Reuters is reporting that Mediaset and Sky are in contact over a possible deal for Mediaset Premium, Mediaset’s loss making Italian pay-TV asset, quoting “sources familiar to the matter”.

In a report to investors, equity analysts at Exane/BNP-Paribas say: “As a reminder Vivendi recent acquisition of MS Premium broke down on disagreements with owner Mediaset over the operating prospects for the Italian pay-TV unit. With Mediaset Premium in a precarious financial state, the article states Mediaset would likely need to find another partner to be able to bid again for key rights. Key football rights, the Champions League and Serie A expire in 2018 but are due to go up for auction in H1 2017.”

The bank’s report continues: “The article states no negotiations can take place between MS and SKY while the case with Vivendi is ongoing. The case is scheduled to start in March 2017 but Mediaset issued a press release on Friday saying that it had dropped an additional request for a court to order the seizure of a 3.5 percent stake in Vivendi, potentially opening the door to an out of court settlement.”

The report says any such deal has challenges. “Overall, if done sufficiently cheaply, the idea of consolidating the Italian pay-tv market would likely be positive.  However, investors may be wary of further capital allocation to Sky Europe following recent challenges. Finally, with key auctions imminent in 2017, Sky may prefer to wait to win the content rights directly, rather than acquire through Mediaset Premium.”

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