Berlusconi-backed MFE hit by ad slowdown, rising costs

By Elvira Pollina

MILAN (Reuters) -Italy's MediaForEurope (MFE) on Wednesday reported a 65% drop in operating profit for the first nine months of the year, hit by shrinking ad sales and higher costs, and called for a change of tack at ProSiebenSat.1, where it owns a big stake.

The broadcaster controlled by the family of former Italian Prime Minister Silvio Berlusconi has built, partly through derivatives, a 29% stake in its German peer, becoming its single biggest shareholder.

MFE, previously known as Mediaset, has long seen pan-European alliances as the way to buttress traditional broadcasters against the threat posed by streaming giants such as Netflix or Amazon, but ProSiebenSat.1 has shown little interest in any cooperation so far.

"We haven't really seen ProSieben address the big challenges the industry faces: audience decline, digital transformation ... and the need for scale to compete with digital giants," MFE finance chief Marco Giordani told analysts.

"We hope the new strategy will mark a change from the past," he added, referring to new ProSieben CEO Bert Habets.

MFE also owns TV operations in Spain.

It reported a group operating profit of 97.6 million euros ($101.3 million) for January-September, compared with 275 million euros a year ago.

That was slightly ahead of analysts' consensus forecast provided by the company of 95.5 million euros, but MFE joined rivals in painting a grim picture ahead for the advertising market as Europe's energy crisis looks set to tip the economy into recession.

"The third quarter ... depicted the deteriorating scenario already shown by other sector's players," broker Bestinver said.

MFE's shares were down 3.5% at 1240 GMT, underperforming a 0.6% drop in Italy's blue-chip index.

MFE said advertising sales in its core domestic market fell by 2.5% to 1.31 billion euros in the nine months.

Costs in Italy, meanwhile, rose 5.7% to 1.32 billion euros.

Matteo Cardani, general manager at the company's advertising unit Publitalia, told an analyst call that ad sales were "flattish" in the fourth quarter up until mid-November.

Going forward, however, sales are expected to suffer "materially" once Italy's state broadcaster RAI starts screening World Cup soccer matches from Sunday, he added.

($1 = 0.9635 euros)

(Reporting by Elvira Pollina, Editing by Simon Cameron-Moore and Mark Potter)