those regularly surfing the web is 60%, nearly 20% above Italy. Table 22: Individuals using the Internet at least once a week in major European countries (%) Country

2009

2008

2007

2006

2005

France

65

63

57

39

n.d.

Germany

71

68

64

59

54

Italy

42

37

34

31

28

UK

76

70

65

57

54

Spain

54

49

44

39

35

EU27

60

56

51

45

43

Source: IEM elaboration of Eurostat data.

The distance appears greater still when taking into account individuals who have never used a PC: in Italy the figure is 43%, in France 20%, 14% in Germany and 11% in the UK. This means that Italy is clearly divided between frequent web users and individuals to whom this is totally foreign. This makes computer literacy even more difficult and thus clearly illustrates the need to develop policies to stimulate demand for ICT services. The limited spread of broadband in other countries is the manifest consequence of this state of affairs: according to Eurostat, broadband in Italy does not reach 40% of households, over 30 points below the UK average (69.5%) and 17 points below the European average (56%). Considering that these percentages only include nuclear households with at least one member aged between 16 and 64 years of age, a criteria that excludes households composed solely of retired people, it is even more clear that the gap may be due to cultural reasons (individuals who donâ&#x20AC;&#x2122;t perceive the added value of the Internet or do not know how to overcome their own ICT illiteracy) and to the dearth of initiatives to raise awareness of the benefits of information technology and of network services. Finally, according to the European methodology, a comparison of net access numbers in relation to total population ranks Italy lowest among the major European countries: although only slightly behind Spain, it is nonetheless 3.5 points below the European average and 10 percentage points removed from the more technically-skilled northern European countries. Table 23: Individuals who have never used a PC (%) Country France

2009

2008

2007

2006

20

20

23

n.d.

Germany

14

14

16

17

Italy

43

45

49

54

UK

11

13

14

18

Spain

31

33

36

39

Source: IEM elaboration of Eurostat data.

15 The Eurostat definition is used here: it considered Internet Users to be those individuals who access the Internet at least once a week.

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Fixed telecommunications and broadband


Table 24: Households possessing broadband connections in the major European countries (%) 2009

2008

2007

2006

2005

UK

69,5

61,5

56,7

43,9

31,5

Germany

64,6

54,9

49,6

33,5

23,2

France

57,5

57,1

42,9

30,3

n.d.

EU 27

56,0

48,6

41,6

30,4

23,0

Spain

51,3

44,6

39,2

29,3

20,8

Italy

39,0

30,8

25,3

16,2

12,9

Note: Households with at least one member aged between 16 and 64 years. Source: IEM elaboration of Eurostat data.

Fig. 7: Broadband penetration by number of individuals 40 35 30

37,9

37,2 32,5

30,5

29,4

29,2

28,8 23,9

25

20,7

20,4

20 15 10 5 0

Note: Italian data is valid as of January 2010, whilst figures for other countries date from June 2009. Source: IEM elaboration of Eurostat, ISTAT and AGCOM data.

4. The functional separation of the networks The functional separation of networks and services was created to solve the problem of ensuring telecoms’ competition within a single structure of national networks, controlled by the historic operators in different countries (the national telecoms companies). In principle these were public monopolies, later privatised. At present these companies are in the position of being in the dual role of competitor with new entrants to the market and managers of the network on which the services supplied by the other telecoms players are routed. Such a complex situation has given rise to major international debate on the measures necessary to ensure competition between the incumbent and market newcomers. Initially, the opening up of the telecoms market was regulated predominantly by asymmetric norms (limits placed on the sole incumbent in an attempt to foster alternative operators) and the unbundling of the “last mile”, or to be more precise the control of the final stretch of the network, which extends from the nearest central exchange to the user’s building and ultimately to their actual residence. At present in fact, alternative operators pay an access fee to ‘transit’ the network infrastructure of the former monopoly holder (in Italy, the fee paid to Telecom Italia is fixed by AGCOM) whilst competing between themselves and with the incumbent to supply services (connectivity, telephony, audiovisual etc.). The dual role of the incumbent as network manager and simultaneously competitor in the telecom services market creates problems for competition mechanisms. This has led to heated discussions about whether or not the former

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monopoly-holders may be separated into two companies – one solely responsible for managing infrastructure and the other to manage the commercial operations (supplying telecom services etc.). The operational separation between networks and services has been dealt with in different ways depending on the different national markets, ranging from self-regulation to entrusting monitoring to the national authority, the creation of joint bodies between national telecom companies and the authority and finally the creation of separate divisions, imposed on the former monopoly holders that manage network access. In Italy, Telecom Italia proposed to AGCOM in July 2008 that it would undertake a range of commitments. These undertakings were approved by the regulatory authority in December of that year16, to integrate and strengthen existing commitments in relation to equality of treatment between Telecom Italia Retail (the division responsible for managing the commercial services) and the other licensed operators (OLO) regarding supplying services on access networks. Telecom Italia created the Open Access division in 2008 to manage the network access and service supply to associated organisations, so as to ensure that the principle of equality of treatment is respected for all operators. Open Access supplies services to both the incumbent’s retail division and to wholesale (reserved for the other operators), in accordance with a series of directives aiming to ensure equality of treatment in compliance with 14 specific commitments. Key commitments include: establishing a new delivery process to overcome the asymmetry in developing network management between Telecom Italia and OLO; a system to monitor significant market power (SMP) and equality of internal-external treatment (by a comparison of key performance indicators regarding services to operators and those to Telecom Italia’s commercial operations), the publication of guidelines for the maintainance the access network; adapting financial conditions for internal transfer of SMP services supplied by Open Access to Retail operations (evidence of separate accounting was guaranteed regarding the services supplied by Open Access in order to verify that this transfer charge and the corresponding financial conditions charged to the OLO are equivalent); the publication of a tender for access and sharing of infrastructure installation; the drafting of a technical and financial proposal so that interested operators might share the investments and the costs to create the new installation infrastructure17; membership of the NGN Committee for Italy; and finally establishing a Supervisory Board (“OdV”) to ensure compliance with the undertakings. The Supervisory Board is responsible for supervising the proper implementation of the Undertakings, and a series of key performance indicators to measure the quality of the wholesale service supply. It is composed of five members, three of whom, including the Chairman, are appointed by the national regulatory authority, AGCOM. The Supervisory Board monitors possible compliance breaches and communicates any to AGCOM, with which it cooperates in its own supervisory activity. The Supervisory Board’s role is to consider measures to ensure proper implementation of the Undertakings, whilst AGCOM remains the competent body for any sanctions that may be imposed. In its first two years of activity, the Supervisory Board has reviewed the correct fulfilment of many of the Undertakings assumed by Telecom Italia, and has launched a review on how the cancellation of Maintenance Orders18 is handled, to meet the recommendations of the alternative operators and to ensure equality of treatment in resolving the network problems experienced by subscribers to telecommunication services offered by the various operators. 16 Resolution 718/08/CONS 17 As regards the new access networks, Telecom Italia has thus fulfilled the terms of this Group of Undertakings, having transmitted the following documents to the national regulatory authority before the fixed deadline: “Telecom Italia’s proposal for installation infrastructure for the development of FTTX networks”, the “Telecom Italia proposal for sharing investments and costs with the OLO to create new installation infrastructure for development of the FFTX networks” and the “Guidelines for migration to NGAN – minimum notice period and means of communication to the OLO in the transition to the new generation networks”. 18 The process of supplying telecommunications services and lines to alternative operators by Telecom Italia provides for the incumbent declining any request if problems occur linked to errors in the compilation of the order, to the unavailability of the access network (network not functioning) or to the unavailability of the client (client knocked out).

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In the UK, in the light of the results of the Strategic Review of Telecommunications (2005), which identified British Telecom’s exclusive ownership of the networks as a barrier to entry capable of limiting access to the market by the alternative operators, OFCOM committed BT to a series of undertakings to determine new rules for product and services supply to the OLO and to its own commercial divisions. The key point of the operation is the commitment by the incumbent to guarantee equality of access to the networks on non-discriminatory conditions to competitors, the Equality of Inputs (EOI) and the operational separation, or a separation of systems that would allow wholesale supply on an EOI basis, in other words equal conditions for commercial supply by the various operators. In particular, BT undertook to ensure that the supply made to its own commercial networks and to the OLO was equal in terms of price, commercial conditions, timescales etc. In the wake of these undertakings, Openreach was set up (2006), a operationally separate entity which, although part of the British Telecom Group, is responsible for the fixed access network and has its own head office and independent management systems. Openreach has, in addition, its own commercial brand and its head reports directly to the CEO of the British Telecom Group. Both BT Retail and the OLO have a direct relationship with Openreach. The undertakings provided for the creation of a special authority, the Equality of Access Board (EAB), entrusted with the task of monitoring compliance with the Undertakings. The EAB, established in November 2005 is an entity of British Telecom Group Board Committee and is presided over by a non-executive director of BT, who is assisted by a senior manager of the major operator; the other three members are independents, chosen after consultation with OFCOM. The EAB is supported by the EAB secretariat, which deals predominantly with the organisation of the Board meetings and is assisted by the Equality of Access Office (EAO), which, in hierarchical terms, reports to BT’s head of Public Affairs and monitors the company’s correct application of the Undertakings. It also assesses reports received. The EAO in particular periodically assesses a series of specific criteria regarding BT’s compliance with the tasks undertaken with OFCOM, as well as regard to the Code of Practice. Monthly reports are then referred to the EAB. In Spain in 2007 the national communications authority (CMT) imposed a series of key performance indictors (KPI) on Telefónica, the incumbent operator, to communicate to both CMT and to the competitors on the quality of service provided abroad and to the domestic market, in order to ensure that the alternative operators would not suffer as a result of a discriminatory situation. In 2008, following publication of the results of public consultation on NGN, the CMT concluded that, prior to ensuring functional separation of the access networks, it would undertake an in-depth analysis of the impact on the competitive framework and on the investments, which would, however, constitute an “extreme and exceptional” measure. In France, no model has yet been established to separate the network from the incumbent and therefore the French authority (ARCEP) has strongly emphasised on a number of occasions the negative results that the adoption of a functional separation model may produce in the area of costs (reorganisation of the historic operators and duplication of the organisational structure), which appear too severe if compared to the problems the separation should tackle. ARCEP, moreover, maintains that a functional separation model that would be difficult to reverse, yet if the same results could be attained by a more precise regulation, this would ensure that it was possible to amend the regulation if it became apparent that the conditions which had altered competition had changed. ARCEP also criticises the functional separation for its potential to act as a disincentive for the operators’ investment strategy. In its opinion, the functional separation may fail to eliminate the necessity to regulate the prices and quality of services offered. It further maintains that the problem of monitoring the company that manages the access network is unaltered – in this way it operates as a de facto monopoly. Germany has also not established functional separation models for Deutsche Telekom, the historic network operator, nor has it created independent supervisory bodies similar to Italy’s Supervisory Board (OdV). Fixed telecommunications and broadband

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Furthermore, the sector authority confirmed its opposition to the adoption of similar models, highlighting the possible negative impacts that might result from a decision of this kind. Discussion regarding Sweden is much more developed. Following the market analyses between 2006 and 2007, which highlighted the absence of alternative operators to the incumbent in various parts of the country and the imposition of commercial conditions on the alternative operators by the former monopoly holder TeliaSonera, the Swedish regulatory authority proposed a legislative amendment to Parliament to guarantee the possibility of imposing a functional separation model on the historic operator. The new regulations, in force since July 2008, allow the Swedish authority to require the incumbent to hive off the copper wire networks, but this depended on a positive opinion from the European Union. In any event, the Swedish authority did not impose the functional separation on this historic operator with immediate effect. Instead it stated its intention to undertake a market analysis to decide whether to proceed, or at least in which direction, in 2009. For its part, the incumbent in Sweden has voluntarily created the functional division Skanova Access, with effect from 1 January 2008, which manages the separate access to the copper-wire and fibre networks with the aim of ensuring the principle of equality of treatment between all the operators and the commercial divisions of TeliaSonera. Skanova is a legally separate division of Telia, with separate ICT systems and is subject to financial reporting requirements. Nonetheless, 100% of the ownership structure remains in the hands of the historic operator. Skanova Access staff are obliged to respect the terms of a specific Code of Conduct containing measures to ensure respect of the principles of equality of treatment and non-discrimination. According to the new rules regarding functional separation, any autonomous proposal for separation put forward by the historic operator must be approved by the Swedish regulatory authority (the Swedish Post and Telecom Agency, PTS). In this regard, PTS has not yet expressed any assessment of the matter, with the exception of a paper (dated November 2009), which reveals that the introduction of Skanova had not produced major improvements in terms of effective transparency. A relevant body was created to audit Skanova Accessâ&#x20AC;&#x2122; activities. The Equality of Access Board was created with the specific task for supervising equality of treatment of the OLO on behalf of the network division. The supervision is based from the outset on performance analysis using key performance indicators (KPI) and monitored by external auditors. The Board reports to the TeliaSonera CEO every four months, following monitoring of the commitments undertaken by the dominant operator. The Board is composed of a Chairman, who is responsible for the internal audit of TeliaSonera, and of two independent members appointed by the operator. It is not anticipated that the Authority will appoint members. New Zealand too has ultimately made a distinction in terms of regulation of the functional separation of the incumbent between telecoms infrastructure and services, due to significant shortcomings in competition between the operators and the significant barriers to entry to the access networks. The government has imposed a company reorganisation on Telecom New Zealand (TNZ) the dominant operator. This identifies the functional separation of the networks as the most efficient instruments to contribute to improving competitive market conditions. TNZ has therefore adopted a series of Undertakings based on the British model, which were accepted and ratified by the New Zealand government in March 2008 and which provide for the separation of the company into three divisions: Networks, Retail and Wholesale. The process of progressive separation is currently underway and should be completed in 2012. The main scope of the Undertakings is to ensure respect of the non-discrimination principle for access to wholesale services offered by the dominant operator to alternative operators. In this case, one of the commitments is also to set up a supervisory board, the Independent Oversight Group (IOG), which is entrusted with similar tasks to those of the British Equality of Access Board and the Italian supervisory body (OdV). This comprises a continuous assessment regarding TNZâ&#x20AC;&#x2122;s proper compliance with the terms of the Undertakings, with reference to the process of progressive separation of the systems and achieving the agreed standard to guarantee proper

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compliance with the principle of equality of treatment on other products, to be completed within fixed deadlines. Finally, it is important to note19, that as with the completion of the new fibre optic network, the New Zealand government has created a relevant public authority (Crown Fibre Holdings), which has received 1.5 billion dollars, ensuring in the meanwhile that the operators participate in investments by means of tender offers. These offers, however, require a structural separation between the commercial activities and the management of the existing network. Faced with the possibility of choosing between competing with the public authority or introducing a structural separation (i.e. a demerger) of the wholesale division, the former monopoly holder chose the latter route. This should be implemented by the third quarter of 2011 and will lead to it investing in a fibre network shared by all the operators, which will be a mixed public-private ownership.

19 For more information on the International comparison on the question of the functional separation of the networks cfr. http://organodivigilanza.telecomitalia.it/ita/confronto_internazionale.shtml

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Mobile telecommunications

140


Mobile telecommunications By Lorenzo Principali

1. Market overview After 15 years of constant growth, the Italian mobile telecommunications market shrunk slightly for the first time in 2009, recording an overall value of 24.01 billion euros (-1.5%). The expected transformation of the sector created by a new generation of smartphones and mobile internet services has, so far, failed to materialise. The general economic downturn certainly played a part in this delay, though the mobile sector held up better than the overall telecommunications market (-2.3%) and, particularly, in relation to the fixed segment (-3.3%). As a result, mobile’s share of the total telecoms market continued to increase, reaching 55.73%. Table 1: Italian mobile market, 2005-2009 2009

2008

2007

2006

2005

Mobile

24.015

24.390

24.070

23.642

22.625

∆ % 09-08 -1,54

Cagr 05-09 1,50%

Total telecoms

43.085

44.120

44.200

44.040

43.115

-2,35

-0,02%

% mobile of total telecoms market

55,73%

55,28%

54,45%

53,68%

52,47%

-

-

Note: figures in billions of euros. Source: IEM elaboration of Assinform/Net Consulting data.

The total volume of active mobile connections remained above 91 million lines but, after years of consistent growth, it appears to be reaching saturation point (-1.0% compared with 2008). However, the number of unique users of mobile phones continued to rise, reaching 46.5 million people, or more than three-quarters of the population. The spread of third generation handsets also increased. They are now owned by 31.9 million users (+9.6%), a figure that points to a significant development of mobile broadband services in the coming years as the number of users reaches critical mass and a large swathe of Italian mobile phone users becomes more technologically sophisticated. Table 2: Mobile telephone lines in Italy, 2005-2009 2009

2008

2007

2006

2005

∆% 09-08

∆% 09-05

No. active lines

91,3

92,2

90,7

81,9

72,2

-1,0%

28,9%

of which on 3G

31,9

29,1

23,1

17,1

10,0

9,6%

219%

Unique users

46,5

46,1

45,9

44,4

42,7

0,9%

8,9%

Note: figures in millions of units. Source: IEM elaboration of Assinform/Net Consulting and AGCOM data.

The market for mobile services resisted the downturn, registering a slight increase (+0.3%). This however had less of an impact on the overall decline in the telecommunications services market during 2009: in 2008 an increase of 250 million euros in mobile services largely offset a decrease of 300 million euros in the fixed line sector, leaving the overall market virtually stable (-0.1%). In 2009, in contrast, the increase of 65 million euros in the value of mobile services

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141


was not enough to balance the loss of almost 400 million euros registered in fixed line services, which contributed to an overall reduction of 0.9% in the value of the telecoms services market. In the services sector, therefore, mobile continues to increase its market share by value, which reached almost 55% in 2009. Table 3: The Italian mobile services market, 2005-2009 Mobile

2009

2008

2007

2006

2005

∆ % 09-08

Cagr 05-09

18.825

18.760

18.510

18.040

17.170

0,35

2,33%

Total telecoms services

34.215

34.530

34.580

34.350

33.635

-0,91

0,43%

% mobile in total telecoms

54,51%

54,32%

53,52%

52,51%

51,04%

-

-

Note: data in millions of euros. Source: IEM elaboration of Assinform/Net Consulting data.

Examining the AGCOM figures on mobile telephone services by sub-category (Table 4), it is interesting to note that the only growth came from data traffic. The possibly irreversible downward trend in the text message (SMS) market accelerated (-6% in 2009), so data traffic emerged as the key sector where operators are concentrating their strategies. (cf. paragraph 3). Table 4: Mobile telephone services revenue in Italy, 2005-2009* Voice revenue Data revenue

2009

2008

2007

2006

2005

∆ % 09-08

Cagr 05-09

10,92

11,04

11,11

11,20

10,80

-1,09

0,28%

4,21

4,17

3,87

3,20

3,80

0,96

2,59%

SMS

2,22

2,37

2,33

2,50

2,30

-6,33

-0,88%

MMS and other data

1,99

1,80

1,54

1,30

0,90

10,56

21,94%

Others

2,56

3,14

3,36

2,20

2,10

-18,47

5,08%

Total

17,70

18,35

18,34

16,60

16,70

-3,54

1,46%

Note: data in billions of euros. SMS= text messages. MMS=Multimedia messages. Source: IEM elaboration of AGCOM data. * In such a comparison a discrepancy between the AGCOM and Assinform/Netconsulting needs to be born in mind. The industry regulatory Authority, AGCOM estimates overall revenues from the services sector at 17.7 billion euros while Assinform/Netconsulting, whose figures were used in particular for the comparison between mobile telecoms and the whole telecoms sector, values the mobile services sector at 18.85 billion. At the same time, while Assinform reports growth in mobile services of 0.3%, the Authority estimates that the mobile sector shrunk by 3.5%.

As far as voice traffic is concerned, three points emerge from AGCOM’s data (Table 5). Firstly more than 87 percent of calls from mobiles are made to users’ own networks; secondly, while operators maintained their efforts to keep the bulk of their traffic on their own network (+3.9 percent in terms of overall annual traffic), the slight reduction in on-net1 revenues (-0.39%) points to either the reduction of call rates or promotions based on free minutes packages. As the net increase in off-net calls (+9.7%) corresponds to a minimal increase in revenues for such calls (+0.96%), it seems likely that the promotions have included free minutes for calls to networks other than the one offering the deal. Table 5: Mobile voice services traffic by destination, 2008-2009 2009

2008

∆ % 08-09

Fixed network

13,9

14,1

-0,9%

Mobile on-net

66,4

63,9

3,9%

Mobile off-net

25,5

23,2

9,7%

Other destinations Total

7,9

7,5

6,1%

113,8

108,7

4,7%

Note: data in billions of minutes. Source: IEM elaboration of Auditel data.

1

142

Within the service operator’s own network

Mobile telecommunications


Table 6: Voice service revenues by destination, 2005-2009 Mobile network

2009

2008

2007

2006

2005

∆ % 09-08

Cagr 05-09

8,22

8,19

8,45

8,08

7,7

0,37

1,65%

On-net

5,07

5,09

5,06

4,58

3,9

-0,39

6,78%

Off-net

3,14

3,11

3,4

3,5

3,8

0,96

-4,66%

Fixed network

1,72

1,9

2,01

2,08

2,3

-9,47

-7,01%

International networks

0,98

0,94

0,96

0,8

0,8

4,26

5,20%

Total

10,92

11,03

11,42

10,96

10,8

-1,00

0,28%

Note: data in billions of euros. Source: IEM elaboration of AGCOM data.

Overall, the negative economic backdrop weighed heavily on the mobile infrastructure market and above all on handset sales (Table 7): revenues from the management, installation and maintenance of networks fell 7.0% to 1.47 billion euros and the provision of software and other services to operators also displayed a very negative trend (-8.4%). But the biggest decrease in absolute terms was in the handsets’ market, where the growing spread of smartphones was not sufficient to offset the general decline in a sector in which the total turnover was down by more than 280 million euros compared with 2008. This is partly due to mobile operators providing the latest generation of handsets as part of subscription contracts including voice and data minute packages. Table 7: Mobile telecoms market: infrastructure and handsets revenues, 2005-2009 2009

2008

2007

2006

2005

∆ %09-08

Cagr05-09

1.470

1.580

1.650

1.915

2.095

-6,96

-8,48%

490

535

515

475

405

-8,41

4,88%

2G and 3G phones, smartphones, internet keys and data cards

3.200

3.480

3.340

3.180

2.920

-8,05

2,32%

Total

5.160

5.595

5.505

5.570

5.420

-7,77

-1,22%

Networks access, installation, management and maintenance Software and services for telecoms operators

Note: data in millions of euros. Source: IEM elaboration of Assinform/Net Consulting data

2. Infrastructure and mobile virtual network operators (MVNOs) Analysis of infrastructure operators’ market share by sales for 2009 reveals some important trends: there has been a sharp reduction in the gap between the mobile division of Telecom Italia (TIM), which now has a market share of 38% following a fall in sales of 8% in 2009 though still the leading operator, and Vodafone, which increased its sales by four percentage points and its market share from 36 to 37.7%. The positive performance of Wind, the operator controlled by the Egyptian company Orascom that is now the subject of a takeover bid by Russia’s Vimpelcom, also continued. Average annual growth of 7% over the last five years has reinforced Wind’s position as the third largest operator, boosting its market share to 16.8% in 2009 and increasing the gap between it and rival H3G. The small signs of weakness displayed by the latter in 2007 and 2008 were confirmed in 2009, when a decline in sales (-2.43%) saw its share of the total mobile market dip below 7.3%, although the company’s growth trend over a five-year period remained positive (+4% annual average).

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Table 8: Evolution of % market shares by sales in the Italian mobile phone market, 2005-2009 2009

2008

2007

2006

2005

∆ % 09-08

Cagr 05-09

Tim

38,20

41,89

42,45

43,74

44,94

-8,80

-3,98%

Vodafone

37,71

36,04

33,64

33,56

36,34

4,63

0,93%

Wind

16,81

15,86

15,27

13,82

12,51

5,99

7,67%

H3G

7,28

7,46

8,63

8,88

6,21

-2,43

4,06%

Total

100

100

100

100

100

0,00

0,00%

3216,7

3360,6

3241,3

3309,3

3535,3

-4,28

-2,33%

Herfindal-Hirschmann Index

Source: IEM elaboration of company data.

The overall market was hit less hard by the negative economic backdrop than other sectors (Table 9), registering a contraction of 2.6%. It must however be stressed that the slowdown saw some operators worse affected, while others benefitted by winning market share: the worst annual performance was recorded by TIM, which saw sales fall more than 11% percent from their 2008 level to 8.6 billion euros. The trend of the last 12 months was, likewise, negative for H3G, with sales down almost five percentage points. Vodafone and Wind, in contrast, benefitted from their respective rivals losing ground to move closer to the market leader and strengthen their own position: the former increased sales by around 150 million euros (+1.88%) to register a third consecutive year of growth (+1% annual average from 2005). Wind did even better, with a rise of 100 million euros in sales from 2008 (+3.22%) representing the company’s fifth consecutive year of growth (+7.83% annual average from 2005). Table 9: Italian mobile telephone companies revenues, 2005-2009 2009

2008

2007

2006

2005

∆ % 09-08

Cagr 05-09

Telecom Italia

8603

9687

9922

10210

10056

-11,19

-3,83%

Vodafone

8492*

8335

7862

7834

8132

1,88

1,09%

Wind

3786

3668

3570

3226

2800

3,22

7,83%

H3G

1640

1726

2018

2072

1390

-4,98

4,22%

Total

22521

23127

23372

23342

22378

-2,62

0,16%

Note: Revenues for services provided in Italy in the mobile sector, figures in millions of euros (*) Figure for year to March 31, 2010. Source: IEM elaboration of company data.

As for mobile virtual network operators (MVNOs – companies offering telephony services using the spectra and infrastructure of actual mobile network owners), 2009 confirmed the positive trend of the preceding years. Around three years since they entered the Italian market, the “virtual” operators have notably increased in number (they now total 16) and in terms of their user base (2.43 million in 2009), albeit that this is subject to an extremely high churn rate (customers cancelling their subscriptions). Operators specialising in “ethnic” markets (like come Daily Telecom and PLDT Italia) and offering competitive call rates aimed at specific sections of the immigrant workforce and those taking advantage of their existing sales networks by offering promotional telephone tariffs combined with their own core business (Poste Mobile, Carrefour, Coop, Erg mobile etc.), have been joined by fixed line operators aiming to capitalise on their ability to offer these services alongside their existing products as part of an integrated four-way package (Fastweb and Tiscali)2. In 2009, the MNVO market reached a value of nearly 150 million euros, registering annual growth of over 180%. Although data services grew the fastest (+281%), the voice sector remains comfortably the most significant part of the market, with a value of 125.4 million euros for the year. 2 These operators offer packages with a fixed line telephony, broadband, audiovisual services (IPTV) and mobile telephony.

144

Mobile telecommunications


That said, the Mobile Payments market stands out particularly, and more so in light of the recent liberalisation brought about by changes in Italian legislation, contained in the Legislative Decree N.11 from 2010, intended to bring Italy into line with European single market regulations on payment services3. From March 1, 2010 telecoms companies have been able act as payment institutions, giving their clients the possibility to transfer money, do online banking and shopping as well as paying for bills, parking or toll fees, bus and train tickets as well as audiovisual content. Table 10: MVNO revenues in Italy by type of service, 2008-2009 2009

2008

Var %

Voice services

125,4

46,3

170,7

Data

24,4

6,4

281,4

Total

149,8

52,7

184,2

Note: Figures for Carrefour, Coop Italia, Daily Telecom, Erg Mobile, Fastweb, Noverca, PLDT Italia, Poste Mobile and Tiscali, in millions of euros. Source: AGCOM.

The first operator to move in this direction was Poste Italiane (the Italian Post Office), which, together with Noverca (Intesa group) has more than 60% of the MVNO market. In 2009, mobile payments were principally used for pay-as-you-go mobile phone recharges, ticketing and parking, but it is likely that the market will evolve towards more advanced services of higher added value for operators (payments, billing, shopping and money transfers). In this context, it remains to be established how operators will position themselves on the value chain: acting as enablers, limiting themselves to transmitting and simplifying transactions or by managing payment services wholly and directly themselves in order to take advantage of the wide diffusion of mobile phones and users’ increasing familiarity with mobile billing.

3. Mobile broadband: content, traffic and investment The data traffic sector, abetted by the growing spread of new generation, internet-enabled handsets, seems to have the biggest growth potential in the mobile telecoms field. This is due, above all, to the mobile broadband connectivity provided by telephone operators, a sector still under development but which could open up a market for new services radically different from the traditional uses of the mobile phone: infomobility, geopositioning, proximity services and mobile payments are just some of the possible developments that will drive the “pocket internet” to a wider population. Probably for these reasons, this sector comes out as the one subject to the greatest change, as well as being the terrain on which some of the most important battles will be played out in the near future. On the one hand, the new business models of manufacturers with the launch of their own in-house application stores (Apple above all) has, to an extent, cut traditional operators out of content selling4. This is due to the nature of application stores, which, structured in synergy with the manufacturer’s devices, grant small software companies or individual developers the right to create applications aimed at a broad market - or rather the owners of consoles - on the basis of revenue-sharing between manufacturer and developer. However, because, in the majority of cases the content is available free or as part of premium packages, such a model seems to result in a gradual substitution of paid content with freely available content and applications, rather than pay services being replaced by other pay services. Whereas in telecoms companies’ portals the pay-free ratio was 95-5, for applications stores it was completely the other way around (8-92)5. The effect of this dynamic, albeit positive 3 http://www.filodiritto.com?index.php?azione+visualizza&iddoc=1627 4 Vodafone has launched its own application store with products adapted for Samsung and Nokia handsets while Tim has done a deal with Nokia to makes its own payment system available through Ovi Store, the online content and applications store launched by the Finnish manufacturer. 5 E-Content 2010 Report, Confindustria Servizi Innovativi e Tecnologici.

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145


for the manufacturers who can offer their own clients a series of micro-services and enhanced applications, was a general decline in mobile content revenues, which fell by around 20% (-160 million euros) from 2008 levels (Table 11). Table 11: Mobile revenues compared: access, content and advertising (2008-09) PoliMi

Confindustria SI

2009

2008

∆% 08-09

2009

2008

∆% 08-09

Mobile internet

392

334

17,37

n.d

n.d.

n.d.

Mobile content pay

596

744

-19,89

763

900

-15,22

24

6

300,00

2

0

-

32

32

0,00

20,5

22

-6,82

1020

1110

-8,11

783,5

922

-15,02

of which from application stores Mobile advertising Total

Note: Figures in millions of euros. Source: IEM elaboration of data from Polimi (Osservatorio Mobile Content 2010) and Confindustria (E-Content 2010 Report).

Indeed, the decline in content revenues suffered by telecoms operators coincided with only a minimal increase in earnings for application-store owners, although this is subject to significantly different valuations by different sources (+2 million euros according to Confindustria SI and +18 million according to PoliMi). On the other hand, such new vehicles for the diffusion of content contributed notably to an increase in mobile data traffic: this sector went from 334 million euros in 2008 to 392 million euros (17%) the following year, a figure that was certainly encouraging, although it was still not enough to fully offset the net decline in content revenues. The competitive pressure from “third party” content providers (with regard to the management of mobile traffic) seems therefore to have driven telecoms operators to refocus on internet traffic revenues, as the potential for earnings in the guise of content provider has been reduced. In this sense, when the gradual spread of flat tariffs, which generated an increase in revenues of 53 milllion euros from 2008 (+68%), is set against the five million euros increase registered in usage-based billing (+2% from 2008)6, this constitutes an important signal, as does the increasing prevalence of bundles based on internet-enabled smartphones combined with unlimited access. However, flat-rate billing is actually put in danger by the threat of networks becoming overloaded and, in order to address this problem, every operator is implementing traffic shaping practices, which limit surfing speeds for users at certain times or once a set threshold of traffic has been passed. The flip side of mobile internet provision taking shape according to a business model that rewards consumers willing to pay more for a better service is a risk that the spread of mobile broadband to large swathes of the population will be slowed down, consequently delaying the attainment of the critical mass of users required to make investment in this technology profitable. To guarantee a development of mobile broadband that will involve the greatest number of people possible, operators and institutions will have to continue to work to counterbalance the mobile digital divide through investment and liberalisation. In this sense, the plan to assign frequencies liberated by radio and television’s switch to digital to mobile telephone operators by means of a public auction outlined in the 2010 Stability Law, represents an important signal. Nevertheless, the lack of provisions to direct some of the funds raised into investment aimed at bridging the digital divide, as requested by the European Commission7, threatens to lead to a fall in investment levels in 2011-128. 6 Source: Osservatorio Mobile Content e Internet 2011 7 Cf. The Digital Agenda for Europe, Commisioner Neelie Kroes’s remarks to two Italian parliamentary commissions (the IX of the Chamber of Deputies and the VIII of the Senate) and the decision of May 6, 2010, which defined the harmonised technical standards that Member States must respect in the allocation of radio frequencies in the 800 MHz band. 8 As realistically it will be the same operators who will take part in the auction and will be committed to a significant outlay in order to acquire frequencies (the government anticipates raising around 2.4 billion euros over-

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Fig. 1: Investment in mobile infrastructure, 2005-2009 4000 3500 3000 2500 2000 3428

1500

3165

3194

3046 2415

1000 500 0 2005

2006

2007

2008

2009

Note: Figures in millions of euros. Source: IEM elaboration of AGCOM data

In relation to this, 2009 saw a net reduction in investment by infrastructure operators in mobile networks (-22%), which was due both to the economic recession and, above all, because the operators have already achieved a widespread coverage of networks. The absolute value of investments made in 2009 was 2.415 billion euros, the lowest level registered in the last five years. Again, the growth of data traffic observed above makes new investment in this area extremely urgent. The new LTE9 standard is likely to contribute to the further development of the mobile broadband market. LTE enables downloading at almost 100 Mbps and uploading at 50 Mbps, with speeds of 326.4 Mbit/s and 86.4 MBit/s10 for pictures. It will offer greater “spectral” efficiency and more flexibility, but it will also require an updating of transmission networks as it is not retro-compatible with previous standards11. For these reasons , operators are investing in specific programmes for the construction of a mobile broadband infrastructure: from January 2010 Vodafone launched a plan to cover 1,000 municipalities currently on the wrong side of the digital divide, to which the company envisages allocating a billion euros over three years. The project will initially involve the use of HSPA+ technology before introducing LTE within two or three years. Municipalities currently judged to be the most deprived in terms of digital telephone services will be given priority for the new services. The capacity envisaged should be superior to 2Mbps, a threshold that is twice what is held to be the minimum requirement (also internationally) for “broadband”, which is 1Mbps. Furthermore, under Telecom Italia’s business plan, which includes a strengthening of the TIM network, as well as under the roadmap outlined by Vodafone, upgrades of the two biggest operators’ respective networks (in areas already covered) have been announced, which will increase capacity from 14.-4 to 21-21.6 Mbps currently up to 42 Mbps in 2012. According to Telecom Italia’s estimates, traffic on its own mobile network will be equal to 150 Petabytes (150 million Gigabytes), almost three times the actual 60 Petabytes predicted to be transmitted over the TIM network in 2010 and all) it is possible they will be obliged to cut back on other infrastructural investment. 9 The new LTE (Long Term Evolution) standard is the latest mobile transmission standard and was established by the 3rd Generation Partnership Project (3GPP). Although it is known as a 4G standard, in reality it does not completely match the specification of IMT Advanced 4G, in contrast to Advanced LTE, which allows performance at close to 1 Gbps. While LTE is not compatible with older networks (GMS, UMTS etc.) Advanced LTE is totally compatible with the LTE network. Consequently, it will be necessary to establish new infrastructure alongside that already in place. The task of LTE therefore is to deliver mobile broadband performance by taking advantage of the experience gained from and investment in 3G networks, which should bring forward the introduction of 4G standards which, when they are introduced, will not require the construction of a new transmission network. 10 Rumney, Moray. “3GPP LTE: Introducing Single-Carrier FDMA”. Agilent Technologies. 11 Cfr. Note 7.

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147


15 times the volume of 2007. A similar growth rate (even if much lower in absolute terms) was registered on the network of 3 Italia, which has gone from the transmission of seven Petabytes in 2008 to 16 for 2009 and five for the first quarter of 2010 alone12. So, if from the point of view of content and application management, the operators find themselves in competition with manufacturers’ application stores, as far as the provision of connectivity is concerned, the problem of overloading of networks appears pressing. As far as the former is concerned, the new business model introduced by the application store owners seems to represent competition for the telecoms operators, but it is also a stimulus to development, and they will need to find effective synergies to make the mobile market profitable. In fact, to prevent the spread of mobile internet either stalling or becoming a restricted and elitist phenomenon, it appears necessary to recreate a virtuous cycle, probably involving content and service providers (possibly even on a revenue-sharing basis), capable of prompting operators to invest significantly in mobile networks and to promote the use of flat tariffs, thereby promoting take-up by a maximum number of users. The achievement of the critical mass of users that will make such investment advantageous will most likely come as a result of the development of a new market for mobile services that will provide better and more evenly shared returns for all players.

4. International comparisons A comparison with the main European markets shows Italy, as in previous years, to be in a leading position in terms of the number of active mobile lines. Italy still has the highest penetration of mobile phones in relation to its population (151.2%), although this was down from 2008 levels. Germany (133.03%) and the United Kingdom (131%) come next, while France and Spain have lower penetration rates at respectively 97.92% and 109.30%. Table 12: Growth of mobile telephone lines, 2005-2009 2009

2008

2007

2006

2005

∆ %09-08

Cagr05-09

France

97,9

93,6

89,8

85,1

79,5

4,63

5,35%

Germany

133,0

129,9

117,6

103,6

95,9

2,38

8,53%

Italy

151,2

158,4

157,6

135,1

123,1

-4,56

5,28%

Spain

109,3

107,5

107,1

102,2

96,8

1,67

3,08%

UK

131,7

126,3

121,8

115,9

109,2

4,28

4,80%

Note: Figures in millions. Source: IEM elaboration of ARCEP, VATM, Assinform, OFCOM and CMT data.

Germany still has the biggest mobile market in terms of revenue, although the downward trend of the last five years points to it now having reached saturation point: having fallen to a value of 23 billion euros in 2009, it has shrunk at a significant rate both over the medium term (-4% annual average since 2005) and in comparison with the previous year (-7% compared to 2008). It was the opposite story for France which, thanks to a consistent growth trend (+4% average over five years), succeeded in holding up well even in the economic downturn, rising 1.5% in 2009 and confirming its position as the second biggest market in Europe by value. Italy reinforced its position with slight growth (+0,3%)13 while Spain’s market contracted abruptly (-4%), as did the United Kingdom’s. Breaking down revenues by sectors, two distinct trends emerge: the vibrant growth of data traffic and the decline of voice and text message traffic. For voice, in Italy and France the contraction appears restricted (respectively -1.09% and –1.92%), but in Germany and Spain this sector 12 In the course of 2009, 3 Italia signed two significant agreements: an exclusive one with Ericsson for the development of an advanced mobile broadband network and one with Telecom Italia for the sharing of access sites for the radiomobile network, in order to optimise investment and development time for its own network (Source: 3 Italia). 13 In this comparison, the figures used were from Assinform, which judges the Italian market to have grown by 0.3%. The trend was negative according to AGCOM, see above.

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Mobile telecommunications


shrunk by almost 9%. In contrast to the Spanish experience, the German market has been shrinking over a longer period (reaching an average of almost 7% annually), suggesting there has been a gradual change in the habits of users increasingly turning towards subscriptions based on minutes’ packages, which reduce operators revenues. Table 13: Development of mobile phone market in main EU countries, 2005-2009 2009

2008

2007

2006

2005

∆ % 09-08

Cagr 05-09

France

20,4

20,1

19,0

18,1

17,4

1,49

4,06

Germany

23,6

25,4

26,4

27,8

28,1

-7,09

-4,27

Italy

18,8

18,8

18,5

18,0

17,2

0,35

2,33

UK

16,7

17,3

16,8

15,6

14,7

-3,24

3,27

Spain

14,3

14,9

14,8

13,3

12,0

-3,99

4,56

Total

93,9

96,5

95,5

92,8

89,4

-2,69

0,01

Note: Figures in millions of euros. Source: IEM elaboration of ARCEP, VATM, Assinform, OFCOM and CMT data.

Table 14: Revenues from mobile telephone services in main EU countries, 2005-09 Country France

Germany

Italy

United Kingdom Spain

Type of revenue

2009

2008

2007

2006

2005

∆%09-08

Cagr 09-05

Voice

15,30

15,60

15,10

14,60

14,30

-1,92

1,70

Data and SMS

3,80

3,10

2,40

2,10

1,90

22,58

18,92

VAS and directories

1,30

1,40

1,40

1,30

1,20

-7,14

2,02

Voice

17,23

18,95

20,36

22,08

22,97

-9,08

-6,94

Data

3,23

3,02

2,35

1,67

0,92

6,98

36,92

MMS

0,19

0,20

0,24

0,22

0,17

-7,39

2,85

SMS

2,95

3,23

3,46

3,83

4,04

-8,53

-7,56

Voice

10,92

11,04

11,11

11,20

10,80

-1,09

0,28

Data and MMS

1,99

1,80

1,54

1,30

0,90

10,56

21,94

SMS

2,22

2,37

2,33

2,50

2,30

-6,33

-0,88

Voice

11,78

12,34

12,57

11,89

11,56

-4,54

0,47

1,9

1,57

1,01

0,78

0,44

21,02

44,15

Data and MMS SMS

3,03

3,36

3,25

2,91

2,69

-9,82

3,02

Voice

10,27

11,28

11,69

10,82

9,83

-8,95

1,10

Data

1,50

1,11

0,78

0,46

0,30

35,02

49,06

1,57

1,73

1,74

1,65

1,55

-9,08

0,30

Note: Figures in millions of euros. SMS= text message. MMS=Multimedia message. Source: IEM elaboration of data from ARCEP, VATM, AGCOM, OFCOM and CMT.

Data traffic was the sector that performed best. In a mature market like Germany’s it comfortably exceeded three billion euros in 2009 with an annual growth rate of almost 40% over five years. Even in Italy, the figures for data were very positive (+22% average annual growth from 2005 and +10% on 2008), creating a market worth two billion euros in 2009, and it was a similar picture in Spain (1.5 billion in 2009). It is harder to assess the trend in France, where the market for data and text messaging services combined grew by 20%. As text message revenues declined in every other major market, it may be that a decline in this sector in France was made up for by an outstanding performance by data. The text messaging sector, as was predictable, is becoming a second tier sector in all European markets, either as a result of bundles including large numbers of messages reducing revenue-per-text or because of changes in the nature of mobile communications making it increasingly obsolete. In Germany, revenues in the sector shrunk by nine percentage points, in Italy the drop was 6% and in Spain it was also 9%: the text messaging market appears destined to be gradually displaced by data exchange. Overall

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therefore, in all the big European countries, operators are facing a gradual change in the habits of users and the transformation of handsets from one-to-one communication devices to full blown media centres with the capacity to offer connectivity, entertainment and web access. The ability to lead or follow this evolution will probably determine the shape of the market in the years to come.

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Mobile telecommunications


Information Technology

151


Information Technology

1

By Roberto Triola

1. Introduction For the last 15 years Information Technology (IT) has gone through two distinct stages of development in Italy. The first phase was characterised by a true market boom, rising from approximately 11 billion to over 20 billion euros with an average growth rate of around 12%. Table 1: The Italian IT market. The boom years 1994 - 2001 2001

2000

1999

1998

1997

1996

1995

1994

Hardware and technical assistance

7,2

7,1

6,5

6,1

5,7

5,4

5,3

5,2

Software and IT services

13,2

11,9

10,3

9,1

8,3

6,5

6,2

5,9

Total

20,4

19,0

16,8

15,2

14,0

11,9

11,5

11,1

Note: Figures in billions of euros. Source: Assinform/NetConsulting.

In the second phase, not yet ended, the occurrence of two global crises has had a very severe effect on demand: in spite of the maturity and technological innovation of what was available, they caused the market to plummet by more than 8%. It took five years to ‘exit’ the 2002-2003 crisis, which affected market development. Over a fiveyear period the market struggled to recover the levels it had reached at the beginning of the decade. The new financial crisis at the end of the decade crushed demand and has had a greater impact. This time the effects are likely to last well beyond a five-year period. Table 2: The Italian IT market. The crisis years 2002-2009 2009

2008

2007

2006

2005

2004

2003

2002

Hardware and technical assistance

5,6

6,5

6,6

6,3

6,2

6,0

6,0

6,4

Software and IT services

13,1

13,8

13,6

13,5

13,3

13,3

13,4

13,7

Total

18,7

20,3

20,2

19,8

19,5

19,3

19,4

20,1

Note: Figures in billions of euros. Source: Assinform/NetConsulting.

Italy seems to suffer more from a low capacity for uptake of demand-led innovation, than from an IT supply problem. This is characterised by: •

patchy dissemination of infrastructure, with few quality ‘highs’ but also much underdevelopment, both from a geographical perspective and from that of individual companies (public authorities and businesses);

limited computer literacy;

1 The information contained in this chapter is elaborated from official sources – ISTAT, Eurostat, Unioncamere and above all the 2010 Assinform Report. We wish to thank NetConsulting for their kind collaboration.

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lack of widespread awareness of how IT can help businesses and institutions to face present and future challenges and not be merely a means to reduce costs;

the low take up of continual training;

the absence of stable mechanisms for collaboration between the world of research and that of business: this makes it difficult to convert Italy’s heritage of creativity and its entrepreneurial mindset into development and wealth;

the as yet limited application of new forms of collaboration offered by IT (Web 2.0 and cloud computing). These applications extend the boundaries for businesses and the authorities, opening up development opportunities that were unthinkable a few years ago.

From the 2009 data available, it is clear that the digitalisation process is very underdeveloped in Italy (Table 3). Table 3: Digitalisation indicators for Italy and the major EU Member States Indicators

Italy

France

Germany

Spain

82%

63.6%

United Kingdom

Digital citizens PC/per inhabitant

52%

53%

72%

Internet/per inhabitant

42%

66%

75%

51%

71%

BB/per inhabitant

39%

61%

56%

45%

62%

Internet users (in the past 3 months)

47%

63%

75%

57%

70%

Women using the internet

32%

64%

71%

53%

66%

Adults aged 55-74 as percentage of Internet users

13%

36%

38%

15%

44%

7%

28%

63%

40%

49%

B2C users, as percentage of Internet users

Digital business Businesses with Internet

66%

57%

95%

95%

93%

Businesses with broadband (% of businesses with Internet access)

54%

50%

84%

97%

87%

Businesses with Internet and website

33%

30%

77%

58%

Businesses which purchase over the Internet

13%

18%

26%

16%

47%

Digital public authorities (e-government, education) IT costs in the public sector (€ millions)

2.747

5.085

5.907

3.055

13.928

% of current Public Spending

0,9%

1,1%

1,5%

1,3%

3,5%

Businesses which interact online with public authorities (sending forms)

42%

67%

45%

45%

51%

5%

25%

11%

9%

12%

32%

77%

66%

48%

95%

55%

60%

84%

Members of the public who interact online with public authorities (sending forms) Schools with PC in classes (2006) Teachers and lecturers who use IT instruments for teaching Source: Elaboration of various sources (2009).

First, it is apparent that the spread of infrastructure (broadband) and the other main IT goods (Pc) in households is still at a low level. A directly related factor is computer literacy, which is still rather low: for example only 13% of Italians aged 55-74 use the Internet. Second, business digitalisation is still insufficient to ensure adequate modernisation, considering the delayed adoption of business automation technology and access to advanced Internet functions, such as electronic purchase and e-procurement of capital and consumer goods. The latter parameter is higher in other countries than Italy. One only needs to consider that small Italian businesses, notwithstanding their proliferation Information Technology

153


(4 million) scarcely represent 18% of total IT outlay. In 2009 these businesses substantially reduced investment in IT (down 10%). Finally, with reference to the public sector, it must be noted that Italyâ&#x20AC;&#x2122;s share of public IT costs, as a percentage of current expenditure, is lower than that of other European Member States. This implies the lack of widespread interactive services for business and consumer use, particularly at local level. Another index that indicates the status of public sector digital activity is the use of information technology in schools: a sector where, once again, Italy needs to make major improvements.

2. IT businesses in Italy With approximately 100,000 businesses and a workforce of 400,000, the Italian IT sector occupies a significant position within Italyâ&#x20AC;&#x2122;s domestic economy. According to Eurostat the IT sector is in fact among Top Ten economic activities in Italy, both in terms of overall added value and of the number of people employed (nearly 3%). The comparison with other traditional economic sectors is particularly interesting, for example the wood, chemical and publishing industries, in comparison to which the IT section has a large weighting (in some cases even double or triple) regarding workforce and overall added value. In addition, it is extensively widespread in the Italian entrepreneurial arena. Productivity figures point to the importance of the IT sector in Italy. If it is considered in terms of remuneration of human capital by unit of completed production or disseminated service, the IT sector has a 26% rate of productivity, 13 percentage points higher than the national average, and is strongly represented in the category of highly skilled personnel and in businesses with efficient organisational structures. Looking closer at the IT sector, it becomes apparent that the leading segment is Software and Services related to IT consultancy, software development in the strict sense of the word, the management and analyses of data and more generally, all business activities linked to information technology. From a structural perspective, 92% of IT business is concentrated in developing software and related services, 6.2% is active in technical assistance, whilst only 1.8% is principally active in the construction of IT equipment. In recent years the hardware segment has been experiencing a slow but continuous contraction in terms of productive units. As for the legal form, businesses in the IT sector are mainly made up of limited companies. These are 32% of the total and represent 69% of the workforce (this figure nears 84% if you consider sole traders). This means that the IT sector is very robust from a structural perspective: in fact, 57% of the businesses with a limited company structure employ 88% of the skilled personnel and 98% of people in permanent staff positions. It goes without saying that, as with the rest of the Italian economy, the IT sector is characterised by the overwhelming presence of microbusinesses. Some 94% of Italian IT companies have, in fact, less than 10 workers and employ just over 25% of permanent staff and 44% of the 390,000 overall workforce in the sector. The software and services segment is also the most important in the IT sector when measured in terms of size of workforce. In 2008, in particular, it may be noted that 92.4% of the workforce in the sector was employed in the development of software and services, 4% was employed in technical assistance and only 3.6% was employed in the manufacture of office machinery, in assembling computers or in creating information systems. As observed among businesses, there is a slight but continuous improvement in the Services segment (up 0.2%) and a corresponding continuing reduction in the hardware segment. With regard to the geographical breakdown of IT businesses, local units are mainly concentrated in the Northwest area (around 38,000 units), followed by Central regions (approximately 24,000 units) and Northeast (22,000 units). The South and the Islands are in a lower ranking

154

Information Technology


(The two areas together have less than 21,000 production units). Lombardy is the region with the largest number of local IT businesses (some 27,000). Lazio, with 12,000 production units, lies in second place in the regional hierarchy, followed by Veneto, Tuscany, Piedmont and Emilia-Romagnia. The overall turnover for active local units in the IT sector is greater than 44 billion euros, which equals to around 440,000 euros for every production unit and 110,000 euros per worker. Of this figure, 88% is from the software and services segment, 9% from hardware and only 3% derives from technical assistance. The economic and financial crisis in 2008-9 therefore affected a widespread but fragile structure, with few large businesses (Table 4 the top 50 Italian IT businesses account for some 50% of total industry turnover) and tens of thousands of small and micro-businesses, which cover over 50% of the market. From the supply side, the market is predominantly geared to supplying a small number of ‘big spenders’ in industry, banking, public health and telecommunications. As regards demand, there is a limited market. This makes industry growth by means of investments in research and innovation by IT businesses very difficult. The market is characterised by: •

Very low consumer spending as a percentage of total spend (around 6%);

a public sector crippled by debt and by the influence of in-house companies, failing to actively develop the whole market (with a stable market share of around 15% for years);

The business segment is largely dominated by a small number of large businesses, which, in spite of an 8% decrease in IT investments in 2009, accounted for almost 57% of total IT business spend. Table 4: Top 50 IT business in Italy

Rank

Company

2009

2009/2008

2008

2008/2007

2007

1

Hewlett-Packard Italiana (Group)

2.850

-7,0%

3.064

2,4%

2.993

2

IBM Italia

2.050

-6,0%

2.182

1,9%

2.141

3

Esprinet (Group)

1.600

-10,2%

1.781

-1,2%

1.804

4

Accenture

960

-0,7%

967

17,1%

826

5

Cisco Systems Italy

880

-4,3%

920

5,7%

870

6

Microsoft

827

0,2%

825

0,6%

820

7

Engineering (Group)

740

5,4%

702

59,9%

439

8

Acer Italy

710

2,4%

693

9,5%

633

9

Ecs

600

6,0%

566

8,6%

521

10

Asustek Italia

590

5,4%

560

28,7%

435

11

Tech Data

585

-5,2%

617

0,8%

612

12

Computer Gross Italia

550

6,6%

516

10,3%

468

13

Ingram Micro Italia

505

-12,4%

576

-11,5%

651

14

Elsag Datamat

500

-0,4%

502

10,7%

454

15

Almaviva (Group)

390

-3,9%

406

-15,8%

482

16

Oracle Italia

381

4,4%

365

7,2%

341

17

Samsung

378

16,1%

326

21,4%

268

18

Sia Ssb (Group)

370

-2,3%

379

-1,6%

385

19

Datamatic

360

3,7%

347

10,2%

315

20

Cdc (Group)

350

-6,6%

375

-20,2%

470

21

Fujitsu Technology Solutions

315

-3,1%

325

4,6%

311

22

Apple Computer

315

5,0%

300

25,0%

240

23

Dell

290

-9,4%

320

6,7%

300

Information Technology

155


24

Google

290

16,6%

249

26,2%

197

25

Italtel (Group)

288

-16,1%

343

-17,6%

416

26

Sap Italia

285

-6,6%

305

20,6%

253

27

Reply (Group)

280

5,6%

265

20,7%

220

28

Value Team

275

-2,6%

282

4,2%

271

29

Ricoh

250

-8,4%

273

-13,1%

314

30

Cedacri (Group)

250

-1,1%

253

25,0%

202

31

Zucchetti (Group)

231

5,0%

220

7,3%

205

32

Xerox

230

-2,1%

235

-0,8%

237

33

Sun Microsystems Italia

228

-15,6%

270

-16,9%

325

34

Sony Computer Entertainment

220

4,8%

210

-16,6%

252

35

Lexmark

210

-8,7%

230

-2,1%

235

36

Epson Italia

210

-5,6%

223

-12,9%

255

37

Csi Piemonte

180

1,7%

177

3,1%

172

38

Bassilichi

180

-2,7%

185

51,9%

122

39

Brevi

172

-3,9%

179

1,2%

177

40

Toshiba

170

-5,6%

180

-14,3%

210

41

Sony Italia

170

9,7%

155

10,7%

140

42

Cse Consorzio Servizi Bancari

167

6,2%

157

10,0%

143

43

Altran Italia

160

-9,2%

176

12,9%

156

44

E-Motion

160

-4,7%

168

-4,0%

175

45

Siemens It Sol. & Svcs

160

-3,7%

166

-7,9%

180

46

Ncr

160

-3,1%

165

-2,4%

169

47

Infracom (Group)

160

-1,2%

162

44,5%

112

48

Emc

150

-9,1%

165

-7,3%

178

49

Olivetti

150

-6,3%

160

-3,0%

165

50

Avnet Technology Solutions

145

-2,6%

149

7,4%

139

Note: Figures in millions of euros. Source: Elaboration of SIRMI estimates.

3. The Italian market The IT market in Italy clearly experienced a very critical situation in 2009, with an 8.1% drop, much greater than the European average and, by size, second only to the double-digit market â&#x20AC;&#x2DC;collapseâ&#x20AC;&#x2122; in Spain. Table 5: The IT market in Italy, 2007-2009 (Value in millions of euros; variations in %) 2009

09/08

2008

08/07

2007

Services

8.750

-6,5%

9.355

0,4%

9.317

Hardware

4.874

-14,8%

5.723

-0,2%

5.733

Software

4.307

-3,6%

4.470

3,4%

4.325

755

-5,0%

795

-2,5%

815

18.686

-8,1%

20.343

0,8%

20.190

Technical assistance Total

Source: Assinform/NetConsulting, 2010.

