In 2011, Rai posted a profit of 39.3 million euros (4.1 million euros at Group level), with a positive net financial position for Rai (0.8 million euros) and a negative net financial position for the Group (272.4 million euros), sustaining investments for the development of DDT in terms of the offering (14 free channels) and also at technological level for the progress of the digital network which is now almost complete.

The result for 2011 has improved considerably compared to the previous year, which closed with a loss of 128.1 million euros (98.2 million euros at Group level).

After five years and considering the continuing structural contraction of resources, in 2011 Rai finally inverted the negative trend in results, achieving a substantial breakeven.

The adaptation of the per-unit licence fee, in line with the long-term trend and anchored to the rate of inflation, determined an increase of 23 million euros in public resources, and this was partly due to the contribution of compulsory collections.

This result was positively influenced by the dynamics of new subscribers, despite the drop compared with 2010: paying users have now exceeded the 16 million family mark.

Following the significant drop in revenues from advertising endured in 2008-2009 – amounting to about 230 million euros – followed by an increase of just over 30 million euros in 2010, 2011 suffered a decline of almost 60 million euros, corresponding to just over 6 percentage points.
The constant deterioration of economic prospects, coupled with an inability to predict the expenditure of advertisers, led to repeated markdowns of the initial estimates, with a decline of almost 90 million euros.

Other revenues, those of a typically commercial nature and agreements with the Public Administration, present – despite the general situation of economic weakness – a slight recovery of around 3 million euros compared with the previous year.

In terms of operating costs, despite the absence – as in every other odd year – of expenses for big sports events, the tendency towards a reduction in expenditure was confirmed, within a constant setting, thanks to a combination of coordinated projects.

Actions to increase efficiency and rationalisation and the reductions in expenditure in all areas of the company, including product and related investments, had an immediate positive effect, creating the conditions to permanently consolidate the benefits, maintaining the leadership of viewing figures on the television market conquering it on the specialist TV market.

These results were achieved through a combination of targeted and selective operations which made it possible to attain real and significant increases in operating efficiency and to optimize the level of utilisation of internal resources, also thanks to the implementation of more streamlined and effective production models.

The income statement also benefited from the stability of labour costs, which remained below the rate of inflation.

The managerial operations entered into, including early retirement incentives and the substantial blockage of retribution policies, made it possible to reinstate the retribution component linked to the achievement of specific targets/aims which did not take place during the previous year due to a lack of the necessary requirements.

In greater detail, as regards revenues, the cost of the licence fee for 2011 was raised by 1.4% (from 109.0 to 110.5 euros). This is a percentage which is substantially in line with the planned rate of inflation.

The policy for the annual adaptation of the per-unit licence fee has been confirmed on the same basis again for 2012, with a rise of 1.5 euros (to 112.0 euros).

The licence fee – which should probably be called the compulsory licence fee to highlight the fact that it is not optional – continues to be the lowest in Europe for public broadcasting companies and also holds the negative record for particularly high tax evasion, which is estimated at around 27%, almost 19% higher than the European average.

A gradual alignment with the European standard, with a consequent recovery of significant resources, estimated at around 500 million euros a year, would require a revision of the payment collection methods, joined by a strengthening of the regulatory instruments designed to combat evasion, which are currently blatantly inadequate. The European experience in terms of payment collection is based on three models.
In the United Kingdom, the licence fee is due by anyone owning an appliance used to receive TV broadcasts (TV, PC, mobile phone). Business users pay the licence fee on the basis of the number of appliances owned.
In Germany, from 2013 the fee will be payable by every home (no longer linked to the possession of the appliance); business uses pay on the basis of the number of employees with a series of exemptions and restrictions. In France, the licence fee is due for possession of a TV, which is presumed for all holders of an electricity contract, unless proof to the contrary is supplied.
The licence fee is collected together with residential tax.

More effective actions to considerably expand the subscriber portfolio would help Rai in the pursuit of its mission as a Public Service in a rapidly changing context which requires consistent investments in technology and particularly in the products offered.

These actions would also have positive effects on viewers, thanks to the balanced distribution of the benefits resulting from the reduction in tax evasion, and also on the audiovisual industry in general.

