DIGITAL TELEVISION IN ITALY: FROM DUOPOLY TO DUALITY cinzia padovani Abstract This paper analyses the impact of the digital transition on the television industry and market in Italy. A major concern for those interested in issues related to social cohesion and the impact of the digital transition on democratic practices is the fact that digital television platforms continue to produce a polarised market. Indeed, in Italy we are witnessing a shift from "duopoly," a condition that has characterised the analogue television market, to "duality," where quality TV content is migrating to pay-TV, leaving programming of lower quality on free-to-air channels. Given the fundamental function that television has played in shaping Italian democracy, the question is how this mutation from "duopoly" to "duality" will inform the evolution of democratic practices in the country. The study includes an investigation of media legislation, an analysis of the digital television market, and an exploration of the public broadcaster's struggle to maintain a relevant role in the digital environment. It concludes that the determination of the legislature to break down the duopoly is important, but that more government intervention will be necessary in order to ensure that quality free-to-air television becomes universally available. Cinzia Padovani is based in the Southern Illinois University Carbondale; e-mail: padovani@siu.edu. m d a o o (N £ i O fi II) G C (6 Ln Introduction In this paper, I look at the transition to digital television (the so-called digital switch over) in Italy and analyse the impact of this transition on the industry and the market. Although the full consequences of the transition are still to be determined, there appears to be little innovation in terms of content and programming formats, at least on free-to-air Digital Terrestrial Television (DTT) and on free direct-to-household (DTH) channels available on satellite television. Therefore, some questions arise: Who, if not the audiences, will benefit from the digital switch over? What else, if not better programs (i.e., innovative, original, provocative), will make digital terrestrial television (or free satellite services) a beneficial change for the viewers? It is also important to consider the consequences of the digital switch over on public service broadcasting (PSB). On one hand, in Italy, as elsewhere, some critics argue that with the advent of unlimited channels and digital television, one of the most commonly held rationale for public service broadcasting (i.e., the scarcity of the hertzian spectrum), will no longer exist. On the other hand, scholars and media analysts (Richeri 2003, 2004c; Sartori 2006; De Chiara 2006) have long advocated for a stronger commitment of public funds to make sure that public service broadcasting will continue to maintain a central role, or at least "become an actor in the switch over to digital transmission" (Richeri 2003). Although TV is an industry, it is not only an industry. Referring to the digital switch over, Carlo Sartori, president of RAI Sat, one of the public broadcaster's content provider for premium satellite channels, notices that: [A]lready the first decline of generalist traditional television caused by satellite television has created a social divide... . The question we need to ask [now] is: who will take care of the most impoverished socio-cultural strata, by providing them with quality products, rather than with trash TV? (Sartori 2006, 165) y Obviously, television is a crucial asset for democracy and indeed its impor- tance in society could be equated to that of the school and health care system, or the administration of justice. These are some reasons why, as Sartori explains: "Television, which owes a lot to the market, cannot be left entirely to the market" (Sartori 2006, 165). Indeed, from a broader point of view, at stake is nothing less than the future quality of Italian democracy, which RAI (Italy's PSB), and television in general, have already shaped in some fundamental ways. What might be some of the consequences of Italy's historical conditions (the duopoly in the analogue broadcasting market with RAI and Fininvest/Mediaset, and the long connubial between media M and political powers), and of a tepid post-political opposition (a sort of duopoly, 0 C reproduced in the political system), on the ways in which the new digital TV scenario will be structured? What will be the consequences of that restructuring on the functioning of democracy in Italy? In order to provide some answers to these questions, I will approach the study of digitalisation of the Italian television industry using a three pronged approach, which includes: 1) an investigation of some of the most relevant pieces of media ^ legislation related to digitalisation; 2) an analysis of the characteristics of the televi- sion market; and 3) an exploration of RAI's efforts to impose its presence and its brand in the digital environment. C^ As various scholars have already pointed out (Perrucci and Richeri 2003; Richeri ^ 2000a; Marzulli 2006), digital television platforms tend to produce a polarised