The Sardinian Who Would Be A Leviathan

It happened around the pool at Niky Grauso's mansion on the sleepy Italian island of Sardinia: When L'Unione Sarda, the local newspaper he owns, went on the Internet last summer, the 48-year-old media entrepreneur was so impressed that he decided to set up his own online network. For weeks, he and his staff worked out a business plan as they lounged in the sun. "By the end of the month," says Grauso's computer consultant, Reinier van Kleij, "we had the company set up and the first equipment ordered--all from poolside."

Score one for the speed, flexibility, and audacity of Italian small business. Now, Grauso's new Video On Line service is up, running, and planning to attack its better-known rivals. Grauso's infant network can already handle up to 1 million subscribers, using leased high-capacity fiber-optic lines that join its headquarters in Sardinia's capital, Cagliari, with New York, Washington, and European capitals. Video On Line is already among the largest Internet servers in Europe, fielding 150,000 connections a day. Grauso is now expanding internationally into the U.S., Europe, the Middle East, and elsewhere in Asia. "Within six months," he brags, "we'll be bigger than CompuServe and America Online."

The industry is getting more crowded by the minute. Including IBM's and Sears Roebuck & Co.'s Prodigy Services Co., the three big U.S. online networks have over 8 million subscribers in North America. They are gearing up to expand in Europe, and giant Microsoft Corp. may soon follow with its own international online service. Meanwhile, Europe Online, a joint venture of Britain's Pearson Group PLC, France's Matra Hachette, and Germany's Burda, will be starting up in late fall. "There is only going to be room for three or four services in Europe," says Europe On Line CEO Christian Bruck.

How can Grauso, whose media interests bring in barely $100 million a year, hope to compete with the big boys? His answer is that deep pockets don't mean success in the brave new online world. Although he claims to have sunk $30 million into his venture, he says that knowhow is more important for success.

Here Grauso has surprising leverage. He has in his camp Italian Nobel laureate physicist Carlo Rubbia, who founded Italy's foremost computer simulation research center, CRS4, in Cagliari in 1990. Researchers at CRS4 had been instrumental in developing Internet's successful World Wide Web.

Now, they're hard at work providing software for Video On Line, which has become their biggest customer. One new program allows Internet users to access real-time information on Italian soccer games and browse through background information on players. Video On Line is also trying to merge television and the Internet. Next month, it's sponsoring a Europe-wide TV documentary on the rock group Nirvana, during which viewers can debate it on the net.

ONE LEG UP. Video On Line may also have a technical leg up on older, U.S. services weighed down by first-generation infrastructure. Many subscribers complain that CompuServe Inc. connections in the U.S., for example, are too slow for those who want Internet's multimedia graphics and sound. U.S. services are working hard to upgrade. Nevertheless, "if you start fresh like Grauso, you have a clear advantage," says Marco E. Graziano, chief executive of San Jose (Calif.) software maker Teknema Inc.

Still, Grauso's bold media investments have not always worked. He has done best at home. In the 1970s, he began the first pirate radio and TV stations in Sardinia. As those prospered, he plunked down $9 million in 1985 to buy L'Unione Sarda. Within six months, it became one of Europe's first newspapers to have computerized page-setting, saving around $3 million a year.

An adventurous push into Poland has finished badly, though. In 1991, Grauso acquired control of Warsaw's No.2 daily, Zycie Warszawy, and bought a small Polish TV station. He turned the station into Poland's largest private network. Then, the Polish government tightened rules on foreign ownership of broadcasting, forcing some transmitters to close. Meantime, competition from another Warsaw daily cut Zycie Warszawy's 100,000 circulation by 40%. So Grauso wants out "as fast as I can."

The Sardinian entrepreneur is vague about projected earnings for Video On Line. Revenues will come both from subscriptions and advertising, he says, but the business plan hatched last summer by the pool changes almost every week. Even though Grauso is off to a fast start, it will take more than bold plans for Video On Line to outdo entrenched global competition.

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