However, encouraging signs are to be found above all in the software applications segment, and in 2010, there was a steady recovery of corporate investments in hardware. The hardware segment recorded the worst results of the entire IT market in 2009 with a turnover of 4,787 million euros, thus dropping 14.8% in value over the preceding year. All the

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segments reveal a fall in turnover and in some cases the drop is considerable. In particular, the worst results relate to expensive top range products. With regard to units, notebook is the only segment showing growth, due to the performance of the consumer market and to the sales in the netbook sub-segment (small-scale, budget portable computers). An important factor regarding supply is the abandonment offshoring by some national operators in order to dramatically reduce the ‘time-to-market’, attempting to satisfy an increasingly fragmented demand with timeliness and personalised products. In general, for the first time, the personal computer segment showed negative growth in terms of value. Meanwhile the number of units sold continued to increase (although at a slower rate of growth). In spite of the substantial consumer market performance, the reduced level of business, corporate and professional investment produced a strong decline in demand. Sales for the entire segment, which includes individual PCs (desktop and notebooks) and PC Servers2, totalled 6,942,000 units, a year-on-year increase of 0.5%. However, sales figures dropped by 12.9% and amounted to approximately 2.827 billion euros. Overall, at the end of 2009 the total stock of personal computers amounted to 33,238,000 items, with a continuous decrease in desktop models and an increase in notebooks (laptops), which now represent slightly less than 40% of the total. PC Client (desktop and notebook) demand, which has supported the hardware sector for a number of years, was weak throughout almost all 2009 with a slight uptake at the end of the year, due to the availability of models with new processors. Overall some 6,772,000 items were sold, an increase of 1.2% due mainly to the strong contribution from netbooks, whose sales increased nearly by 80% in terms of units sold, a total of some 1,550,000 items. Having smaller dimensions (with a screen measuring less than 11”) and a low budget price, these models have, however, cannibalised notebook sales, leading to a lower average price and to a 11.6% reduction in sales. Interesting uses of these small systems are to be found in the experiments taking place in the schools sector, for example in elementary and secondary schools: here they use models partially built in rubber that can withstand to knocks and scratches to create a “connected classroom”. These models have an antimicrobial keyboard to protect the health of the children. Pupils can follow the lessons via a Wireless connection: teachers make use of an interactive blackboard, the advises are stored on a fixed external hard drive and made available on a blog. Further developments in this area are expected with the launch of the new touchscreen tablet and e-book devices, which have been very successful in the United States and whose introduction in Italy is conditional to the development of editorial content and services that can be used on the new devices. With regard to PC Server components, 2009 brought a further contraction in the market, already affected in the second half of the previous year. Demand was very weak during the year, with a slight sign of recovery occurring only in the final quarter. Sales amounted to some 170,000 items only a 20.9% downturn on the previous year. The turnover trend was also negative, since few major projects were untaken, with a detrimental effect on the sale of largescale computer configurations. In the hardware segment, it was the Mainframe component3 that suffered most from the 2 A PC Client is a personal computer that is used directly by an individual user when he/she is accessing the services or resources of another component, called the PC Server, used by groups of people achieving simultaneously access by means of a remote device. A computer linked to a server by means of an IT network (local or regional) and to which it requests one or more services, using one or more network protocols is an example of Client Hardware. 3 A mainframe is a computer with a large processing power, typically used by organisations running applications that require large amounts of processing and the management of many users at the same time. A single mainframe may replace dozens or hundreds smaller physical servers, thus reducing the cost of management and administration and, at the same time providing high levels of scalability and reliability, attributes which are difficult to achieve with distributed servers.

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lack of strategic investment. All large-scale projects were frozen: investments were directed at replacing old generation machines or small increases in processing power to meet needs regarding existing applications. As in 2008, these issues particularly affected the banking and financial sector, which alone accounted for over 80% of the entire Mainframe market. It is worth noting the growing attention being paid to the possible use of mainframes in Cloud Computing, with software directly usable from the Web in a SaaS (Software-as-a-Service) distribution model. In the Printer segment, the trends already seen in recent years were accentuated, confirming the decline of the inkjet segment, which is now limited purely to consumers, and the decrease in sale of monofunction components in the laser segment. The sole market area to hold its position, though with a lower rate of growth than in previous years, was the multifunction laser printer – both black-and-white and colour. This did not however offset the drop in the multifunction inkjet market. The trend towards consolidation of business printers towards multifunctional systems is confirmed, as is the extension of so called consumer ‘Managed Print Services’, which are based on the payment of a fee calculated on the number of pages/ prints produced (print, photocopy, fax). The fee includes, in addition to the use of the printer, systems’ assistance, spares, consumables and management. Contracts often contain an offer to replace the computer stock with new equipment, thus promoting technological renewal. The Storage segment, comprising discs and tapes, recorded some 272 million euros revenue, a drop of 15% compared with 2008. It has been seen with the other segments, the market has mainly required storage solutions based on the optimisation and rationalisation of what is already in place, rather than solutions related to new projects. Notwithstanding the negative financial outlook, market demand has been boosted by the strong growth in the volume of data to be managed, by the extremely high percentage of unstructured information (e-mails, messages, documents, images and videos), and by the high and growing number of regulations that frequently require the long-term retention of corporate data. The strategies put forward by the operators in the storage sector are geared to satisfying three fundamental requirements: •

improvement in service: sharing solutions, virtualisation, automation;

risk management: protection, encryption, disaster recover, business continuity;

cost reduction: consolidation, intelligent filing, green computing and cloud computing.

Although the Technical assistance segment dropped by 5%, it appears to have suffered less from the general decrease in investments: the delay in renewing the installed stock has in fact prompted businesses to procure support services in order to safeguard the operation of the infrastructure. The reasons leading the decrease of revenue in hardware manufacturing have been noted for some time: •

the new products are always less expensive and maintenance costs reflect the trend;

increasingly widespread processes to concentrate and optimise the infrastructure within a consolidation and virtualisation process: multiple servers or storage towers4, which have a lower capacity and lower prices are replaced by fewer units, but of superior quality, which offer better services overall, lower direct and indirect energy consumption, greater management efficiency so the maintenance service as a whole costs less.

With regard to rates, even if the prices list remained substantially unchanged in 2009, or were 4 The term ‘Storage’ refers to hardware equipment, back-up for information storage, the infrastructure and software devoted to information storage on physical media of large quantities of information in electronic format.

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raised only slightly to reflect inflationary trends, vendors frequently agreed to offer the client improved or more extended services for the same price. Some financial problems arose in the low-end of the market, because of bad debts and of a general shift to lower levels of service. In relation to commercial policies, it must be emphasised that the recourse to ‘buy’ policies by the vendors, which involve the use of Third Parties5 has been greatly reduced in recent times. The extreme competitiveness of the market resulted in various types of selection, merger and concentration of operators and only a few fairly large Third Parties have remained competitive on the market. It is clear that recourse to third parties allows great flexibility and regional coverage; but management and training are onerous and not without risk: the Third Party may have reached a critical mass and autonomy in its operations, and may take away business opportunities from the vendor with whom it is collaborating. Even though this is a business-line that has been in contraction for a number of years now, the operators dominating the sector take great care over this type of service for two basic reasons: •

the large profit margin for technical assistance remains at interesting levels, generally higher as complexity and criticality increases;

the great tactical and strategic value of the service, since an efficient maintenance and technical assistance service create customer loyalty, it guarantee a significant return in terms of image and at times make it possible to influence the choice of new investments in both products and services.

The fears and hopes expressed at the end of 2008 regarding the future development of the Software and Services section were confirmed in 2009. The full extent of the effects of the economic crisis were apparent in this sector, with a major drop in the IT services segment (down by 6.5% over 2008) and a more contained fall in the software area (down by 3.6% compared with 2008), leading to an overall contraction of 5.6%. This brought the overall value of the market to 13.057 billion euros (Table 4). Looking at this in detail, the slow-down in the software market can be traced back to all three of its segments, outlined in Table 6. Table 6: Software market in Italy, 2007-2009 (figures in millions of euros and % var.) 2009 System software Application software

09/08

2008

08/07

2007

590,5

-4,6%

619,0

3,2%

600,0

2.631,5

-4,1%

2.744,0

2,5%

2.678,0

Middleware

1.085,0

-2,0%

1.107,0

5,7%

1.047,0

Software Total

4.307,0

-3,6%

4.470,0

3,4%

4.325,0

Source: Assinform/ NetConsulting.

The middleware market has been significant for some years. In 2009 in particular this segment has seen direct action by companies on two themes, virtualisation and security, these are now finding a fundamental technological support in consolidation initiatives. The adoption of virtualisation solutions is growing, not only in relation to the number of businesses that have such projects, but also in the elements of IT infrastructure involved in this kind of initiative. Increasingly, virtualisation solutions affect not only servers, but also storage devices, desktops, laptops and corporate networks concentrated in a single data processing centre or located in additional Data Centres. The advantages of virtualisation involve: •

a strong cost reduction, including indirect costs such as energy consumption and cooling systems. In this regard virtualisation initiatives can be seen as introductory initiatives to create “green” Data Centres and the start of sustainability strategies in corporate growth;

the optimisation and flexibility of the IT infrastructure, systems and applications in relation to the variable demand for computational capacity from various business functions.

5

Typically this relates to intermediary business between the vendor and the IT purchaser.

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The growing success of new virtualisation models allows on-demand management, that is management solutions based on the Cloud Computing related to infrastructure (IaaS and other approaches), development platforms (PaaS) and applications (SaaS). According to this new IT model, the business Data Centres can evolve into a ‘private cloud’, achieved through the concentration of a series of IT resources devoted to virtualisation platforms, which operate as single data processing centres, and perhaps into a ‘public cloud’, based on the outsourcing of calculating power through the Internet. Security and governance are other areas displaying growing demand in middleware solutions, to meet the needs concerning data loss and control of the internal infrastructure and systems in virtualisation projects: •

security issues are becoming indispensable to protect company assets from non-authorised access, increasing the demand for ‘strong authentication’ solutions and for protection from interruptions to business activity, with an increase in company awareness about aspects of Business Continuity and Disaster Recovery. In any event, the traditional static security solutions are increasingly inadequate on the one hand, because they are not in a position to protect dynamic virtual server pools and on the other hand they can reduce or nullify the benefits of virtualisation. Within this framework, however, we are witnessing the birth of a series of virtualised security solutions based on virtual appliances or on detectors placed within the virtual machines;

with regard to governance, business users are showing growing interest in solutions that support the capacity to control and reconfigure virtualised Data Centres. Some examples of the functionality supplied by these instruments are represented by: fault tolerance services; the possibility to structure storage, networks and server security parameters; automation of configuration management, back-up operations and restoration of data and applications; self provisioning of the Data Centre resources etc.

The applications solutions market has recorded a greater overall drop than the average for the segment, down by 4.1% in relation to 2008, compared with a 3.6% drop recorded in the software segment as a whole. Two issues lie at the heart of this trend: •

the economic difficulties have slowed investment decisions by business users, mainly the smaller businesses, which are traditionally more vulnerable, but also by bigger firms, which generally possess up-to-date stock of applications. That require a lesser degree of revision and modernisation;

the extent of the technological developments, mainly in the field of new ‘on-demand’ concepts, SOA and technical innovations on Web 2.0, and the assessment of possible ways to use Open Source software have caused end-users to adopt a wait-and-see attitude, which frequently leads to deferred investments.

Detailed analysis of the individual software products highlights the progressive drop across the full range of application solutions, even if some areas have suffered more than others from the negative financial situation. ERP solutions (Enterprise Resource Planning) are demonstrably the most mature market, with a drop by 7.1% in 2009 over 2008; followed by CRM (Customer Relationship Management) products (- 5.7%); and both SCM (Supply Chain Management) and BI (Business Intelligence) packets, which recorded less negative performances, fluctuating between a - 4.2% and a - 2.9% drop. Of particular interest is the major integration of SCM packets with BI products to form a well-founded joint action for business competitiveness in all sectors. In fact, BI systems allow companies to implement strategies to optimise the performance of core company processes, contributing to cost-reduction and an increase in revenue: •

160

in terms of cost reduction and rationalisation of time-to-market, the BI instruments allow both performance and key performance indicators to be monitored, with positive impacts on the optimisation of the Supply Chain. They also support production planning for the Information Technology


Industry sector; •

the increase in revenue derives from tools aimed at targeting and optimisation of marketing campaigns and, for some sectors such as telecommunications, utilities and media, at the development of new products and services.

For that reason, business downstream costs mainly relate to: •

the Business Performance Management instruments, especially in the field of Finance and Public Administration, including ad hoc queries and reporting, dashboards and scoreboards, financial analysis, planning and monitoring, as well as analysis of sales;

the business analytics tool in the form of methods of prediction, forecasting and optimisation, which are taking on an ever larger role in companies’ decision-making processes.

The software systems segment was constrained by the major downturn in PC and server sales. An upturn occurred in 2009, particularly in the second half of the year, with renewed investments by business users. In the last months of 2009 an area that saw particularly positive trends in expenditure was that of infrastructure licences for virtualisation strategies, which over time allow physical machines to create a variable and potentially infinite number of virtual applications. These manage access to applications that reside in virtual environments. With regard to IT services, downstream businesses costs suffered a major setback in 2009 due to recent events already outlined above: •

the persistence of ‘down pricing’ in professional rates, associated on the one hand with renegotiation of contracts – and on the other with the reduction in their number, driven by continuing consolidation of the operators;

and a major focus by business users on the priority of recovering business economic efficiency - at the expense not only of investments in technological innovation but also, even though to a lesser degree, of IT initiatives aimed at increasing business, marketing and supply.

As a result, surveys have revealed: •

large investments by downstream businesses on continuing management activities, which started in the past and have significant impacts on the structure and level of business expenditure, and on the projects in the field of embedded technology, which have direct impacts on product and service innovation, a critical factor in the fundamental success to stimulate demand in a period of consumer contraction;

strong caution– mostly in the first part of the year – at the start of ad-hoc projects, both high-end (Systems Integration and Consulting) and low-end (development, processing etc.), since, in the attempt to increase efficiency, downstream businesses undertook multiple measures affecting internal and group organization (restructurings, mergers and acquisitions, redundancies etc.), which may generate IT investments, but only in the short and medium term.

In 2009, downstream businesses investments in IT services gave rise to three diverse clusters of projects and related activities with as many speeds in the rate of expenditure. •

worst performer: the cluster includes processing services, development and maintenance, as well as training. These recorded falls well above the sector average: down respectively by 9.3%, 8.7% and 8.8%;

average performer: this relates to Consultancy and Integration Systems, increasingly often combined and connected to the overall packages, whose performance records values more or less aligned to the overall average;

best performer: in this category are continuous Outsourcing services and projects relating Information Technology

161


to embedded technology, which are strongly supported by end-user in their search for rationalisation and efficiency as well as innovation in the supply of products and services. Table 7: IT Services Market in Italy, 2007-2009 (in millions of euros and % variations) 2009

2009/2008

2008

2008/2007

2007

Outsourcing

2.548

-3,5%

2.640,2

2,4%

2.579,4

Development and Maintenance

1.957

-8,7%

2.143,0

-1,0%

2.165,3

993

-6,8%

1.065,1

1,0%

1.054,2

System Integration Embedded systems

986

-5,0%

1.037,4

2,2%

1.015,3

Consultancy

950

-7,0%

1.021,0

1,1%

1.010,3

Processing services

827

-9,3%

912,1

-3,1%

941,4

Training Total IT Services

489

-8,8%

536,2

-2,7%

551,1

8.750

-6,5%

9.355,0

0,4%

9.317

Source: Assinform/ NetConsulting.

4. International comparisons At European level, the Italian IT market remains under-sized if compared to other EU countries (Table 8). Germany heads the rank (with a 20% share of the total European IT market), followed by the United Kingdom (18%) and France (16%). Spain, which had been growing at a steady pace in recent years, seems the most affected by the crisis. Table 8: The main EU IT markets 2009

2009/2008

2008

2007

2008/2007

Germany

69,0

-4,6%

72,3

69,9

3,4%

20%

UK

59,7

-6,7%

64,0

62,0

3,2%

18%

France

53,1

-3,8%

55,2

53,4

3,4%

16%

Italy

18,7

-7,9%

20,3

20,2

0,5%

6%

Spain

14,4

-8,9%

15,8

15,1

4,6%

4%

339,3

-5,4%

358,7

346

3,7%

Total - EU27

Share of EU 27

Note: figures in billions of euros. Source: Assinform/ NetConsulting.

Nonetheless, as for number of businesses, Italy is in second place overall, behind the UK, but ahead of France and Germany. Referring, however to the workforce in the European IT sector, Italy drops to third place behind the UK and Germany. An analysis of both the average number of personnel and average revenue per company reveals that Italy lies well below the European average (both EU15 and EU27) and only slightly above the average for the new Member States. In Italy, the average number of persons employed per enterprise in the IT sector is only 4, while the European average is 5. In terms of average sales per employee, the situation is equally bad (110,000 euros compared to a European average of 150,000 euros), confirming the considerable fragmentation of Italian firms. At European level, Italy has 6 regions placed in the Top 20 IT-oriented European regions, more than the UK (with 4) and Spain (with 2). Amongst the top 30 ranking European regions (defined by number of local IT units) Campania is included as the top region in the Mezzogiorno, confirming its strong regional presence in IT. Table 9: Top 30 European Regions by number of local IT Services Lombardy

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2007

2006

2005

26.652

24.825

24.755


Île de France

26.484

26.724

25.367

Közép-Magyarország

14.661

14.066

13.893

Stockholm

14.185

13.782

12.989

Outer London

12.856

12.502

12.368

Lazio

11.525

11.904

11.306

Inner London

11.344

10.867

10.327

Comunidad de Madrid

11.177

11.020

9.899

Mazowieckie

9.649

7.839

7.548

Berkshire, Bucks and Oxfordshire

9.554

9.392

9.320

Surrey, East and West Sussex

8.929

8.963

8.783

Veneto

8.914

8.772

8.257

Denmark

8.605

nd

nd

Tuscany

8.406

6.323

7.197

Cataluña

8.286

8.082

7.084

Piedmont

8.274

8.063

7.715

Emilia-Romagna

8.140

8.252

7.676

Attiki

7.911

nd

4.722

Praha

6.469

7.804

7.532

Oberbayern

6.372

6.540

5.877

Lisboa

6.100

6.394

6.411

Rhône-Alpes

6.026

6.062

5.620

Västsverige

5.760

5.520

5.269

Gloucestershire, Wiltshire and Bristol/ Bath area

5.597

5.810

5.523

Provence-Alpes-Côte d'Azur

5.454

5.579

5.168

Campania

5.442

5.255

5.465

Bedfordshire, Hertfordshire

5.184

5.212

5.110

Bucuresti - Ilfov

5.057

4.607

4.123

Zuid-Holland

5.030

5.060

4.350

Hampshire and Isle of Wight

4.807

4.798

4.790

Source: Elaboration of Eurostat data 2010.

If the workforce is considered, however, Lombardy slips from first to third place overall in Europe, whilst both Tuscany and Campania exit the Top 30 European regional ranking. On the one hand this confirms the high degree of Italian entrepreneurial activity, but on the other hand indicates the lower numbers of people working in this sector, compared to other European regions. Table 10: Top 30 European regions by number of workers in IT Services 2007

2006

2005

Île de France

226.508

198.142

202.922

Comunidad de Madrid

129.354

116.661

102.734

Lombardy

99.771

98.708

103.739

Inner London

79.650

72.079

74.266

Berkshire, Bucks and Oxfordshire

66.578

63.913

63.581

Lazio

61.554

63.889

59.954

Stockholm

55.857

51.478

49.382

Denmark

53.838

nd

nd

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Stuttgart

45.934

42.520

45.730

Darmstadt

44.065

37.774

38.397

Outer London

43.773

41.026

43.588

Közép-Magyarország

43.309

40.144

38.392

Surrey, East and West Sussex

42.790

41.787

42.043

Oberbayern

41.479

43.000

41.401

Cataluña

41.357

36.900

34.837

Karlsruhe

36.971

35.169

33.354

Düsseldorf

35.162

34.767

32.620

Piedmont

33.522

32.225

33.412

Köln

33.117

30.369

27.886

Southern and Eastern

32.790

30.955

nd

Rhône-Alpes

32.495

33.693

30.643

Veneto

32.461

31.430

30.106

Utrecht

31.668

31.001

29.445

Hampshire and Isle of Wight

31.217

30.442

27.325

Emilia-Romagna

30.955

30.071

29.440

Etelä-Suomi

30.369

29.690

27.655

Mazowieckie

30.003

25.396

23.147

Bucuresti - Ilfov

29.933

25.144

20.131

Praha

27.228

24.286

23.132

Zuid-Holland

27.185

31.148

29.086

Source: Elaboration of Eurostat data 2010.

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Video games

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Video games By William Ricci

1. The Italian market Recent figures for the video game market show how the continuing strategic repositioning of the big format owners has had an influence, producing various dips in traditional areas of the video games sector. While the drop in the video game market has been widely attributed to the economic downturn’s impact on consumer spending in Italy, and in Europe generally, this chapter’s analysis shows that, in Italy at least, the situation is more complex and, in part, less negative than has been recently suggested by the Italian media, in both traditional channels1 and on the web2 Fig. 1: Italian market, millions of euros Total Software Games

Total Hardware

Total

1400 1.262,7

1200

1.128,9 1.038,2

1000 800

741,9

741,6

557,5

600 514,2

474,9

400

480,5

670,9 591,9

627,8 501,1

266,9

200

227,4

0 2005

2006

2007

2008

2009

Source: IEM elaboration of AESVI data.

According to data supplied by AESVI (Association of Italian Video Game Software Publishers), 2009 marked the first negative year in Italy since 2005, with a drop of roughly 10%, and revenues amounting to just under 1.130 billion euros. A breakdown of the figures in the two macro sectors, hardware and software, shows that the decrease in spending differs, with respective falls of 15% and 6.4%. According to the methodology of the AESVI 2009 Report3, the total is calculated without taking into account the results of two important segments that are seeing 1 Videogames in frenata: ricavi giù del 10%, Sole24Ore, 2010. Preview available at: www.banchedati.ilsole24ore.com. Jaime D’Alessandro, Per i videogame segnali di crisi, Repubblica, 2010. 2 Federico Cella, Anche i videogiochi sono in crisi, Corrieredellasera.it – I Blog, 2010. 3 AESVI-GFK, 2009 – Annual report on the state of the video game industry in Italy, 2010.

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their strategic influence on the market constantly growing: the liquid market (internet and mobile) and game devices. It should also be noted that the 2009 drop is partially the result of the market reaching full maturity (or the start of the decline) in the life cycle of hardware console products. Before turning to look in detail at the liquid market and gaming devices, we will first look at the relationship between the hardware and software sectors in their home and portable functions. Analysis of the data shows that the portable console has registered a directly proportional market trend since 2005, with both hardware and software recording a similar percentage drop in 2009, respectively -21% and -27%. Fig. 2: Hardware & Software, millions of euros Software Home Console Software Portable Console

Hardware Home Console Hardware Portable Console

500 410,1

431,2

400 328,1

319,7 292,5

300

286,8

321,7

228,4

193,7

200 135,2

100

363,3

205,6

146,1 174,4

92,1

120,8

80,6

111,5

179,4 149,1

0 2005

2006

2007

2008

2009

Source: IEM elaboration of AESVI data.

The situation is different in the home console sector. The figures from 2005 to 2009 show a relationship between video games and consoles that demonstrates the highly compelling driving force of the hardware market, able to anticipate positive trends in titles by approximately one year. In December 2005, the hardware market tested the launch of the Microsoft Xbox 360 console, with Nintendoâ&#x20AC;&#x2122;s Wii and the Sony Playstation 3 following on in December 2006 and March 2007. Even though prices in the consol market drop after just a year from the start of sales, in 2007 the amounts generated produced high percentage increases (+98.6% for the start of Nintendo Wii and Sony Playstation 3 sales and the decrease in prices of Xbox 360) and in 2008 (+26.6%, when prices for Wii and PS3 started to decrease). Whereas the 2009 decline (-11.4%) can be interpreted as due in part to the hardware life cycle, whether having reached full maturity or starting a downward swing, and in part as a result of the reduction in consumer spending as a result of the economic crisis. Home console titles (software) register growth approximately one year behind the hardware sector, with a phase of average stability between 2005 and 2007, strong increase in 2008 (+28%) and slight growth in 2009 (+5%). The reason behind this disproportion between the performance of hardware and software is due to home console software buying habits, which follow the considerable expense of buying a hardware home console with a delay of approximately one year. In fact, software aimed at home entertainment is the only segment registering growth in 2009, proving once again its profitability at a time when spending on more expensive and binding items is scarce. The volume of business also shows a similar proportion of growth to that seen in value, for hardware and software, both in portable and home devices. Sales of home consoles register the best results in 2007 (+31%) and 2008 (+30%) and a slight decline in 2009 (-2.7%). On the contrary, home entertainment titles demonstrated a real increase in number of copies sold in 2008 alone (+12%), with the positive trend continuing into 2009 (+3.4%). Video games

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In contrast, the portable sector shows a decidedly more homogeneous relationship between hardware and software. Sales of both consoles and titles in 2007 were up 66%, in 2008 hardware increased by 14% and software by 22%, while 2009 saw a decline in both segments, respectively falling 20% and 21.5%. Fig. 3: Hardware & software, thousands of units

12.000

Software Home Console

Hardware Home Console

Software Portable Console

Hardware Portable Console 10.161

10.000

8.977

8.973

10.507

9.071

8.000 6.689

6.000 5.245

5.466 3.287

4.000 2.187

2.000 0

1.097 835

850 631

2005

767

2006

1.276

2007

1.430 1.467

2008

1.390 1.170

2009

Source: IEM elaboration of AESVI data.

Now we can turn to a new chart showing the results of the liquid sector and game devices within the overall market context. Game devices in particular have shown remarkable strength in the last four years, registering notable growth in 2009 (+73%) with revenues of over 159 million euros. In truth, these positive trends are a result of the controller sub-sector which, taking advantage of the new ways people use controllers thanks to Nintendo Wii, already saw a strong increase of 30% in 2008 by 30% and then reached over 100 million euro in 2009, up 109% on the previous year. The game device area includes the sub-sector, game accessories, which are a varied range of objects and accessories to improve the video game experience, from memory cards for saving data to carry covers for portable consoles. This sub-sector shows virtually constant development, part of the new trend of using strategic upgrading to refresh the console as a game playing device. It would appear that the game device sector in general, and the game controller in particular, is still far from exhausting its sales impetus in terms of quantity and quality. This is especially the case given the new products from Microsoft and Sony, whose controllers Microsoft Kinect4 and Playstation Move5 have fully entered the device market, basically competing on an equal footing with Nintendo. In particular, we are seeing a new structure forming within hardware strategies through the lengthening the console life cycle, made possible by the implementation of new and innovative forms of game controls. The last sector deserving a more detailed description is the liquid market. Growth in this area has been more contained, an increase of 2% with 148 million generated in 2009, with a difference in the performances of the mobile and online access sectors. Mobile access, at a little below 79 million euros, has dropped by 4%, which, while slight (and lower than 2008), is particularly worrying when seen in Italyâ&#x20AC;&#x2122;s historical context, where the population is known for its openness to technology and different forms of mobile use. Online access grown constantly since 2007 to today, with 2009 seeing an 11% rise and revenues of approximately 70 million euros. Sales of hardware consoles have been particularly positive, rising from 32 million euros in 2008 to over 37 million in 2009. 4 5

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Giacomo Dotta, Project Natal a battesimo: è nato Kinect, Webnews, 2010. Giacomo Dotta, Playstation Move, the reply to Wii & Natal, Webnews, 2010.

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Fig. 4: Italian Game Device market, millions of euros Game Controller

Game Accessories

Total Game Devices

180,0 159,3

160,0 140,0 120,0

109,3

100,0

92,0

80,0

63,4

60,0

48,2

41,4 33,2

52,3

40,0

40,0

39,7

32,8

20,0

23,4

15,4

8,2

50,0

Source: 0,0IEM elaboration of AESVI data.

2005

2006

2007

2008

2009

At this point we can now trace a new chart for the video game market, which classifies not only the traditional hardware and software sectors but also includes digital markets and the devices mentioned above. For clarification, from this point on, we shall refer to the total video game market as the ‘traditional market’, as indicated by AESVI. Fig. 5: Total Physical and Liquid Market, Italy, millions of euros Total traditional Total liquid market

1.600,0

Total Game Devices Total physical and liquid

Total + GD (physical)

1.499,7 1.437,0 1.239,6

1.200,0

1.354,7 1.262,7

1.101,6

1.288,2 1.128,9

1.038,2

800,0

400,0 138,0

0,0

145,0

63,4

2007

92,0

2008

159,3 148,8

2009

Notes: “traditional = software + hardware”; “traditional” + “game devices” (controller) = physical”; “liquid” = web + mobile. Source: IEM elaboration of AESVI data.

First of all, we need to form a realistic idea of the size of the physical market by combining totals for hardware, software and devices, obviously excluding liquid revenues. The graph demonstrates a clear rise in absolute values and a different declination of percentage trends. In contrast to the traditional market, which lost 10.6% in 2009, physical supports (hardware, software and devices) dropped almost 5%. If we then add the value of the liquid market to the

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physical market, the fluctuation shows an even more encouraging picture, a 4% decrease on 2008. Given the real situation of the video game market, this naturally prompts a partial rebuttal of the tendency to interpret the 2009 market drop as a result of the economic downturn. Analysis of the traditional market values shows how the separate data describe different performances, with an actual increase in the home console market, which illogically appears to be immune to the economic slowdown. Furthermore, the estimated life cycle of hardware console products (generally 5 years, with the exception of Sony PS2) has been ignored, the sector showed a physiological contraction in sales in 2009. Given its economic importance and its stimulating effect on software products, the maturity of the hardware product sector appears to be penalising the entire market. Added to this is the strategy common to all the big format owners (Sony, Nintendo, Microsoft) aimed at prolonging the console life cycle through the production of innovative control systems, inspired by Wiimote, the revolutionary technology introduced by Nintendo 5 years ago. Microsoft, in particular, presented its new system, Kinect (a result of Project Natal, which has a whole range of dedicated software products), which completely eliminates any kind of control, managing to track the gamerâ&#x20AC;&#x2122;s movements and translate them into game input. These new product activities represent a turning point in the market, able to compensate the decline of the console life cycle through the increase in controller systems and, therefore, in the game device sector. The 4% decline is, it would appear, the result of a strategic change in the video game universe. It aims to promote new forms of play, while avoiding the production of a new generation of consoles (with the exception of Nintendo, which has produced the new portable 3DS6), and boosting the propensity to buy the new console hardware needed to run the new controller products from Sony and Microsoft. Finally, it is worth mentioning the start-up Onlive, which completed beta testing in the USA, Belgium7 and UK8 in 2010 and offers a new video game experience based on cloud technology, which founder Steve Perlman promises will provide the opportunity for playing the best video game titles on the market in streaming via a PC and without the need to download. Cloud computing brings various hopes for the PC game market, which has been in decline for a while, and for the new forms of liquid use, which, as we have seen, are struggling to grow in Italy. Tab. 1: Video game industry market - thousands of euros, thousands of units 2005 Value Console Games Home Console Games Portable Total Console Games

2006

Units

Value

2007

Units

Value

2008

Units

Value

2009

Units

Value

8.973

292,5

8.977

319,7

9.071

410,1 10.161

431,2 10.507

80,6

2.187

111,5

3.287

174,4

5.466

205,6

149,1

408,7 11.160 4.427

404 12.264 70,7

3.642

494,1 14.538 63,4

3.452

6.689

615,8 16.851 55

2.799

5.245

580,3 15.752

PC Games

105,4

Total Software Games

514,2 15.590

474,9 15.905

557,5 17.990

670,9 19.650

627,8 17.925

47,6

Home Console

2.172

135,2

850

146,1

835

286,8

1.097

363,3

1.430

321,7

1.390

Portable Console

92,1

631

120,8

767

193,7

1.276

228,4

1.467

179,4

1.170

Total Hardware

227,4

1.481

266,9

1.602

480,5

2.374

591,9

2.898

501,1

2.560

Total traditional

741,6

741,9

1.038,2

1.262,7

1.128,9

Source: IEM elaboration of AESVI data.

6 7 8

170

Units

328,1

Floriana Giambarresi, E3, le novitĂ Nintendo, Webnews, 2010 Editorial, Onlive coming to Belgium, Onlive - the blog, 2010. Source: http://blog.onlive.com/ Editorial, Onlive coming to the UK, Onlive - the blog, 2010. Source: http://blog.onlive.com/

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Tab. 2: Video game industry market – percentage quotas Value

Units

Value

Units

Value

Units

Value

Units

Value

Units

80,3%

80,4%

72,4%

73,2%

64,7%

62,4%

66,6%

60,3%

74,3%

66,7%

Console Games Portable 19,7%

19,6%

27,6%

26,8%

35,3%

37,6%

33,4%

39,7%

25,7%

33,3%

Console Games Home Total Console Games

PC Games Total Software Games

100% = 100% = 100% = 100% = 100% = 100% = 100% = 100% = 100% = 100% = 79,5% 71,6% 85,1% 77,1% 88,6% 80,8% 91,8% 85,8% 92,4% 87,9% 20,5%

28,4%

14,9%

22,9%

11,4%

19,2%

8,2%

14,2%

7,6%

12,1%

100% = 100% 100% = 100% 100% = 100% 100% = 100% 100% = 100% 69,3% 64% 53,7% 53,1% 55,6

Home Console

59,5%

54,7%

54,7%

52,1%

59,7%

46,2%

61,4%

49,4%

64.2%

54,3%

Portable Console

40,5%

42,6%

45,3%

47,9%

40,3%

53,8%

38,6%

50,6%

35,8%

45,7%

Total Hardware

Total traditional

100% = 100% 100% = 100% 100% = 100% 100% = 100% 100% = 100% 30,7% 36% 46,3% 46,9% 44,4% 100%

100%

100%

100%

100%

Source: IEM elaboration of AESVI data.

Tab. 3: Video game industry market: Game Devices – thousands of euros, thousands of units 2005 Game Controller Game Accessories Total Game Device

2006

2007

2008

2009

Value

Units

Value

Units

Value

Units

Value

Units

Value

Units

33,2

1.591

32,8

1.611

40,0

1.746

52,3

1.953

109,3

3.032

8,2

436

15,4

809

23,4

1.377

39,7

2.495

50,0

2.678

41,4

2.027

48,2

2.420

63,4

3.123

92,0

4.448

159,3

5.710

Source: IEM elaboration of AESVI data.

Tab. 4: Video game industry market: Internet and Mobile – thousands of euros, thousands of units 2007 Value

2008 Units

Value

2009 Units

Value

Units

Internet Console Hardware

24

91,2

32

125,8

37

n.d.

Software Console Game

20

354,3

28

579,2

31

n.d.

85,9

3

83,6

2

n.d.

44

-

63

-

70

94

19.000

82

17.000

78,8

16.150

138

-

145

-

148,8

-

PC Game Total Mobile Software Games Total Liquid market Source: IEM elaboration of AESVI data.

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Tab. 5: Video game industry market: Total Markets – thousands of euros 2007

2008

2009

Value

Value

Value

Total traditional

1038,2

1262,7

1128,9

63,4

92,0

159,3

1101,6

1354,7

1288,2

138,0

145,0

148,8

1239,6

1499,7

1437,0

Total Game Device Total + G.D. (physical) Total liquid market Total physical + Liquid Source: IEM elaboration of AESVI data.

2. The European market The drop in consumption that took place in Italy as a result of the recession, and its consequent effect on the video game market was reflected in the entire European market. However, as previously established, the economic downturn is only one of the causes of the 2009 decline, which was also above all the result of a series of repositioning strategies and calculations ignoring items of growing economic importance (liquid market and games devices)9. As in previous years, the five big European markets group into three blocks in 2009: the United Kingdom takes leading position with over 3.110 billion euros in revenue, with the second block, France and Germany, very close behind with revenues respectively over 2.440 billion euros and almost 2.364 billion euros. The third block consists of Spain and Italy, countries with many social and cultural similarities, which generate respectively 1.200 billion euros and almost 1.129 billion euros in 2009. Fig. 6: European market, millions of euros UK

France

Germany

Spain

Italy

4.000,0 3.711,4

3.500,0 2.935,2

3.000,0 2.805,0

2.500,0

2.482,0 2.756,4

2.470,9

2.458,2

3.110,2 2.440,6 2.363,7

1.854,3

2.000,0 1.479,4

1.500,0 1.000,0

2.944,0

1.607,0

1.454,0

1.432,1

1.436,0 967,0

1.262,7

863,1

500,0

741,6

741,9

1.038,2

1.200,4 1.128,9

2005

2006

2007

2008

2009

Source: IEM elaboration of AESVI data.

9 It would be interesting to analyse the European data in the context of a wider argument, as we have done for Italy, but the AESVI supplies information that follows the lines of what we have dubbed the ‘traditional’ market (hardware and software). We are, therefore, obliged to analyse the European traditional markets, unable to separate the data further and without access to information on European performance in liquid distribution and game devices.

172

Video games


Comparison of the European markets produces the first positive results for Italy, which closed the gap with Spain in 2009, after a growing divergence from 2005 to 2007, bringing the two countries to very similar results, a process helped in part by Spain’s bad performance. Spain was the only European market to contract in 2008, foreshadowing in some way the “crisis” that then affected the entire continent. Performances from 2005 to today in France and Germany were very similar, with France in slight advantage by almost 100 million euros. While the overall performances confirm track records in line with past years, the negative trend produced several surprises in 2009. Beyond the overall contraction throughout Europe, with the exception of smaller markets like Sweden (+1.5%) and Portugal (+13.8%), and despite having the smallest overall market of the big five countries, Italy’s market registered the lowest percentage drop. While France and Germany registered gains in overall values, the French market suffered the highest decrease, dropping 17% compared with 2008. Spain and UK fell sharply, both losing 16.2 %, while Spain has been having serious difficulties also in terms of revenue for at least two years. Fig. 7: European market (Traditional), trends 2008-2009 Italy

-10,6%

Germany

-14,2%

-16,2%

Spain

-16,2%

UK

France

-17,1% -18,0%

-16,0%

-14,0%

-12,0%

-10,0%

-8,0%

-6,0%

-4,0%

-2,0%

0,0%

Source: IEM elaboration of AESVI data.

It should also be noted that it is hard to provide an objective valuation of European results without separate data for liquid performances and the game device sector. As we have seen, at least in Italy, these two areas are crucial to be able to get a clear picture of a market trend, which despite dipping slightly, was absolutely in line with international strategic and product dynamics.

3. Consumer habits Trends aimed at promoting forms of social gaming are by now commonplace in the video game world. This was made possible by Nintendo’s innovative products, with its Wii console and its WiiMote controller making the game experience accessible to all, thanks to a range of titles developed especially for social gaming. Both Sony and Microsoft responded to the challenge with several new products in their controller systems: Sony decided to implement a new remote, Playstation Move, which is very similar to its Nintendo cousin, while the Redmond colossus developed Kinect, a method that aims to eliminate the need to use any kind of physical object, leaving the player to fully control the game through their own movements and voice commands.

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Added to these new forms of social use, the format owners are showing a growing tendency to implement elements of social gaming on a digital matrix in their machines. Often the titles replicate practises found on social networks or multiplayers, also devising a series of services that allow the user to exploit online content through original and attractive forms of access (Playstation Network, Xbox Live, WiiConnect24). This emphasis on socialisation and consequent repositioning has changed the composition of users in terms of gaming frequency, through an initial phase of push strategy (Nintendo), with a dynamic that today sees supply and demand as equal players in a process of reciprocal influence. Fig. 8: Gaming frequency, Italy – hours per week less than 1 hour

100%

1-5 hrs

6-10 hrs

9%

90%

12%

80%

11-15 hrs

more than 15 hrs

6%

8%

8%

6% 15%

70%

35% 33%

60% 50%

49%

40% 30%

45%

43%

20%

22%

10% 0%

4%

7%

2007

2008

2010

Source: IEM elaboration of ISFE data.

Fig. 9: Spending, Italy – titles in a year, 2010 none

between 1-3

between 4-6 3%

between 7-10

between 11-15

more than 15

2% 1%

6% 39%

50%

Source: IEM elaboration of ISFE data.

As proof of this, ISFE10 figures show an increase in soft and medium gamers between 2007 and 2010, rising respectively from 4% and 43% in 2007, to 22% and 49% in 2010. This has created a new status quo, where 71% of video gamers play less than 6 hours a week. This model is far from 10

174

ISFE-Game Vision Europe, Video Gamers in Europe – 2010, 2010.

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the old way of video gaming, which was characterised by heavy gamers with a high volume of play. Today, video games are played more in the living room than in the bedroom, and the video game experience is widening its scope, satisfying the tastes of users who, only a few years ago, were unthinkable targets for the market. Now families, professionals and women are essential targets, whose gaming habits overturn the stereotype of the solitary gamer, offering a model of use that, despite its low intensity, heightens awareness of the market. As a result, this has a positive impact on the penetration of consoles that AESVI estimated as follows: 10,332 Italian families in 2009, approx. 42% of the total (up from 21.8% in 2005). We end the chapter with a quick look at buying habits. The intensity of 2009 is clearly characterised by a contraction in spending that saw over 88% of video gamers admitting to buying less than three titles in the year. Of course part of this contraction can be explained by the impact of the economic downturn on consumer spending, but careful examination would seem to show that gaming habits and spending habits are very different today and in continual evolution. The number of video gamers is on the rise, but fewer titles are being bought with the preferred choices being games with notable longevity and a high gaming versatility. The added value of video games is, therefore, represented in how they can be used and in their capability to support both solitary and social gaming, which allow the video gamers to manage the type of experience they want and to choose the way in which they access the video game content.

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Part II

In-depth case studies


Public investment in the cultural and telecommunications industry by Flavia Barca, Andrea Marzulli, Luca Murrau, Lorenzo Principali e Bruno Zambardino

1. Introduction and methodology 1.1 Introduction Following in the footsteps of IEM’s traditional research into culture and communications in Italy, aimed at charting strategies and economic policies in the public and private sector, the decision to focus on public investment seemed particularly relevant at a time when the whole concept of culture and its boundaries are being re-defined, as are its funding sources. We are convinced that these financial resources actually inform, define and condition culture itself, in the form of the creative, production and distribution processes that shape it and give it visibility with audiences, whether large or small. So it is necessary to examine this area to understand the transformations currently taking place and to give public policies the transparency needed to operate in a virtuous and efficient way that follows EU guidelines. In fact, the analysis of public spending trends, especially those destined for investment, not only provides information about the sums of money given to culture (and telecommunications, see below). It also becomes an element on which to base a qualitative evaluation, in short examining the efficiency of the policies underlying that funding (to see the actual economic return on the ground and the social redistribution of the spending), and thus the profitability of the original expenditure. A reliable and effective survey of the spending figures actually represents the starting point to be able to measure the real impact produced by that expenditure on the sector in question and in the territory. It helps to understand how much of this spending is genuinely productive (for example when it supports innovation in business or in the system as a whole) and how much, if any, is used to support activities with little or no impact on the industry’s production capacity and the general economy. However, the chosen range for this specific analysis is unique compared with the scope usually taken in traditional studies about culture. Indeed, for our study we have used a definition of the world of culture and telecommunications that includes live entertainment, cinema, television, radio and publishing under the umbrella of “culture”. This choice is dictated by the desire to consider culture as a point of interaction between various, closely interconnected sectors within the same industry, where creation is upstream on one end of the chain and distribution lies downstream on the other end. We want to try to grasp hold

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Public investment in the cultural and telecommunications industry


Visual arts Paintings Sculptures Photography Antiques Performing Arts Music and Opera Theatre and Dance Circus Puppetry

MEDIA

CREATIVE INDUSTRIES Publishing Books Newspapers and Magazines Audiovisuals Cinema Television Radio

ART

Cultural sites Archeological sites Museums Libraries Exhibitions Traditional cultural expressions Arts and Crafts Festivals Events

Design, Interior, Graphic, Fashion, Jewellery, Toys, Food & Wine

Creative services Architectural Advertising Research & Development Recreational

FUNCTIONAL CREATIONS

HERITAGE

The sectors analyses in this study (in bold) in the context of the creative industries

New media, Software, Telecommunications, Videogames

Source: elaboration of a table from the United Nations Conference on Trade and Development (UNCTAD).

of something very ethereal that is complicated to define in its processes of transformation. We want to investigate those areas in which culture becomes a pervasive phenomenon, driven by technological innovation and by the multiplication of distribution platforms, at a time when re-use and ‘prosumerism’ profoundly alter the very concept of culture and all its basic laws, first and foremost the idea of the “author”. So, reasoning on the economic foundations of culture taken as the “culture industry” means taking a conceptual leap from examining the cultural industry as a world where culture is considered as an intellectual product that has become a commodity, to one where it is an intellectual product, knowledge that is able to generate wellbeing and development within a virtuous circle of innovation and technological development1. This approach, which is, moreover, in line with the industry traditionally examined in the IEM 1 “At the heart of creative economy lie the creative industries… At the crossroads of the arts, culture, business and technology… They comprise the cycle of creation, production and distribution of goods and services that use intellectual capital as their primary input.” “They range from folk art, festivals, music, books, paintings and performing arts to more technology-intensive subsectors such as the film industry, broadcasting, digital animation and video-games, and more service-oriented fields such as architectural and advertising services. All these activities are intensive in creative skills and can generate income through trade and intellectual property rights” United Nations–2008 Report on the “Creative Economy”. We recall that the concept of “culture” as understood by Maastricht is very wide. Article 128, comma 2, refers to cultural heritage, artistic and literary creation, including the audiovisual sector.

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179


Report on the Communications Industry, also allows for a horizontal reflection on the main platforms used to spread the culture system in Italy, also making the audiovisual sector face up to its responsibilities2, which have often been neglected in Italy by the very entity that should champion these responsibilities, that is the public radio and television service. Taking this sector as an industry, we have identified two major groups: culture (which includes creation and production, in the sectors of television, radio, cinema, publishing and live entertainment) and telecommunications. The problem is that some areas like cinema and live entertainment are historically branded as “cultural” and their status is (partially!) protected by coming under the umbrella of the Ministry of Culture, and they promote local development where possible, for example in the agreements negotiated with the Interministerial Economic Planning Committee (CIPE in Italian). But other areas are much more “unstable”. For example, today it is pretty obvious that a TV drama is a cultural product just as much as a feature length film for cinemas, and yet the former does not fall under any ministry and does not have access to the public General Entertainment Fund (FUS)3. In addition, books, newspapers, television and radio programmes, video games and the cinema etc. have never been considered by public policies as a “cultural system”, and as such helped by the State as complementary elements of a single goal to create a countrywide system. More understandably, the development of TLC has rarely been thought of from the standpoint of socio-cultural progress, even if today all the distribution systems act as a crucial accelerator – or a bottleneck – for the growth and dissemination of culture. However, we should point out some “key” sectors that are absent from the equation. Some are less visible but their omission is justified because they receive limited State support or even none at all. These include the video games sector or music. Others are more obvious and totally arbitrary, like cultural goods: in this case we have excluded this area because of the desire to focus attention and available energies on those forms of public intervention that support the culture and communications industry and their subsequent impact, omitting an area such as cultural heritage in this phase, since direct State management is the dominant model here and the role played by private initiatives is minor. The sectors in the industry investigated here are “helped” by the State, for a longer or shorter time, with greater or lesser attention and applying different principles. The State does this where and how it is able, without interfering with the natural laws of competition, with a view to increasing society’s wellbeing by “deliberately” stimulating some key areas of the system. Therefore, the aim of this work is to measure this aid, that is the amount the public administration spends on culture and telecommunications. It is a first step, the starting point from which to base any reasoning of merit and method. In fact, we have given ourselves the mission to make the figures clear and transparent, analysing them in a comparative and diachronic way, which tries to arrange the “accounts” in view of their progression over time, and thus see the modifications introduced in recent years, making comparisons between the different sectors of culture and the cultural industry. We hope this can be a useful starting point to beginning to think about the logic that underpins the spending strategies, and thus open the way for a broader debate on public policies with regard to culture. To measure the total spending in the cultural industry, it has been decided to examine the issue on two levels: a “macro” view, using the tool of the Regional Public Accounts (RPA), and a “micro” view, examining each individual sector and the spending actually given to that sector (and the regulations governing it). 2 We recall that the concept of “culture” as understood by Maastricht is very wide. Article 128, comma 2, refers to cultural heritage, artistic and literary creation, including the audiovisual sector. 3 As Annalisa Cicerchia points out, the problem is that “the way in which the cultural sector is institutionally organised at a central level, huge areas, that lie outside the competence of the Ministry of Culture or have a very marginal niche in that administration (to mention the main ones: first and foremost, television, radio, multimedia art, press and publishing; and in second place live entertainment and cinema) have basically been left unrepresented. Cicerchia A. “Emergenza e programmazione nelle politiche culturali” in Economia della Cultura, 2/2009, il Mulino, pag. 139.

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The Regional Public Accounts (also see below, in the methodology section and in the footnotes) measure the “financial flows at the regional level. They provide information on central and local government revenues and expenditures. The Public Sector comprises, in addition to General Government, a non-general-government sector consisting of central and local entities that operate in the public services segment and are subject to direct or indirect control over their management by public entities and/or receive financing from such entities”4. For the purposes of this document this wide definition of the Public Sector will be referred to as the “enlarged” Public Sector (EPS). The RPA is organised as a Network and it is managed by a Central Unit based at the Public Investment Evaluation Unit of the Department for Development and Economic Cohesion supported by 21 operational units located in each region and autonomous provincial authority. RPA covers the aggregation of revenue and expenditure flows of the various entities that make up any reference universe, net of any flows between those entities. The areas are divided into 30 sectors including the one we are specifically interested in here, culture and telecommunications. However, the category of “culture”, as it is defined in the RPA, is very large5 and includes segments that even go beyond the wider definition of “culture” being used in this Report. This would necessitate a thorough clean out conducted by examining all the individual budget items under consideration, as has already been tried and tested in other studies. Therefore, in this study we have mainly concentrated on the way figures have altered over time and on the comparison between culture, TLC and the rest of the economy, which offer interesting points for reflection. Given the wide parameters included in the macro level of analysis using the RPA data, this means that the figures cannot be compared with the second, micro level of research, where each sector is examined in turn, providing a detailed analysis of public funding measures and their monetary value (and the financing actually supplied) by evaluating all the available sources. In the end, the more complex mission actually turned out to be relating to the design of the increasing complementary nature of national and regional investments. As will be clearly shown later on, regional administrations’ expenditure in culture and telecommunications has become increasingly important in the recent years. However, while the national figures are not always easily available but are generally accessible, the regional authorities’ spending is broken down into many different budget items, some of which are “camouflaged” and thus impossible to trace. As a result, for this Report we have chosen to favour the national figures, while trying, where possible, to also supply the information from the local dimension. Therefore, a more detailed examination of “decentralised” spending is being postponed to subsequent “spin offs” from this survey. Here we want to highlight that the main results to emerge from the research include the lack of an underlying systematic plan, which is absent in public intervention policies in all sectors under consideration. In fact, economic policy measures in some areas have tried to create order in terms of overall funding plans, but over time these have lost their innovative drive and their original rationale have been forgotten, as is the case for cinema. And in other areas, 4 Volpe M. “Premessa” in AAVV (2007) I Conti Pubblici Territoriali, pag. 7. 5 The RPA’s definition of the culture and recreation services sector includes: “the safeguarding of artistic and cultural heritage; museums, libraries, art galleries and cultural centres; cinemas, theatres and musical activities; recreational activities (game parks, beaches, camp grounds and related non-commercial furnished accommodation, swimming pools, casinos and gaming halls) and sports; initiatives for the dissemination of culture and for cultural events not primarily organized for tourism; subsidies, advertising, promotion and financing of artistic, cultural and recreational entities and structures; subsidies for zoological parks and museums; leisure initiatives; subsidies to academies; support for antiquities and the arts; initiatives in support of religious activities and structures”. Whereas the telecommunications sector includes: “the administration of activities and services associated with the construction, expansion, upgrading, operation and maintenance of communications systems (postal, telephonic, teleFig.ic, wireless, satellite, etc.); the regulation of the operation of communications systems (granting of licences, allocation of frequencies, specification of markets to be served and rates); subsidies, loans and other incentives to enterprises to support the construction, operation, maintenance or upgrading of communications systems. It also includes activity in the information technology sector where not directed at a specific sector, as well as spending for the provision of radio and television services and regulation of the sector”. (in AAVV, 2007, cit, pag 82 & 85). Also see below, in the methodology section and elsewhere.

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the pressure of lobbyists and their interests and a policy of making minor compromises have prevailed over a clear vision of public intervention, as is the case in publishing. Talking of which, this issue was clearly defined by the Italian Antitrust Authority in its investigation into publishing enterprises: “the first consideration that arises from the review of the various kinds of public support for the publishing sector, is the heterogeneity of the funding criteria and ways the contributions are assigned. In the light of these different approaches it is not easy to identify an underlying systematic plan governing these contributions, aimed at safeguarding pluralism. The current structure appears to be the result of the gradual layering of measures, designed to achieve aims that do not always converge, based on ambiguous parameters for allocation and quantification. In addition, some measures have been implemented in a discontinuous way, making it difficult for publishing companies to make any long term plans”6. The lack of a methodical reflection on the “culture system” has encouraged the proliferation of minor laws, decrees and stopgap measures that make it extremely difficult to track the flow of public money allocated, earmarked, re-instated, authorised and eventually supplied and used. At the same time, there is no sign of an efficient system to monitor and evaluate the interventions, not only to assess the economic efficiency of the measures but also, and more especially, to evaluate the actual impact on citizens in terms of access to information, quality of information services used, and, in the final analysis, the impact on collective wellbeing. Therefore, it seems as if the whole framework of public intervention in culture needs to be reexamined, with a view to creating a systematic approach, starting from the basis of clear and transparent objectives, in line with EU policies. We offer a few suggestions: •

Stimulate creativity and innovation;

Generate specialised, competitive employment;

Exploit the territories’ cultural and natural resources;

Social inclusion;

Preservation of national identity;

Exporting and strengthening “Italy as a brand” on an international level.

In conclusion, we want to thank everyone who enabled us to undertake this project thanks to their support and valuable advice, in particular: Mariella Volpe, Alessandra Tancredi, Gaudenzio Garavini, Paolo Signorini, Carla Bodo, Mario Morcellini, Maurizio Dècina, André Lange, Andrea Bairati and Fabrizio Barca.

1.2 Notes on the methodology The aim of this research is to analyse public expenditure in culture and telecommunications, using a broad definition of “culture” that includes the following sectors: television, radio, cinema, publishing and live entertainment. The research has been conducted on two levels. The first level is a general overview provided thanks to the use of the Regional Public Accounts’ (RPA) database7 . The RPA were launched in 1994 by the Public Investment Evaluation Unit of the Department for Development and Economic Cohesion (now Ministry for Economic Development8 ), with the aim of offering a tool able to guarantee the measurement of financial 6 Cfr. AGCM, IC35, Editoria quotidiana, periodica e multimediale, 2007. 7 Part of this note on the methodology used repeats the information found in Guida ai Conti Pubblici Territoriali (CPT). Aspetti metodologici e operativi per la costruzione di conti consolidati di finanza pubblica a livello regionale, from the Public Investment Evaluation Unit of the Department for Development and Economic Cohesion, to be found at the link http://www.dps.tesoro.it/cpt/cpt_notemetodologiche.asp and from official English language versions of documentation on the same website. 8 When the RPA project actually started, the Department for Development and Social Cohesion came under the Ministry of Economy and Finance.