market. Whereas valuable content (in particular, first release films and popular sports events) gravitate towards pay channels, programs of lower quality, produced with small budgets (minor sports, talk shows, old films and reruns), tend to migrate to the free-to-air DTT channels (as well as free DTH channels). In fact, in the Italian television panorama, we are witnessing a potential shift from "duopoly," a condition that, since the mid 1980s has characterised the analogue television market, to "duality," a situation where quality TV content is migrating to subscription and pay-per-view (PPV) platforms, leaving the free-to-air DTT channels with programs of lower quality. Given the fundamental function that, since its early days, television has played in shaping Italian democracy, the broader question to consider is how this mutation from "duopoly" to "duality" will inform the evolution of democracy in the digital era. The Legislative Framework In Italy, the alliance among the political elites, the government of the day, and some of the most powerful sectors of the media industry, achieved an apex with the law of 3 May 2004. That law was supposed to govern the transition from analogue to digital television, but instead paved the way for the duopoly in the broadcasting market to continue unabated and to cast its shadow over to the future digital environment. Pluralism and Democracy In order to understand how the Gasparri law (as the May 2004 law is called, named after the Berlusconi's government Communication Minister, Maurizio Gasparri) was able to circumvent prior attempts (in particular, those of the Constitutional Court) to break the decades long duopoly in the TV broadcasting market, it is necessary to first briefly trace the history of the legislation dealing with television broadcasting. Indeed, the list of post-2000 Constitutional Court decrees, Communication Authority decrees, and the long and tortuous itinerary of the Gasparri law (first proposed to the vote of Parliament in September 2002 but signed into law only in May 2004), are intrinsically connected with previous legislation in some important ways. For decades (certainly since the 1980s), the Italian legislature has made timid attempts to curb the television duopoly. Although ample lip service was paid to stating that media pluralism is essential for democracy, little was done to ensure that external pluralism (a plurality of media sources) would become a reality, and in fact, the duopolistic television market continued to undermine the very foundation of democratic life (i.e. the citizens' right, sanctioned by the Italian Constitution, to be informed in a pluralistic media environment). Concerned with the unconstitutionality of some of the legislation that has governed (or, as some say, "photographed") the evolution of media in Italy since the late 1970s, the Constitutional Court has made the question of media pluralism one of its main focuses. In the late 1970s and throughout the 1980s, two forms of pluralism were given particular attention by the high court, i.e., external pluralism and internal pluralism. The former indicated the necessity to ensure a plurality of media sources, while the latter served the purpose of justifying political quotas within RAI. It was observed that a simple multiplication of broadcasters (as when national commercial broadcasting became a reality in the early 1980s) would not, in and of itself, guarantee external pluralism. Indeed, faced with the consolidation of the duopoly market, in 1988 the Constitutional Court warned that pluralism could not be fully realised unless access to the means of communication was guaranteed to as many voices as it was technologically possible, and only if there was a "concrete possibility within the commercial broadcasting sector, for those who have different opinions, to express themselves without the danger of being marginalised because of concentration of technological and economic resources in the hands of one or few" (Constitutional Court 1988, Art. 11). As history demonstrates, however, lawmakers rarely embraced the recommendations of the Court. In fact, a television law enacted in 1990 did nothing more than to legitimate the existing duopoly by setting the anti trust limit to "25 percent of all national TV channels, or three channels,"1 exactly the number of channels owned respectively by the public and the commercial broadcaster. The consequences of the 1990 law showed their full devastating potential for the Italian democracy when Fininvest's owner, Silvio Berlusconi, entered the political arena and, significantly through the support of his media empire, became Italy's prime minister in 1994. Regrettably, the conflict of interests that he so perfectly embodied was never regulated. Not even the law passed by Romano Prodi's centre left government in 1997 (the so-called Maccanico law) was able to resist the pressing commercial and political interests of the private broadcaster. On that occasion, the legislature made only small, and overall insufficient, attempts to curb the duopoly by lowering the anti trust limits (from 25 percent