On the basis of the results of the separate accounting for the 2010 financial year, certified by independent auditors, the imbalance between public resources and the costs sustained by the concession holder for the fulfilment of public-service responsibilities amounts to 481 million euros.

This imbalance falls to 364 million euros after the allocation of the specific share of the advertising revenue from the programming.

The imbalance, calculated on the basis of the deficits emerging from the annual accounts as of the 2005 financial year amounts to over 1.7 billion euros, substantially corresponding to the annual value of income from licence fees.

The economic situation of the Euro zone was rather weak, with further difficulties occurring towards the end of the year, implicating a reduction in growth prospects for 2012. Product dynamics were influenced by the rise in financial costs due to the deterioration of the sovereign debt and the slowing down of global trade, which nevertheless continues to support economic activity. Manoeuvres to correct public finance are not only indispensable to avoid worse consequences on economic activity and financial stability, but also reduced domestic demand.

In this context, the advertising market, following the general decline of over 13% in 2009 and recovery of almost 4% in 2010, showed a decline close to 4% in 2011, with television advertising posted a reduction of just over 3%.

Moving on to the more specific setting of the reference market, emphasis should be placed on the huge change in competition, characterised by broader, more articulated, multilevel, and consequently multi-dimensional, competition between different platforms, business models and operators.

Competition takes place at different levels: between broadcasting and commercial platforms to adjudicate audiences forced to abandon terrestrial analogue television due to the switch-off processes by technical areas, which is now almost complete: between free channels and pay-tv channels; between the operators active within the two market segments.

The main activators of the change in the competitive context are the switchover to digital television and the consolidation of the Internet.

The switchover to digital television has determined, first and foremost, extensive development of pay-tv and, subsequently, the creation of interesting market spaces for the affirmation of new free specialized offerings, determining a considerable acceleration in the audience breakdown process to the detriment of the traditional generalinterest offerings.

The consolidation of the Internet, in terms of volumes and frequency of use, and the related capacity to attract advertising investments has made this media vital to individuals and to advertisers. Moreover, thanks to innovations in content/services and the performance of broadcasting infrastructures and devices for fruition, the foundations have been laid for the final affirmation of a new market characterized by the powerful entry of global players, often with a noneditorial origin.
The Internet is, in fact, gaining ground as a platform in direct competition with traditional communication media.

As regards free-TV, the progressive affirmation of digital terrestrial TV has brought about immense changes in the service offered. General interest channels have been joined by a broad and varied offering of over 60 channels and this number is destined to increase even further. After enduring the competition of pay-tv channels, the general-interest channels are now enduring the rapid proliferation of new free channels, mainly of semi-general interest and dedicated to children.

The framework outlined is represented by the evolution of the resources of the television system, characterized by the extensive growth of revenues from direct expenditure by viewers for access to pay tv and pay per view services – which now account for over 35% of the total – and the market shares of collection of payments for advertising. Mediaset showed a stable performance, while Sky enjoyed a significant increase and Rai suffered a decline.

Rai is Radio, Rai is Television. Thanks to constant commitment towards the development of the presidia of new Ip distribution channels, Rai is becoming increasingly active on the Internet.

In such a complex and increasingly open market, once again in 2011 Rai has confirmed its undisputed lead of the television market: with a 40.2% share over the 24 hours and 41.3% during prime time, Rai takes precedence over the Mediaset Group with an advantage of about 4 percentage points.

Rai is also leader in the specialized offering. With an offering of 11 semi general-interest and themed channels, Rai records a total 4.8% share, overtaking Mediaset (4.4%) and Sky (4.0%).
This is a record in terms of viewing figures but also a success in terms of Rai’s Corporate reputation. The overall opinion of Rai’s work as the public service provider has improved for the second semester running, reaching a value of 7.1 points on an assessment scale of 1/10 (in June 2011 it was 6.9). The increase is linked particularly to the growth of the specific contribution of Rai’s activity to the various platforms and to the attention devoted to programming for the disabled.

