NEWS Corporation's Italian pay-TV business Sky Italia is facing stiff competition after massive sales of a new soccer pay-per-view TV service offered by Prime Minister Silvio Berlusconi's Mediaset.

Sky Italia has exclusive satellite pay-TV rights to eight of the best Italian soccer teams including Juventus and AC Milan, but Mediaset recently bought the digital terrestrial (free-to-air) broadcast rights of the same teams.

That followed the Italian Government's decision last year to kick-start digital free-to-air TV by providing a E70 ($120) subsidy for the first 720,000 digital set-top boxes people must buy to see the Mediaset service.

The Government has since decided to extend the subsidy to another 1 million boxes in 2005.

Mediaset will launch its soccer pay-per-view service on January 22, and Macquarie Equities analyst David Gibson yesterday reported that a single retailer had sold 150,000 of the PPV cards in two days. "(The retailer) Mediaworth has since ordered an additional 150,000 cards which it expects to sell prior to the first match on January 22," he wrote.

Italians can buy Sky Italia's pay-TV package for an average of E40 per month or spend E18 for Mediaset's PPV service (one card enables a viewer to watch six soccer games).

"To watch a match a user must insert the card into the set-top box and press OK twice – a simple interface," Mr Gibson said.

News, owner of The Australian, secured an Italian pay-TV monopoly in 2002 after buying the failing pay-TV business Telepiu for $2.5 billion and merging it with its loss-making Stream operation. Sky Italia is expected to lose E150 million this year before breaking even towards the end of the 2005 financial year.

Mr Gibson said Mediaset had estimated it needed 300,000 users each week to break even.

"We continue to be concerned that the digital-TV PPV offering will cost Sky Italia financially as a result of higher subscriber acquisition and retention costs," he said.

Deutsche Bank media analyst Mike Mangan said Mediaset had also bought the first option on all TV rights (including satellite) for these teams when Sky's deal expires in 2007. He said the issue for Mediaset and Sky would be whether Italian soccer fans prefer Sky's price, extra channels, credit card payment method and technology.

"We expect few viewers will care about technology so that leaves price, additional channels and payment method," he said. "We think many soccer fans will be ambivalent about extra channels and Italy has one of the lowest credit card pay rates in the world. Stripping out all else, the Mediaset offering is likely to be cheaper."

Mr Gibson said, should digital PPV succeed, "Mediaset expects the price of Sky's E400 million soccer rights to fall while the digital terrestrial and DSL (broadband internet delivered over telephone wires) rights will increase".