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accounts for all the Italian regions. The RPA contain information with reference to the Enlarged Public Sector, and as such include general government and a non-general-government sector consisting of central and local entities that operate in the public services segment and are subject to direct public control (Public Enterprises), producing services to be sold, in which the public administration has entrusted the task of supplying some services of a public nature, like telecommunications, culture etc. The definition used for Public Sector is basically the same as the one used by the Italian National Accounts. In this case, the PS is defined as comprising entities which, on the whole produce services that are not destined to be sold, which are principally funded through obligatory payments (taxes, duties, contributions) made by subjects and entities belonging to the private sector and/or by entities conducting activities that generate earnings. For each subject belonging to the Enlarged Public Sector, the RPA database reconstructs the aggregation of revenue and expenditure flows on a regional level on the basis of the balance sheets of the entity itself, without, in principle carrying out any reclassifications and subsequently constructing the consolidated accounts for each Italian region. The advantage of using RPA as a source is that the figures on expenditure are broken down into regions, thus offering us a unique territorial perspective to carry out interpretative analysis of the public spending trends at both a central and a local level. The expenditure figures, identified in this way, are also subject to a process of consolidation, based on the omission of all transfer payments, in the current and capital (investment) accounts, received by and paid to the entities belonging to the various levels of government included in the RPA universe, so that in practise, every entity is considered as the provider of the final expenditure. The advantage of this process is that it enables the calculation of the overall value of the expenditure directly provided on the ground, without the risk of duplications. The RPA are a financial tool: in fact the flows are broken down into economic items, which reflect those used to compile the balance sheets of public entities adopting the criteria of financial accountability, recreating a complete picture of all the transactions, carried out by each individual entity, which generate financial movements. The RPA figures are divided into 30 sectors, which represent the minimum level of detail and which can be re-aggregated in order to obtain sector classifications for specific analyses. In regards to the content of the sectors under consideration, the culture (and recreational services) sector should, in theory, contains the following components: •

the conservation and exploitation of artistic and cultural heritage;

museums, libraries, art galleries and cultural centres;

cinemas, theatres and musical activities;

recreational activities (game parks, beaches, camp grounds and related non-commercial furnished accommodation, swimming pools, casinos and gaming halls) and sports;

initiatives for the dissemination of culture and for cultural events not primarily organised for tourism;

subsidies, advertising, promotion and financing of artistic, cultural and recreational entities and structures;

subsidies for zoological parks and museums;

leisure initiatives;

subsidies to academies;

support for antiquities and the arts;

initiatives in support of religious activities and structures. Public investment in the cultural and telecommunications industry

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Over time, the RPA database has seen qualitative upgrades, which allow the analyst to use it as a robust tool for analysis and interpretation. The limits of the database are mainly connected to the structural problem of classifying the public accounts of the entities, which are translated into items that are “in surplus” and items that are “in deficit”9. The following table outlines the percentage of entities operating the cultural sector by level of spending: Table 1: Culture and recreational services sector: % of entities by level of spending* State

56.33

Municipalities

27.28

Regional administration

5.59

Publicly owned companies and foundations

3.82

CONI (Italian Olympic Committee)

3.50

Provinces and metropolitan cities

2.14

Institutions and publicly owned firms

0.65

Subordinate entities

0.53

Mountain communities and other local authority unions

0.09

Consortia and public associations

0.07

Chambers of commerce Overall total

0.00 100.00

Note: * The break down refers to the year 2007 . Source: IEM elaboration of RPA figures.

Turning to the telecommunications sector, and under the RPA definition, it should include: •

the administration of activities and services associated with the construction, expansion, upgrading, operation and maintenance of communications systems (postal, telephonic, teleFig.ic, wireless, satellite, etc.);

the regulation of the operation of communications systems (granting of licences, allocation of frequencies, specification of markets to be served and rates);

subsidies, loans and other incentives to enterprises to support the construction, operation, maintenance or upgrading of communications systems;

activity in the information technology sector where not directed at a specific sector;

spending for the provision of radio and television services and regulation of the sector.

Once again, the same above-mentioned considerations apply regarding the quality of the RPA database and the items defined as being “in surplus” and “in deficit”10. 9 “Surplus” items are those areas of expenditure which, according to the RPA classification, should be carried out by other specific sectors: spending on staff training that should, according to the RPA classification, fall under the Training sector; spending on radio and television services that RPA puts under Telecommunications; expenditure specifically destined for research that should, according to the RPA; come under Research and development; spending on the reimbursement of expenses incurred by companies implementing job training and guidance for youngsters in southern Italy (Mezzogiorno), which the RPA categorises as in the Training sector; and expenditure for promotional tourism events and initiatives that RPA classifies under Tourism. The items in “deficit” are classified in other sectors, but it would be more correct to classify the following under the Culture sector: contributions to religious entities, which fall under the General Administration sector; expenditure on archaeological areas and museums, coming under Environment; contributions to entities and associations promoting sport for the creation of initiatives and events classified as Education; and Subsidies for sports facilities and ski runs, which come under the Education sector. 10 “Surplus” items include: spending on staff training that should, according to the RPA classification, fall under the Training sector; expenditure specifically destined for research that should, according to the RPA; come under Research and development; Revolving funds to finance companies that, according to RPA, should fall under the sector Other in the Economic Sectors category. “Deficit” items include: spending on radio and television and publishing services, which falls under Culture; expenditure for financing the Public Administration Unified Intersectorial Network and the spending for the operation of the Communications Authority watchdog body which fall

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The following table outlines the percentage of entities operating the telecommunications sector by level of spending in 2007: Table 2: Telecommunications sector: % of entities by level of spending* Poste (Italian Post Office)

55.15

IRI (Institute for Industrial Redevelopment)

32.26

Cassa Depositi e Prestiti

7.04

Publicly owned companies and foundations

4.44

State

0.74

Subordinate entities

0.24

Regional administration

0.13

Consortia and public associations

0.00

Publicly owned firms and institutions

0.00

ENEL (energy)

0.00

Overall total

100.00

Notes: * the breakdown relates to the year 2007. Source: IEM elaboration of RPA figures.

In this research, the aggregate of the spending is recorded in both the current and capital accounts. With reference to the two sectors under consideration, the items of current account spending include: spending on staff; purchase of goods and services; current transfers to households and social institutions, private companies and public enterprises; interest paid; post-corrective and compensatory revenue; amounts not attributable to the current account. Whereas the items of expenditure in the capital account include: real estate and property; furniture, cars and equipment; capital transfers to households and social institutions, private companies and public enterprises; shareholdings, equity investments and contributions; credit allocation and duties; amounts not attributable to the capital account. What’s more, the RPA’s figures can be subject to ad hoc reclassification to allow for full compliance with European community rules or to compare them with other aggregates of public finance11. We also carried out a second level of analysis, investigating the individual items of State investment in culture and telecommunications, sector by sector, along with the relevant regulations. Section 4.1 (Radio and TV) reconstructs the amount of public support in favour of radio and television companies including different kinds of funding identified, according to the various cases, by the provider (Ministry, Region) and/or the beneficiary of the contributions (broadcasters): •

to quantify the support given to national public television, the items considered were the income from the licence fee (source: RAI) and the other forms of income deriving from the main Contracts between RAI and the PA;

to quantify the support given to local TV and radio, the analysis includes the contributions made by the Department of Communications within the Ministry of Economic Development; the contributions granted by the Department of Information and Publishing

under the category Justice; and spending on the creation of computer and electronic systems, which falls under the General Administration heading. 11 The main ways the data is normally re-classified is by: - “capital account spending net of financial items”, which corresponds with the National Accounts. This is obtained by subtracting the categories related to financial instruments, namely the granting of loans and advances, and equity investments and contributions, from the overall capital account expenditure. - “expenditure connected to development”, which, as well as incorporating the capital account spending in correspondence with the National Accounts, also includes the current expenditure for professional training, considered as an investment in human capital.

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under the Prime Minister’s Office; and the refunds for electoral advertising which are allocated from the Ministry of Communications through the CORECOM committees (Regional Communication Committees); •

to quantify the contributions for digital terrestrial television, we identified the national and regional resources that have been allocated so far to enterprises and citizens to help them adjust to the switch from analogue to digital terrestrial television;

Section 4.2 (Publishing) outlines the framework of direct and indirect public resources assigned to support publishing enterprises. This compares the figures published on the website of the Department of Information and Publishing under the Prime Minister’s Office with the budget estimates, accruals and cash, and the economic accounts for the Prime Minister’s Office from the last few years (which contain all the items of intervention supporting enterprises, journalists and the Contracts with the public service), integrating these with information from the Italian post office, Poste Italiane accounts, which contain the sum of the subsided postal charges. Regional and local forms of support are excluded from the parameters. Section 4.3 (Cinema and live entertainment) outlines a frame work of resources allocated to the areas of cinema (production, distribution, exhibition and promotion) and live entertainment (operatic-symphonic Foundations, musical activities, theatres, dance, circuses and travelling shows). The primary source to quantify the amount of financing is the General Entertainment Fund (in Italian, FUS), managed by the Ministry of Culture. The analysis also included “NonFUS” resources allocated by ARCUS and those taken out of the Lottery funds. For the cinema and audiovisual sectors, the research also includes investments in audiovisual production (cinema and drama) made by the public broadcaster on the basis of current legal obligations (resources coming from the licence fee), the recent funds linked to the tax credit and tax shelter systems, and the regional funds supporting the audiovisual industry, most of which are managed by the Film Commissions.

2. State aid for culture and telecommunications: European Union guidelines and initiatives 2.1 The new Guidelines on State aid Right from its very founding, with the Treaty of Rome of 1957, the European Union included control mechanisms to regulate subsidies to businesses, which, then as now, were considered a primary component of the basic rules for the creation of a European Common Market. And in fact, paraFig. 1 of Art. 87 of the Treaty reads, “Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market.” Consistent with the provisions contained in the Treaty, the European Commission takes direct action on regional national policies by controlling State aid. However, the European Guidelines for State aid allow exceptions to these prescriptions and authorise business incentives to be granted to specific geoFig.ical areas and variable levels of aid intensity, providing these incentives do not adversely affect competition12. The granting of 12 The commission has already taken action in the past with measures safeguarding competition, as was the case when Italy, following a community notification, and acknowledging the reasoning behind the Commission’s prescriptions, was required to abolish tax relief on social security dues for companies operating in the southern Italian region of Mezzogiorno (Decree of the Employment Minister Mastella dated 05/08/1994) with the undertaking that it would be rendered ineffective by 1997. The Commission maintained, in this case, that considerable and prolonged levels of tax relief constituted a “functional aid” to companies and were as such capable of distorting, on a structural basis, all competition (Bodo G., Viesti G. (1998), La grande svolta. Il mezzogiorno nell’Italia degli anni Novanta (The major shift. The Italian ‘Mezzogiorno’ during the Nineties), Published by Donzelli, Rome). Another

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aid to business, without suitable regulations and limitations on the indiscriminate use of the aid itself, may in the first instance upset correct market operations, but it may also engender other collateral distortive effects, such as for example delays in the competitive reorganisation of certain sectors, as normally takes place automatically in smoothly running markets due to the pressures exerted and the indications provided by the competitive mechanisms themselves13. The granting of State aid on behalf of the Member States of the European Union is now governed by the new Guidelines on State aid brought out in 2006, which establish the criteria by which incentive regimes should be assessed14. The new Guidelines state that “pursuant to article 87, paraFig. 2, letters a) and c) of the Treaty, the Commission can consider State aid granted to promote economic development in certain disadvantaged areas within the European Union as being compatible with the Common Market. The aid of this kind is considered State aid for regional purposes. This aid provides investment and, in certain specific circumstances even for the operation of certain large businesses, but in both cases this aid is earmarked for specific regions in order to balance regional disparities. Even larger investments granted to small and medium companies located in disadvantaged reasons are considered as having a regional purpose […]” Generally speaking, the areas granted aid on the basis of art. 87.3a are entitled to higher levels of aid compared to those granted aid on the basis of art. 87.3c15. There are also other aid categories that need not be approved in advance by the European Commission. These are aid packages granted under what is knows as the de minimis regime, the threshold of which has been raised from 200,000 euros to 500,000 euros following the ratification by the EU Commission of decision N. 248/2009 which raised the level of grantable aid to a maximum limit of 500,000 euros per business enterprise over the three year period from 1 January 2008 to 31 December 2010.

example is provided by the prohibition against the introduction of tax differentiation on a territorial basis. More specifically, within the EU it is acceptable that there be different fiscal regimes between the various Member States, but limiting the reduction of tax imposition to a specific area of a country’s territory is not allowed. However, despite this limitation, an important innovation of this principle was introduced with the setting up of Urban Tax Free Areas (ZFU) in Italy’s Mezzogiorno, as agreed with the Commission, which envisage a very advantageous fiscal regime for companies operating there or for those who intend to set up their activities there. So far 22 ZFU’s have been identified (in the CIPE - Interministerial committee for Economic Programming - meeting of 8 May 2009). The financial bill 2008 confirmed the allocation of 50 million euros for the implementation stage. As things stand, the ZFU’s are awaiting a decree of the Ministry of the Economy and Finance which is to provide a detailed description of the tax and social security breaks and the final unlocking of the State funds now with CIPE. 13 Viesti G., Prota F. (2007), Le nuove politiche regionali dell’Unione (The new regional policies of the European Union) Europea, Il Mulino, Bologna. 14 GUIDELINES FOR NATIONAL REGIONAL AID FOR 2007-2013 (2006/C 54/08) Official Gazette of the European Union of the 04/03/2006. The new Guidelines do not represent a radical innovation, but rather a codification of accepted practices that have been used for some time by the Commission itself, alongside or as a partial replacement of the provisions contained in the Guidelines of 1988 and 1998. 15 Art. 87.a states that one may consider compatible with the common Market “aid aiming to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment”; while article 87.3c establishes that “aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest” can be deemed compatible. The waiver indicated in letter a) only concerns those regions where the economic situation is extremely unfavourable compared to the EU overall, that is to say regions that are disadvantaged compared to the European average. According to the indication of the Commission these are regions, defined in territorial terms as NUTS II, where the pro capita GDP, measured on the basis of purchasing power parity (PPP), does not exceed 75% of the community average. The waiver reported in letter c) has, on the other hand, a potentially broader scope, in that it is not limited by the economic conditions contemplated in letter a). On the basis of these dispositions the Commission can authorise aid meant to enhance the economic development of areas of a Member State, that are disadvantaged compared to the national average.

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2.2

The exception provided for aid to culture and supporting measures

2.2.1 The waiver for culture The Treaty of Maastricht in Art. 87, par. 3 letter d) introduced the specific possibility of an exception to the general principle of incompatibility prescribed by Par. 1 for aid granted by Member States to promote culture. More specifically, it stated that “aid earmarked for the promotion of culture and the safeguarding of heritage, if they don’t alter the conditions of exchange and competition in the Community to an extent that may be considered contrary to the common good” can be considered compatible with the common market. The control exerted by the Commission over the authorisation of aid for companies operating in the cultural sector clearly limits national prerogatives with regard to the kind of support measures that can be introduced in this sector, yet at the same time it recognises the significance of cultural enterprises as non-marginal players in the formation of a single European market. The rules and regulations governing cultural aid apply to a very broad definition of cultural activity. In fact, thanks to the previously mentioned Article 87, paraFig. 2, letter d) of the Treaty, as far as State granted aid is concerned, the Commission has in the past approved a wide variety of national measures that have benefitted the most diverse entities such as museum, cultural heritage sites, theatrical and musical production, cultural publications as well as the audiovisual and film sector16. Part of the jurisprudence would seem to assert that, seeing as the Treaty fails to provide a definition of culture17, it is up to the Member States – according to the principle of subsidiarity – to come up with one. There are two instances in which the applicability of the “cultural exception” is excluded, in other words support for cultural activities “cannot” be qualified as aid when: 1. the cultural activity that has been supported cannot be deemed as an economic activity; 2. it does not have repercussions on exchanges between Member States. This latter prescription is often encountered in the cultural sector in that many cultural activities, with the exception of those that enjoy international prestige, exist purely on a local level. One need only think of the grants awarded for the restoration of monuments that are part of the local or regional heritage and whose capacity to attract visitors is limited to a very local context. There is on the other hand a very broad case history that has seen the European Commission approve State aid by applying the cultural exception. A case in point is the aid granted to the French cooperative CELF, whose members – a number of French publishers – handled international orders for French books. In this case the aid consisted in a financial contribution towards distribution costs, provided in order to enable the publishers to fulfil the small orders of French books received from abroad, which otherwise would not have been remunerative. The Commission considered the objective pursued by the French government in providing help to CELF as being of a cultural nature, because it’s aim was to enhance the dissemination of works in the French language abroad. On the basis of these premises, it reached the decision that the French authorities had implemented a cultural policy that complied with the objectives set by the Treaty (seeing as cultural diversity is among the founding principles of the European 16 Communication of the Commission to the European Parliament, the Council and the European Economic and Social Committee and to the Committee of the Regions - Communication on a European agenda for culture in a globalizing world {SEC(2007) 570} COM/2007/0242 def. 17 The same Commission acknowledged the difficulty in defining the margins to be applied to a definition of culture. In the Communication on a European agenda for culture in a globalizing world (see previous note), in Par.2, it admits that “‘Culture’ is generally recognised as complex to define. It can refer to the fine arts, including a variety of works of art, cultural goods and services. ‘Culture’ also has an anthropological meaning. It is the basis for a symbolic world of meanings, beliefs, values, traditions which are expressed in language, art, religion and myths. As such, it plays a fundamental role in human development and in the complex fabric of the identities and habits of individuals and communities”.

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model) and that the aid provided was not on a level that it could affect competition, thus complying fully with the prescriptions of the cultural exception (Togo F., 2009). Another interesting case is the one involving the Lelystad Aviodrome in Holland. With a letter dated May 2003, the Dutch authorities informed the Commission of a measure designed to support the Aviodrome and its efforts to safeguard its aeronautical heritage. The aid measures were to support the development of an aeronautical theme park, called Aviodrome and located in Lelystad. The purpose of the project was the conservation of its aeronautical heritage materials in a museum. In order to ensure the financial sustainability of the museum in time, a number of commercial activities were developed to provide backing for the museum activities (for example one of these commercial activities is an international conference centre, located in the grounds of the theme park). The museum activities were separated from the commercial ones in the financial investment plan. The aid was all earmarked for the museum activities. Although the latter appeared to be separate from the commercial activities, the Commission could not overlook the spin-off effect that the aid provided the museum activities would have had on the commercial ones, to the extent that these could affect sectors where intercommunity exchanges and competition exist. The Commission therefore acknowledged the measure as State aid as prescribed by Article 87, paraFig. 1 of the EC Treaty. Bearing in mind however the very limited economic profitability of the museum activities per se, the Commission reckoned that no private investor would have been prepared to finance the entire project unless some public funding was available. The support was therefore considered necessary for the project to go ahead. And what’s more the aid did not exceed the sum required to achieve the cultural objective. The Commission therefore ruled – with its decision of 15 October 2003 – that the aid measure could be authorised on the basis of Article 87, paraFig. 3, letter d) of the EC Treaty (exemption of State aid to protect the cultural heritage)18. Even in Italy one can come across instances where the European Commission has applied the cultural exception. This took place for example following the introduction by the Sicilian region of Law N. 32/2000, which prescribed aid in favour of publishing. In this instance the application of the cultural exception by the European Commission was inspired by the principle which maintains that “the purpose of the measure was to safeguard the cultural production agencies on the island.” It is worth noting how certain aid measures which according to the Commission were devoid of a clear “cultural nature” were subsequently viewed and nevertheless granted aid status on the basis of Art. 87, par. 3, letter c). This took place for example in a particularly controversial and significant case for the principles which it brought to light, when the Commission declared the compatibility pursuant to Art. 87, par.3, letter c) of the Treaty – and not on the basis of the cultural exception – of aid granted by Italy, in the form of an interest contribution, to businesses operating in the publishing sector, and as tax credits, in favour of businesses that produce editorial products19. In this instance, the Commission did consider the aid system in question as allocating funds for the explicit promotion of culture, which in actual fact were generically speaking used entirely to support investments carried out by companies producing editorial products in the Italian language. The Commission also pointed out that, although the measures introduced could ultimately be seen as promoting the learning and dissemination of the Italian language and culture, the fact that they were considered measures based on culture, in the absence of any specific indication of a pedagogical or language learning purpose, would have meant an excessive broadening of the notion of culture. Furthermore, in answer to the arguments put forward by the Italian 18 XXXIII Report on competition policies 2003, European Commission. 19 Decision 2006/320/EC, relative to the measure notified to Italy in favour of publishing, dated 30 June 2004 in O.G L118, of 3 May 2006. p.8.

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authorities linking cultural promotion to pluralism of information, the Commission pointed out that the educational and democratic needs of a Member State should to considered as separate from the promotion of its culture (Togo F., 2009). In December 2007, given the continued evolution of the concept of culture adopted by the Commission, the cultural exception was applied for the first time to video games. The Commission in actual fact approved aid granted by France in the form of a tax credit to video game manufacturers20, recognising the educational value of certain video games, and making reference also to the UNESCO Convention on cultural diversity, where the cultural nature of the video game manufacturing industry is acknowledged along with the role it plays in matters of cultural diversity. Film production however represents a sector of the cultural industry where the exception on aid has found its broadest application. Since 2001 the European Commission had adopted the so called “Communication on cinema21”, which illustrates the policy guidelines and the principles to be followed in applying the rules on State aid to the film sector, to improve the production and distribution of film works in Europe, underlining the difficulties encountered by producers in obtaining the initial funding which might allow them to move ahead with their production projects. The supporting measures introduced by Member States for the audiovisual production of films and television programs mainly focus on the creative and production stages of making a film and generally speaking take the shape of subsidies or reimbursable advances. Currently it is estimated that around 1.6 billion euros are spent in the European Union to support national film industries22. In assessing the systems used to back film and television production, the Commission generally takes into consideration two conditions: •

Compliance with the criteria of general lawfulness, that is to say that the aid in question is not in contrast with other prescriptions of the EC Treaty relating to sectors other than those on State aid, including regulations on tax issues. Among other things, the Commission must also verify that the principles that forbid discrimination based on nationality and establish freedom of settlement23, freedom of circulation of goods and the freedom to provide services are not infringed. The Communication clarifies that in compliance with said principles the aid measures must not, for example, be addressed exclusively to the citizens of the State in question; it is also established that the beneficiaries must be national companies set up according to national commercial law and that the employees of foreign companies that provide cinematoFig.ic services must comply with national labour regulations. When the prescriptions that violate these principles cannot be separated from the mechanism by which the aid is granted, the Commission ensures that the principles in question are complied with by applying the rules on competition.

The respect for specific compatibility criteria. In particular, these specific criteria are defined as follows: - “The aid must concern a cultural product”: each Member State must guarantee that the content of the above mentioned production is of a cultural nature based on easily verifiable national criteria. With reference to the principle of subsidiarity each State must define such criteria. Consequently the Commission is assigned the task of verifying that

20 Decision of 11 December 2007C47/2006 (ex. N648/2005) Crédit d’impôt pour la création de jeux vidéo in O.G. L/118/2008 of 6 May 2008, p. 16. 21 See above. 22 See press release IP/09/138 of the Commission dated 28 January 2009. 23 The Articles 43-45 of the European Community Treaty forbid restrictions to freedom of settlement of citizens of a Member State in the territory of another Member State. “Freedom of settlement” means the possibility of setting up and managing a business or undertaking any economic activity in a country of the European Union, by opening agencies and branches.

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the national authorities have outlined a verifiable selection system, capable of ensuring that only cultural products, as defined by the national authorities, may benefit from the aid. This criteria is aimed, therefore, to exclude from the benefit those productions whose purpose is purely commercial; - “The producer must be free to spend at least 20% of the film’s budget in other Member States without suffering curtailment of its subsidy as a consequence of any imposed obligation that expenses be “territorialised” (i.e. spent within a certain territory) ; - “The intensity of the aid must, as a rule of thumb, be limited to 50% of the production budget24”: the Commission justifies this limitation as a way of stimulating the normal commercial initiatives that pertain to a market economy (stimulus of the role played by the private sector) and avoid a rush by Member States to provide aid for the sector. An exception to this limitation applies to the so called “difficult films with modest financial means”, whose definition, once again consistent with the principle of subsidiarity, is entrusted to each Member State according to its own national parameters25. - Finally, no further aid is allowed to “specific film activities” (such as for example postproduction), in order to guarantee the neutrality of the aid’s incentive effect and to avoid that the State distributing the subsidy attracts or protects the activities in question. One should also point out that the companies that produce films and television programmes can access other kinds of subsidies not connected to cultural activities, but rather aimed at supporting certain specific economic activities or regional contexts and granted in the context of horizontal national aid26 systems, approved by the Commission on the basis of the exceptions introduced by Art. 87, par. 3 letter a) and c) of the CE Treaty (for example regional aid, aid to SMEs, for R&D, training and employment)27.

2.2.2 The support initiatives Culture has occupied a fundamental place in the European integration process, ever since its inception, due to the importance of its many social, economic and political implications. The grounds for Community action in cultural affairs (see above) are to be found particularly in Article 15128 of the treaty that instituted the European Community, which calls to mind the possibility for the European Community to introduce actions designed to encourage, promote and if necessary integrate the activities set up by the Member States, contributing to the full development of their cultures without prejudice to national and regional diversity, yet highlighting at the same time their common legacy. Furthermore, Community action is meant to encourage cooperation between Member States and, where necessary, to back and integrate the latter’s action in the following sectors: •

improvement of knowledge and the dissemination of the culture and history of the

24 The Commission pointed out that the funds provided directly by community programs do not constitute State resources; therefore their presence does not affect the calculation of the maximum ceiling of 50%. Furthermore, the programs in question promote the dissemination of national films abroad, consequently their effects do not compound those produced by national systems, which concentrate instead on production and distribution. 25 The indication “films with modest financial means” refers to films whose overall production cost is not above 1.5 million euros, while “difficult films” are those films believed to be unlikely to be well received by the market and therefore have little chance of being commercially viable due to their experimental nature (such as for example documentaries, first and second films, short films, works produced by film schools acknowledged by the Italian State). 26 The Commission has introduced a series of rules concerning so called horizontal aid. These rules, unlike those relative to aid for financial purposes, concern aid that can be granted throughout the community territory and, unlike sectorial aid, can concern more than just one sector. 27 Togo F. (2009), Aiuti di Stato nel settore culturale (State aid in the cultural sector), Aedon, n. 2/2009, Il Mulino. 28 Consolidated version which instituted the European Community, Official Gazette of the European Community, 24.12.2002.

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European people; •

conservation and preservation of cultural heritage of European importance;

non commercial cultural exchanges;

artistic and literary creation, including the audiovisual sector.

In order to implement the objectives prescribed by Article 151 of the Treaty, the European Community in addition to assigning a share of the European Social Fund (ESF) and Regional Policy Development Fund (FESR) to the pursuit of the objectives related to cultural activities, has instituted ad hoc programs to promote measures for the conservation of the cultural heritage, financial instruments for the support of artists, assistance in literary translations and support for cultural events. A first generation of programs designed to support culture was introduced in 1996 with the Kaleidoscope Program, which ran until 1999 and was directed to the support of cultural and artistic programs coproduced between Member States. These were followed by the Arianna program, introduced over the 1997-1999 period and designed to sustain the book and reading sector and the Raffaello program (1997-1999), which aimed to encourage cooperation for the protection, conservation and expansion of European cultural heritage. In May 1998 the European Commission proposed to create the first cultural support framework program (named Culture 2000). The “Culture 2000”29 program, which grouped together the earlier “Raffaello”, “Arianna” and “Kaleidoscope” programs, aimed to create a common cultural space by promoting cultural dialogue and knowledge of history, the creation and dissemination of culture, the mobility of artists and their work, European cultural heritage, new forms of cultural expression and the social and economic role played by culture. The “Culture 2000” program is a planning and finance tool for community actions in the cultural sector, set up during the period between 1 January 2000 and 31 December 2006, which backed the role of culture both as an economic factor and as a factor in social integration and citizenship. It also promoted the connection with actions set up in context of other Community policies that had an impact on the cultural sector. “Culture 2000” was subsequently replaced by a new program, called “Culture 2007”. It was set up with decision N. 1855/2006/CE of the European Parliament and Council on 12 December 2006, as a finance and programming tool for cultural cooperation for the period between 1 January 2007 and 31 December 2013. The “Culture 2007” program is meant to support cultural cooperation initiatives promoted by European bodies operating in the sector as well as the collection and dissemination of information in this field. The main objective of the program, as in the previous sector programs, is the enhancement of a common cultural space shared by all Europeans in order to promote the emergence of European citizenship. More specifically the Culture 2007 program focuses on three main objectives: •

it encourages transnational mobility of professionals in the cultural sector;

it supports the circulation of works of art and cultural/artistic products beyond national borders;

it promotes intercultural dialogue.

The importance the EU assigns to the cultural sector can also be detected in other initiatives promoted by the European Commission, which in May 2007 published the “Communication on a European Agenda for culture in a globalising world”30, as a way of answering the challenges imposed by the changes brought about by globalisation. This is a new European cultural 29 Decision 508/2000/CE of the European Parliament and Council, of 14 February 2000, which set up the “Culture 2000” program. 30 Communication by the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, of 10 May 2007, relative to a European agenda for culture in a globalising world [COM(2007) 242].

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strategy based on the intensification of cultural cooperation throughout the European Union (EU). More specifically, the objectives of the new cultural agenda revolve around three main principles: •

the stimulation of cultural diversity and intercultural dialogue (artist and worker mobility in the cultural sector as well as the circulation of any form of artistic expression and strengthening of intercultural skills and intercultural dialogue);

the enhancement of creativity within the context of the Lisbon strategy for growth and employment (the cultural industries contribute to European economic dynamism as well as honing EU competitiveness);

culture as an essential element of international relations (as prescribed by the UNESCO Convention on the protection and promotion of the diversity of cultural expression, ratified by all Member States and by the EU, the new cultural agenda intends to strengthen the cultural dimension as it is considered an essential element of the EU’s external relations).

A further European initiative in the cultural sphere is the MEDIA 200731 program, which is the new support program for the European audiovisual sector. In the context of the MEDIA 2007 program, the Commission intends to carry on the community actions promoted through the MEDIA I, MEDIA II, MEDIA Plus and MEDIA Training programs that have supported the development of the European audiovisual industry since 1991. The audiovisual sector is an essential tool for the transmission and development of European cultural values. It has to be said that this sector performs a fundamental role in the creation of a European cultural identity and in the expression of European citizenship. What’s more, the circulation of European audiovisual works (films and television programs) helps strengthen intercultural dialogue and improve mutual understanding and knowledge of European cultures. The Community support therefore aims to assist the audiovisual sector so that it may best perform its role as consolidator of European citizenship and culture. The new program, which covers the period 2007-2013, was conceived as a single program that brings together two aspects that have already been party to actions in past initiatives (development, distribution, promotion and training). Beyond the cultural aspect, the European audiovisual sector has a considerable social and economic potential. Thus the Community support for the audiovisual sector can also claim a place in the context of the Lisbon strategy, which aims to make the European economy the most competitive and dynamic in the world. The MEDIA 2007 program pursues the following general objectives: •

the conservation and exploitation of European cultural and linguistic diversity and of the European audiovisual film heritage;

ensuring access to audiences for the above and supporting dialogue between cultures;

increasing the circulation and visibility of European audiovisual works both within and beyond the European Union;

strengthening the competitive edge of the European audiovisual sector in the context of an open and competitive European market which can promote employment.

In order to achieve this objectives MEDIA 2007 takes actions: •

upstream of audiovisual production, to help in the acquisition and improvement of skills and the development of European audiovisual works (pre-production stages);

downstream of audiovisual production by providing support for the distribution and

31 Decision N. 1718/2006/CE of the European Parliament and Council, of 15 November 2006, relative to the implementation of the program for support of the European audiovisual sector (MEDIA 2007). The European Union supports the European film sector via the MEDIA 2007 program, which allocated, for the period 2007-2013, the sum of 755 million euros for training, as well as the development and distribution of European films across borders.

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promotion of European audiovisual works (post-production stages); •

by supporting pilot projects designed to ensure that the program adjustments to market developments.

In the sectors in which it operates, the program addresses the following four priorities: •

providing support for the creative process in the European audiovisual sector as well as the knowledge and dissemination of the European film and audiovisual heritage;

strengthening the European audiovisual sector’s structure with particular focus on small and medium enterprises (SME);

reducing, within the European audiovisual market, the imbalances between countries with a strong audiovisual production capacity and countries or regions with a very weak capacity for audiovisual production and/or a limited geoFig.ic and linguistic areas (this priority addresses the need to protect and boost cultural diversity and intercultural dialogue throughout Europe);

providing support for market developments in digital technology and their exploitation.

At the end of April 2010 the European Commission published an important document dedicated to creativity and culture and the innovative processes underway in these contexts, that is to say the Green Paper “Unlocking the potential of cultural and creative industries”32, which aimed to open a debate on the conditions that might help stimulate the development of the European Union’s cultural and creative industries. The document pointed out that the cultural and creative industry sector is made up of highly innovative businesses with a vast economic potential and constitutes one of the most dynamic sectors in Europe. The cultural and creative industries in particular often contribute to revitalising declining local economies, favouring the birth of new economic activities, creating new and sustainable jobs and increasing the appeal of European regions and cities. In actual fact, the regional and local development strategies introduced in the various European countries have successfully integrated cultural and creative industries in many sectors: promotion of cultural heritage for commercial purposes; development of cultural infrastructures and services to support sustainable tourism; grouping of local businesses and collaborations between cultural and creative industries and industry, research, education as well as other sectors; creation of innovation workshops; definition of integrated across-theborder strategies for the management of natural and cultural resources that might restore momentum in local economies; and sustainable urban development. What’s more, cultural contents play a crucial role in the development of the information society, feeding investment in infrastructures and broadband services, in digital technologies, in consumer electronics and telecommunications. With the help of the education sector, the cultural and creative industries can also play a decisive role in providing European citizens with the necessary creative, entrepreneurial and intercultural skills. In this context, the cultural and creative industries can bolster the European centres of excellence and help Europe become a society based on knowledge. All these aspects share the common European Union goal of exploiting the potential of culture as a catalyst for creativity and innovation in the context of the Lisbon strategy for growth and employment.

32 GREEN PAPER. “Unlocking the potential of cultural and creative industries”, Brussels, 27.04.2010, COM (2010) 183 final.

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2.3 European actions in favour of telecommunications 2.3.1 The overall picture In the modern economy telecommunications represent an important factor for development and the competitiveness of economic and social systems. Particularly in the wake of the growing globalisation of the economy and the dematerialisation of production and processes, communication infrastructures and the availability of technologies based on high speed data transfer constitute essential strategic assets for the inclusion of the national manufacturing system in the competitive dynamics of the global economy, but also in order to improve the efficiency and accessibility of services for local populations. The strategic nature of communication technologies for the competitiveness of economic and social systems is proven by the fact that their diffusion in geoFig.ical areas and in various economic sectors, in addition to assisting economic development and growth has also, concomitantly, led to a digital divide springing up between areas that can access these new technologies and increased communication capacity and others which are instead way behind in this area. The digital divide issue – which can be seen with reference to differences between countries but also in relation to the disparities that exist between areas inside the same country – has led many national and regional governments to introduce policies both on the demand and offer side specifically designed to develop the use of the Internet and the diffusion of broadband. The diffusion of broadband leads to positive network externalities – the rise in subscribers/users increases the usefulness of being connected to the network for all consumers – which tends to make increasing the rate of service penetration more advantageous, even in those geoFig.ical areas that are further away from the places where the greatest exchange of information and communication are concentrated. The importance of telecommunications in a European context is already acknowledged in the treaty instituting the European Community, when in Art. 154 it states that in order to create a free European trade space and to ensure economic and social cohesion “the Community must contribute to the construction and development of trans-European networks in the transportation, telecommunications and energy sectors”. Ever since the 1980s, the issue of the liberalisation of the telecommunication sector has been discussed and conceived as part of the process leading to the completion of the internal market, and is now acknowledged as a priority for the European Community. The liberalisation of the sector began in 1988 when the telecommunication terminal market was opened up to competition and then continued in 1990 with the liberalisation of telecommunication services – with the exception of vocal telephone services. In 1998 the EU proceeded to liberalise the European telecommunications market, with the aim of establishing competition in a sector where a dominant position over certain services had up to then been held by national monopolies (such as for example access to high speed Internet), and to ensure that citizens and businesses could get the best out of the development and diffusion of the information society. Alongside the sector liberalisation, another EU priority is currently represented by the reduction of the “digital divide” between rich regions and poorer regions (particularly rural ones) with less opportunity for broadband service access. To bridge the territorial gap in this sector, the Member States along with the regions and the local authorities are encouraged to improve access to technologies in these areas by investing in the supply of appropriate technological equipment and identifying ways of boosting demand. The local administration in particular can provide certain fundamental services to the community, such as services in the field of

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public administration, healthcare and education directly online33. For its part, the EU can instead play an important role through the structural measures ascribable to regional policy tools and policies aimed at rural development. Even though the national authorities of each individual Member State apply European regulations separately in matters concerning telecommunications, they coordinate their strategies at the community level34. From a policy point of view, in the context of the European telecommunications strategy, “i2010” represented the new strategic plan by which the European Commission, in 2005, defined the overall strategic guidelines for the information society and media35. In particular, the i2010 program intended to set up a unique European space for information, to stimulate an open and competitive market for the information society and the media. The communication strategy defined by i2010 set up a more general integrated policy, which aimed to develop knowledge and innovation in order to support European growth and employment. This policy, in its turn, has subsequently been incorporated in the overall revision of EU policy provided by the Lisbon strategy (Lisbon 2020), where the latter, already in the original formulation in Lisbon 2010, assigned technological development and telecommunications with a strategic importance for European competitiveness36. The purpose of the i2020 initiative is to coordinate the actions of EU Member States to facilitate digital convergence and provide an integrated platform for the information society and policies relating to the world of audiovisuals. Moreover, the European Commission has suggested three priority objectives that the European policies concerning the information society and media were supposed to achieve by 2010: •

the creation of a single European space for information;

the strengthening of innovation and investment into research on information and communication technologies;

the creation of an inclusive information and media society.

As is pointed out in the “European Commission Communication on the Lisbon Strategy 2020”, the global demand for information and communication technologies represents a market of eight thousand billion euros, of which however only a quarter comes from European companies. Europe further appears to be behind with regard to the penetration of high speed internet, which has negative repercussions on the ability to innovate, even in rural areas, on the diffusion of knowledge online and the online distribution of goods and services. In this context, community action designed to support investments in communication technologies on behalf of European businesses, accompanied by appropriate measures aimed at eliminating the infrastructural gap which handicaps the more backward areas of Europe, is not only necessary but can also go a long way in achieving the overall objective of strengthening social, economic and territorial cohesion throughout Europe by setting up a European information society based on inclusion and the improvement of public services and the quality of life. To assist in the implementation of the i2010 initiative, in April of 2006 an “eGovernment” plan was devised, which aims to improve the efficiency of public services, bring them up to 33 Communication by the Commission to the Council and European Parliament: “Better access for rural areas to modern information and Communication Technologies (ICT’s)[COM(2009) 103]. 34 The coordination of strategies at the community level takes place within the so called group of European regulators (ERG – European Regulators’ Group). 35 Communication by the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Region, of 1June 2005, entitled “i2010 - A European Information Society for growth and employment” [COM(2005) 229]. 36 COMMUNICATION OF THE EUROPA 2020 COMMISSION. A strategy for intelligent, sustainable and inclusive growth, CE, 2010.

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speed with the times and adapt them to suit citizen’s needs37. The plan of action underlined the importance of accelerating the introduction of online administration (or e-government) in Europe to answer a series of requirements, such as: •

updating and improving the efficiency of public services;

providing citizens with safer and better quality services;

answering the plea made by businesses for less bureaucracy and more efficiency;

guaranteeing cross- border continuity of public services, essential in order to sustain European mobility.

There are also a number of European measures affecting the information society that are worth mentioning, which target certain specific sectors, such as for example the health service. In 2004 the European Commission set in motion a Plan of action for “electronic health (e-health)38”, the main objective of which was to enable the European Union (EU) to exploit the potential of the health systems and services online in the context of a European space for electronic health. The Plan envisaged the possibility of using information and communication technologies (ICT) to improve the quality of health service throughout Europe, maintaining fixed costs or even reducing them while cutting waiting times and errors. In operational terms, the Plan outlines concrete measures for its implementation, including, by way of example: the application of information and communication technologies to medical prescriptions, medical files, patient identification and health cards, by introducing a faster installation of broadband Internet specifically dedicated to health systems. Other areas of Community action in the region of telecommunications, supported by the implementation of dedicated community programs, are the major trans-European communication networks, in those instances where, in the context of the European Union’s (EU) policy of trans-European networks, the “eTEN”39 program supports the creation and diffusion of trans-European services and electronic applications. The program was initially set up to help the interconnection of networks in the telecommunications infrastructure sector, only to be subsequently expanded to include the creation, development and accessibility of interoperable services and applications, concentrating mainly on the promotion of public services and the innovative use of online services.

2.3.2. State aid for broadband In a market economy, the investments for the territorial deployment of high speed or very high speed broadband networks is primarily guaranteed by private operators, yet State aid steps in as a decisive tool in order to extend broadband coverage to those areas where market operators have no advantage in investing. In order to satisfy the growing demand for regulation of the case histories that are by now very widespread in the sector, in September of 2009 the European Commission introduced the Guidelines40 for State aid in favour of broadband. These guidelines aim to achieve the general objective of regulating investments in this highly strategic sector for the economic development and social cohesion of the States, without distorting competition and thus ensuring the preservation of competitive market dynamics in a sector that is now completely liberalised. 37 Communication by the Commission, 25 April 2006, The i2010 plan for e-government: Accelerating egovernment for everyone’s benefit [COM(2006) 173]. 38 Communication by the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 30 April 2004, “Electronic Health - making healthcare better for European citizens: an action plan for a European e-Health Area” [COM(2004) 356]. 39 In full “TEN-Telecom” which stands for Trans-European Telecommunications Networks. 40 Communication by the Commission. Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks (2009/C 235/04) 30/09/2009.

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Broadband connectivity plays a central role in terms of the development, introduction and use of information and communication technologies in the economy and in society. The strategic importance of broadband therefore consists in its capacity to accelerate the contribution of these technologies to growth and innovation in all economic departments along with social and territorial cohesion. The European Commission actively supports the generalised access to broadband services for all European citizens, as a tool for social cohesion, as set forth and reasserted in the various versions of the Lisbon strategy41. The availability of guidelines on State aid for broadband offers the European Union Member States and their respective public authorities a set of rules that can steer their plans to publically support the sector so that they comply with the community rules on State aid, but that at the same time facilitate the expansion of high and very high speed broadband networks, reducing the so called digital divide, increasing Europe’s competitive edge and contributing to the creation of a knowledge-based society in Europe. These guidelines have been formulated by the European Commission on the basis of experience acquired in recent years and based on the introduction of over 40 separate decisions on instances of public aid and whether the aid could warrant State aid status or not. More specifically they provide a clear explanation of the rules on the basis of which public resources can be used to install broadband networks or even new generation networks (NGA42) in areas where private concerns are not prepared to invest. What State aid can do in supporting the installation of broadband networks is actually rectify a market failure in that it makes it possible to remedy situations where single private investors do not consider the investment viable, even though the investment may end up being efficient in a broader economic prospective, for example owing to the cumulative repercussions it has on the area’s development. On the other hand, State aid in support of broadband could also be viewed as a way of levelling out the playing field, where it is considered a fundamental means of social communication and participation as well as a tool that can guarantee freedom of expression to all social players, thus reinforcing social and territorial cohesion. Already in the “Plan of action in the State aid sector – less and better targeted State aid: a road map to State aid reform 2005-200943”, the Commission remarked that, in certain given conditions, State aid can represent an effective tool in order achieve objectives in the common interest, underlying as far as the broadband issue was concerned, how a targeted public action can help to reduce the “digital divide” between areas and regions of a country with access to affordable and competitive broadband services and areas where this offer is absent. The European investments for the development of broadband networks also comprise an important part of the European plan for economic revival44 approved on 11 March 2009, to which the European Commission assigned over a billion euros through the European Agricultural fund for Rural Development (FEASR) to support the deployment of high speed Internet connections in rural areas. In those areas covered by broadband projects subsidised by State measures qualifying as “assisted areas” pursuant to article 87, paraFig. 3, letters a) and c) of the EC treaty and consequently falling within the prescriptions of the guidelines on matters of State aid for regional purposes45, 41 See for example, “i2010 - A European Information Society for growth and employment” COM (2005) 229 def., 1st June 2005; “e-Europe 2005: an information society for everyone”, COM (2002) 263 DEF.; “Bridging the broadband divide”, COM (2006) 129. 42 NGA stands for Next Generation Access. These are networks in fibre optics or advanced cable networks capable of entirely or largely replacing the current copper or cable broadband networks. 43 COM (2005) 107 def. 44 COMMUNICATION BY THE COMMISSION TO THE EUROPEAN COUNCIL. A European economic recovery plan COM (2008) 800 def., Brussels, 26/11/2008. 45 For a description of the areas entitled to State aid for regional purposes on the basis of articles 87.3 a and 87.3 c and the various criteria and aid intensity thresholds involved, see the Guidelines on matter of State aid for regional purposes 2007-2013, OG C 54 dated 4.3.2006, pages 13-45. A definition of areas 87.3a and 87.3c and the admissibility criteria is also provided in this chapter in the paraFig. dedicated to State aid to culture.

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the public funding allocated to broadband deployment fits the definition of State aid.

2.3.3. Assisted broadband areas In order to classify the public aid in support of broadband networks as State aid, the European Commission introduced a distinction of a geoFig.ic nature between: •

areas where broadband infrastructures are non-existent and are not expected to be developed in the mid-term (white areas);

areas where only one broadband operator was present (grey areas);

areas where at least two broadband network service operators were present (black areas).

This distinction was also applied to the availability of NGA46 networks, whose installation is still at the very initial stages almost everywhere.

White areas Considering State aid for broadband in these so called white, rural and inadequately served areas as a tool capable of promoting economic and social-territorial cohesion and to correct market failures, the European Commission decreed its close compatibility with community policies on cohesion. In almost all decisions reached in this sector, the Commission underlined that, for profitability reasons, broadband networks tend to provide only partial coverage of the population, making it necessary for public funding to be provided to reach complete coverage47. Therefore the European Commission acknowledged that, in providing financial backing for the supply of broadband services in areas where the facility was not present, nor was it expected that private investors were likely to establish a similar infrastructure for at least the next three years, the Member States are pursuing true objectives of cohesion and economic development and the support is therefore in all likelihood in keeping with the common good48.

Black areas In this situation, it was upheld that, when in a particular geoFig.ical area at least two providers of broadband services operate and the service is supplied in competitive circumstances (competition based on infrastructures), then there is no market failure. Consequently it is very unlikely that public action will bring any further benefit, while public aid allocated to finance the construction of a further broadband network, on principle, is likely to distort competition to an unacceptable extent and could lead to the exclusion of private investors. Therefore, in the absence of a clear instance of market failure, the Commission negatively assesses measures designed to support the introduction of a new broadband infrastructure in “black areas”49. 46 It should however be considered that, seeing as NGA networks imply a completely different network structure in order to provide broadband services of a considerably higher quality compared to the ones currently available, the definition of areas should be revised to take into consideration the specific nature of NGA networks. Furthermore, where the introduction of the basic broadband is concerned, the examples of State aid mainly relate to rural areas/communities (with low population density, high investment levels) or economically backward areas (with too few means to be able to afford the services), with NGA networks the financial burden required for their construction may be such do discourage their installation not only in scarcely populated areas but also in certain urban ones. In other words, the fast development on a broad scale of NGA networks is mainly hindered by the cost factor rather than a low population density. 47 See Communication by the Commission. Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks (2009/C 235/04) 30/09/2009. 48 See, for example, the Commission decision N. 118/06 on Latvia. 49 See the Commission decision of 19 July 2006, concerning State Aid C 35/05 (ex N 59/05) relative to the installation of a broadband network in Appingedam in the Netherlands (OG L 86 del 27.3.2007, page. 1). The case concerned the development of a Council-owned passive network (conduits and fibre optic) the active side of which

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Grey areas The presence of a network operator in a certain area does not rule out that there may be a market failure or a shortage of network infrastructure in the territory. In actual fact, the presence of a monopolistic position can affect the quality or the price of the services provided to the citizens to an extent that can also be disadvantageous. At the same time however, in the areas where a single broadband network operator is present, the public support for the construction of an alternative network can, by definition, interfere with market dynamics. It’s for this reason that the State aid supporting the development of broadband networks in the grey areas requires a very thorough analysis and careful evaluation of compatibility. Let us take into consideration a few types of admissible aid. Let’s suppose that in the area covered by the public action a network operator is already present; it is however possible that a few user categories are not adequately served (for example certain broadband services called for by users are not available or, due to the lack of regulated wholesale access tariffs, the retail prices are virtually inaccessible compared to those same services offered in other more competitive areas or regions). If, moreover, it is fairly unlikely that alternative infrastructures will be put in place by third parties, the public finance could turn out to be an appropriate measure by which to achieve this aim. In this case, by compensating for the lack of infrastructural competition, the aid would reduce the problems connected to the effective monopoly of the longstanding operator50. When it grants aid in these kinds of circumstances however, the Member State must guarantee compliance with a number of conditions. In particular, the Commission can, on certain conditions, declare the aid measures that interest areas where broadband infrastructures are effectively managed in a monopoly regime as being compatible with its guidelines provided that: i) affordable or adequate services are not available to satisfy the needs of citizens and commercial users; ii) the same objectives cannot be achieved with less distortive measures (including ex-ante regulation). In order to verify the above, the Commission specifically assesses the following elements: a) the inadequacy of general market conditions, analysing, among other things, the current price levels for broadband service, the kind of service offered the final user (residential and commercial) and the conditions imposed; b) in the absence of an ex-ante regulation imposed by a national regulating authority, the impossibility of actual access to the network on behalf of third parties or the presence of access (management and network operation) was to be tendered out to a private sector operator that would have provided wholesale services to other broadband service providers. The Commission ascertained, in the decision, that the market for broadband in the Netherlands is developing very fast and that the electronic communication service providers, the cable operators and the Internet service providers were about to introduce unsubsidised high speed broadband services onto the national market. The situation in Appingedam did not appear to differ from that of the rest of the country. Both the landline operator and the cable operator present on the market already offered clients in Appingedam a “triple play” service packet (telephone, broadband and digital/analogue TV) and both the operators claimed to possess the technical competence to extend the bandwidth using the available networks. 50 In Decision N. 131/05 – United Kingdom, Fibre Speed Broadband Project Wales, the Commission took into consideration whether the financial support granted by the Welsh authorities for the construction of a fibre optic network, which was open and neutral as far as the operator was concerned and connected 14 industrial parks, could be considered compatible, considering that the areas involved were already served by the existing network operator who offered dedicated connections at regulated prices. The Commission reckoned that the service price charged by the existing operator was very high, almost inaccessible for the SMEs. Given the distance from the existing operator’s telephone switchboard, the parks involved weren’t even able to access symmetrical ADSL services with speeds higher than 2 Mbps. What’s more, the existing operator did not grant third parties access to inactive conduits and fibres. Therefore the presence of an operator in the areas involved did not ensure the supply of high speed Internet connections at affordable prices for the SMEs. Nor was there any likelihood that an alternative high speed infrastructure be created by any third parties to connect the industrial parks in question. A further examples of this kind of case history, see the Commission Decisions : N 890/06 - France, Aid to Sicoval for a very high speed network; N 284/05 - Ireland, Regional Broadband Programme: Metropolitan Area Networks («MANs»), phases II and III.

200

Public investment in the cultural and telecommunications industry


conditions which do not favour effective competition; c) the existence of general obstacles likely to hinder the entrance of any new operators into the electronic communications market; d) no measures introduced or corrective measures issued by the competent national regulation authority or competition watchdog authority with jurisdiction over the existing network operator are capable of resolving the above mentioned problems. In spite of having facilitated the development of broadband in urban areas and more densely populated ones in many instances, ex-ante regulation may, after all, turn out to be an inadequate tool by which to guarantee the supply of broadband services, particularly in poorly served areas where the intrinsic investment profitability is low51. By the same token, although measures designed to boost the demand for broadband (as for example the granting of purchase vouchers for fast speed connections for the final users) may positively contribute to a greater diffusion of broadband, they are not always effective in achieving the objective of improving the offer52. In these kinds of situations, in order to overcome the insufficient availability or complete absence of broadband, there is no alternative but to definite public action which entails the complete installation of broadband infrastructures entirely financed by the State.

3. Public expenditure in Italy in telecommunications and culture in the Regional Public Accounts (RPA) system 3.1. Introduction The trends in public expenditure in Italy are subject to very close scrutiny, particularly since the country has committed to complying with the European obligations regarding the stability of its public finances. If on the one hand the constraints on its balance of payments require that its public spending becomes more efficient and productive, on the other hand there are sectors of the economy (culture and telecommunications being a case in point) that require a broad range of public investment support to avoid market failures. In order to examine public expenditure in culture53 and telecommunications we decided to refer to the data collected centrally through the Regional Public Accounts (RPA)54, an accounts system set up according to specific criteria, which were outlined in the notes on the methodology earlier in this chapter. In this analysis we have begun by collecting data on the cash flow over time for the Enlarged Public Sector expenditure for the years 2000 to 2008 (the last year for which the RPA data is currently available), dividing the public expenditure between current spending (operating costs which include items such as wages, rents, etc) and capital account expenditure (which represents investment spending). 51 By way of example, see the following Decisions by the Commission: N 473/07 – Italy, Supply of broadband connections in Alto Adige; N 570/07 - Germany, Eckpunkte zur Breitbandversorgung des ländlichen Raums in Baden- Württemberg; N 131/05 – United Kingdom, Fibre Speed Broadband Project Wales; N 284/05 - Ireland, Regional Broadband Programme: Metropolitan Area Networks («MANs»), phases II and III; N 118/06 – United Kingdom, South Yorkshire Digital Region Broadband Project. 52 By way of example, see the following Decisions by the Commission: N 222/06 - Italy, Plan of action to overcome the digital divide in Sardinia, N 398/05 - Hungary, Tax deductions to boost the development of broadband; N 264/06 - Italy, Broadband in rural areas of Tuscany. 53 In the RPA system the aggregate expenditure is referred to the cultural and recreational service sector, where the recreational service sector mainly includes sports facilities, an item that has been kept within the aggregate given its negligible weight. See the outline of the methodology. 54 More detailed information on the activities of the RPA project can be found on the institutional site http:// www.dps.tesoro.it/cpt/cpt.asp.

