MFE-MEDIAFOREUROPE N.V. 
MILAN/PARIS (Reuters) - The project to create a joint venture between Telecom Italia and the pay-TV arm of its biggest shareholder, French media group Vivendi, is an "uphill struggle" but the project is not dead, a source familiar with the matter said.
Earlier on Friday Italian newspapers Il Sole 24 Ore and Il Messaggero wrote that the project had fallen through.
The planned joint venture between TIM and Vivendi's Canal+ was one of the vehicles through which Italy's biggest phone group planned to produce and purchase content for its customers. It is also part of Vivendi Chairman Vincent Bollore's stated ambition to build a southern European media powerhouse.
"The process has turned out to be more difficult; it's an uphill struggle," the source said, adding that TIM's board would address the issue when it meets on March 6 to approve the group's industrial plan.
A source close to Vivendi added that the French group remained confident the plan would go through.
"The plan is still valid," the source said.
TIM approved the content deal with Canal+ in October, strengthening the link between the phone company and its biggest shareholder.
But the way the decision was taken brought criticism from some of TIM's board directors and is also being scrutinised by Italian market regulator Consob.
The delay in setting up the joint venture also marks a setback in attempts to resolve a bitter legal dispute between Vivendi and Italian broadcaster Mediaset ahead of a court hearing set for next Tuesday.
Vivendi and Mediaset, controlled by the family of former Italian Prime Minister Silvio Berlusconi, have been working on a possible deal that would result in the broadcaster selling its own content to the TIM-Canal+ joint venture and eventually becoming part of it, other sources have said previously.
Such a deal could have helped to settle the long-running row with Vivendi after the French group pulled out of a proposed deal to buy Mediaset's struggling pay-TV unit Premium.
Mediaset's chief executive said in December he hoped the shared interest over TV content with TIM could pave the way to a truce with Vivendi.
A third source said that a planned attempt at reaching an out-of-court settlement between Mediaset and Vivendi, through mediation before Tuesday's court hearing, had fallen through.
The source close to Vivendi added that this did not prevent the parties from trying to reach an out-of-court agreement.
(Reporting by Stefano Rebaudo, Giancarlo Navach and Agnieszka Flak in Milan; Gwenaelle Barzic and Dominique Vidalon in Paris; Editing by David Goodman)
