Italian Alliance Talks Get More Complex

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Milan, Italy -- Instead of the image of a fresh mountain
spring, the ongoing saga of Italy's second digital TV platform, Stream, has more twists
and turns than an old, meandering river.

The platform from Telecom Italia, the country's
telecommunications giant, is still lumbering around, trying to pin down partners for its
digital-cable and satellite-TV venture, despite earlier indications that it was close to
signing deals.

It seemed that only the fine print separated Italian public
broadcaster RAI, French broadcaster TF1 and News Corp. from becoming partners in Stream.
However, RAI, from which a commitment was seen as essential, has decided to hold out a
little longer.

RAI has accepted a recent offer from Canal Plus -- 90
percent-owner of Telepiú, which runs the competing digital satellite D+ platform -- to
reconsider acquiring a small stake in that venture, sources said.

None of the parties involved in the negotiations in Italy
would comment.

D+ has about 330,000 digital subscribers, compared with
Stream's 80,000 -- 70,000 of which are reached through cable. Hardwire was intended as
Stream's only means of distribution, but satellite distribution was added in September,
when Stream decided to go head-to-head against D+.

Canal Plus has held talks over the past year to sell part
of its stake in Telepiú, but it hasn't come to any agreement.

Originally, the talks were centered on getting Stream to
merge into the D+ platform. Various sources said the talks stalled either because of the
high valuation that Canal Plus put on Telepiú, or because of rumblings from the European
Commission that it would reject a single joint platform as anti-competitive -- or possibly
due to a combination of the two.

To complicate matters more, Italy's new telecommunications
operator, Wind --- a joint venture between Italian state-owned electric utility ENEL,
Germany's Deutsche Telekom A.G. and France Telecom -- said last month that it was also
considering taking a stake in Telepiú.

The possibility of Telepiú/D+ remaining a strictly
European-owned platform, unlike Stream, is making it look more attractive to RAI. Italy's
center-left government is known to oppose News Corp. chairman Rupert Murdoch gaining a
significant foothold in the country's media marketplace, even though he has been proposing
to do it through his company's British Sky Broadcasting unit.

RAI would prefer local magnate Silvio Berlusconi's
Fininvest, which owns the remaining 10 percent stake in Telepiú, as a partner over News
Corp.

Sources said negotiations for new investors to buy into
Stream are also stalled over RAI's insistence that News Corp. sign a noncompete clause
that would restrain the company from competing against RAI in Italy's
domestic-terrestrial-TV market.

Meanwhile, TI is putting pressure on RAI to commit to one
side or the other, and it seems unlikely that RAI will abandon its long-standing
partnership with TI. TI has stated that it is willing to make deals with Murdoch and TF1
-- a shareholder in the TPS digital platform in France -- if an agreement with RAI isn't
reached soon.

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