Public investment in the cultural and telecommunications industry

201


3.2. The overall picture The data concerning the thirty sectors of the economy measured by the RPA system provides us with a broad and extremely diverse perspective on the trends governing public spending in Italy. The analysis of this universe also enables us to verify the specific importance and evolution of the relative weight of public spending in telecommunications and culture compared with the rest of the countryâ&#x20AC;&#x2122;s economy. In the last year of RPA data collection, 2008 to be precise, the public expenditure referred to the Enlarged Public Sector for culture, in absolute terms, totalled 10,668 million euros, while for the telecommunications sector it totalled 9,929 million euros (Fig. 1). The expenditure for culture for the same year represented 1.03 percent of total expenditure within the Enlarged Public Sector for all the sectors for which data was collected, while for telecommunications it represented 0.96 percent of the total (Fig. 2). It certainly comes as no surprise that the sectors of the economy that absorb the largest share of public expenditure in Italy are essentially National Insurance payments (27.57%), the Healthcare sector (10.29%) and General Administration expenditure (9.96%), all areas that are famously responsible for contributing to the countryâ&#x20AC;&#x2122;s deficit and where the broadest and most sweeping expenditure review is required in order to introduce greater spending efficiency and quality. Whatâ&#x20AC;&#x2122;s more, in the cultural sector, and the same goes for telecommunications, the ratio of public spending compared with overall expenditure has been dropping in recent years. In the cultural sector it has been cut by as much as a half over the period under assessment: it represented 2.1% of total expenditure in 2000 and, after having dropped to 1.59% in 2002 and rising back up to 2.2% in 2004, since then it has slipped gradually down to the 2008 level of 1.03%. In telecommunications on the other hand, after expenditure had grown considerably in 2001 (1.88% of total expenditure), it dropped constantly in subsequent years, hitting its all time low in 2008, when it accounted for 0.96% of the overall public spending fed into the economic circuit; however, further considerations need to be made concerning these trends so we can get a better understanding and a clearer picture on the expenditure shifts that have taken place over the various years. For example, the doubling of telecommunications expenditure that took place between 2000 and 2001 (from 7,836.59 to 14,434.11 million euros) was a consequence of a combination of one-off factors: on the one hand, the market operation of the purchase of Wind by Enel and on the other the increased spending of the Italian post office, Poste Italiane on personnel, purchasing goods, services and property. By the same token, the drop in spending recorded between 2004 and 2005 was essentially due to the sale of Wind assets.

202

Public investment in the cultural and telecommunications industry


Fig. 1: Total expenditure for the Enlarged Public Sector (2000-2008) (absolute values, millions of euros) National insurance and wage supplements

285,49 205,15 154,75

Energy

52,32 106,53

Health General administration Education Industry and crafts Other transportation Unclassified expenditure Social affairs Other economic sectors Defense Road works Public order Waste disposal Culture and recreational activities Telecommunications Residential and urban developments Water Environment Justice Agriculture Sewers and water treatment Research and development Trade Training Tourism Other health affairs and sanitation Other public works Labour Marine fishing and aquaculture

67,26 103,07 60,36 57,49 42,59 52,55 25,60 43,79 27,18 38,89 42,17 34,90 24,89 29,33 29,91 18,26 10,90 15,08 10,14 13,24 12,75 11,16 8,74 10,67 14,26 9,93 7,84 7,82 6,49 7,20 2,89 6,82 4,64 6,57 4,86 4,74 5,21 3,57 3,40 3,42 2,53 2,66 1,48 2,65 2,22 1,67 1,47 1,34 0,97 0,90 0,80 0,75 0,61 0,08 0,08

Migliaia 0

50

2008 100

150

200

250

300

2000 350

Source: IEM elaboration of RPA data.

Public investment in the cultural and telecommunications industry

203


Fig. 2: Per sector share of the total of EPS expenditure (2000-2008) (%) National insurance and wage supplements

27,58 30,18 14,95

Energy

7,70 10,29 9,89 9,96 8,88

Health General administration Education Industry and crafts Other transportation Unclassified expenditure Social affairs Other economic sectors Defense Road works Public order Waste disposal Culture and recreational activities Telecommunications Residential and urban developments Water Environment Justice Agriculture Sewers and water treatment Research and development Trade Training Tourism Other health affairs and sanitation Other public works Labour Marine fishing and aquaculture

5,55 6,27 5,08 3,77 4,23 4,00 3,76 6,20 3,37 3,66 2,83 4,40 1,76 1,60 1,46 1,49 1,28 1,88 1,08 1,29 1,03 2,10 0,96 1,15 0,76 0,96 0,70 0,43 0,66 0,68 0,63 0,72 0,46 0,77 0,35 0,50 0,33 0,37 0,26 0,22 0,26 0,33 0,16 0,22 0,13 0,14 0,09 0,12 0,07 0,09 0,01 0,01

0,00

5,00

2008 10,00

15,00

20,00

25,00

Source: elaboration of RPA data.

204

Public investment in the cultural and telecommunications industry

2000

30,00

35,00


3.3. Public spending on telecommunications 3.3.1. Overall expenditure for the Italian territory Even though the importance of investment in telecommunications for a country’s competitive edge and growth55 is widely acknowledged, the Italian figures on public spending in the sector reveal that, as of 2001, there has been a gradual reduction of public spending in telecommunications, while as far as capital investment is concerned, this has suffered a drastic decrease beginning in 2005. More specifically, after the strong rise in expenditure between 2000 and 2001 (from 7,836 to 14,434 million euros), it then started to fall away to the lowest level ever, which it reached in 2007 (9,876 million euros), only to rise slightly in 2008 (9,929 million euros) (Fig. 3; Fig. 5). It’s also worth pointing out that for an extensive period, from 2004 to 2007, the rate of public spending growth in telecommunications was always negative, and this trend was only reversed very slightly in the last year for which we have data (Fig. 4). Fig. 3: Total EPS expenditure – (2000-2008) 16.000

14.434

14.000

Fig. 4: Variations in total EPS expenditure – TLC (2000-2008) 1,0

13.567

13.979

0,84

0,8

12.804

12.000

10.232

10.000 8.000

TLC

9.911

9.877

9.930

0,6 0,4

7.837

0,2

6.000

0,03 -0,06

0,0

4.000

-0,08

-0,03

0,00

0,01

2006

2007

2008

-0,20

-0,2

2.000 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

-0,4 2001

2002

2003

2004

2005

Source: elaboration of RPA data.

If one then looks at the spending for the sector in terms of current account expenditure and capital investments56 we see that it fairly closely matches the trends for the same categories in overall public spending for the sector over the period. The investment expenditure reveals a considerable increase in 2001, from 582 million euros to 2,303 million euros, and what’s more on average, from 2001 and up to 2005, investment expenditure tended to increase while current account expenditure levels dropped. From 2005 onwards however the trend was reversed, with current expenditure increasing to the detriment of investment spending. In 2008 the capital account expenditure increased once again compared to running expenses, indicating that there could be a revival of investments in the sector (Fig. 6).

55 See above. The impact of the dissemination and technological upgrading of telecommunications in development and growth are proven by a number of international studies, such as the one conducted by the U.S. Department of Commerce (Measuring Broadband’s Economic Impact, February 2006), which compared local communities with a high and a low level of broadband technology installation. The study, which covered the period 1998 – 2002, showed that the communities with greater access and more widespread distribution of broadband technologies posted a higher increase in employment and a greater growth in terms of number of new businesses, particularly those operating in sectors with a higher technological intensity. The study did not point to a statistically significant increase in average wages, while there was an increase in the value of residential property (measured by taking as a benchmark the average rent level paid for residential properties in the areas with a more widespread presence of broadband technologies). 56 For TLCs the running expenses refer to operating costs (wages, rents, etc.), while the investments involved are those required to install the works (purchase of materials, infrastructure construction etc).

Public investment in the cultural and telecommunications industry

205


Fig. 5: Total expenditure (for capital and current accounts) for the Enlarged Public Sector in Telecommunications (2000-2008) (millions of euros) 20.000

current account

capital account

16.000 2.304

12.000 8.000

2.178 2.460

1.553

1.331

1.430

7.772

8.359

8.546

8.499

2005

2006

2007

2008

582 12.130

4.000

2.186

2.309

11.793

11.259

10.627

7.254

0 2000

2001

2002

2003

2004

Fig. 6: Variations in investment and current account spending in Telecommunications for the Enlarged Public Sector (2000-2008) (%) 350 300

current account

295,8

capital account

250 200 150 100 50

67,2 0,2

0

-7,2

-50

4,7

-0,4

-5,3

-9,9

13,0

7,5

-26,9

-36,9

2005

2006

2,2 -14,3

7,4 -0,5

-100 2001

2002

2003

2004

2007

2008

Fonte: elaborazione Iem su dati CPT

3.3.2. Expenditure by region The analysis of public telecommunications expenditure by region shows trends that reflect the tendencies of the average national figures. In all Italian regions, from 2000 to 2001 an increase in public spending on telecommunications is reported, following, as of 2002, by a generalised drop in spending, with values falling away by half in almost all regions over the 2002 â&#x20AC;&#x201C; 2008 period (Fig. 7). The only exception was Lazio, where telecommunications expenditure went from 2,287 million euros in 2001 to 2,946 million euros in 2002 and, after falling off considerably, in recent years seems to have levelled out. In 2008, the regions with the highest expenditure in absolute values were Lazio and Lombardy with 2,741 and 1,430 million euros respectively, followed by Piedmont, with 848 million euros, Campania with 697 million euros and Sicily with 511 million euros. It should also be noted how in certain regions of the Mezzogiorno (Southern Italy) the absolute value in terms of spending, in 2008, rose considerably compared to the dominant trend for the previous years. This was the case for example in Calabria, Campania and Puglia. The reason for this was probably linked to residual structural funds allocated to the abovementioned regions for the 2000-2006 period, which had to be spent within two years of the end of the programme ending. The year 2008 was thus the last year in which these community funds could be used,

206

Public investment in the cultural and telecommunications industry


with all remaining unused funds beyond this date being essentially forfeited. This clearly represented a very strong incentive to ensure they were used up in time. If on the other hand we consider the pro capita public expenditure in telecommunications per region, we find that Lazio continues to lead the pack with 487 euros per inhabitant, followed by Molise with 280 euros per inhabitant, by the autonomous province of Trento with 271 euros per inhabitant and Valle dâ&#x20AC;&#x2122;Aosta with 266 euros per inhabitant. This figure is on the other hand very low for Puglia (only 91 euros per inhabitant), particularly when compared to other Southern Italian regions, where per capita expenditure on telecommunications ranges between 101 euros per inhabitant in Sicily and 152 euros per inhabitant in Abruzzo (Fig. 8). Fig. 7: Telecommunication expenditure divided by region (2000-2008) (millions of euros) 2.741

Lazio

2.097 1.430

Lombardy

1.032 849

Piedmont

700 698

Campania

594 527

Emilia Romagna

375 511

Sicily

382 508

Veneto

408 461

Tuscany

342 371

Puglia

305 275

Calabria

244 237

Liguria

214 202

Abruzzo

165 192

Friuli Venezia Giulia

155 188

Marche

158 182

Sardinia

219 141

Aut. Province of Trento

126 124

Umbria

105 90

Aut. Province of Bolzano

45 90

Molise

65 79

Basilicata

78

2008

34

Valle d'Aosta

2000

26

0

500

1.000

1.500

2.000

2.500

3.000

Source: IEM elaboration of RCA data.

Public investment in the cultural and telecommunications industry

207


Fig. 8: Per head expenditure in Telecommunications divided by region (2000-2008) (euros) 487,2

Lazio

409,9 279,8

Molise

203,6 270,6

Aut. Province of Bolzano

265,6 267,8

Valle d'Aosta

217,1 191,5

Piedmont

165,8 180,6

Aut. Province of Bolzano

98,6 156,4

Friuli Venezia Giulia

131,3 151,6

Abruzzo

130,9 147,0

Liguria

135,6 146,8

Lombardy

114,6 138,2

Umbria

127,6 136,7

Calabria

120,9 134,5

Basilicata

129,5 124,3

Tuscany

97,7 121,4

Emilia Romagna

94,6 120,1

Marche

108,2 120,0

Campania

104,1 108,8

Sardinia

134,1 104,0

Veneto

90,5 101,4

Sicily

76,8 90,9

Puglia

2008

2000

75,8

0

100

200

300

400

500

600

Fonte: elaborazione Iem su dati CPT.

3.4 Public spending on culture 3.4.1 Overall expenditure for the Italian territory The cultural industry in Italy represents one of the sectors where the production process for both products and services is very drawn out and differentiated. For this reason the way public resources are allocated in the sector is a very complicated business, and whatâ&#x20AC;&#x2122;s more it now takes place in a context where the need to contain and qualify expenditure prevails. Public expenditure in culture supported by the Enlarged Public Sector has been fairly erratic,

208

Public investment in the cultural and telecommunications industry


dropping at first, between 2000 and 2002, then recovering in 2003 and particularly in 2004 which recorded a peak in the years under examination (19,262 million euros), only to drop away steadily to the lowest level recorded for the period in 2008 (10,669 million euros). What is particularly striking is the expenditure figure for this last year, seeing as between 2006 and 2007 there had been a gradual recovery in spending for culture, while in 2008 it would appear that there has been a free-fall, down to the lowest level ever achieved in the last 9 years (Figs. 9, 10 and 11). However, the most significant shifts in expenditure are due to the transfers that the State makes every year in favour of the government’s administration of State monopolies to pay for the Lottery jackpots, an amount that is clearly very variable. If the figures were adjusted to account for transfers to the State monopoly administration, the amounts would seem much more linear over the years, as is shown in Fig. 13. In fact, in 2009 there would actually be an increase in cultural spending, both in terms of current expenses and capital investment. More specifically, the overall expenditure in culture would be seen to have climbed from 9,865.95 to 10,668.64 million euros, radically changing the scenario described earlier and revealing an increase in support for the cultural sector. Fig. 9: Overall EPS spending – Culture and recreational services (2000-2008)

0,5

25.000

0,43

0,4

19.262

20.000

0,3

16.529

15.000

Fig. 10: Changes in overall EPS spending – Culture and recreational services (years 2000-2008)

14.264

13.681

12.769

13.586

13.491

0,2

14.220 10.669

10.000

0,1 0,0

0,06

5.000

0,05

-0,04 -0,07

-0,1

-0,14

-0,2

-0,18 -0,25

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

-0,3 2001

2002

2003

2004

2005

2006

2007

2008

Source: IEM elaboration of data provided by RPA.

On average, between 2000 and 2007, approximately 80% of Enlarged Public Sector spending for culture went to cover running costs, which placed a considerable strain on the capacity to support the sector’s demand for investments, such as work required to help exploit the historical and artistic heritage for touristic purposes (Fig. 12). However, in 2008, faced with a general drop in cultural expenditure, the funds for investment57 increased considerably (by as much as 10%) compared with 2007. Fig. 11: Total expenditure (for current and investment expenditure) for Enlarged Public Sector in culture (2000 – 2008) (millions of euros) 20.000

current account

capital account

3.322

16.000 12.000

2.994 2.503

2.492

2.278

2.482

2.703

2.965

3.217

8.000

15.939 11.760

13.535 11.188

10.490

11.103

10.789

11.255

4.000

7.452

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: IEM elaboration of data provided by RPA 57 The financial entries represent on average only 3% of the total of the investment capital, and the 0.6% of the overall outlay, so their inclusion does not distort the expenditure figure.

Public investment in the cultural and telecommunications industry

209


A close look at public spending by tier of government The data for public spending in culture divided by tier of government shows how, over the course of the years, the State has modified its central role as fund disburser, while there has been a considerable increase in the weight and importance of the support provided for the sector by local authorities (particularly by Municipalities). In 2000 the State expenditure for culture (for the most part by the Ministry of Culture) represented 47% of the total expenditure by the Enlarged Public Sector, while in 2007 this percentage had dropped to 35.7%, and was at this point level with Municipality expenditure. In line with the tendency towards a reduction of the importance of State funding in favour of funds from decentralised territorial bodies, 2007 saw the Regions increase their share of cultural funding (up to 12.3%) along with the Provinces and Metropolitan Cities (up to 5.2%). There was also another category which in the study was classified as â&#x20AC;&#x153;Otherâ&#x20AC;? and which groups local public companies, accounting for another 11.2%58. Fig. 12: Total EPS expenditure, for current expenses and investments net of transfers to the State Monopolies - (2000-2008) (millions of euros) 12000 current account

capital account

10000 8000

2.503

2.703

3.322

3.217 2.994

2.482

2.965

2.492

2.278

7.062

6.540

6.617

7.165

6.900

6.662

6.885

6.901

7.452

2000

2001

2002

2003

2004

2005

2006

2007

2008

6000 4000 2000 0

Source: IEM elaboration of data provided by RPA.

Fig. 13: Enlarged Public Sector expenditure variation in current costs and investments for Culture (2000-2008) (%) 60

current account

47,7

50

capital account

40 30 18,6

20

22,9

19,4

10 0 -10

-0,4 -6,2 -4,9

1,4

2,8

8,5

-9,9 -17,1

-8,6 -15,1

-20

-18,0

-30

-33,8

-40 2001

2002

2003

2004

2005

2006

2007

2008

Source: IEM elaboration of data provided by RPA. 58 The figures for public expenditure by tier of government are taken from B. Stratta (2009), Public expenditure for culture in the Italian regions: recent trends and models, Economia della Cultura, N.2. The analysis conducted in this study is also based on the public expenditure figures in the Regional Public Accounts; unlike the figures in our analysis, in this case a subset of budget entry items for each institution was selected in order to leave out the component relative to the recreational services (including for example sports facilities). For greater details on the methods used please refer to the methodology note.

210

Public investment in the cultural and telecommunications industry


Fig. 14: Percentage distribution of expenditure disbursed by the EPS divided by tier of government (2000 â&#x20AC;&#x201C; 2007) State 100

9,3 2,9

90

Regions

Municipalities

Provinces and metropolitan cities

Other

10,7 3,6

10,6 3,6

9,6 3,5

10 3,7

10,1 3,9

8,85 4,95

11,2

37,4

37,2

35

36,8

37,5

37,15

35,7

12,4

11,2

15,1

9,5

11,2

13,35

12,3

35,8

37,4

36,8

39,9

37,2

35,7

35,7

2001

2002

2003

2004

2005

2006

2007

5,2

80 32,1

70 60

8,7

50 40 30

47

20 10 0

2000

Source: IEM elaboration of data provided by Stratta (2009).

If one separates out the expenditure figures for the Central and Northern regions from those pertaining to the South of Italy (Mezzogiorno), the public spending picture for the sector changes quite significantly. In the regions in the North and Centre of the country the main players in public spending for culture are the Municipalities, which in 2007 accounted for the main share (38.1%), greater that the share financed by the State (36.5%). In actual fact, this increased presence of the Municipalities in cultural funding is a tendency which already kicked off in 2001 in the North and Centre, the first year when their expenditure exceeded that of the State (Municipalities accounted for 40.8% of public spending as opposed to the 34.1% covered by the State). Fig. 15: Percentage Distribution of expenditure disbursed by the EPS per tier of government 2000-2007 â&#x20AC;&#x201C; Centre-North State 100 90

10,6 2,4

Regions

Municipalities

Provinces and metropolitan cities

12,4 3

11,4 2,9

10,4 2,6

11,3 3

12 3

12,3 3,2

13,6

40,8

39

36,8

39,4

40,5

40,5

38,1

9,5

14,4

7,4

9

8,2

7,6

34,1

37,1

35,8

39

35,5

35,7

36,5

2001

2002

2003

2004

2005

2006

2007

80 70

34,3

60 50

Other

4,2

6,6

40

9,8

30 20

46,1

10 0 2000

Source: IEM elaboration of data provided by Stratta (2009).

In the South, however, a centrist model for public spending in culture still held sway even in 2007. While the role of the Municipalities increased it remained modest, with an incidence on total sector expenditure of just 29.2%. In spite of a gradual reduction of the role played by the State between 2000 and 2007, the central administration is still the main dispenser of public funding for the sector with 33.4%. What has instead greatly increased over the period under examination is the level of Regional authority spending, which has gone from 14.9% in 2000 to 24.9% in 2007. Generally speaking the role and weight of regional administrations, not only in their capacity as fund disbursing bodies but also as direct promoters of public policies in the various sectors of the regional economy has increased considerably in recent years. This is partly due to a process Public investment in the cultural and telecommunications industry

211


of devolution of both administration and functions directly connected to territorial policies, which has meant that the Regions have “broken loose” of their previous purely bureaucraticadministrative role to become major players in the promotion and implementation of development policies59. Fig. 16: Percentage distribution of expenditure disbursed by the EPS per tier of government 2000-2007 – South 100 90 80

State

Regions

5,7 4,3

6,2 5,4

25,5

70 60

Municipalities

Provinces and metropolitan cities

7,6 5,9

6,8 6,7

6,2 5,9

4,8 6,5

31,2

28,5

28,9

28,9

16,7

17,5

16,2

17,6

40,7

38,5

40,4

42,7

42,2

2001

2002

2003

2004

2005

27,9

19,8

40 20

5,4 6,7

4,5 8

33,8

29,2

18,5

24,9

35,7

33,4

2006

2007

14,9

50 30

Other

49,6

10 0 2000

Source: IEM elaboration of data provided by Stratta (2009).

The greater weight of the State’s action in the South compared to the other tiers of government should not however fool us with regard to the real weight of State spending for culture when compared to other parts of the country. It turns out that in actual fact the per capita spending allocated by the State for the cultural sector in the South in 2007 amounts to only 63% of the average it pays out in the Central and Northern areas. What’s more, if the analysis were focused on capital investments alone for the cultural sector, one would see that the differential between public spending in the Central and North of Italy and the South is not at all compensated by the investments financed by the regional policies with the so called “supplementary” resources from Structural Funds and the National Fund for Underutilized Areas (Stratta 2009). Regional policies have earmarked the exploitation of cultural resources as one of the strategic drivers of policies for the development of depressed areas (Southern regions). The 2007 – 2013 National Strategic Framework for a unified regional development policy has in actual fact named culture as one of its ten strategic priority policies for Italian development, which must focus on “the exploitation of natural and cultural resources to foster attractiveness and development” (Priority 5)60 The priority, subsequently included in regional policy documents (POR) and in a number of different actions, while pursuing the specific strategy for the sector which includes many traditional actions for the protection and safeguarding of the cultural heritage, also underlines the advisability of transforming the local wealth of naturalistic, landscape and cultural resources into increased opportunities and well-being for the community by tailoring measures designed to foster its exploitation.

59 The greater role played by the Regions in supporting direct action for territorial development is confirmed by the incidence of investment spending in these same Southern Italian regions, which, in 2007 represented 48.0% of the funds allocated for culture, vastly greater compared to the incidence of State capital investments, which totalled only 35.2% (Stratta 2009). 60 National Strategic Framework for regional development policy 2007-2013, Department of Development and Economic Cohesion, Ministry of Economic Development (http://www.dps.tesoro.it/qsn/qsn.asp).

212

Public investment in the cultural and telecommunications industry


3.4.2 Expenditure divided by region The different levels of public spending for culture in the various regions is for the most part due to the very unbalanced way the central State disburses its funds to them. Most of the public funds allocated by the State for the cultural sector are in actual fact concentrated in Lazio and a few other regions such as Lombardy and Campania. This very uneven redistribution of State resources for culture is due to a number of different elements. Fig. 17: Cultural spending by region (2000-2008) (millions of euros) 1.611

Lazio

2.034 1.258

Lombardy

1.424 960

Sicily

978 856

Piedmont

747 744

Veneto

859 738

Campania

1.403 678

Emilia Romagna

1.065 599

Tuscany

1.271 512

Puglia

1.365 406

Friuli Venezia Giulia

291 323

Sardinia

461 301

Liguria

303 284

Aut. Province of Bolzano

334 264

Calabria

308 245

Marche

471 225

Abruzzo

230 218

Aut. Province of Trento

269 164

Umbria

249 134

Valle d'Aosta

41 98

Basilicata

104

2008

54

Molise

2000

54

0

500

1.000

1.500

2.000

2.500

Source: IEM elaboration of RPA data.

Public investment in the cultural and telecommunications industry

213


Fig. 18: Per capita cultural expenditure by region (2000-2008) (euros) 1.052,5

Valle d'Aosta

342,4 569,5

Aut. Province of Bolzano

724,1 419,8

Aut. Province of Trento

567,4 329,8

Friuli Venezia Giulia

246,5 286,3

Lazio

397,6 193,4

Sardinia

282,0 193,0

Piedmont

177,1 190,6

Sicily

196,5 186,2

Liguria

192,1 182,9

Umbria

302,3 168,3

Abruzzo

182,1 167,5

Molise

168,8 165,4

Basilicata

174,0 161,5

Tuscany

363,8 156,2

Emilia Romagna

268,5 155,9

Marche

321,9 152,4

Veneto

190,5 131,2

Calabria

152,6 129,1

Lombardy

158,2 126,9

Campania

245,8 125,5

Puglia

2008

2000

339,2

0

200

400

600

800

1.000

1.200

Source: IEM elaboration of RPA data.

In the first place, the State funds for culture are essentially those allocated by the Ministry of Culture, eighty percent of which are spent in safeguarding and exploiting the countryâ&#x20AC;&#x2122;s vast cultural heritage. For which reason, leaving out the self-governing regions and provinces where different elements are present owing to the different ownership of the cultural heritage in these areas, the six regions which receive the most visitors to State sites (Lazio, Campania, Tuscany, Lombardy, Piedmont and Veneto) are also the regions that receive the greatest amount of State funding for the cultural sector61(Stratta 2009). Consequently State spending is strongly 61 Within this general framework, it turns out however that Lazio and Lombardy are where the concentration of State spending is high and proportionally greater than their concentration of visitors. Where Lazio is concerned this can be accounted for if one considered that besides the high concentration of museums and cultural/ archaeological sites, this where the vast majority of Culture Ministry staff are located (26% of all Ministry staff are

214

Public investment in the cultural and telecommunications industry


dependant on the territorial distribution of the nation’s cultural heritage and the various management models implemented. The figures for 2008 confirm this analysis. Excluding the autonomous regions with special statute, the region that spends the most on culture in absolute terms is Lazio with 1,610 million euros (although this value is considerably lower than the previous year, when its cultural budget amounted to 2,152 million euros) followed by Lombardy, with 1,257 million euros, Piedmont with 855 million euros, Veneto with 744 million euros, Campania, with 738 million euros, Emilia Romagna with 678 million euros, Tuscany with 599 million euros and Puglia with 512 million euros. The absolute figures for the remaining regions of the South are however considerably lower, with Calabria spending 264 million euros, Abruzzo 225 million euros, Basilicata 98 million euros and Molise 54 million euros. If we go on to consider the per capita regional spending however, we see that Lazio once again ranks first, yet this kind of analysis provides a different perspective on the role played by the Southern regions. It thus transpires that the Abruzzo region has a cultural per capita expenditure of 168 euros, Molise 167 euros and Basilicata 165 euros, all levels that are in actual fact higher than regions such as Marche, Tuscany, Lombardy and Emilia Romagna. Calabria, Campania and Puglia on the other hand are the regions with the lowest per capita spending (131, 127 and 125 euros per inhabitant respectively) (Fig. 18).

4. Public funding for the communications industry in Italy 4.1 Radio and TV 4.1.1 Introduction This paraFig. attempts to draw a picture of the importance and the national and regional strategies used to provide public support for the radio and television broadcasting sector. The variety of funding options available have been ordered according to six different headings, based on the entity dispensing the funds (Ministry, Region) and/or the beneficiary of the funding (type of broadcaster/publisher). Public support for the radio and television sector: areas of investigation Support for national public television

Subsidies from the Department of Information and Publishing in the Prime Minister’s Office

RAI Contracts with the Public Administration

Refunds for electoral advertising

Contributions from the Ministry for Economic Contributions for the nationwide digital broadcasting Development – Department of Communications infrastructure

On the basis of the detailed analysis outlined in the following pages, a visual outline is provided below which quantifies the public resources assigned to the various areas taken into consideration based on the most recent available data. concentrated in Lazio, excluding management; the other two regions where the Culture Ministry staff are concentrated, still excluding management, are Campania (18%) and Tuscany (10%): Rome is also where two of the main Ministry of Culture Specialist Training and Research Institutes are located – The Higher Institute for Conservation and Restoration and the Central Institute for the Restoration and Conservation of the Archive and Library Heritage) as well as the most widespread range of territorial cultural services (for example, 15 of Italy’s 46 national libraries are located in Lazio).’

Public investment in the cultural and telecommunications industry

215


Public support for RAI 1.800

Public support for tv and local radio 120

1.600 100

1.400 1.200

80

1.000 60

800 40

600 400

20

200 0 Convezioni Rai per servizi in Italia e all'estero (2008)

Canone Rai (2009)

0 Contributi fondo perduto Radio Contributi nazionali per il locali per attività di informazionepassaggio al Digitale Terrestre (2009) (2010)

Source: IEM elaboration. (million of euro)

4.1.2 Support for National public television European public service broadcasting companies receive over 22 billion euros a year in the shape of licensing fees or directly from State subsidies and are ranked third among beneficiaries of State Aid after the agriculture and transportation sectors62. Within the framework of European Regulations, the Amsterdam Protocol of 199763 acknowledges the authority of Member States in providing finance and defining their own public service, on condition that: •

this financial support (being an exception to the general provisions on State Aid) be granted to radio and television broadcasting bodies in order to fulfil the public service mission assigned to them, as established and defined by each Member State,

this support is not seen to alter the conditions for exchange and competition within the European Union to an extent that is deemed against the common good, while bearing in mind the importance that the public service mission be successfully fulfilled.

The previously mentioned Protocol goes on to underline that the public radio and television broadcasting systems in the Member States are directly connected to the democratic, social and cultural needs of each society, as well as the need to preserve pluralism within the media. In 2001 the European Commission issued a Communication outlining in greater detail the criteria and rules for the implementation of Community regulations on State Aid and the safeguarding of competition in services of general economic interest and particularly radio and television broadcasting64. The many changes that have subsequently affected both the market 62 Source: European Commission, Communication of 2 July 2009: “State Aid: the Commission updates the rules for State funding of Public Broadcasters”. 63 Protocol N. 23 on the public radio and television broadcasting system of the member States attached to the Treaty of Amsterdam of 1997, now attached as Protocol N. 27 to the text of the Treaty for the Constitution of Europe. More in general, Art. 16 of the EC Treaty acknowledges the importance of the services of general economic interest, transferring to the individual Member States, according to their respective authority, the task of ensuring that these services operate according to principles and economic/financial conditions that enable them to fulfill their purpose. 64 Since then, the Commission has adopted over 20 decisions that have provided further clarification on the application of the regulations. The examination of the individual cases has integrated, in many ways, the principles pronounced in the 2001 CommunicatioN. The most recent decisions on State Aid in favour of audiovisual public

216

Public investment in the cultural and telecommunications industry


and the legal framework have meant that in 2009 the 200165 Communication had to be updated with greater responsibility and control being required of the individual states through the introduction of rules to ensure that the overall impact of the new media services that benefit from State finance could be more easily and transparently assessed66. In Italy, the public broadcasting service finds its constitutional foundation in the principles of freedom of speech, the right to information and the right to be informed (Art. 21 of the Italian Constitution). In 2002, the Italian Constitutional Court reasserted that the end of the State monopoly caused by the entrance of private operators into the broadcasting arena did not imply that the constitutional justification for a public broadcasting service was no longer valid, seeing as its specific function is to safeguard pluralism and to broadcast culture, which is viewed as a vehicle for the promotion of social and civil development within the Country67. The resources provided by the licence fees (see above) also enable RAI (the holder of the public broadcasting licence until 6 May 2016) to fulfil the public service obligations included in the specific Three Year Contract signed with the Ministry for Communication by bearing the relative costs and generally speaking by adapting the type and quality of its programming to the specific and distinctive objectives of public service. In this way the offer financed by the licence fee should entail a lesser degree of dependence on audience ratings (published by Auditel and connected to advertising revenue), thus avoiding a standard programming of the kind scheduled by private enterprises. The Broadcasting Code published in 200568 has redefined the tasks assigned to the general public television service. In particular RAI is required to ensure: •

it guarantees complete coverage for the entire country;

an adequate number of hours of television and radio broadcasts dedicated to education, information, training, cultural promotion and the supply of long distance training activities;

access to programming by political parties and political groups, associations representing local self-governing institutions, national trade unions, established religions, ethnic and linguistic groups and other groups of relevant social interest that may request access and the free transmission of socially relevant messages;

the founding of a production, distribution and broadcasting company for radio and television programs abroad, in order to enhance Italian language, culture and business;

the broadcasting of radio and television programs in German, Ladin, French and Slovenian languages for the border Regions and the exploitation and development of decentralised production centres for the promotion of local culture and language tools;

the transmission, at appropriate times, of content specifically tailored for children;

broadcasting systems in Germany, Ireland and Belgium reflect the Commission’s stance, particularly concerning the public service mandate in the new media context, for example when broadcasters manage web sites and transmit via mobile phones. 65 A Commission Communication regarding the application of the regulations on State Aid to public broadcasting services adopted on 2 July 2009, after a broad public consultatioN. The Treaty deals with State Aid and competition in Articles 86, 87 and 88. 66 The main changes introduced by these new forms of communication concern: - the a priori control of new services with considerable potential launched by public service broadcasters; - a careful assessment of the inclusion of pay-on-demand services within the mandate of public service provision; - a more effective control over the compensation and supervision excesses of the public service mandate at a national level; - a greater financial flexibility of the public service broadcasting companies. 67 Decision N. 284 of 2002. 68 Legislative Decree of 31 July 2005, N. 117, Art. 5 Definition of the general public broadcasting service assignment.

Public investment in the cultural and telecommunications industry

217


the conservation of the historical archives of television and radio broadcasting;

the allocation of a share not below 15% of total annual revenue to the production of European works69;

the protection of persons with sensory impairments;

the exploitation and development of decentralised production centres;

the creation of publically useful interactive digital services.

In order to establish the cost for the supply of general public radio and television services, covered by the proceeds of the licence fee70 and to ensure a transparent and responsible handling of the public funds provided, the Code prescribes that the licensee firm draw up annual financial statements with the revenue obtained from the licence fees and the costs incurred during the previous solar year for the provision of the above listed services71 recorded in a separate set of accounts. By the end of November of each year, the Ministry for Communications, with its own Decree, will set the licence fee to be applied as of the 1st of January of the following year, at a level that should allow the licensee company responsible for service provision to cover the expected costs for the following year and fulfil the specific public broadcasting service obligations assigned to it, said costs being inferred from the previous financial statements presented, bearing in mind the programmed rate of inflation and the company’s technological development requirements. The allocation of the licence fee revenue must be organised on a territorial basis to ensure the economic independence of all national networks. The company holding the licence for the supply of the public service is forbidden from using the income received from the licence fee, either directly or indirectly, to finance activities not related to the general public broadcasting service. In the 2002 decision the Court reiterated the tax nature of the licence fee (earmarked taxation), specifying that the general interest which underlies the provision of the public service requires a form of funding based on the tax instrument. In order to complete the overall framework regulating public support for radio and television broadcasting sector, a mention must also be made of the reforms introduced to the V Chapter of the Constitution (Law N. 3 of 2001) and, more specifically, the inclusion in the list of fields subject to concurrent legislation (Art. 117, para. 3) of the “regulations on communication”; a wording which, beyond the actual difficulty in providing a precise definition of its scope, certainly includes the radio and television broadcasting sector.

Licence fee revenue The trend of the income from licence fees (paid over to the Tax and Excise Office) reflects the increase in the fee, which is annually adjusted to account for the rate of programmed inflation (in recent years in the region of 1.4%). In 2009 it was increased from 196 euros to 197.5 euros, raising the collected licence fees to 1.63 billion euros (see below). The most recent adjustment for the year 2010 has set the licence fee at 107.5 euros. From 2002 the rate of growth has been 19%. The Radio and Television Code expressly includes a mechanism to safeguard the company’s economic stability, and protect the agent, by acknowledging that the public resources due to RAI must cover the cost that it bears in order to fulfil its obligations in terms of public service. 69 Specific reference is made here to the investment obligations on drama programs and film productions through the subsidiary RAI Cinema (see paraFig. 4.1). 70 As prescribed by the Royal Law by Decree of 21 February 1938, N. 246, converted into law on 4 July 1938, and subsequent modifications. 71 RAI produces separate accounts on the basis of the framework approved by the Communications Regulatory Authority, charging or assigning costs on the basis of accounting principles which are consistently applied and objectively justified while providing a clear definition of the analytical accounting principles on the basis of which the accounts are held separately. Art. 47 of the Code.

218

Public investment in the cultural and telecommunications industry


This legal disposition, which is also mentioned in the Service Contract – the “operation’s charter” which on the basis of national and European Community regulations, establishes exactly the specific tasks that the Licensee must perform – has been, up to now, essentially disregarded. In actual fact, if the principle of proportionality between costs and resources had been complied with, the RAI, for the period 2005 – 2008 should have been able to use increased revenue by over 1 billion euros. Fig. 1: RAI licence fee trend, 2002-2010 (millions of euros) 1.700

Revenue from the licence fee

Annual license fee

1.650

1.603

1.600 1.474

1.500

1.483

1.491

106

1.382

110 107,5

109

105 100

99,6

99,6

99,6

95

97,1

1.350

115

104

1.432

1.450

1.300

1.648

1.567

1.550

1.400

1.630

93,8

90

1.250 1.200

85 2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: IEM elaboration of RAI data. The 2010 revenue is estimated.

The imbalance between the public resources and the costs sustained by the Licensee to fulfill its Public Service obligations, has produced a deficit which for the year 2008 (reported in the latest separate accounts available) totals almost 550 million euros; this imbalance is reduced to 335 million euros following the allocation of the specific share of advertising revenue collected through scheduling. Comparisons with other European Countries underline how in Italy the licence fee is the lowest (it should be recalled however that RAI is the public broadcaster that collects the highest level of advertising resources compared with its corresponding public broadcasting agencies in other countries). Fig. 2: Licence fee revenue in Europe (2009) (euros) 311

300

263,5

250

241

224,3

215,7 191 160

150

148 116

107,5

Italy

200

France

350

100

UK

Ireland

Sweden

Germany

Finland

Austria

Switzerland

0

Norway

50

Source: IEM elaboration.

The income achieved through licence fee collection is very low if one considers the 16.5 million potential clients. According to a recent study, the licence fee evasion rate in Italy is in the region of 26/26.5% (the average European level is around 18%) of the total number of households

Public investment in the cultural and telecommunications industry

219


with a television, which means around 5.5 million licence fees and a loss of income of around 500 million euros72. In actual fact, the total figure for the evasion is even higher if we consider the very high levels of evasion encountered in national and local public institutions, among the political parties, banks and companies. The proceeds of the licence fee in any case represent the main source of income for the public service providing licensee, covering a share of its income which is always over 50%. In 2009 licence fee income accounted for the record share of 64.1% of the revenue due to the heavy fall in advertising revenue, which dropped by 17% compared with 200873. Fig. 3: Licence fee and advertising revenue trend (2002-2009) 3.000 Licence fee

Advertising

2.500 2.000

1.040

1.121

1.133

1.137

1.096

909

971

941

1.382

1.432

1.474

1.483

1.491

1.567

1.603

1.630

2002

2003

2004

2005

2006

2007

2008

2009

1.500 1.000 500 0

Source: IEM elaboration of RAI data.

4.1.3 RAI Contracts with the Public Administration Among the other sources of revenue for the public company, besides licence fee and advertising, there is also the revenue received by the parent company for Contracts with the Public Administration for the provision of radio and television services in Italy (in the Regions with linguistic minorities) and abroad74. In 2008 the resources earmarked for these services were around 70 million, on the increase compared to 2007 when the proceeds dropped to below 65 million (the worst figure since 2002) due to the failure to renew the Contract for short wave radio broadcasting abroad. Within RAI the task of developing and managing the Contracts with the institutions (Ministries, Regions etc..) is assigned to the sales department for all that concerns the contractual side and to the companyâ&#x20AC;&#x2122;s institutional representation for the definition of the content of the individual activities that need to be performed in return for an annual or long-term economic 72 Figures collected by the Statistics Department of the University of Florence. See Sole 24 Ore 25 March 2010. One should bear in mind that people over 75 with an income below 516 euros a month are exempt. To recover a considerable share of the evaded licence fee a proposal has been put forward for many years now to collect the licence fee as a quota tacked on to the electricity bill. A technical committee has been set up by the Ministry for Economic Development to assess this proposal. 73 Advertising revenue has dropped from 1.096 billion euros to 909 million euros. The Fig. shows the two main income items (licence fee and advertising) without taking into consideration the so called â&#x20AC;&#x153;other revenueâ&#x20AC;? which, over the two year period 2008-2009, has recorded a strong increase (+74.3%, thanks to the sale of pay-perview rights for the World Cup) rising from 238.6 million to 415.9 million, partly covering the drop in advertising revenue. 74 Among the other revenues, in addition to the contracts with the Public Administration, the consolidated turnover of the RAI group also includes income from commercial activities (RAI Trade), films and home video (RAI Cinema and 01 Distribution), radio advertising, RAI SAT revenue, sale of archive material exploitation rights, program production cost refunds and more besides. In this last generic heading (which in 2008 generated 56 million euros of a total 404) are included further services of a different nature provided by the Parent company to public institutions which it has not been possible to quantify and infer from the financial statement figures.

220

Public investment in the cultural and telecommunications industry


consideration. RAI International (for the programming of services abroad and for linguistic minorities), RAI Way (for technical support) and RAI Educational are subsidiaries or internal departments of the public group responsible for implementing the Contracts agreed with the various bodies of the Public Administration. Fig. 4: Contract revenue (2002-2008) 90 80

78,6

82,5

82,9 77,7

73

70

64,7

69,1

60 50 40 30 20 10 0 2002

2003

2004

2005

2006

2007

2008

Source: IEM elaboration of data from RAI, MAE and the Prime Minister’s Office. Figures in millions of euros.

Among the more substantial of these Contracts there are the ones involving services for linguistic minorities, which the public broadcaster agrees with the Department of Information and Publishing in the Prime Minister’s Office. These contracts include terms and conditions that are usually renegotiated every three years75. The main provisions that have (belatedly) led to the implementation of what the Constitution prescribed in 1948 for the safeguarding of linguistic minorities76, are contained in Law N. 482 published on 15 December 1999 and the subsequent implementation regulations contained in the Prime Minister’s Decree N. 345 of 2 May 2001. Article 12 of the law states that in the contract between the Ministry of Communications and the radio television service provision licensee and in the ensuing service contract, there must be the assurance that linguistic minorities will be safeguarded within the areas they inhabit. The Regions interested can also draw up specific contracts for news broadcasts or programs in the languages subject to protection, with the company providing the public radio and television broadcasting service to be included in the regional radio and television broadcasting schedule run by the same agency. Clearly the Regions can also sign similar contracts with local broadcasters. The protection of linguistic minorities within the mass communication system is assigned to the Communications Regulatory Authority77, without prejudice to the prerogatives of the Parliamentary Commission with regard to general policy indications and its supervisory role over the entire broadcasting sector. It is therefore fully acknowledged that linguistic minorities have a right to have radio and television broadcasts in their own language78. 75 For the year 2008 and the following years, the expense commitments are authorised with management decrees. 76 Article 6 of the Constitution states that “The Republic protects with specific regulations all linguistic minorities”. 77 As prescribed by Law N.249 of 31 July 1997. 78 The regulations specifically require that the agency company, in addition to the management of the services granted in concession, must also perform the following services: a) ensure that the television broadcasting networks in bilingual border areas, as prescribed by the technical plans approved by the competent Ministry, be suitable to retransmit programs for neighbouring foreign bodies; b) carry out the refurbishing and take over the management of third parties’ systems that may be assigned to

Public investment in the cultural and telecommunications industry

221


The Code of 2005, as has already been mentioned, has meant that RAI has had to “set up a company for production, distribution and broadcasting of radio and television programs abroad, designed to promote and enhance Italian language, culture and businesses.”, and is also required to produce radio and television programs in German and Ladin for the self-governing Province of Bolzano, in Ladin for the self-governing Province of Trento, in French for the selfgoverning Region of the Valle d’Aosta and in Slovenian for the self-governing Region of FriuliVenezia-Giulia. On 3 December 2007, three Decrees were published by Prime Minister’s Office which approved as many Contracts (still in force) with RAI for radio and television services79: •

in French for the self-governing Region of Valle d’Aosta80;

in German and Ladin for the self-governing Province of Bolzano81;

in Slovenian for the self-governing Region of Friuli Venezia Giulia82.

Any variations in the number of hours of television broadcasting, or in the weekly scheduling of said programs, must be agreed in advance between the parties. The broadcasts must have informative, artistic and cultural content consistent with the particular needs of the areas involved. On the basis of the provisions of the Service Contract, the licensee is required to guarantee an appropriate level of information to the communities that live abroad by providing suitable programming through the offices of the NewCo RAI International and the Contracts entered into with the Prime Minister’s Office83. it, that exist in the area at the time this law came into force; c) annually produce television and radio programs, according to the instructions of the Council of Minister’s Office and after sounding the opinion of the Parliamentary Commission regarding general policy and supervision of radio and television services, specifically tailored for radio and television stations in foreign countries to broaden the understanding and knowledge of the Italian language worldwide and carry out, with the Parliamentary Commission’s approval, special radio transmissions; d) to produce radio and television transmissions in German and Ladin languages in the Province of Bolzano, in French for the Self-Governing Region of Valle d’Aosta and in Slovenian for the Self-governing Region of Friuli Venezia Giulia. 79 Decree of 3 December 2007 containing the Approval of the 3 agreements, published in the Official Gazette of the Italian Republic – General Part N. 123 of 27 May 2008. 80 In 2007 the sum of 2 million euros was allocated in return for which RAI undertook to continue production and broadcasting of radio and television transmissions in the French language for the self-governing Region of Valle d’Aosta amounting to: 110 hours of radio transmission in the French language; and 78 hours of television transmissions in the French language. 81 In 2007 the sum of 15.56 million euros was allocated, in return for which RAI undertook to continue the production and broadcasting of radio and television programs in German and Ladin for the self-governing Province of Bolzano amounting to 4,716 hours of radio broadcasts in German; 550 hours of television transmissions in German; 352 hours of radio transmission in Ladin; and 39 hours of television transmission in LadiN. The transmissions in Ladin continue to be broadcast even in the Val di Fassa. 82 In 2007 6.62 million euros were allocated, in return for which RAI continued the production and broadcasting of television transmissions in the Slovenian language for the Slovenian speaking population and for those of the Province of Trieste and Gorizia of the self-governing Region of Friuli-Venezia-Giulia amounting to: N. 208 hours of television transmissions in the Slovenian language, equivalent to 4 hours a week. RAI further undertook to continue the production and broadcasting of radio transmissions in Italian and Slovenian pursuant to Law N. 308 of 1956 amounting to: 4,517 hours of radio transmissions in the Slovenian language; 1,667 hours of radio transmissions in the Italian language. 83 Article 9 of the 2007-2013 Service Contract (Television programming abroad) states that RAI must undertake the promotion and dissemination of the knowledge of the Italian language, culture and economy worldwide, with the aim of ensuring an adequate level of information to Italian communities abroad on the developments within Italian society as well as enabling Italian citizens resident abroad to have an adequate access to political information and communication, particularly during electoral and referendum campaigns. RAI further undertakes to produce new forms of programming for abroad that might enable Italian culture, even of a regional nature, to be brought to the attention of a broader international audience. In order to achieve these objectives, RAI is required to present suitable television programming both in the context of the agreement reached with the Prime Minister’s Office pursuant to law N. 103 of 14 April 1975, Art. 19 and 20 (New regulations on radio and television broadcasting integrated by Law N. 112 of 3 May 2004, paraFig. 13) and other specific additional agreements.

222

Public investment in the cultural and telecommunications industry


In 2007 the new Contract for television, radio and multimedia programming abroad came into operation84. The “RAI International” contract concerns television, radio and digital or multimedia programming, as well as the technological services, which RAI has at its disposal for the production and broadcasting of the signal for RAI programming abroad, on a 24-hour basis, in line with the objectives of the public radio and television service and the requests put forward by the Prime Minister’s Office relative to the improvement of content and of the means of fruition of the programming specifically designed to export the national economic system abroad. The new Contract envisages an increase of RAI’s editorial efforts, including the preparation of an offer inspired by the concept of “quality” in the programming and distribution of the radio-television signal thanks to the use of new broadcasting technologies. Furthermore, RAI undertakes to: •

ensure a broadening and enhancement of the cultural and news programming for abroad (development of an “all news” channel alongside the more general channel);

broaden the audience of its international programming by fine tuning its offer according to the different reference targets;

expand into Europe (and therefore to Italy) the satellite reception of RAI International;

develop a specific focus on the Mediterranean and the Balkan States;

use tools such as for example bilingual presentations or subtitling and dubbing to win over the Italophile audience.

Another novelty concerns the quality verification procedures, with the setting up of a Permanent Commission headed by the Head of the Information and Publishing Department and including three members of the Prime Minister’s Office and four from RAI, as well as one representative from the Ministry of Foreign Affairs85. Art. 7 of the Contract details the sum that the Prime Minister’s Office must pay RAI for the services included in the Contract at 35 million euros (30 million for 2007). The Contract lasts as long as the Public Service Contract for general radio and television broadcasting entrusted to RAI by current legislation (up until 6 May 2016), it being understood that the parties are prepared to review the conditions and mode of service provision outlined in the Contract every three years. Within the context of the new contractual relationship, on 17 December 2008 a Memorandum of Understanding was signed lasting three years between the Ministry for Foreign Affairs, RAI and NewCo RAI International to “set in motion a strategic partnership which aims to define the mode and areas of collaboration for an innovative and effective television/news/training presence both for the national territory and abroad, with particular attention being paid to the use of new technologies and digital media”. In particular the collaboration between RAI and the Ministry concerned the configuration of the platform for WebTV (a project developed by RAI International for the creation of a web 84 Decree of the Prime Minister’s Office of 3 August 2007 concerning “Approval of the agreement between the Prime Minister’s Office – Information and Publishing Department and RAI – Radiotelevisione Italiana S.p.A. for television, radio and multimedia services abroad (known as RAI International). Up until 31 December 2006 this subject-matter was governed by two separate Agreements (Agreement on special broadcasts for abroad, known as RAI short wave and the Agreement concerning the transmission and diffusion of Italian language and culture abroad of 30 July 1997, known as RAI International). 85 The Ministry of Foreign Affairs is responsible for monitoring the programming (reception and diffusion of radio and television broadcasts on the RAI International channel) via the consular-diplomatic network and to write up an annual report to certify the correct execution of the Contract, pointing out any new aspects with particular reference to the quality of the programs and scheduling in general, any improvements in the times of program airing, and any increase in subtitled programs, the situation with news broadcasts, information programs and local news bulletins, etc.

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TV “Casa Italiana” (Italian home) for an estimated cost of approximately 2 million euros), as well as the distribution on other digital and analogue platforms at RAI’s disposal in order to: •

define the communication plans for Italian institutional initiatives, foreign policy and international relations, with particular attention being paid to geoFig.ical areas and priority issues;

set up initiatives for Italian communities abroad to provide them with information and training (also intended to strengthen the ties between the latter and the Italians resident abroad as part of the process of internationalisation of the Italian Regions), as well as culture and entertainment, thus contributing to make the services offered by the Ministry of Foreign Affairs and its diplomatic-consular network more well known and accessible to citizens and users;

the promotion of Italian culture and language abroad, with particular attention being paid to quality contents, through the use of existing television and film products and the production of specific programs aimed at promoting Italy’s multi-faceted artistic and cultural heritage as well as transmitting promotional didactic messages on the Italian languages with the aid of computer technologies, the web and digitalisation;

support for “economic diplomacy”, viewed as a tool for the support of the country’s national economic system to be achieved through economic and commercial promotional initiatives in favour of Italy abroad and designed to attract foreign investment in Italy;

the promotion of Italian development co-operation initiatives, an essential component of Italy’s foreign policy actions, through information and dissemination activities designed to promote the humanitarian, social and economic aspects of said actions;

providing information on the activities conceived to protect Italy’s fellow countrymen abroad in situations of serious danger, with the indication of the preventive and response measures used by the Farnesina (Italy’s Foreign Office) along with any practical indications when necessary;

training initiatives on communication issues for the benefit of the Ministry staff.

In order to implement the collaboration, each year the Ministry of Foreign Affairs and RAI will agree on a program of activities and agree specific communication plans, in Italy and abroad, with the indication of the economic cost of each initiative to be borne by the various Foreign Ministry CDR’s (Centres of Responsibility). The Department of Information and Publishing and the public broadcaster have entered into further contractual agreements regarding other public services for specific fields. At the end of 2009, the so called “Milleproroghe” (maxi law covering many different areas) Decree has authorised the continuation of two Contracts86: a) A contract with RAI and the NewCo RAI International on measures designed to maintain peace and the implementation of communication actions within the context of NATO’s Strategic Communications in Afghanistan. The Decree has allocated financial resources of the Prime Minister’s Office within the maximum limit of 660,000 euros. b) A contract with RAI for services in favour of RTV, the public broadcasting authority of the San Marino Republic, first set up in 1991 with a 50% share of the company’s nominal capital underwritten by Eras (San Marino Radiobroadcasting Authority) and the remaining 50% by RAI. The agreement was first signed in 1990 and subsequently ratified by the Italian Ministry of Foreign Affairs and the Republic of San Marino. The previously mentioned Decree has established that until the new collaboration agreement on the radio and television sector is ratified by the Italian Republic and the Republic of San Marino, signed on 5 May 2008 (which 86 Legislative Decree N. 194 of 30 December 2009 “Extension of the deadlines included in legislative dispositions”. Art. 2 Deadline extensions for matters concerning communication, the reorganisation of institutions and legal advertising.

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establishes the need for a new contract lasting 5 years between the Department of Information and Publishing and RAI, and sets the annual contribution to be paid out to RTV at 18.5 million) and in any case not beyond 31 December 2010, the Department for Information and Publishing is authorised to guarantee the continuation of the supply of the services detailed in the specific Agreement using the available financial resources of the Prime Minister’s Office budget. For 2010 the San Marino RTV will benefit from a contribution of 3.1 million euros. The new five-year agreement should come into operation in 2011 and it prescribes that the Italian State, in addition to contributing to the “management continuity” through the RAI share, should also make all RAI technologies for signal distribution within the San Marino area both with terrestrial digital and satellite transmission available to RTV. Through its own departments and its subsidiary companies RAI must also: •

collaborate where possible, at no charge, in the development and production of television programs aired on the San Marino RTV network;

allow the RTV broadcaster to exploit its own products and distribution rights, including sports rights, for the purchase of films, television films and fictions (RAI Trade, RAI Cinema, RAI Teche, RAI Corporation, RAI Sport and RAI International);

identify marketing strategies to develop and strengthen the presence of the television and multimedia market of the San Marino broadcaster;

identify collaborations for advertising collection (Sipra, Società italiana pubblicità per azioni) and the development of web projects (RAI Net) and Televideo (teletext services).

In the attachment to the contract RAI undertakes to facilitate collaboration with regional branches, staff refresher courses and the purchase of equipment and materials for San Marino RTV. In order to complete the picture, a mention should also be made of a number of projects produced in collaboration and/or under contract with the Ministry of Education, University and Research which involves the internal RAI department RAI Educational in the conception and production of a number of educational projectS started up at the beginning of the school year designed for students and teachers and scheduled on the RAI Scuola (RAI School) dedicated channel available through the terrestrial digital broadcasting system. Currently the contracts concern the following projects for which it has not been possible to acquire any costing from the Ministry87: •

the “Divertilingue” project, which introduces an innovative and enjoyable way of learning English and Italian in school through television and the Web;

“Explora Science Now”, a production designed to provide students, teachers and in general citizens with the opportunity of improving their scientific-technological understanding;

“Fuoriclasse” is a bridge between education, orientation, training and the workplace. The project was produced with the participation of the Ministry for Employment, ISFOL, the Regions and the Provinces;

“In Italia”, is a pilot project for the dissemination of the basic tenets of the Italian language, for the benefit of adults and young-adults who have only recently come to live in Italy;

“Medita”, an online Media Library of audiovisual products organised by subject matter and available to teachers on demand via internet.

Overall in 2008 the Contracts agreed with the Public Administration that have been monitored 87 Given the educational nature of the projects and the public service obligations of the licensee in this context, the services provided by RAI Educational through RAI Scuola are mainly provided at no charge. According to the Contract agreed on 7 August 2003 for example, RAI undertook to ensure, free of charge, the supply and installation of satellite systems at the school premises distributed throughout the nation, on the basis of a three-year plan devised by the Ministry.

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and are summed up below envisage total revenues of roughy 65 million euros, of which 24 to be spent for services in Regions with linguistic minorities. Fig. 5: Main revenues from Contracts (2008) 35,0

RAI International (abroad) 15,6

Trento and Bolzano provinces 6,7

Friuli Venezia Giulia 3,1

RTV San Marino RAI International/Web TV

2,0

Valle d'Aosta

2,0 0,7

NATO (RAI International) 0

10

20

30

40

Source: IEM elaboration of data from RAI, MAE and the Prime Minister’s Office. Figures in millions of euros.

