In 2010, Rai posted a loss of 128.5 million euros (loss of 98.2 million euros at Group level), with a positive net financial position for Rai (3.8 million euros) and a negative net financial position for the Group (150.4 million euros).

The result for 2010 has deteriorated compared to the previous year, which closed with a loss of 81.3 million euros (61.8 million euros at Group level). The negative results of 2010 can be attributed to on-going economic and financial difficulties triggered by the heavy structural contraction of resources. 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 40 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, which is recovering after the decline that marked 2009: paying users have now almost reached the 16-million family mark.

Following the significant drop in revenues from advertising endured in 2008-2009 - amounting to about 230 million euros - 2010 showed a reversal of trend, with an increase of just over 30 million euros, corresponding to just over 3 percentage points.
Other revenues, those of a typically commercial nature and agreements with the Public Administration, present a decline of around 67 million euros, completely cancelling the improvement of primary resources, this being partly due to the general situation of economic weakness. Almost half this reduction can be attributed to the strategic decision not to renew the agreement for the supply of channels produced for the Sky bouquet.

In terms of operating costs, taking into account that - as in every other even year - the 2010 income statement was influenced by heavy expenses for big sports events (almost 108 million euros for the World Cup and the Winter Olympics), 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 applied to all corporate areas and to the subsidiaries had an immediate positive effect, creating the conditions to permanently consolidate the benefits.

The impact on the consolidated operating result, the most significant analysis dimension, highlights an improvement - following the deduction of the impact of big sports events to make comparison easier, of around 130 million euros.

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. The managerial operations entered into, including early retirement incentives and the substantial blockage of retribution policies, made it possible to neutralize the impact of the renewal of contracts and expenses linked to the stabilization of employees with temporary employment contracts.

The absence of the inspection of the retributive component linked to the reaching of specific targets/aims, due to a lack of the necessary requirements, also made a contribution. In greater detail, as regards revenues, the cost of the licence fee for 2010 went up by 1.4% (from 107.5 to 109.0 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 2011, with a rise of 1.5 euros (to 110.5 euros).

The licence fee 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 25-30%, compared with the European average of under 10%.

A gradual alignment with the European standard, with a consequent recovery of significant resources, 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.

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 2009 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 about 438 million euros.

This imbalance falls to 337 million euros after the allocation of the specific share of the advertising revenue from the programming.
The recovery of the world economy recorded in the first half of 2010 showed the first signs of slowing down beginning in the second half of the year. The international macroeconomic dynamics penalised the recovery of the Italian economy, initially sustained by higher international exchanges but then slowed down by uncertainties regarding the evolution of demand, with particular regard to the consumption component, which is affected by uncertain employment prospects and continuing stagnation of real household incomes.

In this context, the advertising market, following the general decline of over 13% in 2009, recovered almost 4%, while television advertising posted a growth of about 6%.

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: between free channels and pay-tv channels; between the operators active within the two market segments.

In the pay-tv segment, despite the fact that the predominant role continues to be played by the satellite operator, the competition between the two major operators, Sky and Mediaset, is becoming fiercer and fiercer. This is having evident effects on the acquisition of premium rights, which are absolutely critical to success. This aggression in the strategies used in the procurement of sports and film rights represents a potential threat to Rai's competitive positioning as these are areas traditionally covered by the Public Service Operator.

As regards free-TV, the affirmation of digital terrestrial TV - which is now the platform most popular among users - has brought about immense changes in the service offered. General interest channels have been joined by a variety of semi-general interest and specialised channels.

There are almost 50 in the ‘all-digital' areas and this number looks set to rise, considering the channels due to be launched by the operators taking part in the so-called beauty contest for the assignment of the television frequencies available.

The proliferation of new free semigeneral interest and specialized channels has inevitably led to the division of viewing figures among broadcasters and the types of programmes on offer. This has determined a natural contraction of the broadcasting performances of the general-interest channels.
The framework outlined is represented by the evolution of the resources of the television system, characterized by the extensive growth of revenues from access to pay TV and pay per view services, which now account for over 35% of the total, and by 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.