In the presence of a structural weakness of resources and the need to strengthen the products on offer, Rai has developed its offering in order to continue to occupy a leading role within the television system of traditional media and network media services, drawing up the 2012-2014 Industrial Plan which will contain the initiatives necessary to continue the successful activities launched in 2011, with a view to maintaining a sustainable and lasting economic outlook which represents the basis for the Company’s development and its cultural and technological relaunch.

The most intensive effort in terms of investment has been dedicated in recent years to the development of the digital terrestrial platform, to respect the scheduled switch-off by technical areas decreed by the pertinent Ministry. This is a project which has required a consistent financial effort – beginning with that for the construction of the network infrastructure which, by the time it is completed, will have absorbed resources worth about 500 million euros – as well as considerable commitments and investments in the area of contents to expand the offering.

Rai is facing this considerable investment programme, which is also characterized by deferred profitability and is in a market phase which continues to be difficult, with its own resources and without any support in the form of public funding taking into account the specific role of the concession holder and its particular network configuration.

The evident insufficiency of resources from the licence fee in relation to the costs sustained for the public service activities assigned to the concession holder is joined by continuing uncertainties relating to the dynamics of advertising revenues. The weakness of the economic cycle and the deterioration of growth prospects, along with the on-going recession falls within a phase which is already extremely critical for Rai’s advertising sales, posing a risk of amplifying the negative effects.

The outlook for 2012 – which relies on the restoration (partly underway) of normal conditions on financial and credit markets which would limit the decline in manufacturing activities and also on the positive impact of structural measures to relaunch the economy, with consequent benefits in relation to household expenditure decisions – is showing a positive trend.

Possible tensions in terms of advertising revenues will be offset by the benefits expected from income related to socalled ‘special licence fees’ and, above all, from the improvements deriving from the increasingly extensive and effective actions scheduled to rationalize expenditure. The recent important organizational discontinuities, including those represented by the formation of the Entertainment Management, within the scope of the review by Genres/Channels, and by the reconfiguration of responsibilities connected to the Fiction genre will also have an influence with regard to increasing efficiency and specialization.

A contribution to safeguard levels of employment will also come from an evolution in labour costs that are increasingly consistent with market trends.

An important contribution to income is expected to come from special licence fees, in relation to which tax evasion is extremely high. A special section was introduced in Law no. 214 of 22 December 2011, requiring companies to indicate their licence number on their tax returns to check payment of the special tv licence fee.

Due to the orientation expressed in certain legal provisions, Rai is classified as a public legal entity, with the consequential need to apply the instructions envisaged in the Code that regulates public contracts for employment, services and supplies.

Consequently, Rai – operating in a situation in which it has to compete on an increasingly competitive market, having to contend for important advertising resources – is required, in order to satisfy its requirements, and being the only one of the operators in the sector to have to do so, to observe the principles and public procedures envisaged by the Code, allowing for all the exemptions and simplifications envisaged by the regulations, particularly in consideration of the prerogatives and characteristics of the television business.

A particularity that also characterizes the technological investments linked to the switch-off process, strictly regulated by the schedule imposed by the ministerial calendar and the final assignments of the relative frequencies which are often delayed with respect to the planning requirements.

Rai, the public service concession holder, is an integral part of the country’s institutions – to some extent – because the government has assigned it fundamental tasks which would otherwise have to be carried out directly. Rai – as the public broadcasting service and a company – senses this responsibility, which simultaneously means proximity and independence:
interpretation of the hopes and needs of citizens/users, translated into a rich and varied high-quality proposal of information, entertainment, divulgation and plural and pluralistic culture and vision.

Rai has to and intends to be synonymous with an integral offering as a public service broadcaster, not only with regard to the type of subjects handled but also with a constant effort to achieve quality, innovation and individuality, the method and language used to represent the editorial, radio, television and multiplatform product.

Undeniably, the challenges – also in terms of cultural approach and social responsibility – awaiting Rai are very demanding from the technological viewpoint and in relation to the offering. We are all personally learning how our consumer habits and the way we use the various communication media are radically changing.

The desire to remain in line with the country and keep up with the transformations taking place on the market requires a financial, regulatory and institutional framework that is as clear and stable as possible.