as the previous law had established, to 20 percent), while at the same time envisioning a migration to other platforms (satellite TV) for those channels exceeding the threshold of 20 percent. However, the law ostentatiously failed to establish the date by which each of the dominant broadcaster would have had to get rid of one of their analogue channels. The lack of pluralism remained a concern. In 2001, the Communication Authority established a date, 31 December 2003, by which one of the three channels in breach of the 20 percent anti trust limit would have to migrate to a digital platform (Resolution 346/2001). One year later, the Constitutional Court (Decree 466/2002) £ confirmed this deadline, which, however, was never respected. By the early 2000s, with Silvio Berlusconi elected prime minister for the second time (2001-2006), the lack of media pluralism had become such a major problem for those interested in the conditions of the Italian democracy that the Italian President addressed the lower and upper house of the Parliament on two occasions (July 2002 and December 2003) to express his concerns. In his second address, delivered after the Parliament had voted favourably on the law proposed by the Berlusconi's government in September 2002 (the future Gasparri Law), President Carlo Azeglio Q Ciampi urged the lawmakers to revise the proposed law because it failed to honour the 2002 Constitutional Court decree, which demanded that analogue channels ^ in excess of the limit be sent to the digital platform. Lawmakers argued that this fi 3 a u o migration was no longer necessary because other competitors could enter the television market through digital platforms. President Ciampi, however, did not believe that the progress with digital television (especially in terms of universal coverage and diversity of programming) was sufficient to justify this position, and emphasised that only when a sufficient number of households were able to access digital terrestrial television, would the promise of enhanced pluralism in television broadcasting be realised. In spite of strong opposition, the Gasparri law was passed on 3 May 2004, without substantial modifications. One of its most controversial points was its new definition of anti trust limitations, which allowed the 20 percent anti trust limit to be calculated on the basis of the entire media market ("printing press, ... electronic publishing, including INTERNET, radio and television, cinema, .and .[all aspects of] advertising"),2 as opposed to just the television market. This cleverly circumvented the intent of the 20 percent limit set by the 1997 Maccanico law (which would have forced RAI and Mediaset to move one of their channels to a digital platform), thereby allowing the duopoly in the analogue market to continue unfettered. A New Law In October 2006 the newly elected centre left government led by Romano Prodi proposed a new law, which, according to its supporters, would not only serve to significantly weaken the existing duopoly, but also prevent it from re-emerging in the digital environment. This proposal also represented a politically important step in responding to the European Commission ruling of 19 July 2006, in which the Commission had decreed the Gasparri law illegal. Specifically, the Commission argued that the law violated European Union (EU) competition directives by providing unfair advantages for existing broadcasters and imposing unfair restrictions on new operators. The proposed law of Fall 2006, whose parliamentary debates are expected to last for at least a couple of years, contains some important novelties. In primis, in its analysis of what constitutes the digital television market, the legislature takes into consideration all digital TV platforms, not only digital terrestrial television. The law also establishes new anti trust limits: until complete conversion to digital television is achieved (scheduled for November 2012),3 the antitrust bar is set at 45 percent of the entire advertising revenue for the television sector (including both analogue and digital). The law also requires TV broadcasters owning more than two national analogue channels to transfer their exceeding channel(s) to a digital platform by 2009 (Art. 3, para. 4). After full digitalisation, content providers for the national television market would be forbidden from utilising more than 20 percent of total transmitting capabilities (Art. 3, para. 8). Another important innovation is the legislature's determination to break down one key element of the vertical integration chain: content providers (the owners of the channels) and network providers (those who manage the network and the frequencies) would have to separate (Art. 3, para. 7). This, according to the proponents of the law, should encourage new firms to enter the TV content business. A New Reform Law for RAI As part of Communication Minister Paolo Gentiloni's plan to restructure the media system, there is also a proposal to reform the public service broadcaster: • Programming: given its high dependence on advertising revenue, RAI has gradually become less distinguishable