In the presence of a structural weakness of resources and the need to strengthen the products on offer, Rai has developed the 2010-2012 Industrial Plan with a view to maintaining its presidia of premium products in order to compete effectively within an extremely complex market setting and continue to occupy a leading role within the television system.
The Industrial Plan is the response developed by Rai to create balance within the company, also envisaging operations that will influence industrial layouts, with discontinuous actions on the outline of the activities supervised. Rai is currently engaged in implementing that envisaged by the Industrial Plan, developing the operational and detailed projects of the activities outlined, which will take quite some time to accomplish due to the structural nature of some of the actions. Several important points relating to simplifying the Group's corporate structure are almost completed.

The incorporation of RaiSat and Rai Trade into Rai and of 01 Distribution into its holding company, Rai Cinema, will follow, before the end of the summer, that of RaiNet into the Parent Company. On the strength of its strategic address/industrial tool and the television offering plan, both of which are scheduled to be implemented over the long term, Rai is pursuing its mission to offer all users access to the broadest and most articulated offering of free broadcasts, achieving excellent viewing figures across the various reference audiences. In the all-digital areas the offer currently consists of 14 channels, one of which in HD: RaiUno, RaiDue, RaiTre, Rai 4, Rai 5, Rai Premium, Rai Movie, Rai Storia, Rai YoYo, Rai Gulp, Rai News, Rai Sport 1, Rai Sport 2 and Rai HD.

Rai is confirming and strengthening its role as leading national broadcaster. In terms of broadcasting performance, this lead is further accentuated by the contribution of the new specialised offer. In addition to digital terrestrial platform, Rai is also present on all the main consolidated and emerging platforms on the market.

With a complementary role, both for territorially margin areas or those penalised by possible reception difficulties and in order to fulfil the obligations imposed by the Institutions with regard to technological and competitive neutrality, Rai has set up, in conjunction with Mediaset and Telecom Italia Media, the first free satellite platform, Tivù Sat, offering complete broadcasting services, without the blackout of any programme within the whole bouquet available on the DTT network in the all-digital areas. This offering has continued to evolve since its launch in the middle of 2009 and now has about 50 domestic and international channels.

The development of DTT in compliance with the calendar for the switch-off by technical areas requires a consistent financial commitment, starting with that 8 REPORT ON OPERATIONS for the construction of the network infrastructure: a technical investment which, by the time it has been completed, will have absorbed resources of about 400 million euros, much of this being concentrated in 2011-2012, as well as significant commitments and investments in the area of contents to expand the offering.

Rai will have to face this considerable investment programme without the support or with only the marginal support of public funding taking into account the specific role of the concession holder and its particular network configuration, in a market phase which continues to be difficult. The insufficiency of resources from the licence fee is joined by continuing uncertainties relating to the dynamics of advertising revenues. The general weakness of advertising, while conditioned by the on-going negativity of the macro economic situation, seems to present structural characteristics, partly deriving from the expansion of investment alternatives available to those placing adverts and the more targeted proliferation possibilities offered by advertising campaigns available on other channels.

In this context, the outlook for 2011 - which has the possibility to benefit from improvements due to further actions to rationalize expenditure, enabled by stricter cost reduction policies, the implementation of certain actions included in the Industrial Plan and the absence of big sports events - is much better than it was for 2010, and should make it possible to achieve a substantial breakeven. The extent of the improvement will depend on the performance of the advertising variable.

Due to the orientation expressed in certain legal provisions, during 2010 Rai became eligible for qualification as a public legal organization, 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 a highly competitive market - is required, in order to satisfy its requirements, and therefore for the selection of its contractors, 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.

The Public Service concession holder operates in the awareness of the fact that it belongs to the country. It endeavours to interpret the country's needs and hopes, translating them into a rich and varied proposal, always observing a very high level of quality, right across the board. It will continue to do so, maintaining the exclusive free nature that has always distinguished its mission and on which the particular responsibility of the Public Service is based, having been effectively conceived and addressed at all citizensusers. Everyone knows that Rai accompanied the country's growth in the analogue sector and it nourishes hopes, which are already being partly fulfilled by the early results and acknowledgements, that it can play an important role in the digital world too, where the increase in the offering risks limiting the growth in overall reliability of the proposals.