4.1.4 Subsidies granted by the Communications Department of the Ministry for Economic Development The current Ministry for Economic Development – Communications Department awards non-returnable grants to the local television broadcasting sector88 on the basis of the provisions of Law N. 448/9889. The resources are dispensed to the broadcasters that perform information activities on the basis of annual rankings organised on a regional basis by Corecom (Regional Communication Committees) according to objective parameters prescribed by specific regulations90. The two assessment elements concern on the one hand the average turnover for the last three years and, on the other, the size of the staff (journalists and other personnel) engaged in the performance of the broadcasting activity. The grant sum annually included in the year’s Budget is allocated by the Ministry according to the client catchment areas of the various Regions and self-governing Provinces of Trento and Bolzano as a share of the turnover achieved in the previous three-year period by the broadcasters operating in the same Region or self-governing Province who have applied for the support measures91. The sum allocated to each Region or self-governing Province is assigned to the broadcasters entitled to receive the grant, for 1/5th in equal shares and for 4/5ths according to the pre-established ranking92. For broadcasters with legal and operating headquarters in the Regions of Campania, Puglia, Basilicata, Calabria, Sicily and Sardinia a fixed points mark-up applies depending on the size of the turnover. 88 At 31 December 2008 there were 376 companies managing 421 local television stations. In recent years mergers and bankruptcies have caused the local television sector to shrink. In 2005 there were 469 commercial broadcasters. To these one needs to add the number of community broadcasters which, according to the most recent estimate (2005), was 115 (and even in this case there have been a number of foreclosures over the course of the years) Source: FRT – Federation of Radio and Television. 89 Law N. 448 of 23 December 1998, concerning “Public financing measures for the stabilization and development” and subsequent modifications. In particular Article 45, paraFig. 3 of the law (and subsequent modifications and integrations) states that the Ministry must set an annual allocatioN. 90 Ministerial Decree of 5 November 2004, N. 292. 91 The regulations further establish that in the allocation one must pay particular attention to the Regions and self-governing Provinces included in economically depressed areas and with high levels of unemployment. 92 The subjects must present a request in order to obtain the subsidy, and if they manage more than one activity even unconnected to television, they must state that they have set up a separate accounting system.

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Every broadcaster can forward a request: 1) for the Region or Self-governing Province where the main operating headquarters for the distribution of the television station is located; 2) for any other Regions or self-governing Provinces where that same broadcaster reaches a share of the population that is not below 70 percent of residents in the territory of the Region or self-governing Province covered93. In both instances the broadcaster, unless it is a Community broadcasting entity, must necessarily produce a share of its turnover in the Region of reference, on penalty of not being included in the ranking, and as far as point 2) alone is concerned, it must have at least one full time employee in the area covered. The Antitrust Agency has recently (September 2010) voiced a few misgivings on the application of the Ministerial Decree 292/2004, which contains the regulations that governs the benefits to local TV stations as prescribed by Law 488. According to the Authority, the criteria are significantly in favour of those companies that already produce significant turnover and have a considerable number of employees. Among the corrective measures to be introduced to make the regulations more balanced and competitive, the Antitrust has suggested that the ranking also be based on the time allocated to information programs and the renovation of radio broadcasting systems. Among the criteria for exclusion from the ranking one should also include the failure to present a certification of National Insurance payment fulfilments, which is currently only required when applying for the grants. Some criticism has also been levelled against the allocation of 4/5ths of the total only to those TV stations that account for 37% of the ranking, a mechanism that is severely penalising to the positions that just fail to achieve this ranking and which can consequently only access 20% of the total subsidy fund94. Over the years, the funds have been gradually increased in the various Finance Acts, and have gradually grown in importance in terms of their impact on the financial sustainability of the companies, contributing to a significant increase in employment, particularly in the journalistic professions. The positive trend has however ground to a halt in 2009, a year when a severe cutback in public subsides was recorded (-41%), with total allocations shrinking from the 162 million approx. of the previous year (highest ever reached thanks to an integration in August of 2010) to little more than 95 million, a sum below the indications reported in the Budget for 201095. The funds for the year 2010, thanks to the refinancing of 50 million guaranteed by the same Budget, should stand at around 130 million, to be added to the 80 million euros allocated in the 2007 Budget96. The weight of public subsidies has gradually increased in percentage terms and now accounts for 26% of the total overall revenue, with a marked increase of the impact in the last 3 years considered (2006 â&#x20AC;&#x201C; 2008). In 2008 the total revenue, amounting to 621 million euros, was equal to 7.3% of the entire television market. The remaining share of the resources is almost entirely made up of advertising revenue which, according to FRT estimates in 2008 amounted to 9.8% of the total advertising for the sector. 93 In this instance the broadcaster must declare the capital city of the Province, the Provinces, and the Municipalities served within its television catchment area, specifying whether coverage is total or partial and, in the latter case indicating the areas, of the Province capital, of the Province or of the Municipality, served. 94 The Authority, more specifically, proposes that 4/5ths be allocated proportionally to all the TV stations in the rankings and the remaining 20% set aside for the lowest positions. 95 Law N. 191 of 23/12/2009 which had reinstated the original allocation of approximately 150 million euros per year (of which 85% for the TV sector and the remaining 15% for the radio sector). 96 Law N. 296 of 27/12/2006.

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Fig. 6: Subsidies to local TV stations on the basis of L. 448/98 (1999-2010) 200,0 180,0

161,8

160,0 140,0 120,0

106,5

100,0

85,8

2005

2006

77,2

80,0 56,1

60,0

95,4

65,1

42,3

40,0 20,0

90,3

20,7

12,4

0,0 1999

2000

2001

2002

2003

2004

2007

2008

2009

Source: IEM elaboration of FRT data. Figures in millions of euros.

If one takes a look at the distribution of subsidies at the regional level, in 2009 Lombardy is the Region that received the highest volume of public resources (12.3 million) ahead of Puglia (12.1) and Veneto (11.9). The regulations governing the allocation of benefits to local radio stations are based on a code issued with a Ministerial Decree in 2002, as prescribed by Law 448 of 200197. The total annual grant was apportioned with three-twelfths for the commercial radio stations and three-twelfths to the community radio stations. Fig. 7: % incidence of subsidies to local TV stations against total revenue (1999-2008) Contributions

700.000

Revenues

% incidence 647.272 583.618

600.000

621.379 575.732 26,0

509.004

500.000

448.854

400.000 300.000

335.203 279.061

18,5 14,5

25,0 20,0

399.930

14,0

15,2

15,0

15,5 13,3

11,7

200.000 100.000

362.538

30,0

10,0 5,0

6,2 4,4

0

0,0 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: IEM elaboration of FRT data. Figures in thousands of euros.

The broadcasters whose main operating headquarters were located in the Regions of Campania, Basilicata, Sicily, Puglia, Calabria and Sardinia were allocated a mark-up of the subsidy, both in relation to the share assigned to commercial radio stations and the share assigned to community radio stations, of 15%. The remaining six-twelfths of the annual grant were assigned on the basis of a predetermined ranking bearing in mind the specific conditions indicated in the code, as a proportion of the score obtained by each broadcaster. The elements taken into consideration in order to determine the ranking are the average turnover produced by the broadcaster over the previous two-year period and the staff employed in the performance of their broadcasting activities at the time of presentation of the contribution request. Even the radio stations must take steps to set up a separate accounting system and they must 97 Legislative Decree N. 225 of 1/10/2002. The regulation adopts the dispositions contained in article 52, paraFig. 18 of the Law N. 448 of 28 December 2001 (2002 Finance Act).

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draw up a financial statement plan which clearly details income and expenses related to the radio broadcasting activities. The subsidies are allocated by the Department of Communications of the Ministry for Economic Development at a national level and within the threshold of the annual budget and assigned to the ranked broadcasters according to the proportional share based on their score, within six months following their grant request presentation. The trend for the allocations over the course of the years shows a very considerable growth, increasing from the 6.2 million of 2002 to 21.8 million of 2009, with a particularly marked rise in 2007, a year when resources doubled compared to the previous year. The emergency financial measures introduced by the government at the end of May 201098, which aimed to reduce the deficit/GDP ratio as required by the European Community institutions, will produce negative effects even on the funds earmarked as subsidies for local broadcasters (radio and TV) pursuant to law 448/98. Fig. 8: Subsidies to local television stations pursuant to L. 448/98 by Region (2008-2009) 12,3

Lombardy Puglia

15,8

11,9

Veneto 10,7

Sicily 9,9

Campania 6,5

Piedmont 5,8

Lazio

5,6

Emilia Romagna 4,8

Tuscany 3,2

Sardinia

2,8

Calabria Liguria

2,6

Friuli Venezia Giulia

2,1 2,6

Abruzzo

1,2 1,4

Umbria

1,2 1,6

15,4 14,3 14,3

8,5 7,9 7,5

6,3

4,3

3,5 3,8

1,0 1,3

Marche

0,9 1,2

Molise Trento

17,0

12,1

0,6 0,8

Bolzano

0,1 0,2

Basilicata

0,1 0,1

Valle d'Aosta

0,0 0,1

2009

Milioni 0

5

10

15

2008 20

Source: IEM elaboration of FRT data.

98 Legislative Decree N. 78 of 31 May 2010 â&#x20AC;&#x153;urgent measures for financial stabilization and economic competitivenessâ&#x20AC;?. The austerity law establishes that as of the year 2011, there should be an across-the-board cut of 10% of the financial endowment for discretionary expenses of all Ministries.

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Fig. 9: Subsidies to local radio stations pursuant to Law 448/2001 (2002-2009) 25,0 21,6

21,8

2008

2009

19,3

20,0 15,0 10,0

7,2

7,7

2003

2004

6,2

9,0

9,9

5,0 0,0 2002

2005

2006

2007

Source: IEM elaboration of MSE data - Communications Department. Figures in thousands of euros.

4.1.5 Subsidies granted by the Department of Information and Publishing in the Prime Minister’s Office Besides the subsidies envisaged by Law 448 of 1998, local broadcasters receive further public funding at the national level thanks to the benefits granted on an annual basis by the Department of Information and Publishing in the Prime Minister’s Office and regulated by complex rules which have been modified and updated over the course of the years. Table 1: Grants and fee reductions for radio and television stations Beneficiaries

Regulatory Framework

Subsidies for radio stations

Law 25 February 1987, N. 67, Art. 11 Law 7 August 1990, N. 250, Arts. 4,7, 8

Subsidies for local television stations

Law 6 August 1990, N. 223, Art. 23, paraFig. 3 Law 27 October 1993 N.422, Art. 7

Subsidies for theme channels authorised for satellite Law 3 May 2004, N. 112, Art. 7, paraFig. 13 broadcasting (political party broadcasting organs) Source: Department of Information and Publishing – Prime Minister’s Office.

In particular the joint provisions of Laws 223/1990 (Law Mammi, subsequently modified by Law 422/2003) and Law 250/1990, prescribe that benefits be assigned to those broadcasters that transmit self-produced information programs on political, religious, social, trade union or cultural events on a daily basis, in the hours between 07.00 and 23.00 for at least one hour99. The grants have over the years contributed to the creation of news desks within the local stations thus consolidating the professional competence of the resources involved and contributing to their capacity to provide information about the surrounding area. The grants prescribed for the entitled radio and television broadcasting stations amount to: •

60% refunds (80% up to 2005) of the cost of subscriptions taken out with press and information agencies;

99 The measures supporting radio broadcasting are governed by Article 4, 7, 8 of Law N. 450 of 7 August 1990 and Article 7 of the Law N. 422 of 27 October 1993 (Regulations governing grants to radio and television companies). In particular Art. 7 has been introduced to modify paraFig. 3 of Art.23 of the Law N. 223 of 6 August 1990 (Code for the public and private radio and television system). The currently enforceable texts reads: “To those licensees local television broadcasting, or those subjects authorised for local television broadcasting… (…) that have registered the television channel with the competent court and broadcast, on a daily basis, between the hours of 07.00 and 23.00 for at least one hour, self-produced information programs on political, religious, economic, social, trade union or cultural events, are entitled to the benefits detailed in paraFig. 1 of Article 11 of the Law N. 67 of 25 February 1987, as modified by Article 7 of Law N. 250 of 7 August 1990, as well as those pursuant to Articles 28, 29 and 30 of the same Law N. 416 of 5 August 1981 and subsequent changes and integrations.

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40% electricity and energy bill reductions (50% up to 2005) as well as costs for satellite links (rental and subscription fees for satellite broadcasting systems); in these cases the reductions were delivered through the Providers of the particular services according to a specific procedure100;

50% fee reductions for all telephone costs;

Subsidies for radio and television companies that were also house organs of political parties represented in Parliament; these contributions amount to 70% of the average costs posted in the company’s financial statements for the last two years101.

The overall trend for the subsidies in the period taken into consideration (2003-2007) shows strong swings. In five years the resources have increased from 13 to 21.5 million with a growth of 65%. In 2005 the overall subsidy total reached its peak at approximately 27.5 million euros. Fig. 10: Subsidies to local broadcasters pursuant to Laws 223/1990 and 250/1990 (2003-2007) 30.000.000

TV

Radio

Tariff reductions (radio-TV)

25.000.000 6.815.038

20.000.000

17.473.095

15.000.000 10.000.000

12.847.628 12.242.208 13.378.474 9.100.565

5.000.000

10.044.958 3.865.846

4.636.859

2003

2004

7.305.037

8.609.015

2006

2007

0 2005

Source: IEM elaboration of data provided by the Department of Information and Publishing – Prime Minister’s Office.

Proportionally speaking, the radio broadcasting companies have obtained more conspicuous subsidies (approximately 65% on average) compared to the television broadcasters thanks to the greater incidence over time of the contributions to so-called political house organs (Radio Radicale, Informazione Libera) and to the fact that only since 2005 have theme satellite channels begun to be granted benefits. If one considers the subsidies paid out in 2008 (relative to 2007) one notices a very strong degree of concentration of the distribution of resources allocated; out of a total of approximately 21.4 million euros, 75% (16.1 million) went to 7 broadcasters which represented political parties (of which 5 were radio stations and 2 television stations) with an average subsidy of 2.3 million euros per company; the remaining 25% was divided up between 300 radio and television stations, which received an average subsidy of 19 thousand euros. If one then looks at the trend by subsidy type one cannot fail to notice that whereas up to 2005 the increase of the refunds for press and information agency fees and political house organs was fairly equivalent, over the last two years examined there has been a further increase of the 100 Once the right to fee reductions has been acknowledged, the order is sent to the Managers, who, having carried out their calculations on the items for which they can obtain a subsidy, then proceed to refund the companies by 40% (until 2005 it was 50%) of the electricity and satellite service costs incurred and then forward the requests to obtain the refunds of the sums advanced to the companies to the Prime Minister’s Office –Publishing and Information Department. 101 The access regulations for subsidies for channels with these specifications are found in Law N. 112 of 3 May 2004.

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second type (over 16 million euros in 2007) at the expense of the former, which has suffered a sharp contraction (5.3 million euros in 2007). The fee reductions for telephone and electrical energy services are a different matter, as it has not been possible to evaluate the data for the period under observation, with the exception of 2004, a year in which the total concessions totalled 6.8 million euros. Fig. 11: Subsidies for local broadcasters pursuant to Laws 223/1990 and 250/1990 by subsidy type (2003-2007) 18

Press agencies

Political organs / thematic satellite channels

16

Tariff reductions 16,1

14,9

14 12,6

13,5

12 9,9

10 8

8,3

8,1 6,8

6,1

6

Million

4

5,3

4,6

2 0

0,0

0,0

2003

2004

2005

0,0

2006

0,0

2007

Source: IEM elaboration of Data provided by the Department of Information and Publishing - Prime Minister’s Office.

The current Government has decided to take decisive action in an attempt to rationalise the subsidy allocation system and reduce the costs borne by the State. The three-year plan of 2008 has on the one hand led to a reduction of the various subsidy funds, and on the other it has taken steps to introduce a new code designed to help simplify the procedures for fund allocation and ensure that the refunds and benefits actually reward those who truly deserve them, thus guaranteeing that these State support measures actually promote information pluralism, which is the underlying principle that the contribution system is supposed to attempt to achieve102. The final draft of the code is currently being examined by Parliament and is intended to reduce the overall direct subsidies to publishing from the current 120 million euros to 87. The detailed subsidy cuts for radio and television broadcasts foreseen by Law 250 of 1990 should entail a drop from the current 25 to 12 million euros. The full application of these new dispositions is expected to be in force by 2012103. The only item that between 2011 and 2012 should show a slight increase is the one relative to “expenses for press and information services including costs due to the implementation of the contracts and cooperation programs in the field of information”. In the 2010 Budget, the Parliament, when converting the legislative decree termed “Milleproroghe” (maxi law covering many different areas)104 into law, initially decided to suppress the subsidy system for publishing (not just for radio and television), by abolishing the subjective right (essentially the democratic right for publishing companies to receive public support as a mainstay of the concept of freedom of speech) and cutting back all subsidies not 102 For further details on the complex system of subsidies to publishing, refer to the website of the Department of Publishing Information and to the special program that discusses the issue on the communication rights portal www.medialaw.it 103 It should be remembered that for 2008 and 2009 the support system is guaranteed by what is called the additional Robin Tax, which has enabled a considerable supplement to be added to the funds. 104 Decree 194/2009.

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Public investment in the cultural and telecommunications industry


included in the State budget for this purpose, with the resources dispensed on a proportional basis to the entitled parties if the funds were not enough to go round105. The ensuing Trade Association protests led to an amendment being presented at the end of February 2010 reinstating the direct subsidies (to a maximum of 100%)106 for the current year on the basis of the ‘subjective right’ for all house organs and broadcasting stations managed by political parties, non-profit organisations and cooperatives, while awaiting the much awaited organic review of the sector which has been in the pipeline for years. The reinstated subsidies do not however include the refunds to local radio stations of 80% for costs incurred for subscriptions to press agencies or electricity bills. The phone refunds paid out by the Ministry for Economic Development have, on the other hand, been maintained. Within the previously mentioned ‘Milleproroghe’ Decree a further fund was authorised totalling 9.9 million euros for the years 2010 and 2011 to ensure the continuity of the broadcasting service for parliamentary sessions currently provided by the production centre managed by Radio Radicale, as prescribed by the special Contract between the Ministry for Economic Development and the Production Centre first reached in 1994107, and renewed every three years at a cost of 5 million euros per year (10 billion lire)108.

4.1.6 Refunds for free self-managed messages during electoral campaigns By 31 January of each year, the Ministry for Communications in concert with the Ministry of the Economy, issues a decree for the definition and allocation of the funds to be paid out to local broadcasters to the Regions and self-governing Provinces pursuant to Law N. 28 of 22 February 2000 as modified by Law 313/2003109. The law prescribes a refund for local radio and television stations that are prepared to transmit free self-managed messages during electoral or referendum campaigns and allocates the funds available to the Regions and self-governing Provinces of Trento and Bolzano as a proportion of the number of citizens registered in the electoral lists of each Region and self-governing Province. The radio stations are allocated one-third of the entire overall yearly fund. On a more general note, in order to ensure equal treatment and impartiality for all political subjects, the law details the rules for access to the media for political communication as well 105 The abolition of the company rights was one of the new elements of the Regulations established in the Law of 2008. 106 The amounts cannot in any case be higher than those owed for 2008. 107 The Contract required the licensee, for each house, to transmit at least 60% of the overall annual number of hours of hearings held in the two houses of parliament between 8.00 and 21.00. These broadcasts cannot be interrupted, preceded or followed, for at least thirty minutes before their beginning and after their end by political announcements or advertisements. The Contract is renewable until the public service licensee has not completed the dedicated radio broadcasting service to cover parliamentary operations as prescribed by Article 24, paraFig. 1 of law N. 223 of 6 August 1990. Law N. 224 of 11 July 1998. Radio transmission of parliamentary hearings and assistance to publishing 108 (Art.1 paraFig. 1): “in order to guarantee the continuity of the radio broadcasting service of parliamentary hearings, and confirming the Contract instrument to be stipulated following a public call for tenders, the criteria of which shall be established in the framework of the approval of the general reform of the communications systems, as a temporary measure the Contract between the Ministry of Communications and the Centro di Produzione S.p.a, underwritten pursuant to Article 9, paraFig. 1 of the Legislative Decree N. 602 of 28 October 1994, and approved with a decree of the Ministry of Post and Telecommunications on 21 November 1994, renewed as of 21 November 1997 for a further three-year period, with a revaluation of Lire 11,500,000,000.00, sum reported in paraFig. 4 of said Article 9. The collective labour agreements, including, for the editors, the journalist’s national labour agreements, apply to the employees of the Centro di Produzione S.p.a until the expiry of the contract. 109 “Provisions for equal access to media during electoral and referendum campaigns and for political communication; Official Gazette of the Italian Republic N. 43 of 22 February 2000”. The law introduces a series of rules, prescriptions and relative penalties in matters of political communication via radio and television (both local and national), political electoral messages on daily newspapers and magazines, opinion polls and institutional communications. Article 4 governs radio political communication and self-managed messages on television and radio during electoral campaigns. ParaFig. 5 details the refund mechanism. The law has been subject to changes and modifications with the Law N. 313 of 6 November 2003.

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233


as access to the media during campaigns for elections to the European Parliament, political, regional and administrative elections and for all referendums. During the period that elapses between the date the candidates stand for election and the end of the electoral campaign, the local radio and television stations can transmit self-managed messages free-of -charge for the presentation, without debate, of political lists and programs, according to the prescriptions established by the supervisory board and the Authority for Communications. The refund is paid out within ninety days of the end of the electoral operations, for the spaces actually used and jointly certified by the broadcaster and the political party, within the constraints of the available resources, by the Region which can rely on the supervision of the regional committee for Communications (Corecom), which is responsible for the preliminary agreements and the management of the spaces offered by the broadcasting stations. The Communications Regulatory Authority (AGCOM) with its own decision, generally approved 45 days prior to the voting operations for each electoral ballot, issues dispositions concerning political communication and equal access to the media. Within the fifth day of the watchdog’s measures becoming effective, the local radio and television stations that broadcast the self-managed messages must: •

publically announce their intention by means of a communiqué that must be broadcast at least once during prime time. In the statement they must report the maximum number of slots, the technical standards and the delivery deadlines for the supply of the self-produced materials;

Send the statement indicated above to the cognizant Corecom, even by fax.

From the sixth day after this, until the candidates stand for election the political subjects interested in broadcasting the messages inform the broadcasters and the Corecoms of their requests, the length of the messages, the person responsible for the electoral body and their specific political position. The messages must be long enough to allow a reasoned presentation of a program or political opinion, with slots lasting between 1 and 3 minutes for television broadcasts and between 30 and 90 seconds for radio broadcasts. The positioning of the messages within the individual political message ‘container’ programs for the first day of programming is decided by a drawing of lots, which must be held at the Corecom offices. For the subsequent days, the same positioning is established according to rotation criteria whereby each message shifts by one position within each program unit, in order to respect the equality of presence within each set broadcast slot. The Corecoms also take action when called to investigate on violations of the equal treatment regulations, by performing specific duties which are better detailed in the regulations issued by AGCOM in the communications detailing the implementation of the code regulating political communication and fair access to the media, which are issued for each election110. The Corecoms examine the requests and, bearing in mind the funds available, draw up a table which indicates the allocation of self-managed political messages among the broadcasters111. 110 These communications reiterate the role of Corecoms in: - the supervision over the correct and uniform application of current legislation, the self-regulation of local broadcasters as well as the instructions dictated, for the general public radio and television service licensee by the Parliamentary Commission for general policies and supervision of radio and television services in relation to regional transmissions (TGR); - the certification of any infringements, by transferring the reports and any supporting elements and detailing the consequent proposals to the Authority in order that it may take the actions for which it has jurisdiction. 111 The table is forwarded, with a note, to each broadcaster and to the transparency and communication Service of the Prime Minister’s office which requires the Regional Planning Councillor’s Office to enter the State sums allocated into the accounts. A copy of the note is also sent to the Ministry of Communications. Once the electoral campaign is over, the radio and television stations present a self-certification of the actual messages broadcast during radio and television spots. The Corecom carries out the necessary checks, forwards the self-certification to the transparency and communication Service which arranges for the payment of the refunds by means of a director’s order.

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Unless other regulations intervene, AGCOM approves the territorial Corecom’s proposal on the basis of which it sets the total number of free messages to be distributed among the political subjects that have requested them, considering the available resources allocated by decree by the Ministry of Communications with the approval of the Ministry of Economy and Finance and the distribution by Region of the sum available for the year. Fig. 12: Subsidies to local broadcasters pursuant to Law 28/2000 (2000-2007) 12 TV

Radio

10 8

3,62

3,62

3,62

6 4

1,78 6,71

6,71

6,71

Million

2

1,11

1,11

1,11

1,11

2,22

2,22

2,22

2,22

2004

2005

2006

2007

3,55

0 2000

2001

2002

2003

Source: IEM elaboration of MSE data – Communications department.

The trend for these allocations shows a considerable drop over the period 2000-2007 under examination. If during the first three-year period the overall refunds regularly went over the 10 million euro mark, as of 2003 there was a first significant drop, while in recent years the sum allocated is in the region of 3.3 million euros, one third of the expense compared to 2000. Table 2: Subsidies for local broadcasters by Region pursuant to Law 28/2000 (2000-2007) REGIONS Lombardy

2007

2006

2005

2004

2003

2002

508.559

510.299

508.410

510.122

819.142

1.589.983

2001 1.594.095

2000 1.585.240

Campania

325.306

326.582

324.460

323.433

517.247

1.000.781

997.721

996.725

Sicily

324.000

302.964

301.718

301.129

482.682

932.956

930.308

943.983

Lazio

309.235

308.312

307.000

307.025

485.662

942.278

936.617

937.342

Veneto

260.341

261.446

260.275

260.046

415.602

805.406

805.848

802.748

Piedmont

242.075

243.660

243.745

244.725

394.033

765.795

770.102

766.379

Emilia Romagna

228.431

229.577

229.180

230.066

369.801

717.203

719.674

714.156

Puglia

205.358

235.794

234.520

234.294

375.150

725.503

723.808

720.705

Tuscany

200.517

201.753

201.515

202.489

325.777

632.757

635.441

633.297

Calabria

121.000

110.600

122.774

121.302

192.435

371.514

370.310

380.272

Sardinia

99.271

97.399

96.759

96.702

154.998

299.938

299.609

297.415

Liguria

93.007

93.814

93.900

94.434

152.331

297.835

300.336

299.782

Marche

85.721

86.092

85.560

85.397

136.405

264.085

264.256

263.443

Abruzzo

82.517

80.500

79.000

79.377

126.434

244.294

242.139

247.043

Friuli Ven Giulia

72.441

73.130

72.965

72.981

116.869

226.864

227.501

228.385

Umbria

47.448

47.806

47.724

47.917

76.882

149.197

149.380

148.826

Basilicata

42.175

36.914

36.840

36.391

57.882

111.886

111.297

111.408

Bolzano prov.

26.555

26.550

26.406

0

41.061

79.335

79.279

83.354

Trento prov.

26.555

26.598

26.511

52.677

43.206

83.479

83.553

79.157

Molise

21.739

22.175

22.000

21.755

34.488

66.610

66.356

67.938

6.885

6.905

6.876

6.881

11.050

21.439

21.506

21.537

Valle D'Aosta Total

3.331.144 3.330.876 3.330.143 3.331.142 5.331.141 10.331.140 10.331.139 10.331.138

Note: Figures in euros. Source: IEM elaboration of MSE data – Communications Department.

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The allocation of resources proposed by the Corecoms at the regional level and subsequently approved by the Ministry, reflects the tendency found at the national level with drops proportional to the reduction in funds available. By analysing the refund distribution for 2007 we see that Lombardy is the Region that has been granted the most conspicuous refunds (little over than 500,000 euros), equivalent to 15% of the overall funds available. Three more regions (Campania, Sicily and Lazio) have received over 300,000. A second group which includes Piedmont, Emilia Romagna, Puglia and Tuscany each received over 200,000 euros. The broadcasters of all the other Regions (with the exception of Calabria) are all below 100,000 euros.

600.000

508.559

Fig. 13: Subsidies for local broadcaster by Region pursuant to Law 28/2000 (2007)

21.739

Molise

6.885

26.555

Aut. Prov. of Trento

Valle D'Aosta

26.555

Aut. Prov. of Bolzano

72.441

Friuli Ven Giulia

42.175

82.517

Abruzzo

Basilicata

85.721

Marche

47.448

93.007

Liguria

Umbria

99.271

Calabria

Emilia Romagna

Piedmont

Veneto

Lazio

0

Lombardy

100.000

Sardinia

200.517

Tuscany

200.000

121.000

205.358

Puglia

228.431

242.075

300.000

260.341

324.000

Sicily

309.235

325.306

400.000

Campania

500.000

Source: IEM elaboration of MSE data – Communications Department.

4.1.7 Contributions for digital terrestrial television The transition to digital terrestrial television is not just a technological step forward, it also has considerable economic and social repercussions, which means that all the players involved must take on their share of responsibility. The State and a few Regions (with different tools and methods) have introduced a series of support measures for companies who are investing in the updating of their systems and expanding their offer, as well as for citizens to help them face the technical and economic difficulties encountered with the technological development. We can distinguish between two fronts on which the State and the Regions have implemented various support measures over the years: •

the first is of an institutional nature and concerns governance measures addressing either technological (planning) or informational (communication) issues;

the second pertains to organisation and economic support on behalf of the National and local Public Administration in favour of operators and clients.

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Fig. 14: Public actions supporting the transition to digital terrestrial transmission Governance

Planning

Communication

Support

Companies

Users

State contributions

Assistance

Regional funds

Incentives

Source: IEM for IRER.

The first support measures backing the transition to digital terrestrial transmission date back to the Finance Act of 2004, when the schedule for the final analogue switch off had been established as taking place in 2008 (but was subsequently delayed). The law set aside a fund of 110 million euros mainly earmarked as a bonus (110 euros per consumer) for the purchase of the decoders in the first digital Regions (Sardinia and Valle dâ&#x20AC;&#x2122;Aosta), to which a further 16 million euros of investment by RAI was to go to cover the signal for the first two Regions involved. The 2005 Budget set aside a similar sum but for individual contributions of 70 euros. These first two budgets provided contributions for the purchase of interactive decoders that could receive the free-to-air digital terrestrial signal and without costs to the client and the content provider. This measure was considered necessary in order to support the move to the digital transmission technology, which was seen as an obligation at European Community level, by providing a direct contribution to the citizens for the purchase of a device designed to receive the digital terrestrial signal for free. The limitation was justified by the fact that satellite television would have meant additional costs to the consumer for the purchase of the satellite dish and to subscribe to the service. Following the complaint filed by a number of television operators (SKY and Europa 7) the two measures for 2004-2005 have been the object of a Community infraction procedure because the above-mentioned subsidy was considered State aid as it violated the technological neutrality principle and created a competitive distortion in favour of the digital terrestrial broadcasters (seeing as the incentives were not applicable to decoders for satellite platforms). The Italian State however, as early as September 2005 had informed the Commission of its intention to suspend the payment of the subsidy on the basis of the abovementioned requirements and, in the 2006 Finance Act, further technological neutrality requirements were introduced. On this basis and with the possibility of receiving the contribution for the purchase of decoders for digital terrestrial, cable and free satellite broadcasts, the European Commission approved the measure with its decision N. 270 of 2006 . The subsequent decision to postpone the date of the transition and fall in step with the deadline set at Community level (31 December 2012) has

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meant that the funds were suspended until the end of 2006112. The Budget of 2007113, as a way of facilitating the transition to digital terrestrial transmission and broaden the base of the new technology throughout the nation, set up a “Fund for the transition to digital technology” with the Ministry of Technology , providing it with 40 million euros for each of the years 2007, 2008 and 2009 for the implementation of the following actions: •

stimulation of the production of quality content using digital technology;

fostering the transition to digital terrestrial by those responsible for guaranteeing coverage of the overall service;

enhancing the design, production and broadcasting of interactive services of public utility to be distributed on the digital television platform;

assisting households in need either economically or socially with the transition to digital technology;

enhancing the awareness of digital technologies among the population.

With a subsequent Decree, the Ministry of Communications114, decided to earmark a good deal of the 2007 resources of the abovementioned Fund for digital transition (roughly 33 million euros) to RAI, to implement the project to expand digital services which involved work on 104 installations, the infrastructural updating of approximately 45 sites while bearing in mind the obligations included in the Service Contract115. For the year 2008, the Ministry of Communications issued a Legislative Decree116 to apply the instructions of the 2008 Finance Act, which were to set aside 54.8 million euros (a sum greater than the 40 million expected) to foster the digital transition process in the Italian Regions involved. The decree specifically earmarked: •

35,000,000 for RAI system updating;

10,300,000 for initiatives in “all digital” areas (firstly Sardinia)

6,500,000 for planning and design activities by the Bordoni Foundation and for communication;

3,000,000 for service activities (call centres, sales outlet promotion, letters to citizens, information support) entrusted to the Italian Postal Service.

For the year 2009 the Ministry of Economic Development assigned resources totalling 30.9 million euros to the “all digital” areas involved in the first switch-off phase (Valle d’Aosta, Western Piedmont, Lazio, Campania, the Provinces of Trento and Bolzano) to ensure the development of terrestrial digital services. The funds were allocated as follows117: 112 In accordance with the Commission’s decision on State aid relative to the subsidy for the purchase of digital decoders granted in the 2004-2005 budget and following the request forwarded on 17 November by the Director General for Competition, on 4 February 2009, the RTI company has complied with said request by paying over to the Italian State a sum of over 6 million euros. 113 Law N. 296 of 23 December 2006 “Dispositions on the formation of the annual and long-term State accounts” Art. 1 paraFig. 927 (Identification of the actions to facilitate the transition to digital television). 114 Ministerial Decree of 2 August 2007: “Support for initiatives of the general public service licensee for radio and television broadcasting RAI – Radiotelevisione italiana S.p.A. in favour of the transition to digital”. Previously, in August of 2006, a National “Italia Digitale” Committee had been set up for the purpose of defining the necessary activities for the national switch-off. 115 Article 23 paraFig. 2: “(…) RAI assures it is able to provide actual coverage of the multiplex connections (…) not below 75% of national population within six months of this Contract becoming effective and not below 85% of the national population within the first twelve months of this contract becoming effective”; Article 27: “in order to ensure the fulfilment of the obligations for universal service, during the time this Contract is effective, the Ministry undertakes to support, with adequate measures and within the constraints of available resources, the investments that RAI should deem necessary in order perform the transition to digital”. 116 Ministerial decree of 24 January 2008. 117 In order to increase the fund for the transition to digital terrestrial transmission set up by the Ministry for Economic Development, the Finance and Production Activities Commission approved an amendment to the “incentive decrees” that envisages the use of 20% of the greater revenue generated in 2009 owing to future assign-

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Public investment in the cultural and telecommunications industry


7.5 million to pay contributions to households for the purchase or rental of decoders;

4.0 million to back Poste Italiane Spa initiatives (call centres and service centres);

5.5 million to support the initiatives of the Fondazione Ugo Bordoni relative to technical, scientific and operational support activities;

3.5 million to RAI for system updating in order to expand the areas of terrestrial digital transmission coverage;

10.4 million assigned to local broadcasters to support awareness campaigns on digital technology among the population.

As far as the first item of the above list of actions is concerned, the support granted to viewers at a national level has consisted in the possibility of benefiting from a State contribution (50 euros) for the purchase of an interactive digital decoder. The benefit is restricted to citizens who are up-to-date with their RAI licence fee payments and have annual incomes of 10,000 euros or below and are aged 65 or over118. It should be pointed out that the bonus instrument, as it had been conceived, did not turn out to be particularly effective. Proof of this is provided by the figures that report a limited recourse to this incentive by potential beneficiaries. Overall during the course of 2009, the number of decoders sold taking advantage of the State subsidy totalled approximately 20% of the potential customer base119. This is not surprising as it there seems to be an element of contradictoriness in trying to convince the weaker sectors of society to purchase an interactive decoder, which is in any case more expensive than the traditional zapper. During the course of the first meeting (held on 16 December 2009) among the task forces of Piedmont, Lombardy, Veneto, Friuli Venezia Giulia, Emilia Romagna and Liguria, the Government announced that it had set aside funds for 53.5 million euros to communicate the transition to digital services to citizens in 2010, funds that were to be allocated as follows: •

12 million spent on communication campaigns (television adverts) on local television stations in the areas affected by the 2010 switch-off120;

8 million assigned to the Bordoni Foundation for switch-off support activities (support for the communication campaign to inform the citizens/customers);

7 million assigned to the Postal Service for call centre management;

7 million spent on communications through the press.

The remaining 19.3 million euros will fund subsidies for decoder purchase (50 euros for those aged over 65 and with an annual income of less than 10 thousand euros and who hold up to date licence fee subscription payments).

The regional switch-off grants Only a few Regions have taken steps to provide technical assistance services to their citizens and economic resources to support local broadcasting stations involved in the complex transition stage and requiring heavy investments both in terms of system updating (replacement and/or ment of usage rights for radio frequencies or numeration resources. It is estimated that this could bring between 200 and 250 million euros of new revenue of which approx. 40/50 million euros (equal to approximately 20%) to be earmarked for the increase of the abovementioned fund (Source: FRT). 118 At 15 October 2009, 210 million euros had been paid out in favour of 926 thousand households who have purchased 2.2 million interactive decoders using the bonus for low income sections of the population. 119 For example in Campania, in 2009, 30 thousand decoders were sold (through 308 certified dealers) among the 142 thousand of those potentially entitled, according to the Tax and Excise Agency. 120 Resource distribution was based on the Corecom rankings and the coverage achieved by each broadcasting unit. The sums awarded by Region to the broadcast stations are listed below: 3.7 million in Lombardy, 1.2 in Piedmont, 2.2 in Emilia Romagna, 830 thousand in Friuli V.G. and finally 1.9 in Liguria, totaling approx. 10 million euros (the Decree has not cleared up exactly how and to whom the remaining resources shall be assigned).

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adaptation) and improvement/diversification of the service offer. The package of measures implemented feature a number of different characteristics and scopes. Table 3: Regional support for the transition to DTT Regione Campania

Tipologia di sostegno

Durata

Importo

Contributions for technological updating of systems (POR ERDF)

2009-2010

10.000.000

Citizen awareness campaign

Piedmont

2009

800.000

Memorandum of Understanding with the Ministry of Communication and Adgtv (households and public utility services)

2007-2008

5.000.000

Transition support for local broadcasting stations (regional law)

2009 -2011

Call for tenders for investment support Communication campaign for citizens

2010

8.600.000 (1/3 non returnable)

Campagna di comunicazione ai cittadini

2009

1.000.000

Lazio

POR (Regional Operating Program) audiovisual sector grant tender

2009-2010

40.000.000*

Valle D’Aosta

Updating of call centres, work stations, onsite technical assistance, information campaigns

2009

3.850.000

Notes: *Only partly earmarked for local broadcasters. Source: IEM elaboration of Regional data and from various sources.

The self-governing Region of Valle d’Aosta, in addition to benefiting (like all the other “all digital” Regions) from the funding available from the National digital fund, also allocated 3,580,00 euros for digital terrestrial transmission, which was distributed as follows: •

2.3 million for updating workstations;

1.25 million for call centres and free onsite technical assistance (roughly 20 thousand technical call outs expected, covering 50% of the population);

30,000 euros for an information campaign channelled through the press close to switchoff time (as an integration to the funds allocated at the National level by the Ministry of Communications)121.

In Lazio the region opted for a call for tenders (launched in July 2009) to grant support for the audiovisual sector (not exclusively for local broadcasters engaged in the digital transition) involving the Regional Operational Program ERDF 2007-2013 managed by the Lazio Development Agency. The overall resources available stood at 39.8 million euros (initially the budget available was 16.8 million, and was later increased by a further 23 million) and they were earmarked for investment programs of sums equal to or greater than 50,000 euros for individual companies or equal or greater than 100,000 euro for consortia. The sectors entitled to access these funds were very broad and diversified: film, video and television program production, post-production and distribution; film screening; publishing of sound recordings, sound recording studios; radio transmissions; television programming and broadcasting as well as land, mobile and satellite telecommunications. There were two types of action involved: a)

Industrialisation of film and documentary heritage;

b)

Strategic investment actions and programs designed to improve the competitive edge

121 Other sources (including Key4biz), quoting statements by the Regional President, report that the overall investment involved for the transition to digital terrestrial transmission amounted to 11.5 million euros, of which 600,000 used to organise information and communication events and to provide assistance to citizens. The updating, dismantling and replacement of the stations was carried out by the Regional Administration in the context of a broader action of relocation and restoration of existing infrastructures as prescribed by the Regional Law of 4 November 2005.

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Public investment in the cultural and telecommunications industry


of the Local Audiovisual Production System122. The resources made available by the Campania Region were also fairly extensive, seeing as thanks to the substantial contribution provided by the EU Structural funds, it set aside 10 million euros (maximum overall sum) to be paid out as subsidies to “facilitate the required technological updating of the local TV systems123. In detail, the maximum subsidy grantable for each local television station was of 200,000 euros, therefore within the threshold of the “de minimis” aid regime, as prescribed by EC regulation 1998/2006124. A further decree approved the call for tenders for small and medium size local television broadcasting companies funded under the ERDF Campania Regional Operational Program 2007-2013 to facilitate the transition of the television transmissions from the analogue to the digital terrestrial transmission system125. The subsidies were granted for the following activities: •

Design and works supervision, consultancy, technical, economic and financial feasibility studies, marketing and other general costs up to a maximum of 15% of the total of eligible expenses foreseen by the program;

purchase of brand new machinery, tools and equipment, essential to carry out the project;

purchase of patents, software, programs, information and telecommunication services, know- how and licence rights;

construction and/or updating of essential systems for project realisation;

information supports and e-business services.

A further 800,000 euros from the Ministry of Economic Development (see above) were allocated by the same Region for the customer communication campaign to be aired during the switch-over period by means of announcements broadcast on local television stations. The Region added a further 600,000 euros to train new professionals capable of operating on the new digital platforms. In Piedmont, the first significant support measure was introduced following the signature of a joint memorandum of understanding between the Ministry of Communication and the DGTV Association on 1 December 2007126. The agreement, among its various measures, included the State-Region co-financing for the following actions to be implemented as of 2008: 1. implementation of the most suitable initiatives to support economically or socially needy households to make the transition to digital systems using the funds allocated in the 2007 Budget (see above), which totalled 11 million euros in two years starting from 2008, of which 10 million charged to the State and 10 million to the Piedmont Region. To this end the Ministry for Communications and the Piedmont Region, jointly established the 122 The Trade Associations have expressed doubts concerning the real possibility of local television stations interested in the transition from analog to digital being able to participate and access the resources of the call for tenders. 123 Decision of the Regional Council N. 1240 of 15 July 2009. 124 Every law that grants financial aid or support must be notified and authorised by the European Commission as established by the European regulations on State Aid. An exception to this rule is granted for aid which is authorised by means of specific exempting European Union regulations termed de minimis aid. These are small financial aid packets and facilitations, the size of which is considered irrelevant in terms of its impact on market competitiveness. The States can therefore pay out this aid to businesses of any size, under the de minimis regime, without notification obligations, as provided for in the conditions currently in force according to the EC Commission regulations N. 1998/2006. For the years 2009 and 2010 only the European Commission has raised the maximum threshold for sums allocated under this regime from 200,000 to 500,000 euros. 125 Management Decree N. 244 of 29 July 2009. The call for tenders was launched to implement the operational objective 5-2 – Activity sub B) of the ERDF POR. 126 Memorandum of Understanding concerning the final transition to digital terrestrial television (switch off) in the territory of the Piedmont Region.

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criteria identifying the categories which would benefit from said initiatives; 2. the Ministry of Communications, bearing in mind the needs of the Piedmont Region, undertook to facilitate and develop the best initiatives for the expansion of digital technology, with particular focus being placed on infrastructural development of marginal areas of the Piedmont territory, in the context of the implementation of the technological transition project promoted by RAI and complying with the Ministry of Communications decree of 2 August 2007; 3. development of the planning, introduction and broadcasting of public utility services to be transmitted on the digital television platform, with the involvement of broadcasters for the transmission and Regional instrumental institutions for the development of programs appropriate to the Region’s needs as well as research and innovation activities supporting the transition to digital television totalling 5 million euros over two years beginning in 2008, of which 4 million allocated by the Piedmont Region and 1 million by the Ministry. After repeated appeals from Trade Associations, the Regional Law N.26 was approved on 26 October 2009 (Actions promoting institutional information and communication via radio, television, cinema and information technology systems). The law aimed on the one hand to provide an organic code which might regulate the “integrated communication system”, favouring the creation and growth of new forms of communication and information, and on the other it was meant to support the local radio and television broadcasting system during the current transition stage to digital terrestrial transmission. As far as the measures introduced specifically for the benefit of radio and television broadcasters (Chapter III) the following objectives were established: 1. to primarily provide assistance with the transition from analogue to digital transmission, technological convergence and the accessibility of editorial products in a multichannel environment; 2. to promote projects designed to increase employment for young people and women, initiatives designed to foster a European dimension for local news and reporting, and the planning and creation of news and services for the visually and hearing impaired; 3. to support the successful introduction of radio and television transmission systems via the Internet (IPTV and web radio), owing to their impact on proximity communication systems, particularly in the field of social services, health and emergency communications; 4. to encourage the widespread introduction of systems based on the principle of sharing of cultural content and knowledge without jeopardising intellectual property rights; 5. to favour forms of editorial joint ventures through agreements, consortia or other forms of association and understandings, in order to enable companies to jointly share broadcasting systems, company logistic management structures, data transmission for one’s own purposes or for third parties, editorial structures, content production and distribution methods; 6. to support the construction of regionally based broadcast networks, that can be activated for occasional events of particular impact which require a very widespread distribution of signals and messages throughout the region, both in order to promote events of great import as well as for social prevention and defence operations; 7. to promote the distribution of new kinds of digital reception systems and advanced decoders by stimulating their use by a broader public; 8. to promote quality editorial products on local information in magazines, on Piedmont radio and television stations and online newspapers; 9. to help fund subscriptions with press agencies that provide national, regional or at least inter-provincial coverage, to ensure a continuous flow of news to the editorial desks of the local radio and television networks and online newspapers;

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10. to promote the planning and production of new news and communication program formats on a regional basis, ensuring that they can be enjoyed in a multichannel mode; 11. to assist with the introduction of editorial platforms and systems that enable archiving, indexing and sharing of informative multimedia content in order to ensure their cultural and commercial exploitation; 12. promote the production and distribution of radio and television news bulletins at local level; 13. promote and support the production of programs specifically designed for children and for young audiences, including local information products. In order to implement these measures the Regions can rely on a series of tools which include: 1. agreements and contracts with telecommunication companies and with the company responsible for providing the general public radio broadcasting service; 2. concessions, service offers and payments for subsidies to be charged to capital or interest accounts; 3. the concession of subsidiary guarantees to back financing and financial leasing operations; 4. the availability of suitable transmission platforms; 5. financing for training and refresher courses; 6. prize giving initiatives for young people, scholarships and work experience opportunities aiming to improve the quality standards, the conception and production of new information and communication formats; 7. scholarship and research aiming to provide editorial platforms and interconnection software and provide useful data on communication flows and market trends. The resources allocated by the Region for the sector for the three-year period 2009-2012 total approximately 2.5 million euros of which: 1. 500,000 for expenditure in 2009, most of which was assigned to solving the problem of the lack of RAI signal reception in certain mountain areas (65 municipalities for a total of 25,000 households are still “blacked out”), by improving the relay systems not included among those managed by RAI or receive ministerial support. The regional funds particularly affected fifty or so relay systems; 2. 1 million a year investment costs in capital account for the two subsequent years to help with the digital transition in Eastern Piedmont, expected to take place in Autumn of 2010127. On 30 November the local Piedmont television stations also underwrote a Memorandum of Understanding with the Region in order to establish how it intends to support the digital transition. The memorandum revolves around three main actions: 1. a communication awareness campaign aimed at the citizens, to be aired by the entire spectrum of Piedmont television networks by March 2010. The funds for this action total 1 million euros, to be subdivided among the broadcasters according to a criteria (already implemented by the Ministry) that allocates 50% on the basis of three different company size ratings and the rest according to the Corecom ranking; 2. stipulation of an agreement between the Region, the local banking system, the ABI (Italian Banking Association) and the underwriting syndicates, enabling broadcasters to access credit lines “for cash” or short term loans with the Regional guarantee of up to 80% of the sum granted; the companies must be reliable but the operation must be possible even in the presence of previously granted credit lines; 127 Article 18 of the Law states that the current expenditure funds for 2009 and the investment expenditure funds for 2010 be primarily earmarked to facilitate the transition to digital terrestrial transmission on behalf of regional broadcasters and to guarantee, even for mountain communities, the service in fringe areas.

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3. the presentation of a call for tenders for the transition to digital transmission with a measure specifically tailored for local television stations, on the basis of which they will be granted subsidies for a number of different investments (both tangible and intangible) that broadcasters should undertake or have already begun to undertake for things such as hardware but particularly for intangible articles, which it is much harder to find financing for, such as consultancy on technological innovation, know-how, development projects, retraining of personnel and company organisation. The allocated budget is 4 million euros and the sums that each broadcaster may access vary between 150,000 to 500,000 euros, depending on the size of the company (as defined by the 3 size categories established by Corecom). A 1/3 share of this fund will be non-returnable, while the remaining 2/3 will have to returned in five years without interest128. The memorandum was subsequently approved by the Piedmont Regional Council on 19 January 2010 and thanks to the use of European Community funds (ERDF) the financing involved totals 8.6 million euros.

4.2 Newspaper Industry Public support for the newspaper and magazine industry in Italy began in 1935 with the institution of the “Ente Nazionale Cellulosa e Carta” (National Pulp and Paper Agency,) which allocated subsidises to the newspaper industry for the purchasing, and therefore the protection, of Italian paper, through offsetting the price of acquisition. Tariff incentives (for telephone and postal services) were introduced with the Law 482 of 1949. The integration of the price of paper was confirmed by the Law 168 of 1956, while the 1971 Law 1063 introduced extraordinary contributions to be assigned to the industry in an inverse proportion to the quantity of paper used and made provision for types of credit facilities. These conditions were further extended, along with obligations for companies to operate a transparent system plus an increase in the kinds of beneficiaries (press agencies, magazines) eligible for the subsidies, occurred with the Law 172 of 1975129, which provided for the institution of a national press Register and a Committee appointed to assess the applications for subsidies. Law 416 of 1981 replaced the generalised subsidies with more targeted provisions for the industry, through both direct measures (grants) and indirect ones (tariff incentives), with an attempt to push companies to free themselves from State aid, stimulating them to invest and grow. The measures were originally anticipated to be in force for five years, with the goal of removing barriers for companies entering the market, leaving room for the best initiatives to continue on their own. Subsequent interventions (beginning with Law 939 of 1982 and the Supreme Court rulings that recognised the receivers of the grants had a “perfect subjective right”, substantially making the grants130 “automatic”) made the system of State aid “permanent” and practically detached from the possibility of stimulating companies to invest and freeing themselves from “external” support like that of public intervention. Law 62 of 2001, subsequently put the “publishing product” instead of the “publishing company” as the object of the regulations, underlining the special nature of the service as an “information asset” of public interest131, already expressed in Art. 21 of the Constitution and by various sentences of the Constitutional Court. More specifically, the Constitutional Court underlined the necessity to guarantee “the maximum of external pluralism, to satisfy, through a plurality of competing voices, citizens’ rights to information132”. 128 The non-returnable share has subsequently been increased. The publication of the call for tenders is expected to take place in June 2010. 129 Cf. Maria Romana Allegri, La disciplina della stampa, available online at http://www.comunicazione. uniroma1.it/materiali/19.40.58_Slide%20su%20stampa.pdf [last access: 13 June 2010]. 130 Cf. Beppe Lopez, La casta dei giornali, Stampa Alternativa – Rai Eri, Viterbo-Rome 2007. 131 Sentence of the Constitutional Court 24 May 1977, N. 94. 132 Constitutional Court, sentence N. 826 of 1988 and N. 420 of 1994, cited in Survey 35 by the Italian Competition Authority (see below).

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Law 62 also introduced a fund for soft loans, in the attempt to favour investment and increase the proportion of indirect contributions compared to direct ones. In defining the “publishing product” it also considered the diffusion of information via electronic communication networks, in the attempt to adapt legislation to the technological evolution and the use of information on the Internet (a modality, however, in which the distinction between professional information, with the status of a company and obligations regarding registration, and user-generated information tends to be rather grey). Mention should also be made of the 2001 reform of Chapter V of the Italian Constitution introducing a form of devolution, which put communication amongst the subjects of joint jurisdiction between the State and the Regional authorities. This may prefigure a situation in which regional policy compensates for the contraction of funds allocated by central administration, with the possibility of creating a more incentive-based system. In general, the forms of intervention may be defined as follows: •

direct contributions to favour newspapers and magazines;

indirect contributions, that is tax and credit incentives and the reduction of tariffs for certain services (telecommunications and postal delivery – a typology that also concerns the book publishing industry).

Most of the direct contributions are provided for by Law 250 of 1990, which defined and restricted the beneficiaries of such contributions. It generally concerns the grants that cover up to 60% of the balance sheet liabilities, in favour of newspapers run by political parties and movements, daily newspapers and magazines printed by cooperatives of journalists or by companies that depend on non-profit organisations like cooperatives, foundations and charities, newspapers in other languages printed in border regions, or printed and distributed abroad. The contributions are quantifiable in a fixed part in proportion to costs (generally 30%) and a variable part based on the number of copies printed133. Regarding the requisites for access to the contributions, it must be mentioned that the percentage of proceeds derived from advertising must not exceed 30% (in some cases 40%) of total proceeds. In the years leading up to 2010, when the funds were significantly cut, the most significant indirect contributions were in terms of special tariffs for the postal charges for delivering publishing products under subscription (Law 46 of 2004). The Italian Post Office, Poste Italiane applies a special rates for publishers and the State pays Poste Italiane the difference between this tariff and the normal one. Other incentives concern reductions on charges for telecommunication services (up to 50%), the reduction of VAT to 4%, tax credits for the purchase of paper and interest credit facilities for investment in technology, including production restructuring, technological upgrading, distribution and training projects. Grant aid to the publishing industry is managed by the Department of Information and Publishing within the Prime Minister’s Office, which publishes the balance sheet containing the various interventions. The Prime Minister’s Office also manages some interventions in favour of public broadcaster RAI (linked to public service activities abroad), local radio and television stations, as well as institutional communication activities, broadcasting of Italian news abroad and funds for unemployed journalists. 2010 saw an increase in parliamentary bills and corrections of regulations governing support for the publishing industry – a need that had already been on the agenda in the previous parliamentary term – combining with the government’s need to introduce austerity measures and spending cutbacks. It will only be possible to analyse the final result and the practical impact on companies and the market at the end of this reorganisation process. Reforms 133 At the time of the conclusion of this study, the Council of Ministers still has to pass the bill ruling for the reorganisation of the criteria for the allocation of grant aid, which links the percentage of copies sold out of the total number distributed (and no longer the total number of copies printed).