from its commercial competitor. The reform would fundamentally change RAI's funding structure in order to create more distinct public service channels; • Technology: RAI should invest more on new technologies and become a "protagonist of technological innovation" (Gentiloni quoted in Valentini 2006); • Independence: RAI's leadership should become less dependent on the government of the day. According to Gentiloni's plan, the incidence of advertising revenues for RAI must diminish. One hypothesis is that one channel becomes completely funded with advertising money and competes in the market on the model of the British Channel 4; whereas the other two channels - likely RAI1 and RAI3 - become solely funded by the license fee and other public funds. But with the crisis of channels like Channel 4, which many critics complain has gone "totally commercial" - and without more precise ideas on where those other public funds should come from - one wonders if this plan to take away advertising revenues would leave RAI languishing in a "public service ghetto." According to the proposal, RAI is also supposed to be a leader in technological innovation. But how, if its license fee has not been even adjusted for inflation during the five years of the Berlusconi government (2001-2006), is RAI supposed to do that? The centre left Prodi government promised to adjust the license fee for inflation, but nothing more. Setting the Stage The Development of Digital TV in Europe Now that the legislative framework has been detailed, I will contextualise the analysis of the Italian digital television market by describing the development of digital TV in Italy, and more generally in Europe. According to the most recent £ Annual Report from Italy's Communications Regulatory Authority (AGCOM), total revenues from the Television sector in Italy grew by 7.8 percent to a total of 6.9 billion euros in 2005. While this was slightly lower as compared to the previous year's growth (10 percent), it was well in line with the overall 7.6 percent increase for Europe as a whole. It is also interesting to note that the television sector in Europe continues to grow at a robust rate in spite of the overall weakness in the European economies. For example, the 7.8 percent growth of the sector in Italy for 2005 was nearly 4-fold higher than the overall 2 percent growth in GDP for that same year (AGCOM 2006). The major source of revenue for the current growth of the TV markets in Europe C is pay-TV services. According to data in the AGCOM 2006 Annual Report, of the 5.5 billion Euro increase in television revenues for Europe in 2005, 78 percent (4.3 billion) came from increases in consumption of pay-TV offers; 70 percent of the observed growth in Italy came from the same source. It is also important to look at sources of revenue for the television sector on an absolute basis (i.e., as opposed to growth). Although advertising continues to represent the main source of revenue for the television industry in Italy, the share of total revenues from this source has steadily declined from 63 percent in 1998 to rn 57 percent in 2005 (AGCOM 2005, 2006). During the same period, the share of total revenues enjoyed by providers of pay-TV has increased dramatically from 8 to 21 percent (AGCOM 2005, 2006). Furthermore, with only 70.2 million (42 percent) of Europe's 165.5 million TV households accessing digital platforms, there is still ample room for further growth in the digital pay-TV market. The Italian Digital Market Although generalist TV channels in Italy still command the majority of national audiences and revenues, it is clear that their supremacy is diminishing. Indeed, a conspicuous audience decrease (a 5 percent drop during prime time in the Fall 2006 season and a 6 percent decrease in the average day for the month of December 2006 compared to December 2005) points to a steady decline (Siliato 2006a, 2007). According to media analyst Francesco Siliato, for the first time in twenty years, in 2006 the growth of the TV sector was below the market average. Italy is still the European country whose television sector weighs more than all other media compounded in the advertising market, but that weight has dropped from 56 percent in 2005 to about 53 percent in 2006 (Siliato 2007). A variety of factors are responsible for this decline. As noted by various analysts and media scholars (Richeri 2004b, 2003; Pilati 2004), the growth of pay-TV services, which brings with it the fragmentation of audiences, is one major reason. According to some, Italy is in a phase characterised by a "limited multichannel environment" (De Chiara 2006), where the offer of PPV and subscription-based DTH channels hasn't fully developed yet. The next phase, experts say, will be characterised by a combination of the following factors: concentration in the pay-TV sector (with one dominant operator, Sky Italia),4 the transition from analogue to digital television, and new platforms and audiovisuals distributed by broadband and mobile telephones (De Chiara 2006). In this environment, the public service broadcaster is probably the one most in danger. Given that