Telecom Italia IPTV and Cubovision underperforming

The Telecom Italia Media Board of Directors, chaired by Severino Salvemini approved today – in the light of the favourable opinion of the committee responsible for related party transactions – the early resolution of the Competence Centre agreement with Telecom Italia.

The agreement, signed in 2007 and renewed in 2010, concerned the supply by TI Media to Telecom Italia of editorial activities, the conceiving and planning of programming, research, and acquisition of media content for distribution over Telecom Italia’s TV platforms (IPTV and Cubovision).

The fee settled by the contract was based on forecasts of rapid expansion for the IPTV and OTTV platforms. In reality, these forecasts have not been met due to a slowdown in the market as well as sharp pricing pressure from the two main Pay TV players in Italy. The situation was further complicated by problems of a regulatory nature.

Following the recent reorganization, Telecom Italia has decided to unify under the parent Company all editorial activities relating to its platforms.

For these reasons, Telecom Italia has asked TI Media to interrupt the supply contract from 1 October 2011, and has offered to pay TI Media an indemnity negotiated by the parties on the basis of the actualised loss of earnings by TI Media (from 1 October 2011 to 31 December 2012, the natural expiry date of the contract).

The final amount of €20.5 million was subject to examination by an independent external evaluator chosen jointly by the two parties.

The termination of the Competence Centre contract with Telecom Italia will have a positive impact on TI Media’s 2011 net financial position estimated at around €20 million. The future effects of the operation will be examined, together with other components of the company, prior to the closure of the financial year, during the presentation of the 2012-2014 Business Plan in accordance with the parent’s schedules.

The decision to terminate the Content Competence Centre contract represents a related party transaction and for TI Media–given the size of the indemnity–one of greater importance. As such, in accordance with prevailing regulations, a specific document on the matter will be published by TI Media within the terms required by law.