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include the abolition (and the subsequent re-introduction, with a one-off partial supplement) of funds for special postal tariffs, the reorganisation of the requisites for access to direct grant aid (including calculating the copies distributed instead of copies printed), but, above all, the change, following the Decree N. 112 of 25 June 2008 (Art. 44), from the “subjective right” to accessing funds (essentially the democratic right for publishing companies to receive public support as a mainstay of the concept of freedom of speech) to the capping of resources in the budget allocating grant aid, irrespective of the requirements of the publishers and the proquota division of the resources available. The subjective right has been included and abolished many times, and, finally, guaranteed until the 2009 fiscal year. Art. 44 provided deregulation rulings reorganise the whole sector though by August 2010 it had still not been approved. The absence of an underlying systematic structure appears to be the characteristic trait of public intervention to support the publishing industry, as the Italian Competition Authority highlighted in its investigation into publishing companies: “The first consideration that arises from the review of the different types of public support for the publishing sector is the heterogeneity of the criteria and modalities for the disbursement of grant aid, which makes it difficult to identify an underlying systematic structure aimed at guaranteeing pluralism. The current system appears to be the result of a progressive stratification of measures, with goals that are not always convergent, based on ambiguous attribution and quantification parameters. In addition to this, some measures have been affected in a discontinuous way, making longterm planning of publishing companies’ activities difficult134”. Table 1: Direct grant aid per typology of beneficiary, 2004-2008 Beneficiary

Law /year – Article, paraFig.

2008

2007

2006

2005

2004

Political parties and movements

250/90-3.10

26,19

29,91

28,79

27,52

26,69

Political organs (cooperatives before 30-11-2001)

388-153

11,75

16,96

nd

25,23

29,81

Newspapers printed by journalist cooperatives

250/90-3.2

46,14

50,64

44,45

39,33

31,81

Newspapers printed by companies controlled by cooperatives, foundations and charities

250/90-3.2bis

42,32

48,58

43,89

48,11

38,09

Newspapers in other languages – in border regions

250/90-3.2ter

5,37

5,36

3,93

5,41

5,33

Newspapers printed and distributed abroad

250/90-3.2ter

8,33

8,74

9,30

8,38

8,16

Magazines published by cooperatives of journalists

250/90-3.2quater

11,69

10,84

11,22

nd

9,61

Magazines published by companies controlled by cooperatives, foundations and charities

250/90-3.3

9,23

8,30

5,90

6,85

3,67

Italian newspapers printed and distributed abroad

416/81-26

nd

nd

nd

nd

1,45

Publications printed in Italy and distributed abroad

416/81-26

nd

nd

nd

nd

0,62

Italian daily newspapers electronically transmitted and then printed outside the EU

62/01-3

nd

nd

nd

nd

2,07

Magazine publishing for the blind

Decree-Law 542/96-8

nd

nd

nd

nd

0,47

Consumers’ associations

Decree 218/99

nd

nd

nd

nd

0,50

161,02

179,33

147,48

160,83

158,28

Total (on a non-comparable basis)

Note: figures in millions of euros. Source: IEM elaboration of DIE-PdCM data.

At the same time, there does not seem to be an effective system in place to monitor and evaluate 134

246

Cf. the Italian Competition Authority, Survey 35, Editoria quotidiana, periodica e multimediale, 2007.

Public investment in the cultural and telecommunications industry


interventions, not only regarding the economic effectiveness of the measures, but especially in regard to the effect on citizens in terms of access to information, quality of the informative services used and, lastly, enhanced collective wellbeing. It is not, therefore, easy to determine with precision the amount of public intervention in the publishing sector. Over the last few years the Department of Information and Publishing at the Prime Minister’s Office has published detailed reports of the sums of direct grant aid given to every newspaper. The data available for 2008 show, for the main types of direct intervention, 161 million euros of disbursed grant aid, 18 million less compared to the previous year. Daily newspapers published by journalist cooperatives obtained 46 million, slightly more than the newspapers published by companies controlled by non-profit organisations (like cooperatives, foundations and charities), which were given 42 million euros. Approximately 38 million went to political organs (as opposed to more than 56 million in 2004). To have a broader picture, the balance sheet forecasts of the Prime Minister’s Office offer the list of the interventions per category of expenditure, in a less detailed way in respect to direct grant aid (aggregated in budget item 466 “grant aid to publishers of daily newspapers and magazines”). The allocations for this item, between 2003 and 2007, increased from 186 to 214 million euros (peaking at 247 million in 2006). For the 2008 tax year the expenditure forecasts were 140 million, dropping to 50 million in 2009 and then rising to 170 million euros for 2010. The item registering the greatest expense, however, is that of the special postal tariffs: in 2003 it amounted to 346 million euros (273 million in budget line 471 and 73 million in item 472) in payments. In 2007 it was 243.7 million. In 2010 the initial allocation of funds was slightly more than 50 million, subsequently increased by a further 30 million euros for certain non-profit publishers. In any event, the figures differ from those issued by the Italian Post Office, Poste Italiane, under the category “proceeds from publishing industry tariff compensation”, which recorded 220 million euros for 2009 (and 247 million for 2008, nevertheless a lower figure than previous years). Table 2: Special postal tariffs, comparison of sources, 2004-2009 Sources

2009

2008

2007

2006

2005

2004

PM’s Office – accrued expenses (balanced forecasts)

45,4

149,4

161,2

67,7

234,4

308,3

PM’s Office – cash disbursements (balanced forecasts)

nd

nd

243,7

182,5

234,4

308,3

Poste Italiane – proceeds from publishing compensation

220,0

247,0

265,0

241,0

281,7

266,8

Note: figures in millions of euros . Source: IEM elaboration of data from DIP-PM’s Office and Poste Italiane.

Table 3: Items of expenditure of the balance sheet forecast of the PM’s Office –DIP, 2004-2010 Balance sheet forecast for year

2010

Forecast

Initial

Accounting of data

Accrued/ cash

Year of reference for the data

2010

2010

2009

Initial

Initial

Accrued

Accrued

2009

2008

2007

2006

2005

2004

balanced

assestate

assestate

assestate

assestate

Cash

cassa

cassa

cassa

cassa

2008

2007

2006

2005

2004

2003

140,00

213,99

246,96

173,56

158,86

186,15

Budget Item of expenditure line Current expenses – Interventions 466

Contributions to newspaper and magazine publishing companies

170,00

50,00

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467

Contributions in loans to publishing companies debt extinction 31-12-90

468

-

-

-

-

-

6,30

15,88

22,61

Reduction in electricity and telecommunication and satellite service tariffs

4,00

4,06

4,31

13,43

10,98

18,99

20,86

17,28

469

Magazines for the blind

1,00

1,00

1,00

0,49

0,98

0,47

0,47

0,47

471

Reimbursement for special postal tariffs (companies on the register of communications operators (ROC) + publishing houses)

9,00

1,00

105,00

243,69

182,49

234,35

308,31

273,17

472

Contributions for postal expenses non-profit assoc. and org.

50,80

44,45

44,45

0,00

-

-

0,00

73,02

473

Contribution to the foreign press association

0,01

0,01

0,01

0,01

0,01

0,01

0,01

0,01

559

Unemployment and training fund for journalists

0,00

0,00

0,00

3,52

6,17

10,95

0,98

6,65

479

Italian Agencies dissemination of news and information abroad

7,85

7,85

7,50

10,03

8,66

9,51

9,51

12,49

560

Press services, cooperation agreements in the field of information

40,00

41,00

34,50

51,00

55,51

41,69

40,28

49,80

561

Experimental multimedia programme for communication, training and publishing market

0,00

0,41

0,50

0,00

-

-

-

-

563

Social communication or that in the public interest

15,00

10,00

10,00

28,33

11,86

12,20

10,55

11,39

556

Communication projects funded by EU

0,00

0,00

0,00

0,09

0,10

-

-

-

566

Awards and subsidies for writers, publishers and bookshop owners

0,21

0,21

0,21

0,00

0,21

0,21

0,42

0,41

Capital account expenditure â&#x20AC;&#x201C; Investment 935

Loan contributions to publishing companies, debt extinction 31-12-90

0,00

6,30

6,30

22,06

6,30

0,00

0,00

0,00

936

Interest account contributions, development funding for sector

0,00

0,00

0,00

34,46

15,00

13,08

22,42

43,41

938

Fund for soft loans for publishing companies

0,00

17,10

5,00

70,02

58,36

12,00

79,94

64,94

297,87

183,39

358,78

691,12

603,59

533,32

668,49

761,80

Total interventions and investment in publishing sector

Note: figures in millions of euros. Source: IEM elaboration of PM Officeâ&#x20AC;&#x2122;s balance sheet forecast.

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4.3 Cinema and live entertainment 4.3.1. Introduction Any attempt to plot the evolution over the medium and long-term of the national public funding system for entertainment activities (both live and reproduced) and identify the main tendencies in terms of resource allocation among the various areas in order to provide a systematic representation, will necessarily be a rather complex and ambitious project135. On the basis of the very in-depth analyses presented in the following pages, we intend to offer a Fig.ic representation of the quantities of public resources earmarked for the sectors under observation for the most recent year the figures are available. In order to guarantee a simpler reading of the data, the resources have been lumped together into two distinct macro-areas: •

those paid out by the General Entertainment Fund (FUS) and other funds (ARCUS and the Lottery) for opera, cinema, theatre and other live forms of entertainment (see box on the left);

public investment by RAI (Italy’s public broadcasting company) in cinema and drama pursuant to its public service obligations (see box on right) and, as such, funded by licence fee income, along with the regional funds for audiovisual production.

A first critical factor concerns the degree of reliability of the primary source of the data and its analysis, that is to say the Annual Parliamentary Report on the use of the General Entertainment Fund (Fondo Unico dello Spettacolo, FUS), which collects and processes the data provided directly by the competent Boards136. The report is edited by the Entertainment Observatory and analyses the following activities137: Live and reproduced entertainment: division into sectors Operatic and Symphonic Foundations Film and cinema activities Musical activities Dance activities Theatre and dramatic activities Circuses and travelling shows Primarily levelled at Members of Parliament and experts, the Report has the undoubted merit of providing an account of the total funds assigned to the entire entertainment sector, accompanied by a substantial outline of the legislative and regulatory acts governing these matters. From this point of view it is a very useful and effective tool for the analytical assessment of resource distribution in the various sectors of the entertainment world divided into its component elements (production, distribution, management and promotion) but it is nevertheless inadequate if the aim is to assess investment choices and to verify – through 135 For data collection methods please refer to the notes on the methodology. This investigative report does not address issues concerning the country’s “cultural heritage” (archives, books and libraries, cultural institutes, archaeological heritage, architectural, historical, artistic and ethno-anthropological heritage, landscape safeguarding, architecture and contemporary art) having included within the boundaries of the analysis exclusively “cultural activities” (live entertainment and cinema). This also excludes the costs relative to the organisation, the internal operation and all staff costs. 136 The “Fondo Unico dello Spettacolo” (equivalent to the Arts Council Budget in the UK) was legally instituted on 30 April 1985 with Law N. 163 “New regulations for actions in favour of the entertainment sector”. The law prescribes that the Observatory present an annual Report on its use to Parliament. The Report can be consulted via the Internet on the site of the Ministry for Culture. The data is provided by the offices of the Live Entertainment Board and the Film Board. The latter, in addition to providing support for the Observatory, since 2005 has published its own report limited to activities supporting film production. 137 The Entertainment Observatory works through the Live Entertainment Board. According to a three-year agreement (2008-2010) the drafting of the Report on the FUS is assigned to the Ente Teatrale Italiano (Italian Theatre Agency, ETI). It should be noted that the Ente Teatrale Italiano was abolished by Legislative Decree N. 78 of the 31 May 2010. Its task and funding have been transferred to the Live Entertainment Board.

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a dynamic evaluation of the data – the consistency between the cultural policy objectives, the quantitative and qualitative assessment criteria and the projects that have been granted financial support138. In 1985, the law that first set up the FUS fund represented a significant innovation for the sector. Its aim was on the one hand to rationalise the many different forms of State funding adopted up to then for the sector, and on the other as a step towards a new and more effective medium/long-term planning of public resource allocation and management in favour of the world of entertainment139. In actual fact the innovative approach which, in the mind of the legislator, should have led to a resource distribution strategy based on a dynamic analysis of market conditions and the changing needs of the various sectors (by means of a correct balancing of the fund allocation to the various sectors), soon gave way to the fossilisation of what became known as “allocation quotas” which, apart from a few exceptions, have left the original situation essentially unchanged and inhibited any programming intent140. The Reports on FUS deployment do not however present the same consistent level of detail and accuracy owing to the fact that over the years the techniques for data collection and analysis have been greatly honed. In recent editions considerable effort has been spent in introducing new precious indices, such as the distribution of funds at the regional and provincial level, which can be used to assess the uneven distribution of funds on a territorial basis and consequently the geoFig.ic subsidy concentration levels by macro-area or even the breakdown of the funding by contribution bracket. The reports for the previous years (at least up to 2001) seem much more paired down and organise the data on the basis of aggregate areas, limiting their assessment to a mere statement of the expenditure headings, the decrees and the minutes of the commission meetings, making it very difficult to make any kind of comparative assessment between these figures and the investment policies promoted in the years to come. In recent years the report has broadened its scope to include in-depth analyses on the demand for entertainment (audience spending in relation to the number of inhabitants), the labour market and the nature of the beneficiaries (legal status, geoFig.ic origin, classification based on contribution bracket in various activity sectors, the introduction of a per head subsidy evaluation criterion) thus enabling a much more complex assessment of the funding policies141. There is nevertheless a methodological hitch in the approach used: the report does not go beyond a mere certification of the funds dispensed without providing any kind of qualitative information on: 138 See Luca Zan (edited by), Le risorse per lo spettacolo, (Resources for entertainment) Il Mulino, Bologna, 2009. 139 Law N. 163 of 1985: “Nuova disciplina degli interventi a favore dello spettacolo” (New regulations for actions in favour of the entertainment sector). 140 See. Angelo Zaccone Teodosi, “Fus statico e vischioso tagliato per abitudine” (A static and viscous FUS cutback out of habit), Il giornale dello spettacolo N. 18 of 7 June 2002. It can be useful to recall a passage in the first FUS report to appreciate the innovative spirit and the topicality 24 years down the road of the issues that were being addressed at the time: “the various temporary refinancing laws of the many funds on which the legislation concerning the entertainment sector has ended up being spread have clearly not allowed a consistent programming of the activities nor a serious assessment of the public resources to be employed in addition to the self-financing and in relation to management costs”. One is surprised to find such a clear headed analysis of the critical elements that are still at the core of the debate and the belief that they could be overcome thanks to the new financial instrument: “the State contribution has, in the end, often turned out to be an ineffective transfer of wealth of a merely charitable nature. With the Fondo Unico dello Spettacolo one can now engage in programming public and private investments in the framework of true compatibility with the general requirements of public expenditure and the productivity that this expenditure must constantly strive towards in both industrial and cultural terms”. 141 The last available report for 2008 contains 8 chapters, subdivided into two parts and complete with an appendix: the first section sums up and analyses the entertainment sector in a overall perspective but also broken down into its regional and provincial components, including an investigation of the public expenditure followed by an in-depth analysis on specific issues; the second part is given over to the sector analysis of the various areas of the entertainment field: operatic and symphonic foundations, musical activities, dance activities, theatre activities, circus and travelling shows, film activities, main institutions which operate in the various entertainment sectors with an annual focus on each of them.

250

Public investment in the cultural and telecommunications industry


the decision making process underlying project selection (beyond the general assessment criteria included in the various regulations);

the degree of flexibility of the resource distribution system;

the beneficiary turnover rate based on an assessment of the number of first requests;

project sizing (in terms of the size of funding requested) as a decisive factor for subsidy admittance142.

From a recent empirical research certain phenomena have come to light concerning funding choices that would seem to point to the need for a review of the funding allocation procedures so far adopted. By restricting its analysis to the live entertainment sector (music, theatre and opera), the study highlights “a system that hinges on a rhetoric of project financing and selection process, despite the fact that a considerable share of resources appears to be assigned and informally guaranteed over time to a restricted number of organisations”143. More in general, unlike what happens in other countries, the Ministry has not yet felt the need to accompany the current Reporting system with other economic analyses and assessment instruments capable of establishing the effectiveness of the public investment through an effective monitoring system based on performance indicators, which might provide a measure of the direct and indirect repercussions of said investments144. A change for the better would seem to be signalled by the results of the Ministry of Culture-ETI conference in 2009 which, in addition to assigning specific instructions to the ETI-Observatory, also took steps to commission a study on the funding mechanisms adopted for the entertainment world in the other European countries and the identification of a series of indicators designed to measure the impact of public funding on live performance145. What has clearly been missing up to now is an efficient monitoring system capable of providing an overall assessment of the initiatives promoted and consequently an accurate assessment of the results obtained by the allocated funding. Only in the presence of effective control and constant verification tools can one hope to move on to a more correct planning of future activities and the quantification of any additional funds required. It will therefore hardly come as a surprise if the annual decision for the allocation of the resources for the individual sectors (the so-called allocation and suballocation decrees that apply to the FUS fund) are not accompanied by motivations that might justify their appropriateness146. Ultimately it is not enough to demonstrate – where they do so 142 In the last available report (year 2008) a significant innovation was introduced, namely not just the indication of the number of projects admitted to receive subsidy, but also the requests not approved or those that were not completed so that one could verify the rate of project approval for every area receiving funding and make some considerations regarding the reasons that had led to these exclusions and on the funding choices. 143 Luca Zan (edited by), Le risorse per lo spettacolo, op.cit. From this investigation it turns out that in the musical and theatrical activities and in the Operatic-Symphonic Foundations only approx. 13% of the FUS assigned to these sectors relies on a resource allocation criteria based on a selection process (“non stable” funding). The remaining part appears to be “blocked” in that it is accounted for by organisations that benefit from a “given” level of funding (constant, considerable and not subject to a request process) and to organisations that benefit from “stable” funding (relatively high, constant in time, despite being formally subjected to a request and selection process). 144 An investigative thread that aims in this direction, albeit with a more lateral approach, is the one explored in the White Paper on Creativity drafted in 2007 by a special investigative committee set up by the Ministry of Culture and in which an investigation is undertaken of the added value of the various economic sectors including audiovisual and entertainment, in the attempt to demonstrate the impact on the GDP. Interesting impact studies in the field have been conducted by the University of Turin and Trento in the context of initiatives designed to measure the effectiveness of certain projects using the so-called income multiplier. (The Turin Olympics and the Festival of the Economy in Trento). See “Progetto Capitale Culturale – Cultura Motore di sviluppo per Torino” (Cultural Capital Project – Culture a driving force for Turin development), Published 2007-2009 (edited by the City of Turin in collaboration with the Economic Faculty of the University of Turin). 145 In the 2008 report it states: “The Ministry for Culture believes the future activity of the Entertainment Observatory to be strategic and the start of a new collaborative relationship with ETI, particularly in the current cultural, social and economic context of objective difficulty for the world of entertainment, which requires qualified and effective assessment, investigation, analysis and forecast tools capable of supporting and appropriately validating the political and management choices”. 146 In the film sector, certain criticisms recently highlighted by the Court of Auditors should be noted, such as the impossibility of efficiently establishing the subsidy trends for certain sectors (such as running costs); the ab-

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– that more or less all resources allocated to the various expenditure items have been spent or the capacity to promptly expedite the evaluation of the projects submitted thus complying with the regulatory parameters, one should be verifying the overall results achieved by the various ordinary and special initiatives financed using specific tools, which can provide a complete assessment of the actions undertaken in terms of their effectiveness and value for money. These indicators would necessarily presuppose a form of negotiated programming with the Regions (see below) and an action strategy that must be consistent with the assessment criteria adopted by the Committees that are called to approve or reject the projects. Another factor that distorts the results of the analysis of public funding in entertainment and is prejudicial to a completely accurate assessment of the volume of resources assigned each year by the State, concerns the actual allocation of these resources to the accounting years of reference and the choice of whether they should be considered on a cash or an accrual basis. In the analysis we have put forward here, we have opted (as far a possible) to take into account the figures actually deliberated and paid out by the competent Committees147. Therefore, the figures shown do not match the funding anticipated by the original allocation decrees, which often include surpluses relative to previous years, supplementary or special funds made available during the years, transfers of resources from one heading to another or fund depletion (as has happened in the film sector). These deviations and financial scheduling discrepancies, which are due to the frequent delays in resource allocation to the various areas, make a uniform assessment very complicated: the clear instance of this phenomenon can be seen in the allocation of quality awards or movie house refurbishing loans for the film sector: the length of time taken by the Committee to evaluate the requests and the subsequent unavailability of the resources themselves has led to delays measurable in years between when the benefit awarded was finally cashed and when the works were supposed to take place. These temporal misalignments effectively prevent any uniform comparison of the volume of funds paid out in any given year. Moreover, in recent years, there has been a marked increase in “extra-FUS” funds, which are not monitored in any systematic way and are intrinsically difficult to pin down and analyse within the same Annual Report. As of 2003-2004, the FUS therefore no longer represents the only source of State funding for the sector, seeing that over the years conspicuous additional extraordinary resources have been assigned to supplement ordinary funding. Here we are referring specifically to the revenue of the midweek Lottery draws, the pre-tax charitable donation refunds (“8 per mille” of which however only a very minimal share goes to the State, and the “5 per mille” system), the funds managed by ARCUS and, sporadically, and while there was still funding available, by the remuneration of the management fund for film and theatre credit run by the Banca Nazionale del Lavoro. To these one needs to finally add the special resources made available on specific occasions by Budgetary funds, emergency decrees, specific “bylaws” or special measures, as was the case of the fund worth 60 million euros allocated in favour of live entertainment by the Ministry of Culture for the three year period 2007-2009 in the context of the so called Entertainment Agreement (see below). These additional resources, besides playing an increasingly important role over the course of the years, are handed out according to different criteria compared to those that govern the FUS allocations. What’s more the considerable room for manoeuvre in the allocation of these funds enables the State to fall back on these funds with increasing regularity to deal with emergency situations (as happens with the Operatic-Symphonic Foundations that post losses) or in order to support institutions of national significance such as Cinecittà Holding (which merged with the Istituto Luce in sence of a system of checks and balances for subsidies to distribution and export companies; the failure to actually pay out significant resources to production companies that had been granted funding; the meagre returns in terms of paybacks of loans granted. See Gestione delle risorse del Fondo Unico per lo Spettacolo destinate al settore cinematografico (Management of FUS resources for the film sector), Court of Auditors, year 2009. 147 The choice is thus more consistent and faithful to the methodological approach on which the consolidated public finance accounts are based, as analysed in the first part of the study and which are based on the regional public accounts as they appear in the expenditure statements.

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2009), the Venice Biennale, the Ente Teatrale Italiano148. A particularly relevant case were the supplementary funds provided for the FUS in July of 2009 (following energetic protests by sector operators) by means of a Prime Minister’s Office Decree issued with the agreement of the Ministry of Finance, which awarded a further 60 million euros in favour of cinema and live entertainment, thus raising the overall resources available for the year in question from 397 million to 457 million149. The problem with this kind of action lies in the fact that these kinds of special resources, seeing as they are retrieved from an emergency fund managed by the Prime Minister’s Office, have been assigned on the basis of “political” decision produced in order to solve a purely contingent situation, thus contributing to the distortion and lack of uniformity of the mechanisms that govern the allocation of public funding to the sector in question150. Criticism of this by now consolidated practice of differentiating how the entertainment business is funded is voiced in no uncertain terms by the drafters of the FUS Report, who maintain that it is becoming increasingly difficult “to reconstruct in any uniform way the overall picture of the funding and the focus of the State’s action for the sector, objectives which are clearly stated in the law which first set up the Fondo Unico per lo Spettacolo but which are far from being accomplished”151. Such a critical situation would seem to call for a new method of analysis which, through a systematic and structured approach, might bring together the many sources of national funding so that a more comprehensive picture of the impact of the different levels of public funding on the entertainment sector can be acquired, in relation to both the national extra-FUS subsidies and the sub-national funds provided by the Regions and local institutions. In this way another critical issue, which concerns the lack of a systematic form of monitoring that might make it possible to compare the trends of public spending at the national level with the other forms of subsidy available at the sub-national level, would be addressed152. This issue is particularly crucial given the increasing relevance acquired by Regions, Provinces and Councils in terms of their contribution to a sector which traditionally is very territorially rooted but particularly so now, given the recent changes introduced to Chapter V of the Constitution, which assigns joint jurisdiction to the regions on matters of live entertainment153. The systematic acquisition of this comparative data would enable an accurate picture to be drawn of the importance of each institutional level but also mean that decisions could be reached with a view to introducing more rational criteria to investment choices. Minor steps forward in this regard have been recorded in the film sector where, as of 2008, the Italian Film Board has instituted a joint evaluation procedure with the Regions (as part of the threeyear Territorial Consultation Program) with the aim of “rationalising support actions and fully exploiting the most deserving initiatives, identifying the objectives and priority actions at the regional level and setting up shared databases”154. 148 In 2008 for example, thank to the Lottery Funds, the Operatic-Symphonic Foundations benefited from an additional 20 million euros compared to the 215 allocated at the ordinary level; Cinecittà Holding accounted for 8, while another 3 million were rerouted towards the Venice Biennale. From the 2007 Lottery funds the Ente Teatrale Italiano received 90% of the resources (10.5 million euros) it required to carry out its activities. During the meeting of the Entertainment Problems Committee (a consultant body of the Ministry of 149 Culture), which on 24 February approved the FUS allocation for the current year (414.5 million euros), the Ministry undertook to ask the Prime Minister’s Office for further supplementary funding for 2010 as well, which was supposed to amount to approx. 50 million euros. 150 In this case cinema only received 24 million euros, of which 6 were running cost credits – a sum that was entirely earmarked for the settlement of capital account contributions for refurbishing and updating movie houses, which had remained blocked since 2008. 151 FUS report, year 2008, pag. 16. 152 The only exception is represented by the data collection system of the Regional Public Accounts set up by the Ministry of Finance which, as we have seen, includes cinema and the live entertainment sector in a broader macro-classification. 153 For more in-depth assessments see Andrea Morrone “Lo spettacolo dopo la riforma del Titolo V: idee per una legge generale,” (The entertainment sector after the 5th Chapter reform: ideas for a general law) In «Le Regioni», 1/2009, as well as Carla Barbati, “Lo spettacolo: il difficile percorso delle riforme (The entertainment sector: the difficult path towards reform)(from the Constitution of 1948 to the “new” Chapter V and “back”)”, in «Aedon», 1/2003. 154 The involvement of the Regions, which was initiated in compliance with the ruling of the Constitutional

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The efforts to coordinate and share the various methodological approaches that have been undertaken even at the regional level by the various Observatories so far have not achieved any significant results155. The difficulty in monitoring the stratification of public funding throughout the various administrative layers is not only ascribable to the lack of systematic data (either not collected or where collected not used to the best advantage in the process of subsidy definition)156. This failure in the end reflects the polycentric situation and the absence of a co-financing logic between the various channels of public support. In order to overcome this critical situation one would have to gradually abandon the traditional vertical approach (top/down), which makes it difficult to operate a uniform comparison between activities (even of the same kind) supported at national and regional or local level and shift to a horizontal perspective by identifying a project of common interest which then could be jointly funded. The State would take on the role of investment accelerator in those situations where the share of national investment is effectively dependent on a similar contribution being fronted by the local authorities. These would thus be stimulated to make their resources available for projects conceived and designed on the basis of established territorial requirements and subsequently shared and validated by bilateral organisms which act as compensation chambers (such as the State-Region Conference) so that national action policy can be maintained along with an efficient use of the available resources and an increase in the effectiveness of the measures and their measurable impact. This, for example, was the aim of the previously mentioned Entertainment Pact, an innovative funding instrument based on a negotiated programming model already applied in the implementation of the Framework Programme Agreements157 which established an equal footing collaboration between central government and territorial institutions158. This initiative, which was set up “in order to support actions in the field of cultural activities taking place on Italian soil in order to implement co-financing agreements between the State and independent entities”, was the first practical implementation of the principle introduced by the reform of Chapter V of the Italian Constitution, which called for a harmonisation of the jurisdiction affecting the exploitation and support of cultural and performance activities and true subsidiarity between different levels of government, which was to extend to shared resource allocation as opposed to the methods adopted in the allocation of ordinary FUS funds. The Pact required the signing of specific planning agreements presented by local institutions on the basis of the appropriate calls for tender bearing in mind a complex set of objectives set by the Pact itself159. Each agreement set out the objectives to be pursued, priority actions to be Court N. 285 of 2005, at the moment has not yet produced any significant results. This because if on the one hand the Central Administration has supplied the territorial institutions with the data concerning the contribution requests forwarded, not all the Regions have performed the “virtuous exchange” of information. See Court of Auditors Gestione delle risorse del Fondo Unico per lo Spettacolo destinate al settore cinematografico (Management of FUS resources for the film sector), 2009. 155 It’s worth pointing out that the quoted Min Culture-ETI agreement which had assigned to the latter the task of drafting the FUS Report included the objective of setting up more systematic collaborative agreements between the National Observatory and the regional observatories. It should be recalled that during the three-year period 2007-2009 a project promoted by the Ministry (ORMA) was set in motion with the aim of facilitating the coordination between the regional observatories in order to rationalise the operations and introduce economies of scale. 156 The only two segments of the production process for which one can assess the financial support provided by the various institutional levels are the public repertoire theatres and the operatic-symphonic foundations. The individual sources of revenue were made public for the first time in the FUS Report for the year 2008. 157 For an in depth analysis of the Framework Program Agreements please refer to “L’evoluzione del sostegno pubblico all’audiovisivo” (The evolution of public funding for the audiovisual sector), edited by Alberto Versace, Lorenzo Canova, Tommaso M. Fabbri, Francesca Medolago Albani, in L’industria della comunicazione in Italia, XI IEM Report, Guerini & Associati, Milan 2008. 158 The fund was activated by the 2007 Budget (Article 1, paraFig. 1136 and 1137, of Law N. 296 of 27 December 2009) and underwritten on 25 February 2007 by the State and the Regions with an allocation of 20 million euros for each of the years 2007, 2008 and 2009. At the end of the three years of operation the Fund expired. 159 The upgrading of the entertainment system and the exploitation of territorial identities and vocations, through the economic and organisational support for projects embedded in the local community; the diversification of the cultural offer and the enhancement of programming connected to contemporary production, with particular

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carried out, an action schedule, financial needs and methods of joint financing160. In 2010 the Pact was no longer renewed even though it represented an innovative attempt to overcome the traditional logic behind public investment by triggering virtuous incentive mechanisms and bottom-up participation161. It should also be ultimately pointed out how public funding is not confined exclusively to “direct contributions” on behalf of public bodies but is also achieved indirectly by means of credit relief and tax breaks, donations on behalf of juridical persons (companies) and, though to a much lesser extent, by physical persons thanks to incentives. One need only think of the recently introduced regulation for the film sector that has introduced the “tax credit” and the “tax shelter”: companies that are both part or outside the film industry process may obtain resources amounting to approximately 100 million euros a year. These are measures that in the short term could generate a negative impact on State revenue in terms of reduced tax income, but the stimulus to the market and the greater influx of private investments that they are designed to guarantee should actually go beyond just compensating for the reduced tax revenue expected in the first years of its application162.

4.3.2 Trends in FUS allocations and macro-tendencies The General Entertainment Fund (FUS) was first set up by law in 1985 with the twofold purpose of reorganising the financial measures in favour of the entire entertainment sector and providing these measures with a systematic focus. The allocation of consistent funds to provide for the financial support of the entertainment industry from that year on enabled the sector’s activities to be scheduled with a much broader time scale, while providing the operators benefiting from the subsidy with greater elements of continuity for the scheduling and management of initiatives in the various sectors supported by the State163. Every year, when passing the Budget, the Parliament quantifies the resources allocated to the FUS for the following three-year period. The last approved Budget allocated 418.4 million euros for 2010 and little more than 304 million for the years 2011 and 2012164. attention paid to young and new authors and by acknowledging the importance of experimentation with new languages and the promotion of new talent; the exploitation of network projects that address areas that go beyond the municipality or the province or involve more than one region; the promotion of actions designed to broaden the audience base and the distribution of live entertainment among the younger generations and those segments of audience that have less access to it, with particular reference to public measures for the South of Italy; the introduction of tools which enable a rationalisation of the plans of action involving the available State and territorial resources in order to avoid their fragmentation and thus guaranteeing a greater effectiveness of the expenditure, even through monitoring of the cultural offer for given areas and the mutual exchange of knowledge and information. 160 Each project has received at most 1 million euros, on condition that the institutions presenting the project guarantee to match the same sum as that requested in the funding application. The co-financing sums could not be raised through subsidies or contributions paid out by the Ministry for live entertainment activities to any of the institutions or bodies which were in any way partners to the project. Among the reasons that have led to the its interruption: the limited visibility of the results of the initia161 tives, the limited available resources and perhaps the conviction that three years were enough to trigger a virtuous circle which would enable the coproduced initiatives to continue in the years to come exclusively thanks to its “regional legs”. 162 The regulations governing tax rebates for the film industry could be extended to the live entertainment sector according to the prescriptions of the Framework Law for the live entertainment sector currently being examined by Parliament. For further information on the matter refer to Teodosi, Bruno Zambardino, Alberto Pasquale (edited by), Il mercante e l’artista – Per un nuovo sostegno pubblico al cinema: la via italiana al tax shelter, (The merchant and the artist – New public funding for cinema: the tax shelter in Italy), Spirali, Rome 2008. 163 For further details see Bruno Zambardino, Lo Spettacolo dal vivo: il quadro normativo, (Live entertainment: the regulatory frame work) Materiali Formez, February 2006. See also C. Tubertini, “La disciplina dello spettacolo dal vivo tra continuità e nuovo statuto delle autonomie” (Continuity and self-government as they apply to the regulations governing live entertainment), in «Aedon», 3/2004, Il Mulino. 164 Law N. 191 of 23 December 2009. The three-year spending program is outlined in Table C attached to the Financial Act. It should be noted that the funding refers to ordinary resources which, as we will see, are topped up with additional resources. It should also be remembered that the funding allocated for the following years is often changed in the subsequent Financial Act on the basis of the administration’s needs.

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Even though it is subject to the general state of public finances and suffering a gradual reduction in buying power due to inflation , the FUS – at least for a certain while – had guaranteed support for the sector with a good degree of certainty for industry operators165. Its trends and composition should be read – as has been pointed out in the previous paraFig. – bearing in mind the supplementary funds for the entertainment sector which, particularly in recent years, have provided limited yet essential additional financial resources, albeit in an ex-post emergency logic, that have been used for the most part to make up the deficits accrued by a number of public cultural institutions. The distribution of FUS funds to the various sectors takes place on the basis of a yearly percentage allocation originally established in the law which first set up the Fund. This percentage is based on the financial requirements that central government believes to be necessary to fund the various sectors. This calculation is based on a number of different factors ranging from the evaluation of fixed production costs to estimates of the marketable value of the productions. Fig. 1: FUS allocation, 1985

Musica e Danza 13,0%

Prosa 15,0% Cinema 25,0%

Circhi e spett. Viagg 1,5%

Fig. 2: FUS allocation, 2010

Osservatori o dello Spettacolo 0,0% Comitati e commissio ni 3,5% Fondazioni Lirico Sinfoniche 42,0%

Circhi e spett. Viagg 1,5% Danza 2,3%

Osservatori o dello Spettacolo 0,2%

Musica 13,7%

Comitati e commissio ni 0,0%

Fondazioni Lirico Sinfoniche 47,5%

Prosa 16,3% Cinema 18,5%

Source: IEM elaboration of Entertainment Observatory data.

The Law N. 163/1985 provided for a total of 700 billion lire to be allocated according to the quotas shown in Fig. 1166. This original percentage allocation changed following the introduction of Law N. 555/1988, which, by abolishing the quotas established in the 1985 law, assigned to the then-Ministry for Tourism and Entertainment (now the Ministry for Culture) the task of setting the allocation percentages for the Fund year by year167. In 1990, following the introduction of this rule, a few changes were made to the original allocation percentages. More specifically, music and dance were allocated 61.8% (with as much as 47.8% being assigned to the thirteen Operatic Institutions which are essentially public opera houses) while the quota for film was reduced from 25% to 19%. In 2002 the Administration took action to redress the allocation balance after a series of special measures (which had reduced the film quota in favour of theatre) had been introduced to overcome the very complicated situation in which theatre found itself at the time. As can be seen in Fig. 3, in that year the theatre sector suffered a cut of approximately 7% in favour of film activities. Subsequently the percentages changed in a substantially irrelevant fashion, thus perpetuating the benefits of stability but also the costs inherent in a lack of flexibility and the inability to adapt to changing market conditions, which to some extent it was responsible for straight-jacketing. 165 For a complete picture please refer to the general remarks included in the last annual Reports to Parliament which can be viewed on the Ministry of Culture website. 166 It is worthwhile pointing out that the resources assigned in 1985 (the year of the foundation of the FUS fund) show an increase of almost 75% compared to the resources allocated for 1984, when public action was fed in a totally inadequate manner through a number of different legislative decisions, often for specific initiatives of as one-off contributions to face up to specific needs. 167 By issuing its own decree, with the approval of the National Entertainment Council (currently the Entertainment Problem Committee).

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Fig. 3: FUS: evolution of the allocation quotas, 1985-2010 Op/Symph. Foundations

Cinema

Theatre

Music

Dance

Other

2010

47,50

18,50

16,27

13,74

2008

46,69

19,50

16,27

13,74

2006

47,81

17,97

16,66

14,07

2004

47,81

18,00

16,68

14,07

2002

47,81

2000

47,81

1990

47,81

11,08

24,00

18,87

13,78

16,73

18,87

14,45

16,26

14,02

1988

42,03

24,18

15,6

13,36

1985

42,0

25,0

15,0

13,0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Note: dance acquired its own expenditure heading as of 1997. It had previously been included in the musical activities heading.

418

471

457

441

465

427

519

500

531

513

495

479

25% 20% 15% 10%

300

7,7%

0% -5%

100

6,8%

6,0%

5%

200

0

3,3%

1,1% 1,1%

0,0%

-3,0%

-3,6% -3,4%

-3,9%

-7,1%

-10%

-8,0%

-8,4%

2010

2009

2008

2006

2007

2005

2004

2003

2002

2001

2000

1990

1999

2010

2009

2007

2008

2006

2005

2004

2003

2002

2001

2000

1999

1990

1985

-15%

1988

Million

31,8%

30%

1988

400

35%

363

500

460

600

501

Fig. 4: FUS allocation trend, 1985-2010 (in absolute and percentage values)

Notes: * Methodological note: in 1985 Dance was included in the Music allocation and the Supplementary Fund was responsible for redistributing the remaining resources to the other departments. In 1988 the supplementary fund heading also included the cost of the Observatory and the Committees. In 2002 BNL funds for 2.5 million euros were pledged as interest account subsidies for music and theatre pursuant to Art. 13 of Law 163/85. The total for 2009 includes a additional allocation (decided in September of 2009) worth 60 million euros (for 2010 the Ministry envisaged a compensatory allocation of 50 million, but, at the time of writing nothing has been formally agreed) subsequently redistributed among the various sectors. The data for the Operatic-Symphonic foundations in 2009 includes a supplementary 20 million beyond the original funding granted.Source: IEM elaboration of data provided by the Entertainment Observatory, Min. of Culture.

The total funding trend (including additional funds) over the operating life of the FUS (from 1985 to 2010) shows an initial upward tendency, despite the presence of rather broad fluctuations ever since the beginning of the 1990s due to the difficult economic situation and the problems afflicting State finance. The gradual recovery of the FUS, which took place in the second half of the â&#x20AC;&#x2122;90s, with resource level peaking in 2001, the only year in which it exceeded the 500 million euros threshold (in nominal terms), was followed, as of 2003, by heavy cuts, with a downward spiral that saw it fall back to the values recorded at the end of the â&#x20AC;&#x2122;80s. This second macro-phase records its lowest value in 2006, below the 430 million euros mark. In the two subsequent years there was a brief moment of growth (in 2008 the resources exceeded 470 million euros). A look at the progress in percentage terms provides a more accurate picture of the various swings that have taken place during the course of the 25 years under examination. The funding trend for the individual sectors shows more significant variations for the Operatic

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and Symphonic Foundation sector168: the first growth phase up to 2001, year in which it reached the peak value of 250 million euros, is followed by a second recessive phase, which touches its lowest level in 2006 only to climb back up in the subsequent years until it levels off in 2010 at a sum just below 200 million. Fig. 5: Evolution of FUS allocations by sector, 1985-2010 Op/Symph Foundations

Cinema

Theatre

Music

Dance

300 260

244

250 237

221

200

215 199

211 199

197

159 116

65

62

62

8

9

9

8

8

8

10

2002

2003

2004

77

70 61

84 63

68 57

52

9

8

2010

79 74

2009

8

91

78 75

77

70

2001

1990

7

2000

1988

7

1999

0

1985

0

0

84

83

56

47 0

90

72

68

65

65

93

92

71

2008

65

64

89

85

84

76

2007

55

75

99

95

2006

91

121 94

90

2005

100

Million

222

201

150

50

239

245

240

Note: for 2009 the resources deriving from the subsequent additional funding granted have not been included. Source: IEM elaboration of Entertainment observatory and Min. of Culture data.

The film, music and theatre sectors show a greater stability and are positioned in a bracket that varies between 60 and 90 million, with the sole exception of 2002 when cinema and theatre recorded mutually inverse deviations for the reasons outlined above. The most worrying element is the growing gap between the current value and the constant value of the annually assigned resources. Even though the law instituting the FUS included provisions for a three-year indexing, it is readily observed how the deviation between the nominal value of the resources allocated and the actual value which takes into account the actual resource buying power has progressively broadened. The following Fig. provides a clear representation of the twofold performance of public spending depending on whether it is analysed statistically in monetary terms or by incorporating the inflationary dynamics which have marked the 25 years of allocations since the year of the fundâ&#x20AC;&#x2122;s institution. Fig. 6: Variations in FUS allocations, 1985-2009 Euro 1985 constant

Euro current

600 531

500

411

400

519

495

479

513

501

500

471

465

460 427

363

441 397

349

363

300

269

265

273

258

255

241

220

200

198

201

208 174

100

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1990

1988

1985

0

Source: IEM elaboration of Entertainment Observatory data, Min-of Culture. Figures in millions. 168 It should be remembered that in 1996 and in 1998 legislation was passed in two different stages which transformed them from public institutions into private law foundations.

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Where the current values post an overall increase of nominal resources which, between 1985 and 2010, amounts to approx. 11%, in real terms any positive indication this might seem to provide is denied by the currencyâ&#x20AC;&#x2122;s drop in buying power. In the quarter of a century that has passed, as it turns out, the deviation has gradually grown until it reached its peak in 2009: this essentially means that there has been a strong drop in the actual resources available to the world of entertainment, which in 2009 amounted to approximately 174 million if discounted to present values compared to the 397 nominal million. The relationship between current euro and constant 1985 euro for the period under examination shows an average deviation of more than 50%. The FUS tendency would seem critical even when compared to that of the GDP (Gross Domestic Product): while the latter has almost quadrupled (+3% on average per year) its value, the incidence of national public spending for the entertainment business has on the contrary suffered a strong decline moving from 0.083% in 1985 to 0.026% in 2009 with an actual drop which comes close to 70%169. The loss of buying power on the one hand and the decreasing growth compared to the GDP on the other have sparked strong preoccupations among sector professionals particularly in the light of the current stagnation and recession caused by the world financial crisis.

4.3.3 The most significant sectors: cinema, operatic and symphonic foundations, musical activities and theatre Moving on to the examination of the trends for the individual sectors, we must here reiterate what we said earlier in the introduction concerning the difficulty in performing uniform comparisons for the period under observation. What particularly stands out is the often very broad spread between the allocations and the effective assignations (the object of the analysis by sector that follows) due to the accounting deviations (for cash or accrual), special integrations, supplementary funds allocated during work in progress, as well as the presence of surpluses, factors that hinder a correct apportionment of the resources for each individual year.

Opera and music For the period 1998-2008, the operatic and symphonic foundations along with the â&#x20AC;&#x153;other musical activitiesâ&#x20AC;? show a reasonable consistent funding trend. After an initial four-year growth period which reaches its peak in 2001, the Foundations enjoyed a period of stability with allocations remaining well above the 250 million mark until 2005. Even more stable is the funding for the other musical activities sector, which on average hovers around the 60 million euros mark with little change over the period in question, with a slight exception for 20032004, a two-year period when the funds exceeded 70 million.

169

See FUS Parliamentary report, year 2008.

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259


Fig. 7: Allocations over the period 1998-2008 for Operatic and Symphonic Foundations and Musical Activities Op/Symph Foundations

Musical activities

300 263

250

268

262

270 253

237

248

236

229

217

200

240

230

71

1999

2000

2001

2002

77

72

69

63

63

63

2008

69

2007

67

2006

64

2005

62

1998

100

2004

150

50

2009

2003

0

Source: IEM elaboration of Entertainment Observatory and Min. of Culture data. Figures in millions of euros.

Going into the detail of the 14 Opera Houses, the picture that presents itself is very composite and most of the Foundations are concentrated in a contribution bracket of between 10 and 20 million euros, with growth variations in recent years which particularly affect the Operatic Theatre in Cagliari, the San Carlo in Naples and the Maggio Fiorentino, following a general downturn during the 2004 – 2006 period. The Scala of Milan and the Opera in Rome are the only theatres that can boast resources in excess of 30 million euros and an increase over the 2007 – 2008 period. The only Foundation that receives subsidies below 5 million is the last one to be set up, which begun its activities in 2004 (the Petruzzelli Theatre in Bari). In the “other musical activities” macro area the institutions that receive the most funds, that is to say the traditional theatres, the orchestral-concert institutions and the other subjects involved in concert and choral activities are in the top bracket and account for 70% of the overall resources. With the exception of the Festivals, which are positioned in an intermediate bracket (around the 8 million euros mark), the other sectors, which include courses and promotional institutions, standard opera production and activities abroad, are relegated to the lower bracket, which exceeds the 2 million mark in only a few instances, with more or less significant fluctuations that can be ascribed to special projects and government initiatives.

260

Public investment in the cultural and telecommunications industry


Fig. 8: Allocation trend 1998-2008 for Musical Activities Promotional agencies Venice Biennale - Music activities Bands

Special projects and Admin. Activities abroad

6 6

5

4

1

1,0

0,8

0,7 0,7

0,7

0,6 1 0,4

1

1,1

0,6 0,6

0,6 0,5

0,4

2008

0,7

2,0

2007

2000

1

0

2002

1999

0,7

0

2001

0

1998

0

0

1,1

1,1

0,7 0,0

0

1,3

2,2

1,5

1,5

1

0,7

0,7

2,3

2,0

1,1

1,0

0,9

1

2,4

1,7

1,1

2,5

2006

1,9

2,6

2,5

2005

2,3

2,7

2,7

2004

2

Million

2,7

2,6 2,3

2003

3

Traditional theatres

Concert and choral activities

Concert/Orchestral institutions

Festivals

Standard & experimental opera

Courses

Competitions 18 16,5

16 14 12

15,6 14,2 13,4

14,6 14,5 13,9

15,0 14,7 14,6

15,1 15,2 15,3

8

7,6

16,8 16,7

16,7

16,3 16,3

8,5

8,2

9,4

9,1

16,1

14,3

14,8

14,6

9,1

15,9 14,5

14,4 13,7

10 7,4

15,1

16,8

15,8 14,4

14,0

14,2

8,0

7,9

8,2

3,0

2,9

2,6

8,8

14,2

6

1,4

1,3

1,4

4,3 3,3 2,0

2,0 1,4

1,4

2003

2002

2001

2000

1999

0

1,8 1,2

3,3 1,6 1,1

1,2 0,9

1,2

1,2 0,9

0,9

2008

1,8

4,0

2007

1,3

1,6

1,7

3,5

2006

3,7

2005

1,6

1998

Million

2

3,8 2,9

2004

4

Source: IEM elaboration of Entertainment Observatory data, Min. of Culture. Figures in millions of euros.

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Fig. 9: Allocation trend for 1998-2008 for Operatic and Symphonic Foundations

Scala di Milano Maggio Musicale Fiorentino Arena di Verona

Opera di Roma Massimo di Palermo

San Carlo di Napoli Carlo Felice di Genova

50

39,2

40 34,3

35

37,3

36,0 34,0 32,7

30 24,2

25

18,3

15

13,0 13,2

10

25,0

22,9

22,8

19,9 17,8 15,0 14,8 14,6

15,1

13,6

19,7

29,1

19,5 16,9 15,2

22,1 21,5 18,6 17,4 15,1

31,9 32,0

26,1

28,5

22,6

17,1 15,5

34,1 30,9

30,1 26,3

26,5 23,4 21,6

18,9 13,4

30,4

30,3

24,0

23,7

23,6 21,9

22,8 21,2

20

25,7 26,9

22,4 20,4 17,4 16,6 14,5

19,7 18,6 19,3 18,2 16,7 15,5 15,4 15,0 12,7

17,3 17,1

13,4

17,3 16,0 15,3

16,5 15,8

14 13,7

12 11,7

18,5 17,7

16,8 16,7 15,7 16,7 15,6

16,9

12,1

16,6

17,7 16,7 16,4

17,6 17,5

16,7

16,0 12,9

11,8

12,4

11,5 10,7

16,6 16,7 15,9

2008

2007

17,0

15,2

14,8 14,4 13,9

13,6

13,5 11,1

12,3

10,6

2006

2005

18,4

17,9

12,2

9,7 8,0

18,6

14,2

10 8

17,9

Lirico di Cagliari Acc. Naz di Santa Cecilia di Roma

15,6

15,7 14,8

16,7 16,4 15,7 14,4

14,3 11,7

13,4

10,5

10,6

10,3 9,6

8,3

6 4,0

4

5,0

4,4 4,0 3,0

2

2007

2006

2005

2004

0,0

2003

2001

2000

1999

1998

0,0

2002

0,0

0

2008

16

17,9

2004

La Fenice di Venezia Comunale di Bologna

20 18

2003

2002

2001

1999

2000

0

Regio di Torino Verdi di Trieste Petruzzelli e Teatri di Bari

Million

21,5 20,3

5

1998

Million

43,5

43,4

45

Source: IEM elaboration of Entertainment Observatory data, Min. of Culture. Figures in millions of euros.

Theatre On the theatrical front taken as a whole one can pin point three different cycles in the decade in question: a first gradual growth phase which culminated in 2003 when the funding almost reached the 100 million mark, followed by a gradual drop in funding which ended in 2006, a year when a slight recovery took place, bringing the funding back up to just short of 85 million euros for 2008.

262

Public investment in the cultural and telecommunications industry


Fig. 10: Fund allocation trend 1998-2008 for Theatre 120 98,0

100 83,7 80

89,5 89,0

94,2

89,1

84,8

92,7

84,2

81,1

80,9

60

40

Million

20

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0

Source: IEM elaboration of Entertainment Observatory data, Min. of Culture. Figures in millions of euros.

If one then looks at the funding trends by individual sector it stands out how the stably funded area (public, private and innovative repertory theatres) accounts for half of the overall funds (in 2008 41 million euros) yet shows a very fluctuating progress during the course of the period under examination. In an intermediate bracket we find the production companies, that have suffered a drop starting in 2003, and in 2008 stood at around 20 million euros. Fig. 11: Fund allocation trends 1998-2008 for Theatrical Institutions and Companies Repertory theatres Touring Puppet theatres

Production companies Exhibition

Ente Teatrale Italiano Promotion

50 44,0

45 40

38,1

39,6

42,7

39,6

41,1

44,1 40,4

39,6

35,4

41,1

35 30 23,7

23,2

24,9

23,9 24,9

24,2 22,3

24,2

19,7

20

20,1

2,0 0,6

4,6

1,8 0,6

11,1

4,8

4,8

1,6 0,6

1,7 0,6

1,7 0,5

2008

0,6

1,9 0,5

5,9

11,7 8,7

2007

1,7

6,5

9,0

2005

1,7 0,6

6,5

5,9

10,2

2004

1,5 0,6

5,9

2003

0

2,0 0,6

5,9

10,7

2002

0,5

1998

Million

2,0

9,0

10,8

2001

5,9

5,7

5

8,8

2000

10,1

1999

10

19,8

13,9

15

2006

25

Public investment in the cultural and telecommunications industry

263


Istituto Naz. Dramma Antico

Festivals

Venice Biennale (theatre)

Special projects

Silivo D'Amico National Academy

Abroad

2,5

2,1

2,0 1,8

1,7

1,7 1,5

1,5

0,9

1,0

0,9

0,5

0,8 0,6

0,5

0,5

0,4

0,2

0,0

0,8

0,8

1,1 1,0

1,1 1,0 0,9 0,8

0,9

1,2

1,2

0,8

0,8 0,8 0,7 0,7

0,8 0,8

0,7

0,5 0,4

0,4

0,4

0,7

0,5 0,2 0,2

0,3

0,6

0,8 0,8 0,7 0,7

0,6 0,3 0,2

0,3

0,1

1,2

1,0

0,1

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

0,0

1998

Million

0,5

0,7

0,7 0,6

0,9

0,9

0,8

0,7

1,7

1,5

Source: IEM elaboration of Entertainment Observatory data, Min. of Culture. Figures in millions of euros.

Besides the Ente Teatrale Italiano (The Italian Theatre Institute, abolished in July of 2010, see above) which accounts for resources in excess of 10 million euros and the touring system, which received approximately 5, the other activities, such as the promotion, the running costs, funding for work abroad and the other institutes of national importance are all included in the lowest bracket and account for funds which are almost always below the 1 million euro mark.

Cinema The film sector presents entirely atypical characteristics compared to the other sectors supported by the FUS. The competent authority (Italian Film Board) uses public funds to distribute widely differing subsidies not only in terms of their purpose, which can include promotion, production, distribution, exhibition, etc., but also where procedures and co-financing are concerned, seeing that a considerable share of these resources (allocated under heading 8571 of the budget of the previously mentioned Ministry) are routed through the Production Fund, whose financial management is currently entrusted to Artigiancassa (Bnl-Bnp Paribas Group). It should also be noted that in film, unlike the other sectors, a fair share of the subsidies, those assigned to production, are paid out in the form of reimbursable loans170. The national public expenditure in favour of film activities, partly for the reasons outlined above, shows a very fluctuating performance with significant swings in the period under examination. The highest peak was reached in 2003, when as much as 250 million was actually paid out. As of 2004-2005, the year when the so called Urbani171 reform gradually came into operation, 170 In 2008 the so called “securitisation” of the debts of film companies was first set in motion with regard to the State funding of film projects of cultural interest which had been granted up until 31 December 2006. Article 20 of the Min. Decree 12.4.2007 “Production funding” has actually established a procedure which will quickly solve the age old problem of unreturned loans by introducing a mechanism that might lead to either the 100% acquisition of the film on behalf of the company through payment of a lump sum (based on specific calculation tables) or the “sale” of all film exploitation rights entirely to the State (in the event that the producer involved decide not go along with the securitisation procedure). In 2008 the Ministry of Culture set in motion the complex procedures which, through Cinecittà Holding and the management of the funds for Cinema Artigiancassa S.p.A., have involved hundreds of production companies, which had in the past been granted State funding. 171 Reference here is made to the Legislative Decree n. 28 of 22 January 2004, which among other things introduced more stringent production funding procedures limiting the public contribution to 50% of the overall

264

Public investment in the cultural and telecommunications industry


the resources suffered a cutback until 2007 before levelling out in 2008 at around 125 million euros172. Fig. 12: Fund allocation trend 1998-2008 for Cinema 300 268,9

250 234,0

200

192,1

186,5

180,6

150

170,4

164,6 132,7

155,3

100

124,6

116,0

111,2

50

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0

Source: IEM elaboration of Entertainment Observatory, Court of Auditors and Min. of Culture data. Figures in millions of euros.