At this point, we would like to reiterate that written in last year's report. The substantial belonging to the Institutions of our country, as an entity which performs a fundamental public mission on behalf of the country, subjects Rai to a series of increasingly severe addresses, directives and restrictions, which establish the details of the area of activity and, at least partially, the methods used to accomplish it.
Every three years, Rai and the Ministry of Economic Development draw up the Service Agreement, an ‘operating charter' which, on the basis of EU and national legislation, established the details of the single tasks that the concession holder has to perform. An Agreement which must comply with the preliminary guidelines established by the Italian Communications Authority in accordance with the Ministry of Economic Development.

The Consolidated Law on Finance makes express provision for a mechanism to guarantee the economic equilibrium of the concession holder, acknowledging that public resources must equate to the costs sustained for the performance of the activities delegated to it.

This legal order has not been respected up to now, causing enormous damage to Rai, year after year.
If the principle of proportionality between costs and resources had been respected, Rai could have had income for over 1.3 billion euros in 2005-2009. Even without the results of separate accounting, the instrument that certifies the deficit of public resources, Rai endures a deduction of resources which is unequalled in other European countries, due to the aforementioned anomalous extent of licence fee evasion. The reduced annual income for Rai can be quantified at about 500 million euros.

It is obvious therefore that, if this evasion were to be drastically reduced, the imbalance that emerges structurally from the separate annual accounts would be resolved. This would guarantee the legal required proportionality between Public Service resources and costs.
The acknowledgement of public resources to Rai in an appropriate amount would have generally positive effects: on the comprehensive prospective balance of market resources, on the audiovisual industry, on the concession holder's capacity to improve its focus on the pursuit of the Public Service mission with a further advantage for the overall quality of programming.

Rai therefore believes that the recovery of the accounts and of a sustainable economic balance, as well as the restoration of a solid financial situation, require - not only for every possible initiative to lever costs dynamics, in line with the Industrial Plan - but also a decisive intervention on public resources.

Indeed, the intensification of competition and the consolidation of certain technological and consumption trends have excluded the possibility of the aid guaranteed so often in the past by advertising in relation to the modest income from licence fees. In addition to this, during recessions or weak market situations, the more restrictive conditions to which Rai is subject have always amplified market difficulties, and this despite recent positive publishing performances.

The maintenance of the structure of the layouts and area of activity, in relation to which the independence of Rai is bound to the decisions made by the Institutions, poses an obvious limit to the extent of the benefits that can be obtained with recovery policies concentrated solely on rationalising costs, which do however continue.
The need to make the licence fee the main source of funding for Rai, with a view to guaranteeing the prospective economic and financial balance, is shared and this forms a fundamental basis for progress.

Indeed, the 2010-2012 Service Contract recently signed between the Ministry of Economic Development and Rai contains - along with a further expansion of the mandate assigned to the public concession holder, induced by transformations linked to the switchover to DTT - certain important innovations. The strategic importance of these guarantees for Rai, which will have to be applied promptly and meticulously, suggests their integral proposition at this time.

"The Ministry undertakes to identify, with the involvement of the pertinent administrations, the most effective methods to contrast evasion of the licence fee, suggesting appropriate legislative initiatives and taking the necessary administrative measures. To this end, the Ministry undertakes to set up a specific technical table, as soon as possible, to be attended also by the concession holder".
"The Ministry and Rai shall report annually to the Parliamentary Commission on the results of the actions implemented to contrast licence fee evasion and shall present a report on the activities of the technical table". "The Ministry and Rai undertake, on the basis of the reports and proposals of the commission or of evidence gained from the separate financial statements, to review this Contract, in order to restore the best possible exercise of the service, where the proportionality and adequacy between Public Service mission and costs and the relative funding, as the result of this Service Contract, are significantly altered".

In conclusion - with the support of adequate public funding - Rai will be able to ensure an even greater distinction of its offering. It will be able to make bigger investments in innovation, to build a bridge that can create a stable link with the new generations, who use a variety of technologies to access content, and it will be able to acquire the skills necessary in order to maintain a balanced central role within the communications industry.

Consequently, in the future it will be able to represent what it has done so far for Italian society: a place of understanding and unification for the country's civil and economic growth.