The decision is likely to cause a heavy financial blow to Berlusconi's TV group Mediaset which will now be forced to reimburse to the Italian authorities a huge amount of illegal state aid.
Between 2004 and 2005, the government led by Silvio Berlusconi spent around €220 million to encourage the purchase or rent of digital terrestrial decoders by Italian citizens (see 'Background'). Thanks to the government subsidies, in 2004 Italian families could buy terrestrial decoders with a €150 discount per piece. The following year, the discount was lowered to €70.
Millions of decoders were sold, creating a new market for terrestrial pay TV services. Until then, pay TV in Italy was confined to satellite and cable offers, a sector controlled by the Australian media mogul Rupert Murdoch through his company Sky Italia.
It may have looked as if the subsidy was justified by the need to help Italians switch to the new digital technology, as advised by the European Commission. However, the subsidy to digital terrestrial TV unfairly altered competition, as Brussels stated as early as 2007.
As has been often the case in recent Italian politics, the entire operation was soon denounced as favouring Berlusconi's financial interests. Indeed, Mediaset has been the private company which most profited from the subsidy scheme. It quickly launched new pay TV services ahead of any competitor and quickly enrolled most of the newly created market's new consumers.
Berlusconi's brother Paolo also gained from selling decoders through one of his companies, although maintaining a relatively low market share, at around 5%.
Even if other Italian TV stations benefited from the subsidy scheme, namely Rai, La 7 and Fastweb, Mediaset's gain has reportedly been the largest by far. In fact, only Mediaset appealed the Commission decision.
In June 2010, the EU Court rejected Mediaset's appeal and yesterday's ruling definitively concludes the procedure at EU level.
However, the exact amount that Mediaset will have to reimburse is to be set by the Italian authorities, which should calculate the advantage brought to each terrestrial TV station in Italy. Interest will also have to be paid.
The ruling comes as Berlusconi's Mediaset had just been forced to pay a heavy fine for a corruption case dating back to the early 90s.
Just a week ago, Mediaset paid €560 million of damages to CIR, a media holding which controls the leftist newspaper La Repubblica and the magazine L'Espresso, among others. CIR's head is Carlo De Benedetti, a key player in the Italian media landscape.
The payment of the fine concluded a two decade-long trial for which a close Berlusconi aid, Cesare Previti, has been condemned to a 11-year prison sentence for having corrupted a judge who favoured Berlusconi's Mediaset in the purchase of a top Italian publishing company, Mondadori. Berlusconi avoided the trial thanks to the statute of limitations, owing to the fact that too much time had passed between the events and the beginning of the trial.
Meanwhile, Mediaset is fighting another battle against the tycoon of tycoons, Rupert Murdoch, who is trying to take advantage of the developments to access the terrestrial TV market in Italy, from which he has so far been excluded.
A competition procedure is currently ongoing to sell the freed radio frequencies, with the Commission keeping an eye to the operation, which has exacerbated many suspicions of wrongdoings.