Besides mirroring the strong fluctuations mentioned earlier, if we look at the various segments of the film production process separately we gain further confirmation that public funding for production (a heading which here includes feature films of cultural interest produced nationally, directing debuts and second films, shorts, screenplay development, box office subsidies and quality awards) is the segment that accounts for the largest share of public funds (in 2008 it represented a 59% share of total funding). During the course of the period in question the support for production has experienced a marked decline as of 2003, which had dropped to just under 74 million euros by 2008. The same fate was suffered by subsidies for film distribution in Italy and abroad (reduced in 2008 to little more than 1 million euros), while the support for technical industries (post-production suites and film studios) through ten-year subsidised loans has essentially been phased out. Sharp fluctuations have also affected contributions for capital or interest expenditure in the modernising and refurbishing of cinemas due to the long delays in payments of the contributions actually awarded173. Even this kind of support has been dwindling in recent years174. Support for promotion (awards to art film theatres, publication, budget (80% for first and second films). 172 One should remember here that even for cinema the sums calculated do not correspond to the allocations but (as for almost all activities), to the payments actually deliberated. The deviations and time displacements depend on the actual cash availability for the year in question, to the presence of lack of usable surpluses and the contorted mechanisms of many of the funds (Action Funds, Guarantee Funds, Special Funds managed by the Credit Section of BNL). As we already pointed out in the introductory paraFig., the delays in resource attribution to the various sectors make an effective assessment of the qualitative and quantitative performance of the Administration for each year particularly complicated. This phenomenon is obvious for example in the attribution of quality awards: the excessive duration of the evaluation procedure implemented by the Commissions and the unavailability of the resources has led to delays stretching beyond the year in the acquisition of the benefit compared to the years when the works were actually shown. To this one has to add a further distorting element connected to the presence or lack of special funds made available during the course of the year. It should be further underlined that from a methodological point of view for certain years it was impossible to allocate specific sums to each expenditure heading. This makes any kind of comparative analysis over the years almost impossible. 173 It’s worth specifying that as far as cinema running costs are concerned, up to 2004 the only data available is the overall of sums on which one can calculate the interest and capital account subsidies. To achieve a uniform comparison with the previous years we have therefore proceeded to make an estimate by applying the projection for the two year period 2005-2006. 174 Thanks to the introduction of the tax credit regulation (2008 Budget), cinemas have the opportunity of benefiting from a “de minimis” tax credit (up to 500,000 euros with a maximum of 50,000 per screen), which amounts to 30% of the costs incurred for the digitalisation of the projection systems. The fiscal aid regime expires on 31.12.2010.

Public investment in the cultural and telecommunications industry

265


conservation and restoration, promotion abroad, associations and special projects) and to institutes of national importance, which essentially refers to Cinecittà Luce, Venice Biennale Film Festival and Centro Sperimentale di Cinematografia-National Film School, on the other hand has remained pretty much stable. Moreover these latter subjects are also among the main beneficiaries of extra-FUS funds (Lottery), which account for a significant volume of resources, in the neighbourhood of 32.5 million euros on average per year over the period under examination (considered as a percentage of the total resources allocated in 2008, these institutions secured 22% of this total). The Italian film market ought to benefit from a strong influx of financial resources – calculated in the order of 80/100 million – as a result of the introduction of tax credit and tax shelter measures which finally introduce tax rebates into the Italian system as a way of supporting the film production sector as a whole175. More specifically, for income tax purposes, a first Decree acknowledges a tax credit (“internal” tax credit) for film production companies, which is set at 15% of the overall cost of production for film productions recognised as Italian. This tax credit is granted up to a maximum annual contribution of 3.5 million for each tax year176. For executive production companies and technical industries that perform activities commissioned by foreign clients the tax credit rises to 25% of production costs up to a maximum of 5 million euros per film177. Fig. 13: Fund allocation trends 1998-2008 for Cinema Production

Nationally important bodies

Promotion

Distribution in Italy and abroad

Technical industries

Exhibition

180 160,4

160 149,1

140 120,4

120

121,2

95,7

100

89,1

95,5 86,4 75,6

60 31,7

29,7

2008

2006

2005

27,1 22,9 17,8 15,6 19,8 18,1 14,4 22,8 8,214,1 15,7 14,5 11,9 10,7 2,0 1,7 1,6 0,0 1,1 4,8 1,3 1,1 0,0 0,0 0,0 0,0 0,0 0,0

2004

17,9

73,5

42,4

37,4

2003

12,5 14,0 6,3

35,9

2002

35,9

2001

15,1

2000

0

3,1

24,8 18,7

13,3 13,4 4,4 2,3 0,2 0,0

1999

20 15,3 12,4

32,3

17,2

1998

Million

25,8

30,5

73,6

20,3 16,5 0,0 0,0

2009

43,4

40

71,0

2007

80

Source: IEM elaboration of Entertainment Observatory, Court of Auditors and Mibac data. Figures in millions of euro.

A second Decree has included further incentives which take the shape of tax reductions 175 The complex procedural process of the measure was first begun in the 2008 Budget approved on 24 December 2007. After receiving the go ahead from Brussels in 2008 for a first package of regulations and the signature of the competent Ministers (Economy and Culture) on 7 May 2009, the first inter-ministerial decrees were published in the Official Gazette on 15 July. In September 2009 the implementation regulations were issued along with the relative forms. A second package of regulations was approved by the European Commission in July 2009. 176 The benefit in any case hinges on production expenditure taking place on the Italian territory for a total that cannot be less, for each production, than 80% of the tax credit obtained for said production. 177 The tax credit to technical industries ensures an enhancement of Italian territory (even in terms of induced tourism and employment) making it more convenient for major foreign production companies to take advantage of the services of national productions, of Italian labour as well as film locations, which to this day seem still very underused, despite the widespread presence of the Film Commissions promoted by local authorities.

266

Public investment in the cultural and telecommunications industry


(“internal” tax shelter) on production company profits (one can even cut taxable income by as much as 100%), for films that are acknowledged as Italian productions. The overall expenditure limit for this specific form of tax rebate amounts to 30 million euros over a three-year period178 . These two measures are not cumulative, and can be applied retroactively from 30 June 2008. Both these instruments must refer to film products that have a cultural significance, as they are subject to specific “cultural tests”, which will enable the Italian State (under certain conditions and subject to certain limitations) to waive the European regulations that forbid State Aid when it is seen to negatively affect competition179. The first measures to be approved concern breaks exclusively in favour of production companies, executive production companies and technical industries (“internal” tax credit and tax shelter) and from September 2009, with the publication of the application forms, these are already in operation. On 22 July 2009 the European Commission, after further compatibility verifications, approved a second package of tax breaks in favour of other categories that operate within the film production industry such as the distributors and (to some extent) the theatre managers, but more importantly for entrepreneurs outside the sector, the true cornerstone of the entire legislative structure that is meant to guarantee an influx of outside capital into the sector. The tax breaks for subjects not operating in the sector have been approved for investments in the production of films that are of manifest “cultural interest” or that qualify as being Italian national productions. The “external” investors many benefit from a tax credit amounting to 40% of the sums paid out up to a maximum sum of one million euros for each tax year. For film distribution companies two different percentages and relative maximum thresholds have been established depending on the kind of film: 10% up to a maximum of 2 million euros for expenses incurred in supporting the national distribution of Italian titles; 15% and up to 1.5 million euros if the film in question is also of cultural interest180. Both the distributor and the cinema managers can underwrite joint venture contracts (as can the external subjects) and support the production of Italian films that are acknowledged as being of cultural interest. In this instance, the tax relief is set at 20% of the sum supplied up to a maximum of 1 million euros per tax year. The companies that do not operate in the sector may additionally benefit from a tax reduction on profits (“external” tax shelter) up to a maximum limit of 30%. In two years of application (June 2008 – June 2010) the sector operators have taken advantage of tax credits for 114 films requesting benefits for approximately 48 million euros, of which close to 10 million came from foreign producers. In 2009 alone 7 important foreign productions came to Italy attracted by the new tax incentive scheme. Overall it has been calculated that on an annual basis, in the face of reduced revenues amounting to 77 million euros, the induced effect has generated increased revenue for the State for about 173 million euros. In September 2010, the Ministry had already assigned 21 million euros to cover 71 approved requests. The approved measures mark a change of approach in public funding strategy, with the emphasis now having shifted from direct contribution to automatic and indirect mechanisms, which reduce the discretional power of the Committees and reward the entrepreneurial ability of the producers, in the awareness that it is no longer sufficient to wager on the redressing of the minimum levels of public funding provided by the FUS (though this is of course very important), but one must instead open up to the market and gain the trust of investors and 178 More specifically 5 million euros for 2008, 10 million for 2009 and 15 million for 2010. 179 The cultural testing consists of tables containing specific eligibility criteria, linked to a maximum and minimum points system for each film as assigned through a procedure which is to all intents and purposes automatic. Implemented by the National Authorities, the “tests” are screened by the European Commission, in order to verify the actual and effective connection between the aid granted and the cultural product which benefits from it. 180 Pursuant to Art. 7 of the Legislative Decree 22.1.2004, N. 28.

Public investment in the cultural and telecommunications industry

267


banks181. Consistently with this new approach, the Ministry for Culture has guaranteed the operators a three-year renewal (2011 – 2013) of the tax relief measures but – bearing in mind the currently available resources and new priorities in terms of funding strategies - it also announced a reform of the support system that was first instated in 2004. The innovative measures, announced at the end of July 2010 but still to be agreed with the sector operators, provide for: •

direct state support being limited to director’s first and second films only (including documentaries and short films);

a revision of the current system that governs access to subsidies based on box office performance and to capital account contributions to cinemas;

State support for promotional actions being limited to institutes and events of international or national significance.

Besides the public resources supplied by the State and delivered via the FUS (and those disbursed by ARCUS and the Lottery, see below), one must also consider the precious role played by RAI Cinema182 in supporting Italian film production, in compliance with the obligations prescribed by Law 122/98 and 112/04 (subsequently assimilated in the Code of 2005) and the constraints indicated in the three-year service contract agreed with the Ministry of Communications. The company which is 100% owned by the public broadcaster invests approximately 80 million euros in production and purchase, a significant volume of resources if one considers that the overall investment in the sector for 2009 was approximately 300 million euros. RAI Cinema’s efforts in the film sector during the course of these ten years has led to the production of over 250 films with the deployment of resources for approximately 400 million euros. It has collaborated with 200 companies operating in the sector and with close to 300 directors (including shorts and documentaries).

4.3.4 Public investment in favour of national TV drama production and regional funds for the audiovisual sector In order to complete the picture of the public resources earmarked by RAI in favour of the audiovisual sector, one needs to highlight the strategic role played by the public service licensee in supporting national drama production on the basis of the previously mentioned investment obligations in European programs established at European Community and national level. The annual Budget allocated to this sector in 2010 dropped to 190.4 million euros and has been decreasing constantly since 2008. The resources are distributed among fifteen or so independent production companies183, from which RAI commissions works of various kinds divided into three different formats, from TV movies (single episode) to series usually aired during television prime time on RAI Uno, to extended daytime series (soap operas). The cost of each drama production can vary in average between 4 million for a 2-part miniseries (the most widespread format in the 2010 production plan, with 15 approved productions) to the 8 million for a 6-part series and up to 14.5 million for a long 13-part series. 181 The introduction of the tax credit, as a first immediate effect and with economic conditions equal, entails an automatic reduction of tax revenue which is estimated by the Ministry to amount to approximately 77 million euros, considering the effects of the internal and external tax credit which would effectively cut the current tax revenue for the sector which stands at around 290 million euros (with only indirect taxation being taken into consideration). See Agevolazioni fiscali per il cinema (Tax relief for the cinema), I Quaderni dell’Anica, December 2008. 182 RAI Cinema, first set up in 2000 as a spinoff of the ex RAI Division “Drama Purchase, Film Production and Products Sales”. 183 According to community and National regulations an independent production company is an audiovisual production company that is not controlled by a majority or binding interest possessed by a television broadcaster, both in terms of shareholding or in commercial terms. A majority or binding interest is seen to exist when more than 25% of the company’s shareholding belongs to a single television station (50% when more broadcasters are involved) or when, for a period of three years, over 90% of the company’s turnover is produced with the same television broadcaster.

268

Public investment in the cultural and telecommunications industry


Fig. 14: RAI investment in National TV drama production, 2006-2010 300 250

270

282

275

250

190

200 150 100 50 0 2006

2007

2008

2009

2010

Source: IEM elaboration of data from the RAI TV drama production plan. Figures in millions of euros.

A form of regional public support for film and the audiovisual media was present, in a rudimentary and fairly unstructured form, even before the administrative decentralization process which took place in Italy between the second half of the Nineties and the early years of the 21st Century, particularly in the form of support for promotion, through the funding of local film and audiovisual festivals. It was however with the devolution reform introduced to Chapter V of the Constitution (2001) that the overall legislative authority on entertainment was entrusted to the Regions, leaving central government with the regulatory role. The process followed in the wake of a growth of interest by Regions for film and audiovisual media and their economic and marketing impact on the territory, which has led to the setting up of the Film Commissions, public agencies (occasionally private or joint public-private) designed to attract audiovisual production activities towards certain territories, facilitate administrative matters and often act as intermediaries between demand and offer for all professional roles/workers involved in the production chain. The blossoming of the Film Commissions was followed by a move towards further rationalisation and consolidation, which has led to a collaborative relationship between different local administrative levels and the merging of certain regional and municipal Film Commissions in the regional capitals. The next stage after 2001, therefore, saw many Regions set up Film Funds, designed to back production and generally bound to territorial investment clauses (meaning the production company is required to spend part of its budget on the Financing Institution’s territory). These funds are often managed by the Film Commissions themselves, which use them as a tool to expedite their mission, or directly by the Region through a specifically appointed department. The first fund to be set up, by the Friuli Venezia Giulia Region, dates back to 2003 through a donation of 900,000 euros for a three year period (which has grown in time), followed by the Salento Film Fund (now assimilated by the Apulia Film Fund) and by the cinematoFig.ic fund of the Region of Sardinia184. An initial quantification of regional resources available for audiovisual production was carried out by the Fondazione Ente dello Spettacolo185 (Entertainment Institute Foundation). In 2009 the resources managed by the regional Film Funds totalled 15 million euros, a threefold increase compared to the 4.9 million of 2007. These funds have almost compensated for the drop in 184 See Alberto Versace, Lorenzo Canova, Tommaso M. Fabbri, Francesca Medolago Albani ,“L’evoluzione del sostegno pubblico all’audiovisivo” (The evolution of public funding in the audiovisual sector), edited by, in L’industria della comunicazione in Italia, XI IEM Report, Guerini & Associati, Milan 2008, also for a historical account of regional financing for audiovisual production, both at Italian and European level. 185 Ente dello Spettacolo Foundation Il mercato e l’industria del cinema in Italia. Rapporto 2009 (The market and the film industry in Italy. 2009 Report).

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FUS financing for film production (without, however, taking into consideration extra-FUS funds) and are paid out, for the most part, by the Film Commissions, through a considerable share of these sums (6.4 million, over 40%) is still managed directly by the Regions. Table 1: Regional funds for audiovisual production, 2009 Fund

M€ 2009

Film Commission funds

8,57

Sicilian Region F.C.

3,00

Friuli Venezia Giulia F.C.

2,09

Campania Region F.C.

1,80

Apulia F.C.

0,70

Piedmont Doc Film Fund (F.C. + Region)

0,50

Bologna F.C.

0,24

Emilia Romagna F.C.

0,14

Marche F.C.

0,10

Regional funds

6,44

Tuscany Region

4,50

Lazio Region (via FILAS)

1,29

Sardinia Region

0,65

Regional Fund Total

15,01

Source: Ente dello Spettacolo. Note: figures in millions of euros.

A more recent quantification of the resources invested at the regional level in the entire film production process (development, production and distribution) was carried out by the entertainment industry association ANICA, in the context of a research project promoted by the Italian Film Board at the Ministry of Culture186. On the basis of the first estimates that have transpired from the research, the total made available from 2003 to 2010 amounts to 116 million euro. In 4 years (2006-2009) the resources absorbed by the audiovisual sector have almost increased five times. In 2009 the budget stood at 29.6 million euro (including the resources from the Framework Program Agreement “Sensi Contemporanei”187 (Contemporary Senses), of which at least 40% was awarded to cinema.

4.3.5 Extra FUS funds Beginning in 2004 the entertainment sector began to benefit from “extra FUS” State funds, which supplemented ordinary allocations, thanks to the institution of the ARCUS company (entirely backed by public finance) and the dispositions that guaranteed a share of Lottery revenue to the cultural activity and heritage sector, as well as the pre-tax charitable donation refunds (“8 per mille” and “5 per mille” system)188. By 2008, these resources topped the 32 million euro mark, a considerable sum equal to 7% of the overall allocation for that year in favour of entertainment activities between ordinary and 186 ANICA research projects, “Mapping the regional film support tools”. A first presentation, entitled “Evolution of regional funding for film and audiovisual production: constraints and opportunities”, took place at the Venice Film Festival on 8 September 2010. 187 The Contemporary Senses projects “The development of the audiovisual industry in the South of Italy” was first started in 2005 by the Department of Development and Economic Cohesion (MISE) of the Italian Film Board (Min. of Culture) as an innovative policy tool to experiment with different forms of audiovisual expression as a way of promoting the territory. The projects benefited from national and regional FAS resources and were produced through Framework Program Agreements (APQ) between the State and the Regions. The Regions involved so far have been Puglia, Sicily and Basilicata. 188 Over the course of the years, albeit sporadically, the sector has also benefited from funds from the film and theatre credit fund of the Banca Nazionale del Lavoro (now managed by Artigiancassa) as well as additional resources from either Finance Acts, purpose specific bylaws and even from other ministry departments.

270

Public investment in the cultural and telecommunications industry


special funds (471 million euros)189. In 2009 the resources, entirely originating from the revenue of the midweek lottery draws, amounted to 15.3 million, which were allocated essentially to the Petruzzelli Lyric Theatre in Bari, the Cinecittà Holding and ETI (Italian Theatre Institute). The trend for these funds during the course of the last years has been very irregular, mirroring the un-systemic nature of the measures implemented. Fig. 15: Extra FUS contributions, 2005-2009 35,0

32,2

29,7

30,0 25,0

25,2

23,3

20,0

15,3

15,0 10,0 5,0 0,0 2005

2006

2007

2008

2009

Source: IEM elaboration of Entertainment Observatory and Min. of Culture data. Figures in millions of euros.

If on the one hand these additional funds have helped to remedy certain very critical situations connected to the impossibility of accessing constantly dwindling ordinary funds, on the other it has made the appraisal of public funding even more complex, particularly with regard to the funding of institutions of national interest operating in the entertainment sector190, the main beneficiaries of these kinds of funding. A share of the extra FUS funds also flow in through the special projects organised directly by the Public Administration191 or through the emergency measures that have followed one upon the other in recent years to stem the chronic financial disarray of the Operatic and Symphonic Foundations192 or to remedy the long-term delays in the granting of box office subsidies to film producers. Table 2: Allocation trend for extra FUS funds by sector and number of projects (2005-2008) 2005 Sector

Sub-sector

Operatic-Symphonic Foundations Music

2007

2008

2009

sum

n.

sum

n.

sum

n.

sum

n.

1

4.380

1

3.000

1

4.000

14

20.000

1

6.000

1

621

1

4.621

20.000

1

6.000

Institutions

1

654

Promotional Institutions

4

2.291

5

7.325

Special projects sub-total music

2006

n.

1

300

1

3.300

189 It should be highlighted here that of the 32.2 million paid out as many as 20 were assigned with varying sums to the 14 Operatic-Symphonic Foundations. 190 The reference here is to institutions such as the Ente Teatrale Italiano (Italian Theatre Institute) – ETI; the Accademia Nazionale di Arte Drammatica “Silvio D’Amico” (“Silvio D’Amico” National Theatre Academy); the Venice Biennale Foundation; the National Institute of Ancient Drama Foundation – INDA; the National Dance Academy, The National Opera Dance Academy Foundation; Cinecittà-Luce; the Fondazione Centro Sperimentale di Cinematografia-National Film School. 191 According to the regulations in force for the various arts (dramatic theatre, film, music etc.), subsidies can be granted to exploitation and promotional initiatives or even initiatives focusing on particular celebrations or events, even when they are arranged directly by the Administration, providing they take place exclusively during the year for which the request is presented. 192 On 19 April 2010 the Council of Ministers approved a decree which, according to the Ministry for Culture, should lead to a more efficient management of the Operatic Foundations, rationalising their expenditure and favouring productivity and qualitative improvement of their productions. The text provides for different degrees of independence beginning with the Scala in Milan and the Santa Cecilia Academy in Rome and tighter rules on employee turnover and recruitment. We should point out that in the last years the Ministry has been forced to put 5 Foundations under compulsory administration.

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Dance

Institutions

2

281

1

sub-total dance

2

281

Theatre

Institutions

3

11.415

4

5.416

Special projects

2

240

3

424

5

11.655

sub-total theatre Box office subsidies Institutions Cinema

2

10.400

7

5.840

18

7.058

1

7.000

Abroad Production

1

sub-total cinema

1

62

3

10.462

20

1

77

2

11.302

1

5.000

2

11.302

1

5.000

2

8.ooo

11.000

1

3.000

1

80

2

1.150

5

9.230

11.000

1

3.000

14.188

1.223

Institutional requirements for film and sdv Total

2

130

Special projects Promotion

77

16 29.723 29 23.328 10 25.230 16 32.223

1.287 15.287

Source: IEM elaboration of Entertainment Observatory data, Min. of Culture.

This analysis indicates a very remarkable element of discontinuity of the choices made by the competent authority regarding the entity and nature of the projects to be supported, which appear to be outside the original systemic vision one can trace in the setting up of the FUS. The policy guidelines behind the measures - as the Ministry itself has admitted – seem dictated more by the situation at the time and a basic need for immediate cash rather than any kind of broader strategic intent. What’s more, in 2008, one notices a greater concentration of resources in favour of certain institutions (Operatic Foundations and Cinecittà) compared with the previous years. Over the course of the years, the practice of supporting institutions of national importance with non-ordinary resources has made the functional and economic picture even more unstable and uncertain, starting with those very subjects which “should embody the essential structure at the service of the entire entertainment system, and which instead, when they are led outside the natural funding channels, risk finding themselves in a very complicated condition of instability”193.

4.3.6 ARCUS resources for culture and entertainment The ARCUS company “Società per lo sviluppo dell’arte, della cultura e dello spettacolo” (Company for the development of art, culture and entertainment), was set up in 2003194 but only became operational on 16 February 2004. It aims to promote and provide financial, technical, economic and organisational backing for projects and other investment initiatives, and to restore and recover the country’s cultural heritage as well as other actions in favour of cultural activities and entertainment, in line with the constitutionally assigned functions of the Regions and the local authorities. The company capital is entirely underwritten by the Ministry of the Economy, while the company operation is based on its policy programs, which are dependent on the annual decrees adopted by the Ministry of Culture in collaboration with the Infrastructure Minister. ARCUS’ regulatory structure originates from the Budget of 2003195, which included the allocation of 3% of infrastructural funding to actions in the field of culture and national heritage, on the basis of criteria and methods to be included in specific regulations to be issued by the 193 See FUS usage report, year 2008. 194 Pursuant to Article 2 of the Law N. 291 of 16 October 2003. Instructions in matters relating to cultural goods and activities, sport, universities and research and the setting up of Companies for the development of art, culture and entertainment – ARCUS S.p.a. 195 Law N. 289/2002 Chapter V “investment funding” and Art. 60 “development investment funding”.

272

Public investment in the cultural and telecommunications industry


Culture Ministry, in conjunction with the Ministry for Infrastructure and Transportation196. With these regulations, the legislator had introduced a different and novel approach to cultural funds, qualifying them expressly as investments, emphasising their virtuous connection with the territorial infrastructures and exploiting their use as a positive economic and social development factor. In order to implement this regulatory framework and as an alternative to direct ministerial action, steps were taken to set an independent company which, by applying cost effective management and best organisational practices, could ensure the most efficient and effective pursuit of the generally accepted objectives indicated by the founding law. The Company’s main institutional mission is to act as a “facilitating” body by engaging in promotional and support activities for projects and investment initiatives designed to restore and salvage the nation’s cultural heritage and other actions in favour of cultural and entertainment activities. In order to perform these tasks, ARCUS is authorised to allocate resources for projects presented according to certain parameters and requirements while complying with precise expenditure limitations, defined in specific inter-ministerial regulations197. From its very inception, the company has encountered serious management and organisational difficulties due to the lack of precise policy instructions from the competent Ministries (the Ministry for Culture and the Ministry for Infrastructure and Transportation) and especially due to the absence of the aforementioned implementation regulations, which were meant to provide the allocation criteria and methods in spite of the reiterated warnings issued by the Court of Auditors which on several occasions pointed out the company’s lack of clear direction198. Only towards the end of 2008, four years after its constitutions, was an inter-ministerial decree199 finally issued by the Ministries of Culture and Infrastructure, introducing the longawaited Regulations, which was followed on 13 January 2009 by an inter-ministerial policy act, which provided the guidelines for the action program. From the very beginning, the actions taken by the company have been governed by temporary emergency instructions that have remained operational for a long time, with negative repercussions on the institution’s implementation methods and management, which were always marked by an extremely discretionary project selection process and a growing allocation fragmentation. These factors “have essentially reduced the Company’s actions into becoming a mere promoter of self-determined initiatives, which have often ended up being replacing or supplementing the ordinary ones pertaining to the Ministry of Culture”200. 196 Subsequent decrees, extended until the end of 2007, have assigned ARCUS a supplementary share of 2% of the allocations prescribed under Law 443/2001 (so called Legge Obiettivo – Legislation on Strategic Infrastructures). 197 ARCUS operates as a management and fund raising tool for financial means calculated on a share of the state allocations for infrastructural works; the acquired resources are necessarily, given their origin, in the form of investments, seeing as the sums are obtained through 15-year loans contracted with the Cassa Depositi e Prestiti (a kind of public loan institution) and accounted for as capital in the State’s accounting system. 198 The extended delays in the adoption of the regulations and the consequent defaults have effectively “prevented any verification of the actual capacity of ARCUS to fulfill the originally assigned mission and the important innovative role it was supposed to embody for the promotion and development of significant actions, as conceived by the legislator and the main motivation behind the institution’s original founding”. See Court of Auditor’s report on ARCUS, year 2007. 199 The Decree N. 182 of 24 September 2008 “Organisation of the criteria and methods for the use and allocation of a percentage share of infrastructure funding to be earmarked for actions conceived for the protection and promotion of the cultural heritage and cultural activities.” published in the Official Gazette N. 270 of the 18/11/2008, and became effective on 3 December 2008. 200 According to the Court of Auditors, a characteristic trait of the resource provision mechanism should be that the main part of the company’s action be charged to State debt, seeing as it is the State’s accounts which are responsible for returning the sums loaned over a fifteen-year period. This system, although it “facilitates the retrieval of immediate funds, can only be justified if it translates into a faster and more economically viable selection and promotion of suitable measures, which must however involve investments which can clearly be labeled as innovative and therefore objectively different from those promoted by the public administrations operating in the sector”.

Public investment in the cultural and telecommunications industry

273


Further failings by the responsible Ministries concern the appointment of the Company’s regular governing bodies, which have operated with a complete complement of appointments only during the first year of their institution. As of November 2006, as it turns out, a prolonged period of special administration (which included two periods of compulsory administration) set in, with extremely negative repercussions on the company’s effectiveness201. As repeatedly denounced by the Court of Auditors, the temporary regulations left the Ministries involved plenty of discretionary room for manoeuvre, gradually restricting the role of the company into that of a mere tool and executive arm for self-determined decisions in the absence of any form of thorough integrated programming202. In spite of the findings of a special Committee appointed by the watchdog Ministry in August of 2006, which broadly concurred with the critical observations of the Court of Auditors and suggested a more suitable legal form for the company, nothing has essentially changed in terms of ministerial attitude or regulatory implementation. The main issue at stake here is the limited impact that the investments have produced in the territories where the projects have been carried out: in practical terms the funds allocated have not acted in any way as a driving force and multiplier of further resources, nor have they generated any direct or indirect social and economic benefits for the country. The Court of Auditors has gone as far as to suggest that the company be closed, a decision that cannot be avoided if the actions implemented by ARCUS should continue along the same lines where they are nothing more than replacements or supplements of the actions funded by the Ministry of Culture. As has already been mentioned, in February of 2009, following the publication of the implementation regulation, the competent Ministries have presented ARCUS with new policy directives in which the program of actions is divided into three different areas: •

promoting the support and requalification of State, non-State and religious cultural heritage through actions related to the impact of the existing infrastructures on the context of reference;

guarantee refurbishing and protective actions for the landscape aimed at safeguarding and preserving the specific and particular features of the landscape;

promoting other actions in favour of cultural and entertainment activities.

As far as this last area is concerned – which is the object of this Report – the act identifies two specific objectives: the updating and exploitation of the theatrical, musical and cinematic infrastructures and activities; the promotion of investments in major shows, events and high profile meetings that might act as a driving force for tourism and for the economic, social and cultural development of the Italian territory. These actions could also take place abroad. Before outlining the program of investments envisaged for the three year period 2010-2012, it’s worth while providing an illustration of the funding so far paid out by ARCUS, stating from the outset that this is a complex operation due to the procedural mechanisms connected to the loans entered into with the Cassa Depositi e Prestiti (a joint-stock company owned by the Italian State and Bank Foundations which provides “specific-purpose” loans for public See Court of Auditors report on ARCUS, year 2007. Up to 18/06/2008 the management as for the previous year, had been entrusted to a monocratic body 201 represented by the Special Commissioner Arnaldo Sciarelli, who had taken over on 01/04/2007 from the previous Commissioner Guido Improta. From 19/06/2008 to 16/10/2008 the management was assigned by Ministerial Decree to a new monocratic body represented by the Special Commissioner Salvatore Italia. From 18/11/2008 a new Board of Directors was appointed, once again by Ministerial Decree, chaired by Salvatore Italia. On 18/12/2008 the Board of Directors took office, thus ratifying the Company’s return to ordinary administration. 202 The critical comments made by the Court of Auditors included reference to the fact that the annual programs and the connected three-year agreements had essentially been reduced to “a mere listing of individual events, growing in numbers and fragmentation, often approved too far in advance or too late, concerning projects that for the most part had already taken place and often devoid of any significantly innovative nature, in contrast with the policy directives to which reference was made in the actual decisions issued”.

274

Public investment in the cultural and telecommunications industry


investments), but particularly owing to the reallocation of funds during work in progress for projects that were never completed. As can be inferred from the summary table of the figures allocated and invested by ARCUS year by year, the data shows a strong growth in annual allocation from 2004 (first year of operation) to 2006, moving from 57 million to 80 million euros. The decision-making activity is totally defined for the years 2004 and 2005, and even takes advantage of a few reallocated sums of modest dimensions. The phenomenon however grows in magnitude in 2006, when it concerns almost half the budgeted allocations, for which reason only a minor amount is left to be allocated. The figures for the years 2007 and 2008 are the result of further reallocations, which provide a clear indication of a lack of ministerial programming, due to difficulties and delays in procedures connected to the allocations assigned to the decentralised bodies by the Ministry of Infrastructure and by the same Ministry of Culture. Table 3: Funding trends for ARCUS (2004-2008)

Year

Sum identified in the action program

2008

7.918.794 (**)

2007

48.435.144 (*)

2006

80.161.000

2005

60.317.000

2004

57.370.000

Totale

254.201.938

Loan sum granted by the Cassa DD.PP (net of Arcus investment expenses, interestonly payments and extra revenue on the 2005 loan)

Reallocation of sums related to projects not successfully completed or definanced pursuant to DL 16/03/2007

-

Reallocation of sums related to projects not Allocated successfully sums completed or definanced pursuant to DL 24/09/2008

Sums still to be allocated

-

-

-

7.918.794

-

-

3.415.000

43.320.000

1.040.144

78.650.000

38.210.000

1.220.000

39.220.000

0

58.300.000

5.000.000

300.000

53.000.000

0

55.560.000

2.650.000

2.189.100

50.720.000

0

-

-

-

186.260.000

-

Note: (*) The sum is equal to the sum of the reallocations relative to the previsions of the D.I. 16/03/2007, to which one has to add the extra income relative to the loan for the year 2005, amounting to €2,575,144. (**)The sum is equal to the sum of the reallocations relative to the previsions of the D.I. 24/09/2008 (as shown in the table, to which is added: €17,183 expected residual interest only payments pursuant to P.I. 2004; b) €17,000 expected residual interest only payments pursuant to P.I. 2005; c) €11,000 expected residual interest only payments pursuant to P.I. 2006; d) €749,511 for extra income relative to the loan for the year 2006. Source: IEM elaboration of ARCUS and Court of Auditors data.

Fig. 16: ARCUS allocations and payments (2004-2008) 90

Allocations

80,2

80

Disbursements

70 60

60,3

57,4 50,7

53,0 48,4

50

44,4

39,2

40 30

Million

20 7,9

10

0,0

0 2004

2005

2006

2007

2008

Source: IEM elaboration of Arcus and Court of Auditors data.

Public investment in the cultural and telecommunications industry

275


In the five years taken into consideration 73.2% of resources made available in the action program have been actually allocated, amounting to a little more than 186 million euros, with an annual average of 37.2 million euros203. For the first 4 years of activity (2004-2007) one can retrace the distribution of the resources within the individual sectors. Over half the amounts have been assigned to Heritage funding (53.6%) while 43.3% (approximately 20 million euros) have been used to finance culture and the entertainment sector. It is worthwhile pointing out how the two areas show an almost mirror tendency, with a strong growth in heritage projects during the 2006-2007 period to the detriment of investments in culture and entertainment. The actions for the protection of the landscape appear to be residual. At the end of 2009, a Decree of the Ministry of Culture in collaboration with the Infrastructure Ministry204 allocated 200 million euros to the new actions (208 projects) managed by ARCUS for the 2010-2012 three-year period. Fig. 17: ARCUS resource distribution by investment sector (2004-2007) Heritage

Culture and entertainment

Other

Landscape

35,0 30,0

29,6 28,4

28,1

25,0 21,9

18,4

20,0 17,4

18,1

15,0

14,5

10,0 5,0

3,1

1,7 1,0

0,0 2004

2005

0,2

2006

2007

Source: IEM elaboration of ARCUS and Sole 24 Ore data.

The budget includes 3 million euros for instrumental investment expenses and operating costs. The program will be implemented according to the following guidelines: •

increasing the value and public awareness of the National cultural heritage;

enhancing the added-value produced by closer links with the cultural industry and the productive and financial sectors located in the area;

ARCUS, within the context of the plan, must undertake a support and coordination role for the performance of certain strategic programs such as: - experimental management and exploitation plan of the Archaeological Parks, - a promotional program to exploit cultural heritage, - the development of cultural basins, - co-partnership projects with other public or private entities (such as Regions and Bank Foundations) in order to finance particularly costly and ambitious projects;

exploitation and expansion of the new company Cinecittà-Luce SpA.

On the basis of the provisions of the 2008 Regulations (Min. Decree 182/2008), the resources will 203 The figures for the payments made in 2008 have not yet been made public. 204 Ministerial Decree of 1 December 2009 containing the Program for actions concerning the protection of cultural heritage and activities and live entertainment for the years 2010, 2011, 2012, to be funded with resources identified pursuant to Art. 60 paraFig. 4 of the Law N. 289 of 27 December 2002. Official Gazette of the EU, 11 February 2010.

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Public investment in the cultural and telecommunications industry


be sub-divided among three macro-areas according to the following amounts and percentages: •

100.3 million equal to 50% of resources will be used to fund 119 support and requalification actions on the cultural heritage:

59.6 million equal to 30% of available resources for the recovery and protection of the landscape;

40 million equal to 20% of available resources for cultural and entertainment projects. Fig. 18: Fund allocation 2010-2012 by activity sector 140

100

Allocations

119,0

120

Projects

100,3

80 59,6

60

56,0 40,0

40

33,0

20 0 Cultural heritage

Landscape

Culture and entertainment

Source: IEM elaboration of Min. of Culture data. Cultural heritage; Landscape; Culture and entertainment

Fig. 19: ARCUS fund allocation 2004-2007

Culture and entertainm ent 20%

Other 3%

Culture and entertainm ent 43%

Fig. 20: ARCUS fund allocation 2010-2012

Heritage 54%

Landscape 30%

Cultural heritage 50%

Landscape 0%

Source: IEM elaboration of Min. of Culture data.

Compared with the allocations for the previous years, this new programming plan pays more attention to the landscape, reducing the funds for actions in support of the entertainment sector, which drop from 43% in the previous period to 20% in this one. The investment plan envisages that the 40 million for the support of culture and entertainment be all made available in 2010 and distributed among 33 projects, which would seem to indicate that this is, to some extent, emergency funding. Most of these resources, in fact, amounting to 54% (21.6 million euros), will be entirely assimilated by 7 promotional measures managed by institutions of national importance (including the funding of ARCUS’ expenses) and as such cannot be distributed on a regional basis. Among the most substantial actions the one that stands out the most concerns the subsidy for the enhancement and strategic revival of Cinecittà Luce, which alone will account for approximately 16 million euros: this support meets a specific aim of the Ministry for Culture, which in its position as sole shareholder, has explicitly called for supplementary funds to be provided for film promotion activities both in Italy and abroad and technical/financial support

Public investment in the cultural and telecommunications industry

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from ARCUS205. Still within the context of the film sector, the new ARCUS funds will also be used to finance the “Quality Screen” project promoted by industry association AGIS, with 3.5 million euros in favour of a cinema circuit that schedules Italian and European art films. On the theatrical promotion front, by the same token, ARCUS will fund a few national and international projects of the Ente Teatrale Italiano, for a sum of 1.3 million. Fig. 21: ARCUS fund allocation for culture and entertainment, 2010 Sud+Isole 5%

Interventi regionali 46%

Enti e attività nazionali 54%

Centro 43%

Nord 52%

Source: IEM elaboration of Min. of Culture data.

The remaining 18.4 million, which amounts to 46% of the resources allocated for culture and entertainment, are divided as follows: 51.7% to the North, 42.9% to Central Italy and only 5.4% to the South of Italy and the Islands for a total of 26 projects. If one excludes the resources allocated to actions in favour of institutions and projects of national relevance, the detail of the allocation of the remaining funds for the individual Regions shows a greater attention paid to the geoFig.ic areas of the North and Centre, which respectively account for 52% and 42% of the sums, leaving only 5% to the South and the Islands. Fig. 22: Regional allocation of ACRUS funds for culture and entertainment, 2010-2012 25 21,59

20 15 10

0,60

0,59

0,40

0,30

0,29

0,12

Umbria

Veneto

Marche

1,50

Puglia

2,00

Piedmont

2,75

Sicily

3,90

Tuscany

Lombardy

Liguria

Emilia Romagna

Lazio

0 National interv.

Thousands

6,00

5

Source: IEM elaboration of Min. of Culture data.

Among the 11 regions that receive contributions, Lazio tops the list with 6 million euros of contributions, followed by Emilia Romagna with 3.9 million and Liguria with 2.7206. The sums 205 More specifically the Ministry has meant to “ensure that the merger lead to the best possible integration between the two structures in order to exploit the prerogatives, the continuity of action, even with the aim of guaranteeing the broadest distribution of Italian cinema, taking advantage as far as possible of the technical and financial assistance of ARCUS, on the basis of its statutory regulations and with a view to setting up collaborative strategic and operational actions aimed at enhancing the cultural offer of both companies”. See Min. of Culture Policy Act for Cinecittà Luce Spa, 3 April 2009. 206 Below are listed a few examples of the 26 entertainment projects backed by ARCUS in 2010: Ravenna Festival (1.5 million euros; Verdi Festival (1.8 million euros); Festival Pucciniano (1.4 million euros); Accademia Nazionale Silvio D’Amico (500 thousand euros); Reate Festival di Belcanto (Flavio Vespasiano Foundation, 1.5 mil-

278

Public investment in the cultural and telecommunications industry


allocated to the individual projects show a very broad deviation, which varies from 1.5 million to 40,000 euros for minor initiatives. The analysis of the ARCUS financial statements for the years 2004 – 2008 carried out by the supervising authorities confirms a role that does not go beyond the “advance preliminary judicial/bureaucratic verification activities, allocation of the funds listed in the joint ministerial decrees and project monitoring”. And it has to be noted that the initiatives undertaken within the entertainment sector tend to be completed at very short notice – which essentially indicates that what we are looking at here are mere financial contributions, particularly for those projects that have already taken place before the funding is received, in contrast with the nature of the investment of resources based on loans, both in terms of origin and destination – and a very minimal share of co-funding paid out by other subjects, with funds which were in any case already earmarked at the time of project presentation, but had not been verified in their reality. The stabilisation of the administrative organs after the long period of special compulsory management and the consolidation of the regulatory set up with the new rules, along with the renewed political intent (as proven by the policy guidelines provided in January 2009 and the operational program for the three year period 2010-2012) should bolster the role played by ARCUS and enable a revival of the company’s mission. The main critical areas that need to be addressed concern the preliminary vetting and allocation procedures, which still do not guarantee sufficient transparency and impartiality and the programming of the activities, which requires a greater integration between the various levels of government (State and local) and a more active support from the main public and private players operating in the sector. A greater effort is required if ARCUS is to be exploited as a development organisation and a catalyst for resources, capable of providing innovative forms of backing for ambitious projects that can rightfully hope to have a significant impact on the cultural sector and have strong links with the local infrastructures, factors which, on the contrary, are not to be found in the “minor” initiatives, particularly within the scope of this research, which is limited to the entertainment sector. The company should therefore concentrate its attention primarily on those initiatives that depend on the ability to bring different territorial subjects and resources together, rewarding those institutions that are capable of combining efficient company processes with a high degree of innovation. The highly “purpose specific” contribution that this structure can provide must have a multiplier effect at the cultural, social and economic level, acting as a driving force for development in the sector. It is obvious that for these strategies to be implemented one must first develop a reliable set of performance indicators, which should enable the measurement of the impact of the actions (an element that is also missing within the ordinary funding system), which can thus add proof of the added value produced by the Company’s actions and thus justify its existence.

4.3.7 The Lottery resources for the entertainment sector An additional source of public funding for culture is represented by the revenue generated by the Lottery, introduced with the 1997 Budget207. The law, integrated and modified by further lion); Cultural and Communication policy department of the Rome Municipality (1 million euros); Carlo Felice in Genoa (2.3 million); Teatro dell’Archinvolto in Genoa (450 thousand euros); Mantua Chamber Orchestra (600 thousand euros); Summer Festival of the Cantiere Musicale of Santa Croce (40 thousand euros); Rodolfo Valentino Film and television Studios of the Abulia Theatre cultural Association (400 thousand euros); International Festival of the Noto Valley (400 thousand euros); Todi Art Festival (300 thousand euros); Celebration of the third centenary of the birth of Pergolesi (500 thousand euros); and the International Spirituality Festival “Divinamente 2010” (200 thousand euros). 207 Article 3, paraFig. 83 of Law N. 662 of 23 December 1996 “Rationalisation measures for public funding”. The law, which was conceived during the terms of the ministers Visco and Veltroni (who were respectively at Finance and Culture at the time), followed the lead of the cultural contributions made by the British National Lottery,

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legislation in 2001 and 2003, includes specific provisions for the attribution to the current Ministry of Culture of a quota of the tax revenue generated by the Lottery up to a maximum of 154.9 million euros (300 billion lire), earmarked for the recovery and preservation of cultural, archaeological, historical, artistic, archive and book heritage as well as landscape restoration operations, cultural activities and to fund the actual operation of the entertainment sector. The Ministry’s resource allocation mechanism prescribes that the tax revenue from the Lotteries be assigned at the beginning of each year, as an advance, calculated as 50% of the final allocation for the previous year (which usually means a six-monthly sum of 77.4 million euros)208. From 2004 to 2010, as we shall see, the actual allocation has led to reduced annual sums compared to the maximum legally prescribed threshold, due to measures revoking the sums not invested (failure to start the projects) and cuts connected to public finance requirements. The renewable and non-emergency nature of this kind of funding has enabled the Ministry of Culture to use these resources within an activity programming strategy for the conservation and exploitation of the country’s cultural heritage over a three-year period and therefore with a broader perspective compared to the limits imposed by the “conservative emergency” so typical of the FUS, using different reference parameters compared to those used for ordinary programming. The merit lies in the supplementary nature of these funds compared to ordinary resources which, as is well known, particularly with regard to the protection and exploitation of cultural heritage and activities, are grossly insufficient to manage the many emergencies found in the territory, but also because they make it possible to set up co-financing agreements with the various Regions and local authorities involved where (particularly in the South) Framework Programming Agreements or other European Community structural funding is already in place. The administration has attempted to select the actions that were most clearly significant both in terms of their financial size and the project’s close relationship with the specific territorial context, rewarding those actions that relied on forms of partnership and, where possible, cofinancing209. By 30 June each year the percentage of tax revenue generated by the Lottery, to be paid out by the licensee Lottomatica to the Ministry of Culture is established, which for 2010 amounted to roughly 3.8% of the amount paid over to the State. The programming for the three-year period 2004-2006 provided for an allocation of 66 million euros, which was halved after a year to just 35 million euros, owing to the previously mentioned public finance requirements. The reduced funding availability restricted the field of action to the protection of cultural heritage and led to the exclusion of the projects related to entertainment and cinema. For the following three-year period 2007-2009, the 2007 Budget210 prescribed a cut in funding allocation of 30.9 million euros, with a consequent adjustment to the financial availability for each year on a sum of 124 million euros. This endowment suffered a further curtailment owing to the need to allocate funds to the single investment fund, thus reducing the lottery fund resource availability that could be allocated for the 3 years to 356.4 million instead of the 465 million (maximum threshold) that had originally which earmarked 28% of its revenue to socially beneficial works and museums. 208 Art. 24 paraFig. 30 of the Law N. 449 of 27 December 1997, which included “Measures for the stabilisation of public finance”. In 1998 the initial allocation amounted to 150 billion lire. 209 A few important initiatives were backed with Lottery funding and have enabled the restoration of large complexes whose functional allocation will be managed directly by the institutes that are co-financing the actions. Without the Lottery for example, there would have been no restoration of the Scrovegni Chapel, the Vittoriano Palace Complex, and the Royal Palace in Genoa. See VI Annual Federculture Report, 2009. 210 Law N. 296 of 27 December 2006 – Budget 2007 “Dispositions for the formation of the annual and longterm state budget”.

280

Public investment in the cultural and telecommunications industry


been anticipated, to be equally distributed over the three years. These sums suffered a further modification during work in progress which, for the three-year period 2007-2009, led to actual funds being paid out worth 274 million approximately, for an average annual expenditure of 91 million euros. The very considerable endowment did in any case enable a considerable quota to be assigned to the entertainment and film sectors, amounting to 72.5 million euros, more than a quarter on average of the total sum paid out for the period in question (26.3%). It should be noted that in the modification action, the resources available to the abovementioned sectors increased quite considerably: live entertainment moved from 28.8 million to 49.8 million euros while film climbed from 14.7 to 22.7 million euros. In 2010, the overall resources have dropped to 60.8 million, of these 16.3%, amounting to 9.9 million, have been earmarked for live entertainment and cinema, which respectively will receive 3.5 million and 6.4 million euros. Starting in 2010, after 10 years of three-year programming, it has also been decided to plan the actions relative to this allocation on an annual basis in order to guarantee, as has been stated by Ministry of Culture, a greater stability for the fund and to avoid the problems connected with works already begun. Table 4: Lottery funds for entertainment sector and film (2007-2010) Live Entertainment Board

Activity/Institution

Theatre

Ente teatrale italiano

-

-

-

10.566.000

Institutional activities

Petruzzelli and Bari theatres

-

-

-

4.000.000

Institutional activities

Theatre

-

-

-

736.000

Institutional activities

Dance

-

-

-

77.000

Institutional activities

Music

-

-

-

621.000

Institutional activities

Sundry/Entertainment

-

-

-

600.000

Institutional activities

Music, Theatre, Dance

-

6.142.130

6.087.620

-

Institutional activities

Petruzzelli di Bari

-

6.000.000

-

-

Institutional activities

Operatic and Symphonic Foundations

-

-

15.000.000

-

Entertainment

Spoleto festival

Entertainment

Teatro festival Italia

Film management and exploitation

Integrated project

Sub-total L.E.

2010

2009

2008

2007

900.000

-

-

-

2.000.000

-

-

-

600.000

-

-

-

3.500.000

12.142.130

21.087.620

16.600.000

Cinema Board Institutional activities

CinecittĂ Holding

-

-

8.000.000

5.000.000

Institutional activities

Venice Biennale

-

-

-

3.000.000

Institutional activities

Film activities

-

-

-

400.000

Institutional activities

CinecittĂ Holding and Venice Biennale

-

3.164.130

3.136.040

-

Institutional activities

CinecittĂ Luce

5.800.000

-

-

-

Film management and exploitation

Integrated project

600.000

-

-

-

Sub-total Cinema

6.400.000

3.164.130

11.136.040

8.400.000

Entertainment and Cinema total

9.900.000

15.306.260

32.223.660

25.000.000

60.860.584

78.669.102

89.228.322

106.028.882

16,3

19,5

36,1

23,6

Culture total % Entertainment and Cinema Source: IEM elaboration of Min. of Culture data.

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281


In 4 years, from 2007 to 2010, the funds allocated to entertainment have dropped considerably, moving from the 25 million of 2007 to the 9.9 of 2010, recording a drop of approximately 60%. As can be seen from the Fig., most of the resources available in 2010 (62%), equal to 37.7 million euros, have not been used to support territory based action in the various sectors, but have instead been assigned to the Ministryâ&#x20AC;&#x2122;s General Directorship for Organisation and General Affairs as supplementary funds for personnel stabilisation contracts and to produce management and exploitation models211. Fig. 23: Lottery fund allocation for 2010 Spettacolo dal vivo 6% Regioni e prov autonome 5% Arti 7% AntichitĂ 5%

Archivi 2% Beni Librari 2%

Cinema 11%

Fig.24: Lottery fund allocation for 2007-2010 35

32,2

30 25

25,0

20 15,3

15

DG OAGIP 62%

9,9

10 5 0 2007

2008

2009

2010

Source: IEM elaboration of Min. of Culture â&#x20AC;&#x201C; DG OAGIP data.

4.3.8 The distribution of national public spending at regional level In this final part, we intend to provide a concise picture of the trends of national public financing for the entertainment sector (FUS and extra FUS) divided by individual regions, in order to assess the level of territorial distribution of the resources for the various sectors. The criteria identified for the localisation of the contributions takes into consideration the stated legal headquarters (or the residence, where physical persons are concerned) of the beneficiary of the subsidy: in certain cases, therefore, the data has the limitation of not being indicative of the activities actually carried out in the area to which we have assigned the contribution. This is certainly the case for travelling shows or touring theatre, dance and orchestral institutions which, by their very nature, operate in various parts of the country, even though they have their legal base in a specific region, or, once again, of contributions on box office returns which, with Rome being the city where many authors and producers chose to reside, tend to be pooled towards this particular area although the actual box office revenue was not necessarily generated in the city. To partially offset this misrepresentation and so as not to distort the overall picture, the data processed by the Entertainment Observatory does not take into account the subsidies paid out to institutions that operate throughout the national territory, nor to those operating abroad or to special projects212. The allocation by geoFig.ic micro-areas shows a gradual reduction of resources to the eight regions in the North. Where they accounted for 47% of the overall funds available in 2002, by 2008 this share had dropped by 4 points and levelled off at 43%. This margin differential had gone to the advantage of the Centre, whose share had increased by as much as 8%, rising from 32% to 37%. The most stable overall trend is the one posted by the eight Southern most regions (Islands included), which in 7 years have lost just 1 percentage point (from 21 to 20%).

211 General Directorship for Organization, General Affairs, innovation, budget and personnel. The stabilisation contracts have concerned what was previously referred to as the Socially Useful Work Force. 212 The analysis does not consider the subsidies paid out for indirect actions in favour of film production and cinemas as they are not economically comparable.

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Fig. 25: FUS and extra-FUS fund distribution by macro-area (2002-2008) North 2008

Centre

222.822.123

2007

191.492.733

198.793.761

2006

South and islands 106.327.547

165.069.891

182.314.657

86.321.647

162.242.166

80.881.490

2005

201.179.596

118.295.682

90.960.747

2004

208.132.824

122.323.038

94.055.004

2003

214.033.781

140.290.472

96.491.979

2002

211.295.276

139.815.086

91.483.984

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

IEM elaboration of Entertainment Observatory and Min. of Culture data.

If we take a closer look at each Region over the period under examination we note a generalised tendency towards stability, and in certain instances, a growth trend. The most striking figure is the one posted by the Lazio Region which, in recent years, has recorded an exponential growth, moving from the 80 million of 2005 to the approximately 145 million euros in 2008 (equal to 27.6% of the FUS fund for that year) thanks to the high level of beneficiaries located in the area. The second region in terms of funding importance is Lombardy, which, since 2006 has acquired additional resources for about 10 million euros, accounting for 11.3% of FUS resources in 2008, equal to approximately 80 million euros. Only one other region manages to top the 50 million contribution bracket, Veneto, with FUS “collections” more than 10% (partly due to the fact that it has two Operatic and Symphonic Foundations). Lazio, Lombardy and Veneto alone account for almost half of the 2008 FUS (49.2%). The remaining Regions are all below the 40 million mark. Among these we can identify a second group that top the 30-million mark comprised of Emilia Romagna, Campania, Tuscany and Sicily, which respectively account for 7.2%, 7.1%, 6.8% and 5.8% of the overall FUS funds for 2008. They are followed by a third group, which clear the 10-million euro mark comprising Piedmont, Liguria, Friuli, Sardinia and Puglia. In the lowest bracket, below 5 million euros, we find seven Regions (Abruzzo, Basilicata, Calabria, Molise, Trentino, Umbria and Valle d’Aosta) which, in 2008, were all below 1% of the overall available resources. To sum up, both the three-year resource programming prescribed by the “Mother Law” that instituted the FUS, which has to withstand the yearly constraints imposed by budget laws which have often modified the original allocations programmed the previous year, and the reduced dimensions of a fund with a negligible impact on public finance as a whole, would seem to call for a review of expenditure for the entertainment sector and its inclusion among capital account investments (and not current expenditure) in order to guarantee greater funding continuity over time for the operators and thus freeing these investments from economic trends. Moreover, the influx of greater extra-FUS resources, instead of performing a precious complementary role during the phases when there is a greater contraction of the ordinary resources has turned out to have a series of limitations connected with a tendency towards emergency programming, which is in no way consistent with the overall structure of the public funding system.

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Fig. 26: FUS and extra-FUS fund allocation by Region (2002-2008) 70 62,0

62,4 57,5

60

41,1

42,4

20

53,1 44,7

40,3

40

30

53,7 48,1

50

27,0

36,9 27,1

20,6

21,3

36,4

20,5

20,7

Lombardy

59,1

56,7

35,5 26,2

38,7

21,3

37,7 33,0

34,3 25,5 22,4

26,1

23,7

22,6 20,2

Emilia Romagna

40,9 32,2

23,8

23,2 19,9

21,2

17,6 17,6

19,0

Piedmont Liguria Friuli Venezia Giulia Trentino Alto Adige

10 Million

Veneto

3,3

3,5

3,5

3,4

3,2

3,4

3,6

2002

2003

2004

2005

2006

2007

2008

Valle d'Aosta

0

160 143,9

140 120,6

Lazio

119,2

120 100

90,1

90,0

Tuscany 73,7

80

72,0

60

Million

40 20 0

Marche 38,0

37,5

36,1

34,3

7,9

7,5

30,6

34,5

35,7

7,2

7,5

Umbria 7,6

7,6 4,7

2002

4,7

2003

4,6

2004

7,0 4,5

2005

2006

4,5

4,1

4,0

2007

2008

40 35

Campania

35,1

33,8

37,0 30,9

30

28,6 27,1

30,7

30,3

Sicily

30,3

29,5

28,8

Sardinia

28,1

25

27,6 25,5

Puglia

19,9

20 15

14,6

13,7

13,6

10

Million

5 0

4,3 1,8 1,2

2002

Abruzzo

13,2

12,1

Calabria

11,7

11,2

10,8

6,9

6,4

13,4

9,7

9,2 5,3

5,1

4,9

4,3

4,4

4,8

Basilicata

3,1 1,4

2,7 1,0

2,7 0,9

2,0 0,5

2,2 0,4

2,1 0,4

Molise

2003

2004

2005

2006

2007

2008

Source: IEM elaboration of Entertainment Observatory and Min. of Culture data.