its audience (still its main resource) is gradually eroding, RAI will have to capitalise on other resources in order to take on an active role in the multichannel and multiplatform audiovisual markets. Indeed, the future of public service broadcasting, in Italy as elsewhere, will play out around the kind of strategic positioning that PSBs may be able to negotiate. From this perspective, the turn to digitalisation is not just a necessary step dictated by the industry and technological developments; rather, the new digital environment could potentially represent a very valuable opportunity for the public broadcaster to re-evaluate its role and "to restructure the company and its share capital" (Mele 2006). However, the question is: What is RAI doing to take advantage of this opportunity? Clearly, given the increase in the number of channels, the production cost of content for TV has risen considerably. Nevertheless, content is the key to staying in the game: indeed content has become, as two representatives of the Italian Communication Authority write, "the genuinely scarce commodity that is decisive for competition" (Pilati and Poli 2001, 197). Content is crucial, and indeed the public broadcaster should become more "product-oriented" rather than "market-oriented" (Siliato 2005). If RAI is not investing - or cannot invest for lack of resources - in contents to put on its free-to-air digital channels, how is it going to compete and how is it going to justify its public service remit? It is also very important to underline that the production of content should not only be realised for DTT but for all digital platforms. Indeed, the future of the entertainment industry, in Italy as elsewhere, is in the production and supply of media content for multimedia platforms. In this regard, it should be noted that Italy is a major telecom market, characterised by a significant presence of mobile, broadband, and digital TV. Although cable TV shares an irrelevant portion of the market, the nation's fibre sector is an innovative leader, providing consumers with competitive and fast broadband infrastructures. This has opened the door for the growth of triple play services: Internet Protocol Television (IPTV), Video on Demand (VoD), and Internet telephony. Italy has the world's largest DSL service, Fastweb, which has grown from 5,000 customers in 2000 to 800,000 in 2006. Also, in December 2006, after years of negotiations between the Communication Minister and the Defence Minister, the Worldwide Interoperability for Microwave Access (or WIMAX) became available. This is a standards-based technology that has the potential to circumvent the monopoly over the "last mile" (which is a terrain of intense struggle among the old monopolist - Telecom Italia, and the new incumbents - Tele2, Infostrada, etc.). WIMAX is supposed to provide wireless broadband access thereby offering a valuable alternative to other more expensive broadband options. Resources and Programming Outputs In an environment where advertising revenues are slowing, it would appear that the only potential for increase is linked to interactive advertising forms in the digital television market. But - Richeri underlines - "it is still too early to predict if new forms of advertising will be a niche or mass forms" (2003). At the same time, it is not likely that license fees, historically the other major source of revenues for most European TV markets, might increase. As a result, "television programmes' average investment per hour cannot remain at the present level and at least for the new channels, it might be necessary to lower it notably, thus creating a risky process of television programming quality reduction" (Richeri 2003). In fact, the available resources to make programs will be concentrated "on a limited number of attractive genres (film and sport) [whereas] the remaining resources [will be allocated] to the other channels" (Richeri 2003). This creates a difficult situation especially for the public broadcaster, which cannot count on either increasing license fees Q or increasing advertising revenues. Richeri's analysis is supported by most recent trends highlighted by Claudio Cappon, RAI Director General: • In the years 2004-2006, the license fee has not been increased. This by itself, "'weighs' 70 million euros, the budget of a whole channel (RAI2)" (Cappon quoted in Mele 2006); The cost of the infrastructures absorbs the increases, far smaller than those of the past, of advertising revenues; Rights for sport, cinema and fiction (the most valuable content) represent 1/3 of overall programming costs for the public broadcaster (Cappon, quoted in Mele £ 3 a o c > 2006). KD As RAI top buyer, Carlo Macchitella admits, "the crisis of ideas and creativity has deepened" (Zecchinelli 2005) in the Italian television market. "[W]ithout re- LO sources," Cappon insists, "RAI has difficulties realising content of value for DTT" ^ (Mele 2006). The Polarisation of the TV Market Some European governments, the Italian one among them, have been particularly supportive of the development of a free-to-air DTT sector as an alternative, or an