PwC’s Strategy& and Mediaset began preparing for the digital challenge in 1997.

Companies struggling with tough issues like eroding earnings or dwindling market share take on strategic transformations in order to survive. But an organization at the top of its game, like Mediaset, has reason to keep doing what it’s been doing — and takes on a particular risk when it makes a fundamental change to boldly embrace an uncertain but potentially greater future.

That’s what drove Mediaset, Italy’s leading analog television broadcaster, to develop and deploy digital TV. Strategy& began helping Mediaset prepare for the digital challenge in 1997, working with Chief Operating Officer Franco Ricci.

Mediaset Chairman Fedele Confalonieri, appreciating “the results of the long-standing relationship and Booz & Company’s international and local teaming culture,” later asked Strategy& to help his company transform digital discontinuity into a business opportunity.”

“Our company had been very successful for a long time, and it’s very easy to get stuck, to feel fulfilled,” says Alberto Sigismondi, head of interactive TV for Mediaset in Milan. “It’s hard to engage yourself and your company in something that is risky and innovative, to keep one eye on the present and one eye on the future. That was the value Strategy& added to this project. They gave us a bigger perspective on the scenario.”

Italy’s government had passed a law declaring that all broadcasters would eventually have to switch from analog to digital services. Mediaset could have maintained its analog leadership for several more years, but it took on the challenge of becoming a digital broadcaster well in advance of the legal requirement.

Strategy& worked with Mediaset through three phases: Vision/Opportunity Identification, Digital Strategy/Option Development, and Digital Service Planning, Piloting, and Roll-Out.

Working with Gina Nieri, Mediaset’s director of institutional and strategic affairs, the Strategy& team articulated the opportunity that digital TV presented, helping management understand lessons learned in other geographies both through direct conversations with broadcasting executives in those countries and through analogies drawn from other industries.

The focus then shifted to the business model. During this phase, Strategy&’s experience in the telecommunications industry helped with the development of the first-to-the-world concept of using prepaid “smart cards” for pay-per-view television. Next came the development and acceptance of a universal set-top box that would use the prepaid cards. That meant a service deployment and technology plan had to be executed.

“In the business model, we innovated in order to be sure we could find the Italian way, the Mediaset way,” says Pietro Candela, a Strategy& principal based in Milan. “We decided to launch something new, moving from a typical billing-for service model to a prepaid product, an anonymous smart card you can buy in shops. This was really a different approach to the business.”

The insights gained from the assignment were captured in the book Next TV, which was published in 2003 in Italian and English. Broadcasters in England, Germany, Spain, Portugal, and Poland have since sought out Mediaset and Strategy& to learn about this new business model, which leveraged Strategy&’s broad expertise in media, telecommunications, and technology.

“What Mediaset has done in the last three years is amazing,” says Sigismondi. “Three years ago, we had only an analog TV business, and we are now one of the leaders in digital television.” What Strategy& brought was “knowledge of technology, especially the ability to sew together the different aspects, strategy and technology, and how to keep them together without taking the technology power trip or the strategy dreams,” he says. “They kept us grounded, with the courage to embrace this change.”