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Public investment in the cultural and telecommunications industry


4,8

4,5

3,6

2,1

0,4

0,3

0,1

Umbria

Trentino Alto Adige

Calabria

Basilicata

Molise

Valle d'Aosta

7,5

Marche

Puglia

Sardinia

Friuli Venezia Giulia

Liguria

Piedmont

Sicily

Tuscany

Campania

Emilia Romagna

Veneto

Lombardy

Lazio

Million

150 143,9 140 130 120 110 100 90 80 70 59,1 60 53,1 50 37,7 37,0 35,7 40 30,3 26,1 23,2 30 19,9 19,9 20 11,7 10 0

Abruzzo

Fig. 27: FUS and EXTRA-FUS distribution by Region (2008)

Source: IEM elaboration of Entertainment Observatory and Min. of Culture data. Figures in millions of euros.

A final consideration on the relationship that ties the State to the Regions in matters of entertainment. Ten years down the road since the reform of Chapter V of the Constitution that has included entertainment among the issues subject to joint legislation (assigning the Central State with the task of providing the general guidelines and the Regions as the regulatory and administrative authority) and we are still awaiting an in-depth reform of the public funding system. Only by passing systematic legislation based on a loyal and collaborative approach can one hope to rationally assign the tasks, functions and resources to the various levels of government and thus overcome the centralised and inadequate FUS management, while correcting the conditions of heavy imbalance that are highlighted by the data on the distribution of national resources within the various regions213. A first important test bed has come around in April 2010 with the Legislative Decree of the Ministry of Culture reforming the Operatic and Symphonic Foundations which, as we have seen, account for more than 47.5% of FUS financing214. The decision aims to ensure an appropriate containment of staff costs, by tackling the system of collective bargaining through the appointment of a single, centralised employee trade representation, suspending the turnover mechanism and falling back on more flexible forms of employment. Bearing in mind the specific nature of the various subjects, further regulations will be entrusted with the task of complying with the following criteria: •

rationalisation of the organisation and operation on the basis of efficiency, correct management, cost and business effectiveness in order to facilitate contributions by public and private subjects in favour of the foundations;

drafting of the guidelines that must inform the decisions reached within the statutory independence of each foundation and concerning the composition of the foundation’s directive bodies, the management and supervision of all activities and operations and the participation of private funders, which must not however undermine the foundation’s

213 For a more complete discussion of this issue please refer to Andrea Morrone “Lo spettacolo dopo la riforma del Titolo V: idee per una legge generale,” (The entertainment sector after the 5th Chapter reform: ideas for a general law) In «Le Regioni», 1/2009. On 22 February 2010 the VII Cultural Commission of the Chamber of Deputies unanimously approved the code (framework code for entertainment sector) which, having overcome the hitch of financial backing, could become legislation within the year. 214 The legislative decree was approved as a necessary and emergency action by the Council of Ministers on 16 April 2010 and is currently being presented to Parliament for conversion into law.

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285


independence nor determine its cultural objectives; •

measures for the institution of efficient methods of supervision of the foundation’s economic and financial management;

stimulating improvements in management results through re-evaluation of the allocation criteria for State contribution;

systematic regulation of the collective bargaining system;

possible definition of special forms of organisation for Operatic-Symphonic Foundations owing to their specific nature, their undeniable international relevance, their exceptional production capacity, their considerable internal revenue or for the significant and continued financial support by private subjects.

The decision also contains measures designed to rationalise the entire State funding system for live entertainment organisations, redefining the selection criteria for the allocation of contributions to live entertainment organisms, bearing in mind the activities performed and accounted for, the quantitative level and cultural importance of the productions presented, the consistency of the management organisms, as well as the figures on audience attendance. The intention is to make the criteria for funding of musical, dance and theatre activities as well as circus and travelling shows even more selective and transparent. On 31 May 2010, in the context of the corrective austerity measures introduced to shore up the public deficit by 24 billion euros for the two-year period 2010-2011215, which had become essential following the worsening of the international economic crisis and the European Union’s request for decisive action in the curtailment of public spending to reduce the deficit/GNP ratio, the government decided to “de-finance” a series of cultural bodies and institutions including, by way of example, the Centro Sperimentale di Cinematografia-National Film School, the Rossini Foundation, the Festival dei Due Mondi in Spoleto, the Institute of Ancient Drama and the Arena in Verona and to abolish a few public institutions such as the Ente Teatrale Italiano. The list comprising 232 entities operating in various sectors of entertainment, culture and sciences which in 2009 had received 21.5 million euros overall, was subsequently removed from the Act. But the Ministry of Culture was assigned the task, within two months, of reducing its transfers by 50% (equal to 10.7 million), following a careful assessment of the value of the activities conducted by the individual subjects called into question.

4.4.

Public incentives for telecommunications infrastructures

4.4.1. Introduction At the present state of play, there are various types of development incentives aimed at creating telecommunications infrastructures with the goal of overcoming the digital divide through action on two fronts; in terms of both network distribution, through the implementation of fibre optic, copper and wireless technologies, and in the field of computer literacy, through policies that stimulate the use of e-government services in local administrations. Reducing the digital divide can produce varied and beneficial effects for all. First off, an increase in the level of social cohesion. The spread of the ‘Web’ actually guarantees cultural growth as flows of information, social norms and best practices are exchanged more easily and can also be accessed and involve participation by every citizen. At the same time, the spread of broadband allows the Public Administrations (PA) to provide e-government services at all levels, improving the range and efficiency of public services as they become more accessible to individuals and introducing obvious savings in management costs, as well as important 215 Legislative Decree “Emergency measures in matters of financial stabilisation and economic competitiveness” Official Gazette N. 125 of 31.5.2010.

286

Public investment in the cultural and telecommunications industry


elements of fairness and transparency. The spread of broadband obviously also brings immediate advantages to the private sector. Through the dissemination of new communication technologies, it is easier and cheaper for small and medium-sized businesses to access services previously available only to big businesses (e.g., the sale of products abroad), thereby improving their ability to compete. A symbolic example is provided by the banking sector where the advanced nature of modern data processing instruments has allowed for a new type of bank which, no longer based on the traditional physical presence in the territory such as the local branch, favours the increase of digital services (phone banking and home banking). This tendency can be extended to other sectors of the economy operating in distribution and services, such as electricity, transportation, insurance etc.. Intent on the goal of strengthening broadband and reducing the digital divide, public spending is flanked with appropriate policies of support and incentives for the telecommunications sector, which are also capable of encouraging private investment. The policies required in the telecommunications sector branch out into at least three directions: â&#x20AC;˘

Regulation policies, intending to stimulate competition and therefore bring new competitive entities into the market. These interventions should not only reduce the prices of services but also help to maintain a high level of efficiency and quality in the service;

â&#x20AC;˘

Cultural policies, aimed at reducing computer illiteracy in the population to a minimum and thereby increasing the request for advanced information services;

â&#x20AC;˘

Infrastructure policies, to reduce the physical isolation of the population without access to broadband connections.

The infrastructure policies are particularly essential to eliminating the digital divide in Italy: the territory comprises both mountainous ranges and under-populated areas, which make certain zones unattractive prospects for private operators, who tend to concentrate their investments in metropolitan areas where a higher density of population and advanced services provide higher economic returns. This outlines a classic case of market failure, a context where the role of public investment is essential to providing access to services in the areas of little interest to private investors or by creating incentives for private entities so that telecommunications services can be properly established across the whole country. Support policies for the telecommunications sector, ushered in with the start of the new millennium, have been advanced through different levels of intervention including: the simplification of procedures for setting up electronic communication networks and infrastructures; the establishment of specialised bodies such as the Interministerial Committee for the Diffusion of Broadband, the Broadband Observatory and Infratel; and, on the financial front, the creation of infrastructures (directly or through regional co-financing following a public tender)channelled through Infratel; the approval of agreement protocols between the Communications Ministry, Infratel and the larger telecommunications operators (Telecom Italia and Fastweb); and other forms of regional and European Union funding216 and agreements between Regions and operators. Given the considerable complexity of the subject matter, this Report will look specifically at the policies related to the creation of broadband infrastructures. Relative to the analysis of the incentives in the ICT sector and services such as e-health and e-government, the Institute 216 European Union resources, EAFRD and ERDF, should be noted. The European Agricultural Fund for Rural Development (EAFRD), introduced with the reform of EU Agricultural policy (CAP) in June 2003 and April 2004, is a single funding and programming instrument established by EC Regulation N. 1290/2005 to support rural development policies in the Union and to make their implementation simpler. The European Regional Development Fund (ERDF) was established by EC Regulation N. 1783/1999 by the European Parliament on 12 July 1999. This regulation outlines the ERDF targets, in the context of Objectives 1 and 2, of Union support of transnational, crossborder and interregional cooperation (Inter-reg. III), of the economic and social renovation of the cities and areas in crisis (Urban II) and technical innovation and assistance, as outlined in the general regulations.

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of Media Economics-Rosselli Foundation has established a specialist Observatory to monitor policy actions and investments in these initiatives at central and, particularly, at individual regional administrative levels. The results of this monitoring will be published during 2011.

4.4.2. The main institutions promoting the spread of broadband There are many bodies involved in the process of public funding for telecommunications infrastructures in Italy, many which have been created especially for the operational management of these investments. The most important is Infratel Italia, a company created to set up broadband telecommunications networks and reduce the digital divide in underdeveloped areas of the country, to meet the service needs of the public administrations and support development of industrial areas. Infratel Italia was set up in 1999217 by the Ministry of Communications (now a part of the Ministry of Economic Development) and Sviluppo Italia as a special purpose company with the aim of attracting business investment and development (99% reports to Sviluppo Italia and 1% to Sviluppo Lazio). It has been operational since June 2004. In 2005, Infratel was charged with implementing the Broadband Programme (Law N. 80/2005 (Art. 7), which outlines the destinations for targeted funding from the Interministerial Economic Planning Committee (CIPE) (see below). This outline follows a Programme Agreement stipulated with the Ministry of Communications in December 2005. The same instrument, the Frame Program Agreement, was proposed by the government to support Infratel’s work on the ground. The Interministerial Economic Planning Committee (CIPE) is an economic and financial decision making body that acts as coordinator for economic policy programming on a national, European and international level. In particular, it is responsible for allocating financial resources to development programmes and projects and for evaluating the country’s principal public funding initiatives. It is chaired by the Prime Minister and the other Committee members include the ministers for Economy, Foreign Affairs, Economic Development, Infrastructure and Transport, Employment, Agriculture and Forestry, Environment, Culture, Education, European Policies, Regional Relationships and Tourism, as well as the President of the Conference of Presidents from the Regions and Autonomous Provinces. The Committee meets in session periodically and deliberations on the decisions taken are sent to the Court of Auditors for registration and publication in the Official Gazette. Among the main issues examined by the Committee, those most directly connected to the public funding of telecommunications infrastructure are: •

the Public Funding Decision, the programming and planning Report, the national statistics Programme;

The Strategic Infrastructures Programmes, part of the so-called “target law” (N. 443/2001) for which the committee approves individual projects and assigns funding;

the implementation of the National Strategic Framework 2007-2013;

the allocation of public financing from the Underutilised Areas Fund (FAS), and its derivative funds, operating in the sectors of transport, social policy, business support, research, technological innovation, environment, safety and education.

The Committee establishes and allocates tailored funding for Infratel for the implementation of the Broadband Programme (Law N. 80/2005, Art. 7) annually through the Underutilised Areas Fund (Art. 61, L. N. 289218 27 December 2002), in accordance with the previously mentioned 217 2000. 218

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Legislative Decree N.1 9 January 1999 as integrated into Art. 1 of Legislative Decree N.3 of 14 January The Underutilised Areas Fund (FAS) was set up with the establishment of the two funds referred to in

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Programme Agreement stipulated in December 2005 between Infratel and the Ministry of Communications. This funding is allocated annually by the Committee and can be reformulated by later decisions or Budgets (as happened in 2005, 2006 and 2007). The Broadband Programme was approved with Committee resolution N. 83/2003. The first area of action, which was specifically aimed at the regions of Southern Italy (Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily), intended to link the commercial operatorsâ&#x20AC;&#x2122; central hubs by laying 1,800 km of fibre optic cables in 265 Municipalities. This scheme was provided with financing amounting to 150 million euros for the three-year period 2003-2005. The Broadband Programme has two objectives: to create a public infrastructure to link commercial operators and to promote computer literacy in the population by stimulating the use of digital services (with e-government at the top of the list). The first of these goals was assigned to the Ministry of Communications (through Infratel) and the second, encouraging the request for digital services, was given to the Ministry for Innovation and Technology (which lead to the creation of Innovation Italia within Sviluppo Italia). The Ministry for Economic Development is the body directly concerned with promoting policies for reducing the digital divide, while AGCOM (Italian Communications watchdog), as the overseeing body, analyses the telecommunications market, supervising to ensure no imbalances disturb its correct functioning. However, the relationship between these two bodies is considered controversial because specific policies to tackle the digital divide were not included in the criteria for the allocation of infrastructures and frequencies in the present Code of Electronic Communications. If the Ministry, given the European Unionâ&#x20AC;&#x2122;s approval of State help for the development and implementation of public service television and data processing219 and the governmentâ&#x20AC;&#x2122;s support of the spread of e-government, can use reduction of the digital divide as a criterion in allocating resources following indications from the government, AGCOM, as an independent non-governmental institution, must follow the precise criteria listed in the Code. The most important criteria being: the improvement of benefits for users; development of competition; sustainable investment with regards to market needs; technological nondiscrimination and neutrality; and transparency and consultation between the parties. The discrepancy in the criteria for resource management is critical when it comes to assigning usage rights to some of the frequencies in the spectrum which, as is well known, are public property and of limited capacity. In these cases, AGCOM220 has the task of issuing criteria for assignment as it did, for example, when the Wi-Max frequencies were allocated and as it will presumably do again when the broadband mobile frequencies will be published. However, because of the lack of appropriate legislation, these criteria will not directly include tackling the digital divide but are based on the principles of transparency and the guaranteed correct application of the principles of competition. Consequently, when issuing the competition tender along AGCOM guidelines, the Ministry will have to limit its scope to the remit designated by the Authority, in spite of the need to favour those operating in areas lacking in infrastructure. In the case of the assignment of Wi-Max frequencies, the problem was partly resolved by AGCOM which published guidelines that, while aimed at prioritising competition, provided the Ministry with a wide margin of interpretation that allowed it to support initiatives to reduce the digital divide at the same time. It becomes extremely clear, therefore, that cooperation between national and local bodies must be implemented to create a single strategy for combating the lack of telecommunications infrastructures in certain areas of the country, which are, at the moment, regulated through the Ministry and Regional Programme Agreements. The role of the Regions in promoting and Arts. 60 and 61 of Law N. 289/2002 (Government 2003 Budget), which were later combined in Art. 4, commas 128 and 129 of Law N. 350/2003 (2004 Finance Act) as the Underutilised Areas Fund, with a four-year time frame, to allow for the period of financial planning to coincide with the use of resources, while accommodating the different speeds of spending. 219 European Commission Communication N. 2001/C320/04. 220 Ex Art. 29 Legislative Decree. 259/2003.

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implementing direct action for the development of telecommunications has been boosted in recent years. The central role of regional actions was confirmed in the “eGovernment 2012” plan, which focuses on the reduction of the digital divide, with a strong emphasis on the aspects relative to the distribution of e-government services to individuals and businesses, which is one of its priorities. As stated in the Extra-Ordinary Plan 2010, adopted in agreement by State, Regions, Autonomous Provinces and Local bodies in preparation for eGov2012, “innovation of society and administration requires that every regional territory provides availability of infrastructure services sufficient to service every area, especially those with less access to traditional infrastructures, with adequate levels of service in terms of quality and quantity”. An important role is played by the availability of resources deriving from European Union sources (structural funds and additional national FAS resources) which are an essential channel for leverage in promoting direct action in favour of the telecommunications sector, especially for the regions of Southern Italy. This becomes particularly clear from an analysis of the regional development programs (Regional Operative Programmes – POR 2007-2013) that identify the drivers for redressing the underuse of territorial resources and promoting growth to reduce the gap with the more advanced regions in telecommunications and, more generally, in the development of an information society. However, at present, there is still notable uncertainty regarding the consistency and, therefore, the real availability of these resources for the Regions, particularly regarding the FAS funds, that have already been affected in 2008-09 by urgent measures which called for the concentration of resources on goals considered priorities for restarting Italy’s economy, such as strategic infrastructures (with particular emphasis on networks for mobility and support for production activities) and the employment crisis. Two more bodies were also created specifically to help the spread of broadband: the Interministerial Committee for the Spread of Broadband and the Broadband Observatory. The first, formerly “Executive Inter-ministerial Committee for the Adoption of a National Plan for the Development of Broadband” (2002-2005), was reactivated on 20 December 2006 to support the creation of networks and communications infrastructures for the provision of broadband services. It also had the double task of coordinating and monitoring ongoing initiatives and identifying the most urgent interventions needed to reach a state of technological preparation across the country, by activating representatives of local administrations, users and operators in the telecommunications sector. On 20 September 2007, the Committee’s Technical Group published Guidelines for the Regional Broadband Plans, later approved by the Permanent Commission for Technological Innovation in Local Entities and Regions, and also by the Unified Conference, which identified the development models for funding broadband infrastructure actions nationwide. The Broadband Observatory was created to monitor all the undertakings in broadband infrastructures across Italy. Established in 2002 by Between, a business offering specialist strategic and ICT technological services, with the Executive Committee for Broadband, the Observatory continuously monitors the availability of broadband infrastructures and services across the country, as well as implementation processes and local development models. The Observatory’s principal functions lie in charting the offer for broadband infrastructure and services, mapping the requests for broadband connectivity and services from households, businesses and public administrations and analysing local development models and international best practices. The Observatory’s work is particularly important when seen against the lack of in-depth monitoring at a government level on micro-infrastructure activities, which are operated by minor operators, especially those using alternative technologies.

4.4.3 The main interventions on the national scale There are two distinct kinds of State interventions to tackle the digital divide: legislative measures aimed at simplifying procedures to benefit local public policy; and the provision of

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resources allocated for the diffusion of new technology and the creation of infrastructures. On the legislative side, the first measure dates from 2002 and approval of the so-called Gasparri Decree (Legislative Decree 198/2002), which simplified and speeded up the authorisations for the installation of fixed and mobile communications infrastructure, by issuing a unified procedure for local institutions. This was followed by a second intervention which entailed the provision for a unified, single procedure for the creation of electronic communications networks and infrastructures (including, therefore, those necessary for broadband) within the framework of the Electronic Communications Code, regulated by Clause V of the Code (Arts. 86-95). This legislation was particularly relevant to the work of local bodies in issuing authorisations for establishing infrastructures and allowing the implementation of civic works, including digs and public soil occupation, and AGCOM’s powers and procedures with the aim of sharing infrastructures and coordinating the work. The guidelines issued by the Broadband Committee also highlighted the presence of bureaucratic obstacles at a local level that are slowing down the establishment of infrastructures. To this end, the Legislative Decree. N. 112 (Art.2) was issued in 2008 to introduce measures to simplify and accelerate the procedures for installing fibre optic networks, the most important of which offers the possibility of using publicly owned or managed civic infrastructures to lay cables free of charge. The document highlights four essential areas of action to bridge the digital divide in Italy:

1.  Agreement between the authorities and operators for the implementation of reciprocal undertakings in terms of broadband investment This model provides authorities and operators with common obligations, in particular: - Sharing the goal of reducing the infrastructural digital divide; - The administration, preparation and sharing of broadband investment plans (the authorities in terms of multimedia content and web services and the operators in terms of updating their TLC infrastructures to reduce the digital divide); - Negotiation of the content of the respective plans, to ensure their compatibility and reciprocal suitability; - Coordination of the implementation and management of the agreement (through initiatives like establishing coordination and control structures, monitoring actions, communication initiatives etc.). Furthermore, the authorities should make agreements with all the operators present in the territory interested in investing in infrastructure in areas suffering from the digital divide, in order to protect competition in the broadband market. The strengths of this model stand in guaranteeing the utmost reciprocal respect for the roles of those involved, by making the operators responsible for developing the networks and the public administrations responsible for providing web services and promoting the development of multimedia content and in the open and conciliatory approach between local institutions and operators. The instrument normally used to set up this model is the protocol agreement.

2.  Contributions to businesses in areas of market failure This is commonly known as the “Scottish model” because it is based on characteristics of the “Broadband in Scotland” project which was evaluated by the European Commission as compatible with State Aid in Art. 87, Para 3, Letter C of the EC Treaty (State Aid N. 307/2004). It outlines the possibility for the authorities to provide public funding for Public investment in the cultural and telecommunications industry

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operators in areas of market failure, that is where “revenues are not capable of supporting management expenses” or where “breakeven cannot be reached if management expenses are added to investment expenses, or where it can be reached but on timelines that are not compatible with operators’ policy, which normally consider a return on investments within 3 years”. The model has two phases: selection, through public evidence procedure, of one or more telecommunications operators wishing to co-invest in the territory to provide connective services for individuals and businesses, and the provision of economic incentives for the work of the selected operators. Funding is contingent on the verification, ex-post, of the effective market failure during the time frame of the validity of the incentive (3-5 years). This type of intervention can take place exclusively in those areas where it is actually proved to be necessary, that is where there are inhabited areas or businesses, and must be carried out in such a way as to avoid distortion of competition (e.g.. the regional authorities can divide the territory into various ‘lots’ for intervention where there are local, sub-regional operators capable of intervention in these segments). Funding must respect criteria of proportionality and be limited to the necessary quota for reaching the expenses/revenues balance for each of the infrastructural interventions needed. For this reason, the operator must keep separate accounting, and capital fund repayment mechanisms must be in place if the investment turns out to be more profitable than forecast. This intervention model does not involve any public property asset and has been applied in Italy to date only in Tuscany and Sardinia.

3.  The establishment of public backhaul infrastructure made available to operators Backhauling is the intermediate network infrastructure that lies between the backbone (i.e. the “spine” of the broadband network) and the sites that host the equipment needed for user access (whether xDSL or wireless). In this case, therefore, the public sector (directly or through an intermediary) creates passive infrastructures (conduits or inactive fibre optics) to link access gathering sites (hubs, antenna bases, etc.) to the operators’ backbones, renting the infrastructure (in IRU mode) to one or more operators who complete the network with the installation of apparatus to activate the connection service. In this case, the administration shoulders the part of the process that is usually the biggest entry barrier for operators, because the intermediate network (backhaul) represents approx. 70% of the costs for implementing a new cable network, 40% for a wireless network. Furthermore, since public ‘interference’ ends at the passive infrastructure stage, the opportunity for the operators to handle activation and organisation and customise the services allows for an increase in competition at the highest levels of the value chain ( the network, technologies, services and contents level). To conform with European legislation, the conditions laid out in the Altmark sentence must be respected, which outline that the compensation must not exceed the amount necessary to balance (entirely or partially) the costs of public service and that the choice of private operator should be made through a public job tender procedure, which permits the selection of the business able to provide the services at the lowest cost. The relative funding is configurable as compensation for a Service of General Economic Interest. This model has been adopted by Infratel in Italy for the completion of several tracts of interest to various operators and to link some Telecom Italia hubs with fibre optic. In some cases, the intervention was included in a systematic Regional programme. Other Regions have constructed public backbones (with the principal aim of linking the local public authority with high speed fibre optic access), which were subsequently made available to alternative operators. Where this has already been implemented, the impact in terms of

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increase of broadband cover has not yet been demonstrated.

4.  Creation of a public access structure managed by a private operator This type of model is appropriate for the more marginal areas and in situations where investment is particularly inconvenient for operators, as it provides for the establishment of an access network infrastructure and backhaul by the public authorities, while management is entrusted to an operator, selected through an open tender. The model was created for areas of market failure, those areas where network infrastructures would never be set up, if not through an intervention of this type. The guidelines suggest that the model can only be considered usable after verification of the impossibility of implementing the other models and only in the areas where market failure is at its highest. In this case too, the intervention is not considered state aid if the conditions of the Altmark sentence are respected (i.e. that compensation does not exceed the effective cost borne by the operator and the most efficient operator is selected through open tender). In this model, the public sector intervenes at a higher level in the value chain and the planning has to include the selection of operators willing to provide the service, undertaking to handle the network, and carry out regular maintenance. In fact guidelines advise that the public authorities should not attempt to manage the service directly, even if through a company. Another type of intervention relates to the protocol agreements between the Communications Ministry, Infratel and two of the biggest telecommunications operators in Italy, Telecom Italia and Fastweb. The first, signed with Telecom Italia on 18 December 2007, provides for a shared action to outline a plan to reduce the number of areas with no broadband access, sharing information regarding the planning in “digital divide” areas, while accounting for the infrastructure plans adopted by the Ministry with the Regions and company investment programmes, improvement of the timeframes for access to the completed infrastructures, definition of the technical and financial requisites for Telecom’s acquisition of the telecommunications infrastructures (fibre optics and laying the conduits), identification of possible areas of synergy to follow up across the territory and the use of innovative technology capable of reducing costs and timeframes in setting up infrastructures. The creation of a coordination table was also proposed, to favour dialogue between the signatories of the agreement and thereby to ensure a more efficient and productive operation. The agreement signed with Fastweb on 7 April 2008, to support development of broadband infrastructures across the national territory, outlines similar functions in a Memorandum of Understanding whose goals are to share information, create a definition of technical and financial requisites for Fastweb’s acquisition of telecommunications infrastructures and establish a technical table to coordinate the parties. From the standpoint of resources allocated for the spread of new technologies, the first intervention was created as a request incentive, promoting the use of broadband in households, following the previously mentioned European Union Communication, which allowed the State to reserve resources for the implementation of public service radio television or data transmission. Eighty seven million euros were allocated in total between 2003 and 2005221, as 75 euro incentives to buy ‘equipment for the broadband transmission and/or reception of data via the Internet”. However, there was no criterion to provide priority to the digital divide areas and the allocations took the form of incentives to encourage users to subscribe to the broadband offers present in the market. In terms of reserves for infrastructures, the first and most important intervention was the debut 221

Source: Ministry of Communications/Ugo Bordoni Foundation.

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of the Broadband Programme (2003), which included provision, through the Interministerial Committee for Economic Programming (CIPE), of funding for broadband development in eight regions of Southern Italy. Resolution 83 in 2003 allocated a total of 900 million euros, of which 150 million were assigned to broadband, divided into 5.22 million euros for 2003-2004 and 144.78 million for 2005. Funding for the Broadband Programme was assigned to Sviluppo Italia which was tasked, through its company Infratel, with its implementation through agreements with Regions and operators for the building of conduits for rent by operators for laying fibre optic222 networks. To this end, a four-year convention between the Interministerial Committee for Economic Programming and Sviluppo Italia was stipulated, which outlined the delivery of the funds that Sviluppo Italia would pass onto Infratel as the operating partner. The intervention outlined was estimated at 230 million, of which 70% was born by central government and the remaining 30% by Regional authorities. To this end, Infratel published an open tender in 2005 for the implementation of broadband infrastructures in Southern Italy. The tender, worth approx. 127 million euros, was divided into 7 lots, each related to a framework agreement, which was followed by activation contracts for the single tracts for a total of 1800 km of fibre optics reaching 265 Municipalities in the specified regions223. Table 1: Infratel tender, 2005 Region

Investment (millions of euros)

Municipalities involved

Km of fibre Digital divide population optic network reached (thousands)

% reduction of digital divide

Sicily

49.85

105

690

400

43%

Puglia

26.53

44

350

131

20%

Campania

17.99

40

260

184

38%

Basilicata

6.30

10

90

42

14%

Calabria

12.35

25

180

105

12%

Abruzzo & Molise

7.90

21

110

79

12%

Sardinia

6.05

20

110

68

10%

126.97

265

1790

1.009

22%

Total

Source: Ministry of Communications, ISBUL

Table 2: Outcome Infratel tender, 2005 Lot

Auction base (millions of euros)

Reduction (%)

Final lot price (millions of euros)

Sicily

49.85

5,63

47,13

Puglia

26.53

5,50

25,11

Campania

17.99

5,05

17,11

Basilicata

6.30

3,50

6,09

Calabria

12.35

4,30

11,83

Abruzzo & Molise

7.90

4,15

7,58

Sardinia

6.05

2,93

5,88

126.97

265

120,73

Total

Source: Ministry of Communications, ISBUL

In December 2005, a 20-year Programme Agreement was stipulated with the Ministry of Communications which assigned Infratel with responsibility for management of the networks, their ordinary and extraordinary maintenance and with the necessary technological updating. This followed the previously mentioned Law N.80/2005 (Art.7), which charged Infratel with 222 223

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implementing the Broadband Programme. On this front, it is opportune to note how Infratel, in its policy of framework agreements, prefers the instrument of the “rights to temporary use”224, which allows for the possibility for the grantor to lay the base structures for the NGN within the infrastructures built by the tender winner. Specifically, once the infrastructure has been created by the winner of the tender, this infrastructure remains in concession to its constructor for 15 years (renewable), while Infratel is the owner with the option of updating the network, renting out the transmission capacity and linking the cables with other infrastructures. Following the approval of multiple programme agreements between Infratel and individual regional authorities - including Emilia Romagna (December 2007), Lazio (February 2008) and Marche (March 2008) - between 2009 and 2010 Infratel published 5 open tenders for the financing of the following interventions: •

in the Region of Basilicata, the so-called Basilicata fibre optics tender, for the continuation of implementati225 work, for the executive project planning and construction of fibre optic telecommunications network infrastructures and their maintenance226, for a total value of 6,266,000 euros227, won by a temporary merger of businesses Valtellina and Alcatel Lucent228. The work was financed by ROP Funds for Basilicata – ERDF 2007-2013;

in the Region of the Marche, the so-called Marche fibre optic tender, for the planning and implementation of fibre optic infrastructures for a broadband network, including all supplies and laying of the fibre optic cables and successive maintenance of the infrastructure, worth 16.5 million euros229;

the acquisition of rights to the use of infrastructures appropriate for laying fibre optic cables for integration into the telecommunications network established by Infratel (the areas of interest are limited to the territories privy of fibre optic infrastructures, the amount estimated for the acquisition is 1,200 km)230: worth 14 million euros;

the so-called Centre North Tender for the executive planning implementation of fibre optic infrastructures for a broadband network, including all supplies and the laying of fibre optic cables and maintenance of the infrastructure worth 71,555,000 euros was divided into two pan-regional lots: - Lot 1. Emilia Romagna, Liguria and Lombardy: worth 36,530,000 euros including a part financed by funds from the Emilia Romagna Region amounting to 3,835,000 euros and a part financed by funds from the Lombardy Region amounting to 4,395,000 euros231; - Lot 2. Lazio, Marche and Umbria: worth 35,025,000 euros, including a part financed by funds from the Lazio Region, amounting to 5,145,000 euros and a parte financed by funds

224 “IRU”, Indefeasible Rights of Use, cfr. ISBUL Report 3.3 pp 30 225 The precise nature of the tender, a framework agreement and not a specific contract, was outlined on the Infratel site in answer to questions from the tender participants. 226 G.U.C.E. Tender of 5 November 2008 and G.U.R.I. of 12 November 2008. 227 1,266,000 euros excluding VAT of which 36,710 euros for security obligations not subject to rebate and of which 30,000 euros for spending on planning, with the ability for the inning tenderer to substantiate a further figure for the work equal to 5,000,000 excluding VAT of which 145,000 euros for security obligations not subject to rebate and of which 54,000 euros for planning; for an overall total of 6,266,000 excluding VAT. 228 The value of the tender was not publishd on the Infratel site, however according to Valtellina the overall worth is approximately 6 million euros. 16,590,900 euros, excluding VAT, of which 481,136 euros for security obligations not subject to rebate and 229 627,600 euros for planning expenses. The work was financed by ROP Funds – EDRF 2007 – 2013. the tender was won by RTI Ciet Impianti I.CO.T.TEC.. and Mazzoni Pietro. Total value of the contracts amounts to 11,476,049.93 euros +VAT. 230 The procedure for the institution of framework agreements relative to the acquisition of rights for use of the infrastructures appropriate for laying fibre optic cables for integration into the telecommunications broadband network established by Infratel and its successive maintenance. The work was financed by funds deriving from State budgets, CIPE deliberations and ROP – EDRF Funds 2007-2013. 231 The final total value of the framework agreement for Lot N. 1 was 30,743,676.13 excluding VAT. Date of tender assignment: 24/6/2009. The name of the operator winner of the tender: RTI between Sirti (commissioner) and Sielte.

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from the Umbria Region amounting to 3,305,000 euros232. •

The so-called National Fibre Optics Tender, for the executive planning and implementation of fibre optis infrastructures for a broadband network, including supplies, laying the fibre optic cables and maintenance of the infrastructures, worth approx. 99,528,051 euros, divided into 3 pan-regional lots: - Lot 1. Tuscany, Abruzzo, Molise and Sardinia: worth 39,144,667 euros, including a part financed with EAFRD funding from the Abruzzo Region amounting to 2,107,333 euros, a part financed with EAFR funding from the Sardinia Region amounting to 7,771,333 euros and a part financed with ERDF funding from the Tuscany Region amounting to 6,250,000 euros; - Lot 2. Piedmont, Lombardy, Veneto and Friuli: worth 37,768,000 euros including a part financed with EAFRD funding from the Piedmont Region amounting to 5,260,667 euros, a part financed with EAFRD funding from the Lombardy Region amounting to 5,313,333 euros, a part financed with EAFRD funding from the Veneto Region amounting to 4,367,333 euros and a part financed with ERDF funding from the Friuli Region amounting to 6,266,668 euros; - Lot 3. Campania and Calabria: worth 22,615,385 euros including a part financed with EAFRD funding from the Campania Region amounting to 8,693,333 euros and a part financed with ERDF funding from the Calabria Region amounting to 6,666,667 euros233.

4.4.4 The main interventions at a regional level Many regions have already adopted policies for combating the digital divide as independent decisions or following the guidelines for the Regional Broadband Plans, issued by the Committee for the Diffusion of Broadband in Italy. As the interventions for the spread of broadband vary in individual territories given their unique geoFig.ical characteristics and different rates of urbanisation, each region has adopted the approach that works best in the areas where needed, in several cases combining different types of intervention. To date, these are the most significant: •

agreement protocols with operators for the establishment of infrastructures (Liguria, Piedmont, Valle d’Aosta and Lombardy);

funding for operators for the establishment of strategic infrastructures (Tuscany);

establishment of integrated systems of broadband services by the local bodies of the Region (e-government) (Sicily, Veneto, Marche, Piedmont, Lombardy, Valle d’Aosta, Emilia Romagna and Tuscany);

agreement on a Programme with the Communications Ministry for the direct establishment of infrastructures (Liguria, Piedmont, Sardinia, Emilia Romagna, Marche, Umbria, Lazio, Calabria and Campania);

Direct establishment of broadband infrastructures (Autonomous Province of Trento and Friuli Venezia Giulia).

As can be seen from the outline created by ISBUL, there are various types of intervention (all however within the guideline limits), adapted to specific regional characteristics, and in some cases the Regions have used several types of intervention to meet their territorial needs. 232 Tender winner of Lot. N. 2 was a consortium created by Ericsson Telecomunicazioni (commissioner), Site, Alpitel and Ceit Impianti. For a framework agreement worth 28,696,894.20, excluding VAT. Date of tender win: 24/6/2009. 233 For all the lots mentioned, the custody of the shares attributed to the subjects mentioned above who win the tender are subject to the signing of an operational agreement between the Ministry of Economic Development and the Region concerned.

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Relative to the approval of agreement protocols with telephony operators, the Liguria Region signed three contracts between March and April 2008, with Ericsson (4 March), Telecom (23 April) and Fastweb (24 April). This type of agreement, featured in the wider ranging Triennale Operating Plan for the Spread of Information Technology 2006-2008, which was established to support the spread of broadband connections across the region of Liguria. The plan lays out four lines of intervention. Signing Agreement Protocols with telecommunications operators is included in the third type, which requires two main conditions: that the operators are active in the regional and local area, and that there are no financial costs for the regional authorities. The agreement with Ericsson regards the supply of services for different types of mobile and fixed channels (Internet, TV, telephony), while the agreements with Fastweb and Telecom regard the extension of broadband coverage to regional areas without access, allowing individuals, businesses and the Public Administration to use the service, with special attention to sectors like health and social assistance, transport, logistics, tourism, security of persons and the territory, development of e-government and e-democracy, plus the education of individuals and businesses. The agreement with Telecom, in particular, regards the extension of broadband network coverage to a further 33 Municipalities, reaching about 96% of the active fixed phone lines in the territory by end 2009, a total of 208 Municipalities. The method of funding operators for the establishment of strategic infrastructures was used by the Tuscany Region in the “Broadband for rural areas Project”, aimed at reducing the digital divide in the area between 2007-2010. The mechanism includes the selection, through open tender, of one or more telecommunications operators to co-invest in market failure areas and to supply connectivity to individuals and businesses. The Region provides specific incentives to balance the negative result between revenues and estimated costs, while the operator creating the infrastructure may chose to select the most efficient technical solution and, once the work is finished, remains owner of the network. Operator obligations include supplying connectivity to individuals and retail businesses, to other communications operators who wish to be present in the area (wholesale), whose right to access is guaranteed by Art. 40-52 of the Legislative Decree N. 259 of 1 August 2003 and under AGCOM’s regulations. The broadband project aims to reach over 200,000 citizens and approximately 15,000 businesses located in the market failure areas. It was preceded by an analysis of the area that was carried out to identify the financial reasons preventing communications operators from covering the areas not yet reached by broadband, identifying the places that would have been left without coverage even in the medium to long term. The results proved the need for intervention in several areas to guarantee the services mentioned in the e-Europe plan. In this way, the Project remains within the limits outlined by the European Commission after the approval of the “Broadband in Scotland” Project, deemed compatible as State Aid. The tender process was concluded with Decree n. 841 of 26 February 2008, which approved the final listings. All the lots were assigned, with at least two operators for each provincial lot. The overall public investment amounted to 20 million euros, provided by the Tuscany Region, the Provinces and the European Community. Examples of the establishment of integrated broadband services system by local authorities in the Region (e-government) can be found in Valle D’Aosta and Piedmont. Valle D’Aosta signed agreements with operators present in the region, Telecom234 in particular, and also promoted a policy for the reduction of the digital divide, the “Valle D’Aosta All Digital project”, which focused on computer literacy in the population, intending to spread the use of e-government services among individuals. The Piedmont WI-PIE project was launched to spread broadband connectivity throughout the Municipalities, through the construction of a fibre optic backbone and the spread of 234 The Region signed a protocol agreement in 2007 with Telecom Italia, the main operator in the market, to set out the relationship between the parties in order to define the actions needed to guarantee a reduction in the digital divide across the territory by extending broadband services to 100% of the Municipalities and at least 96% of the population within 2 years of approval of the agreement.

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wireless connections for the most difficult areas. Measures were also introduced to support the development of digital services and content from the regional local authorities. As the project is aimed at providing cover for several Municipalities through an agreement programme with the then-Ministry of Communications and with others through a special protocol agreement signed with Telecom, the development policy for content, services and e-government applications will be carried out to the benefit of both Telecom and the other operators, who will be granted access to pre-existing networks through this kind of agreement. The Programme Agreement with the Ministry of Communications for the direct establishment of infrastructures was one of the most widely used models, adopted by the Regions of Liguria, Piedmont, Sardinia, Emilia Romagna, Marche, Umbria, Lazio, Calabria and Campania. The agreement generally includes the goal of strengthening networks with fibre optic and wireless connections to guarantee an average capacity of 2Mb/s download for individuals in digital divide areas. The interventions necessitate the direct establishment of infrastructures and both State and Regional funding, which is the basis for the property rights to the intervention itself. This means that the tracts set up with regional funding will remain the property of the Region, while those created with State funding will remain the property of the central authorities and entrusted to the regions in concession. Lastly, direct establishment of broadband infrastructures was an option used, in some cases without specific programme agreements, by the Emilia Romagna Region, the Autonomous Province of Trento, the Friuli Venezia Giulia Region and the Provinces of Genoa and La Spezia. The projects include the implementation of interventions by private businesses with co-funding from the Region and the rental concession for the management and supply of services without Infratel intervention.

4.4.5 Resources allocated to bridge the digital divide Given the multiple financial mechanisms involved in the implementation of interventions aimed at covering the various territories, and the complex nature of allocating resources between central, regional and European community authorities, and the wide range of interventions needed because of specific regional and territorial characteristics, it is difficult to try to estimate the resources allocated for bridging the digital divide and problematic to divest the issue of its shortcomings and simplifications. In view of the difficulty in separating out the resources invested in broadband policies for the territories from the State and Regional balance sheets, and in identifying resources allocated, in reserve or actually in use, we propose to provide a quantification based on the study of the job tenders published by Infratel in the past 5 years. As the table demonstrates, the total of resources used were over 312 million euros (net of VAT), 197 of which have already been disbursed or are being disbursed to the contractors through infrastructure implementation agreements235. Central government has allocated over 228 million euros (net of VAT), of which nearly 127 million come from the 2005 Broadband Programme. Funding activity intensified between 2009 and 2010 with the allocation of 54.8 million euros for the Centre Northern Tender and 46.8 million for the All Italy fibre optic tender. Regional and Municipal resources amount to over 91 million euros (net of VAT). This includes the 15.3 million set aside for Calabria and 10.8 for Veneto (ERDF and EAFRD All Italy fibre Optics tender); 11.5 million were assigned to the Marche (Marche Fibre Optic Tender, a base of 16.6 million, funded by ROP-ERDF 2007-2013 funds); 9.7 million were set aside in Lombardy (4.4 from Regional funds and 5.3 from EAFRD funds); 7.7 million in Sardinia (EAFRD funds, All Italy Fibre Optics Tender); 6.2 million in Tuscany (ERDF funds, All Italy Fibre Optics 235 The Infratel site published the names of the winners of the Basilicata Fibre Optics Tender -Alcatel Lucent and Valtellina but not the value of the tender. However, a document published by Valtellina notes the value at approximately 6 million euros. Cfr. http://www.valtellina.com/convention/pdf/ValtellinaSpa_progetti_realizzati.pdf

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Tender); 5.2 million in Piedmont (EAFRD funds, All Italy Fibre Optic Tender); 2.1 in Abruzzo (EAFRD Funds, All Italy Fibre Optic Tender); while the regions of Lazio, Emilia Romagna and Umbria have allocated respectively 5.1, 3.8 and 3.3 million for use in their territories (Centre Northern Tender). Table 3: Funding for broadband infrastructures: tenders for European, State and Regional resources ROP - ERDF, EAFRD or other regional funds

Infratel resources

TENDERS Southern Italy (March 2005)

Total resources

Resources disbursed (sale value)

Note

126.970.000

0

126.970.000

120.729.890,37

Fibre Optic Basilicata (Jan 2009)

0

6.266.000

6.266.000

6.000.000*

Fibre Optic Marche (Apr 2009)

0

16.590.900

16.590.900

11.476.049,93

n.d.**

n.d.**

14.000.000

n.d.

Lot 1

28.300.000

8.230.000

36.530.000

30.743.676,13

3,835,000 Emilia + 4,395,000 Lombardy

Lot 2

26.575.000

8.450.000

35.025.000

28.696.894,20

5,145,000 Lazio + 3,305,000 Umbria

All Italy Fibre Optic (March 2010)

Centre Northern Italy (May 2009)

Acquisition of infrastructure usage rights (Apr-2009)

Lot 1

23.016.001

16.128.666

39.144.667

2,107,333 Abruzzo EAFRD+ 7,771,333 n.d. Sardinia EAFRD+ 6,250,000 Tuscany ERDF

Lot 2

16.560.000

21.208.000

37.768.000

5,260,667 Piedmont EAFRD + 5,313,333 Lombardy EAFRD+ n.d. 4,367,333 Veneto EAFRD+ 6,266,667 Fruili ERDF

Lot 3

7.255.385

15.360.000

22 615 385

n.d. EAFRD + Calabria

92.233.566

312.294.567

197.646.510

8,693,333 Campania ERDF 6,666,667

Total***

228.676.386

Source: IEM elaboration. Notes: *The value of the tender is not published on the Infratel site, the overall value is provided by Valtellina; ** The work was financed by funds deriving from State budgets, CIPE deliberations and ROP- ERDF 2007-2013, so it is not possible to distinguish between State and Regional resources; ***the tender value amounts to approximately 6 million euros. Figures net of VAT.

With regards to Regional funding in particular it should be noted that the resources allocated through the many intervention instruments listed in paraFig. 1.3 are obviously more consistent than those listed here (e.g. Lombardy alone has 3 projects with an overall investment of 93 million euros236) but are difficult to identify. Given this, the Rosselli Foundation Institute of Media Economics has set up an observatory to monitor the situation and create a more efficient and complete estimate of all the regional resources employed in the development of infrastructures and ICT and media services. 236 This refers to the framework programme agreement â&#x20AC;&#x2DC;Information Societyâ&#x20AC;&#x2122; of the regional tender for the reduction of the digital divide and rural development plan. Together the three projects involve 630 Municipalities with investment of 93 million euros, laying almost 3,000 km of fibre optic cables. Cfr.http://www.regione.lombardia.it/cs/Satellitec=News&childpagename=Regione/Detail&cid=1213346248980&p agename=RGNWrapper.

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Public investment in the cultural industry

Additional considerations by Carla Bodo, Maurizio Decina, André Lange and Mario Morcellini

1. Notes on the State of the Arts by Carla Bodo237

The study conducted by the Rosselli Foundation on Public investment in the cultural industry, is a substantial contribution to the building the foundations of an edifice – that is, the Italian information and statistical system on culture – which advances very slowly and with much delay. Let us first of all examine the state of the arts today, also within an international context. It is well known that the legitimate inclusion of culture within social and welfare policies – right next to education, assistance and healthcare – is a fairly recent accomplishment, a process that only really started to take shape in the second half of the last century, thanks to the intuition and initiative of farsighted figures such as John Maynard Keynes (1946) and André Malraux (1959). However, half a century later, the fact remains that in most countries the information and statistical system in place to monitor cultural phenomena and the results of the underlying policies, is still quite backward and absolutely inadequate considering that culture is a proven driving force for a country’s social and economic development. It was not until 1997, that the European Commission tried to remedy this huge gap in information, by setting up, albeit with some hesitation, a Working Group on Cultural Statistics, which would operate within Eurostat. At first it was experimental238 then subsequently ratified, and its objective was to persuade Member States to integrate and develop their statistical systems on culture and also render them more comparable. After having operated actively between 1997 and 2004, the WG was put to sleep for the entire sixth legislature, only to be resuscitated in another guise in 2008. In the first phase of its work, the Eurostat WG on Cultural Statistics used a Task Force Methodology to find an agreement on a common definition of culture among the Member States. In theory it was not starting from scratch but from a somewhat broad definition, which included the environment and sports, and to which it had adhered during UNESCO conferences in the ’80s - when it adopted the Framework for Cultural Statistics239. Nevertheless, the extreme diversification existing between the extended statistical systems in the various countries was immediately evident; modelled as they were on the ever variable administrative clusters existing at a State level (Ministries of Culture, of Culture and Communications, of Culture and Sport, Arts Councils, etc...), and on their own specific priorities (heritage, artistic creation, cultural industries...). In the end, a common definition for culture was found which was both broad but also strictly pertinent, and encompassed the “activities of conservation, creation-production, distributiondiffusion, marketing, of goods and services that pertain to culture: artistic and historical heritage, the libraries and archives, the visual arts, live entertainment, book publishing and the press, cinema, audiovisuals and new media240)”. Contemporaneously with this TF, another three task forces, working closely with the first, concentrated on following themes : Employment, Cultural Expenditure and Financing and 237 Vice-President of the Association on Cultural Economics. 238 See Eurostat, Final Report the LEG on Cultural Statistics in the European Union, Luxembourg, 2000. 239 The 1986 UNESCO Framework has recently been the object of long process of revision, culminating in the adoption of the UNESCO Framework for Cultural Statistics 2009, that has at the same time restricted and further extended the definition of culture to oral traditions and intangible heritage, festivals and fairs, and to fashion, etc). 240 V. Final Report of the Leg Luxembourg 2000. Note that the insertion of the press, TV and new media in the definition of culture was not easy, in that it had long been contested – as “extension to trash” from the more traditional countries. At the same time, in the formulation of the definition itself, it is implicit that cultural statistics include activities concerning software, but not hardware, for example: the attention, or financial support, for the production of records and DVDs, but not computer hard drives or TVs.

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Cultural Participation. And here we finally come to the nub of the problem under discussion in this study. In 2004, at the end of the legislature, Eurostat maintained that while the works of the other Task Forces had definitely made advances in the production and comparability of data, the results obtained by the Financing Task Force were still essentially of methodological and taxonomic nature. The attempt to concrete gather and process statistical data concerning public spending on culture in Member States, carried out in 2003, was considered in fact “an improvement in the knowledge base of a very complex area241, but with results that were still non-homogeneous and not fit for publication. The main reasons for the difficulties encountered were singled out as follows: •

the need to take into consideration spending on culture by all tiers of government, in view of the low significance of comparability limited to State spending and the major differences between countries, its role and its incidence (oscillating between 15 and 60% of total expenditure);

the high fragmentation of the funding centres to take into consideration: a) tiers of central, regional and local governments (from 2 to 4 depending on the countries); b) the plurality of Ministries involved at the central level; c) the plurality of the competent administrative offices for culture at the regional and local levels;

the difficulty to come to a sectional classification of spending according to Eurostat’s wellconstructed nomenclature, in particular for the lower levels of government;

the problems posed by the consolidation of the total expenditure, extracting it from transfers, in order to avoid double counting.

Eurostat insisted that since the task force on Financing still had not figured out such complex problems, this group was the one that really needed to continue its work. This suggestion was embraced by the new European Statistical System Network Project/ ESSNET, which revived the old Working Group in 2008 and took its place242. If at the European level we are still at the preparatory stage of research, it is useless to deny that when the EU statistical system on culture comes into full swing, Italy will have serious difficulties facing this new commitment. Due to the fragmentation, lack of systematic approach and incompleteness of its data. In fact, Italy’s statistical system on culture today is, on average, behind that of other major European countries. This is true not only for individual sectors, where statistical data alternates between highs and lows, but in particular for statistics pertaining to the cultural field as a whole i.e., cultural employment and the financing of culture. All of which is certainly due to the delayed and not yet perfected standardisation of the main State competences in culture within the Ministry of Culture, while the competences for media – audiovisual and publishing – are now split between two Ministries. Furthermore, the accentuated conflict between the State, the regional authorities and local bodies all vying for jurisdiction in this field certainly does not help the exchange of data and information sharing. With particular regard to public spending on culture, while in other countries the bodies that are generally responsible are the national statistical institutes and/or the Ministries of Culture, in Italy, this subject is in no man’s land, left to the voluntary or random initiative of individual scholars or single organisations, public or private, as the case may be. And it must be pointed out that even if some items of expenditure are adequately examined, rarely is financing to culture, and its multiple offshoots, analysed completely. Among the bodies that have contributed, at least in part, to fill this gap are: ISPE/ISAE, UVAL (Public Investment Evaluation Unit) and 241 See Working Group on Cultural Statistics- Short conclusions. Doc. ESTAT/D5/2004-CULT 242 The other TF’s are Framework and definitions (which must be clearly defined and subject to integrations) and Cultural participation and social aspects, which is supposed to measure the role of culture in cultural inclusion. Employment TF which had already reached exhaustive results was substituted by the new TF –Cultural Industries.

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the Association for the Economy of Culture, with its two Reports243. So the Rosselli Foundation is most welcome, which, with this study, becomes part of the small circle of experts on this subject. The mission of the Rosselli Foundation shapes its definition of culture, which is at the base of the study, but it must be said that it does not coincide with that of Eurostat; in that it includes telecommunications while excluding cultural goods, obviously of great interest within the Italian context. For this reason, Chapter 3 Public spending in culture raises questions, both for its slightly unorthodox conceptual definition at the heart of the analysis, but also because the source of the data, the State Accounts, is based on groupings that are not sufficiently broken down and that do not always allow us to isolate expenses that are specifically cultural from those that are not pertinent, i.e., spending on religion, whose unquantifiable impact in a country like Italy’s could be surprising. National accounting on the whole is certainly a potentially valuable source, whose codifications need further work, together with UVAL, to render it workable for the classification of spending on culture as defined in Europe. In my opinion, the main virtues of the study lie in the chapters related to specific sectors. In some, we actually find cultural goods, which having been kicked out of the front door, making a return through the back door, in that, they are the principal recipient of two types of relatively new funds, in addition to the ordinary expenditures of the Ministry of Culture: the funds from the Lottery and the investments managed by ARCUS. In this latter, case the funds are fed by a percentage withdrawal taken from investments infrastructure, and are managed (also according to the Court of Auditors) using rather discretionary criteria and given out “indiscriminately”. So thank goodness for a study that finally sheds light on the amount, its destination and its patterns of growth. Finally, I found the chapters dealing with the financing of the press and television by the Prime Minister’s Office and the Department of Communications in the Ministry for Economic Development, quite relevant. They are particularly important because they deal with a subject that is currently centre stage and controversial but rarely explored exhaustively and in-depth. This kind of financing, even for European institutions, comes under state expenditure for culture but is systematically ignored in all estimates, including the slipshod international comparisons concerning these expenses that one hears in Italy.

243 See the two Reports on the Economy of Culture in Italy 1980-2000, published respectively, by the Publishing Department of the Prime Minister’s Office and the publisher il Mulino, Bologna. The methodology used for the analysis of spending in the second report coincides with that of Eurostat.

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2. In Italy there are two digital divides by Maurizio Decina244

In Italy there are two digital divides (that is the rift between those who can access the Internet and those who cannot). The most obvious regards the lack of infrastructures to allow access, the other, but not less important, is related to people’s level of training (the “cultural” digital divide). Looking at the figures: there are 60 million individuals and 25 million households. In an initial approximation, 50% of these households possess a computer and access the Internet through fixed and mobile connections, while the other half is illiterate (in computers) and not connected to the Internet. Comparing these figures with the “infrastructural” digital divide what we see is, that about 5.5 million Italians (9%) do not have the possibility to access broadband, that is a connection of at least 2 megabits a second. One needs to read over the National Broadband Plan being put before the United States Congress to understand what Italy should have planned and done to develop the Internet in the country. There are four main issues: the digital divide in rural areas, computer literacy, ultrabroadband in big cities and the use of the television spectrum to access the Internet. Reflecting on the first two aspects relating to the digital divide, 16 billion dollars have been foreseen for 10 years to fund the development of broadband in rural areas with the objective of guaranteeing 4 megabits a second to homes and a gigabit to institutions like schools, hospitals and libraries. In addition, the plan foresees the transformation of the Universal Service Fund, another 16 billion dollars in 10 years to spread computer literacy (the Internet Geek squads) and disseminate VOIP telephony (Voice over Internet Protocol). In Italy the government has other priorities and resources allocated for access to the Internet and computer literacy are minimal, in spite of the country’s dramatic underdevelopment compared with its European partners. Let’s leave aside the well-known North - South divide for the moment, and the fact that even in Lombardy, Veneto and Piedmont one million people are excluded from the Internet. Rather, let’s concentrate on those 40% of Italians (compared to the 60% average for European citizens) who do have Internet access and can hence use the Internet, and yet do not. Why? Because they don’t feel the need to, they don’t have the technical skills or even more trivially, they simply don’t know what to do on the web. Only 12% of Italians buy goods or services online, compared to European average of 37%. Only 4% of Italian businesses sell online, while the average in Europe is at least triple (12%)! Can this situation be remedied? Yes it can; if investments in infrastructure are combined with incentives to use the Internet and its services. For investment in areas with an infrastructural digital divide, the study conducted by the Rosselli Foundation reports that only 300 million Euros have been allocated by the Italian Ministry of Communications in the past 5 years, of the 1.4 billion needed in the next 5 years! And what’s more, for the incentives to use the Internet, only a few million eur