addition to other digital delivery technologies. For its supporters, DTT brings many advantages, of which the most important are: • A more efficient use of the hertzian spectrum; • The opportunity to introduce the so-called t-government (e-government via television) in all households; • Better broadcasting quality and more channels. Those concerned with the social divide and the exclusion that a pay-TV environment might generate, support the development of DTT as a "natural" continuation of the generalist broadcasters of the analogue era, with the potential of providing a platform of quality channels accessible to all: [T]here is a fundamental opportunity offered by DTT. It is the possibility to solve, once and for all, the problem of the quality of television content.... With more channels available, there will be room for high cultural [channels] as well as for contents more in tune with mass interests. The TV system in its whole will guarantee that all interests representative of the culture of the country will receive the same treatment, will have the same dignity (Sartori 2004, 48). The problem, however, is that DTT is taking off rather slowly. This is supported by the data in Table 1, which shows that of all of the digital households in European countries, a clear majority has chosen DTH (i.e., platforms giving access to pay-TV) as opposed to DTT. In Italy, where 43 percent of the TV households were digital by the end of 2006, only 15 percent (i.e., about a third) had chosen DTT, and industry leaders say that only a small portion of DTT households actually ever access DTT channels (Siliato 2006a, 2007). It certainly needs to be said that the choice of subscription based DTH over free-to-air DTT might in part be due to a lack of availability of DTT (DTT developed later than satellite TV). However, if this were the case, we would expect to see consumers drifting away from pay-TV as DTT becomes more universally available over time. To the contrary, consumption of pay-TV continues to grow dramatically. According to AGCOM (2006), in 2005 revenues from pay offers in Europe and Italy increased by 20 and 32 percent respectively. Clearly, something other than a crisp picture is attracting consumers to DTH; namely, content. Table 1: Percentage of Digital TV Households in Europe by Country (December 2006) fi 3 a 0 fi * 1 * u 0 C (ju KD KD Digital Platform Country Any DTT United Kingdom 77% 30% Norway 57% 0% Finland 57% 29% Ireland 56% 0% Sweden 53% 19% France 44% 12% Italy 43% 15% Spain 40% 16% Malta 34% 3% Germany 32% 5% Cyprus 30% 0% Netherlands 29% 3% Iceland 29% 0% Denmark 28% 8% Austria 25% 2% Luxemburg 24% 1% Portugal 19% 0% Switzerland 18% 2% Belgium 13% 3% Greece 10% 1% All 42% 12% Source: Author's elaborations on data from e-Media Institute (e-Media 2007a). Free-to-air DTT vs. Pay-TV According to research done by e-Media Institute (2007b), there were a total of 298 digital TV channels available at the national level in Italy as of the end of 2006. However, of these, a full 100 defy characterisation by any genre and are therefore simply classified as "other." Given that these channels (e.g., religious, local and regional interests, home shopping channels), are provided free of charge and are widely available on all delivery platforms (34 on free DTT and 92 free on DTH), it is unlikely that they serve to drive consumers' decisions regarding platforms. As such, all of these channels will be eliminated from the following analysis, which seeks to identify differences in programming genre according to various platforms. As seen in Table 2, of the remaining 198 national channels, 181, 53, and 62 are available on DTH, DTT, and IPTV platforms, respectively. And if we further stratify these according to business model, we see that 72, 40, and 23 of these channels are offered free of charge on the DTH, DTT, and IPTV platforms, respectively. Table 2: Number of National Digital TV Channels (of definable genre) in Italy by Business Model and Delivery Technology (December 2006) KD Business Model Platform Free Pay PPV VoD All DTH 72 103 9 0 181 DTT 40 4 12 0 53 IPTV 23 38 1 2 62 All 77 108 14 2 198 Source: Author's elaborations on data from e-Media Institute (e-Media 2007b). Although there are nearly twice as many free DTH channels to choose from as compared to free DTT (72 vs. 40), as seen in Table 3, the overall trends in the proportion of channels according to genre are - with few notable exceptions - very similar. Specifically, free DTH brings consumers 15 "adult only" channels as compared to zero on free DTT, as well as relatively more "culture and education" channels (7 vs. 3 on DTT), and one "entertainment" channel. In contrast, a comparison between content available on free DTT and that available on Pay DTH (i.e. satellite subscription services), reveals dramatic differences (see Table 3). Table 3: Number of Digital Channels in Italy by Genre (December 2006) Business Model/Platform Genre Pay DTH Free DTH Free DTT Sport 19 5 4 Entertainment 18 1 0 Kids/Teens 14 1 1 Culture/Edu 11 7 3 Movies 10 1 1 Music 9 9 6 Adults Only 8 15 0 Travel/Hobbies 6 0 0 News 5 10 8 Generalist 2 