By Elvira Pollina and Danilo Masoni
MILAN (Reuters) - The Italian unit of Sky Plc (L:SKYB) approached Italian broadcaster Mediaset (MI:MS) to buy its unprofitable pay-TV business Mediaset Premium but was rebuffed, according to two sources close to the matter.
However, one of the sources said on Friday informal contacts were being maintained between Sky Italia and the Italian broadcaster controlled by former prime minister Silvio Berlusconi.
Mediaset Premium last year won exclusive rights to broadcast Champions League soccer matches in Italy for an estimated 700 million euros (500.78 million pounds), stretching its cost base but giving it a powerful commercial advantage over Sky Italia.
A spokesman for Sky Italia declined to comment. "The company does not comment on rumours," he said.
A spokesman for Mediaset said he was unable to confirm the report.
Discussions over the possible sale of the pay-TV operation come at a time when the 78-year-old media tycoon Berlusconi is taking steps to reshape his business empire which also includes soccer club AC Milan.
The sources also said Qatar's Al Jazeera had resumed contacts with Mediaset over the pay-TV business. Al Jazeera was not immediately available for comment.
Last year Mediaset said it was in talks with France's Vivendi (PA:VIV), Al Jazeera and others to cooperate in the pay-TV business. However in March this year it said negotiations had ended without success.
Mediaset currently owns 89 percent of the pay-TV unit after Spain's Telefonica (MC:TEF) bought an 11 percent stake last year in a deal that valued the whole business at 900 million euros.
Telefonica has an option to sell the stake back if Mediaset finds another partner, sources familiar with the situation said last year.
Some analyst say the Italian market is too small for two big pay-TV players such as Sky and Mediaset Premium, meaning that without a tie-up profitability could remain under pressure as costs for rights increase and consumption declines.
Revenues at Mediaset Premium fell 2.5 percent to 538.4 million euros in 2014. In March the company said the business would return to profit after reaching break even next year.