21 15 Finance 1 2 2 Total 103 72 40 Source: Author's elaborations on data from e-Media Institute (e-Media 2007b). This data vividly illustrates the polarisation of the market into those who can afford quality programming (Pay DTH) and those who cannot (free DTT). Although there are no available data indicating which social and economic classes are likely to purchase pay-TV services vs. DTT, it is reasonable to speculate that this polarised market might reflect, at least in part, the country's economic conditions. Indeed, Italy is ravaged by a rising cost of living, a structural decrease in effective demand, and by unemployment rates that are decisively higher than the average in the EU (ISTAT 2006). The Italian economy registered only tepid increases in the first half of the 2000s, and although there were signs of improvement in the first quarter of 2006, in the previous four years the country's GDP grew at a very low rate (0.4 percent on average per year). All components of a weak demand seem to have contributed to the lack of economic performance in a country whose income distribution is one of the most unequal in Europe; one that is characterised by an increasing number of households that struggle to get from pay check to pay check (11.7 percent of total households, or approximately 7.6 million people, were categorised as "relatively poor" in 2004) with the highest incidence of poverty in the South (ISTAT 2006). Why a Polarised Market? Various scholars have analysed the process of polarisation of the TV market under the effect of digital platforms. In particular, Richeri (2000a) has studied the formation of a double market where quality audiovisual content tends to migrate to premium digital channels, whereas less valuable content is being distributed on free platforms. Audience fragmentation, diminishing resources available (the average annual budget of the main editors, RAI, Rti, Sitcom, is about 8-10 million euros per channel, which, according to Marzulli 2006, is the cause for their rather "poor offer"), and the rising cost of sport rights and films (the most valuable contents) create a situation in which: • Audiovisual programs will increasingly consist of small productions for very targeted audiences (Richeri 2000a, 10); • Low budgets and harsher work conditions will characterise the production process of TV content (Richeri 2000a, 10); • Reruns, and old programs already paid for, will abound on free TV; y • The growth of demand for foreign films and TV series (especially Hollywood productions) will not stimulate the production of domestic or European audio-£ visuals.5 The Role of PSB 3 a o e > (B Now, at the dawn of the digital era as it was the case at the dawn of the broadcasting era in the 1950s, the number one function of RAI should be to alphabetise its audiences to the digital languages (consider that the PSB flagship channel, RAI1's ^ audience is about 55 years old, in a country where 19.5 percent of the population is over 65).6 RAI should also establish the priority of its brand in the news and information sector, as well as in the entertainment sector. It should invest heavily in creating interesting and powerful relationships with its public thereby using constructively the interactive features of digital technology. For instance, in the case of a free-to-air digital channel like RAI Utile (loosely categorised as a news channel), whose public service mission is to facilitate the relationship between citizens and the public administration, more efforts should be made to establish stronger OQ connections with regional and other local institutions. RAI has the know-how, the Retrieved on 16 December 2006. 2. This is the definition of the "integrated communication system" (SIC) according to Law 3 May 2004, n. 112, Art. 2. Retrieved on 21 December 2006. 3. Law no. 66 of 20 March 2001 originally established 2006 as the deadline for the analogue switchoff. This deadline was extended twice, first to 2008 and then to 2012. 4. Sky Italia is the digital satellite television platform owned by Rupert Murdoch's News Corporation. 5. In fact, the market for thematic pay channels is already dominated by U.S. and other extra European groups, such as Disney, Newscorp, Time-Warner, Liberty Media and Viacom. Only 1/3 of the channels that are in the "basic" offer of Sky Italia are Italian-owned (Marzulli 2006, 50). 6. Data from ISTAT, 2005. Retrieved on 10 November 2006. 7. Streaming available at Retrieved on 28 December 2006. 8. See 9. Data gathered from IT Media (2006). References: AGCOM. 2005. Annual Report 2005. Retrieved on 7 January 2007. AGCOM (Autorità per le Garanzie nelle Comunicazioni). 2006. Annual Report 2006. Retrieved on 7 January 2007. Constitutional Court. 1988. Sentence n. 826, Art. 11. Retrieved on 10 November 2006. Contri, Alberto. 2006. Taped interview with CEO, RAI Net, RAI headquarters, Via Teulada 22, Rome, 25 October. De Chiara, Piero. 2006. Relazione introduttiva. Presented at the Second National Conference on Digital Terrestrial Television, La Televisione di Tutti, Naples, Italy, 14-16 July. 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