Jean-Marie Messier, the compact, fresh-faced chairman and CEO of Vivendi S.A., makes no bones about what he's aiming to do when the three-way, $34 billion merger between his company, Canal Plus S.A., and The Seagram Co. Ltd. is finally completed.
That event is expected to take place next week, if and when the two companies' shareholders ratify the deal on Dec. 5.
"We are starting as the No. 2 global world media company," said Messier following a meeting with analysts in New York. "We think we have one step in front of us to be the No. 1 global company. We want it, we dream it and we'll do it together."
That may seem like a Napoleonic vision, given the "step" that stands in the way of that No. 1 designation right now-the mother of all megamergers between Time Warner Inc. and America Online Inc.
Vivendi puts its pro forma consolidated revenue for its various media holdings in calendar year 2000 at 24.6 billion euros ($21.11 billion), with expected revenue growth of 10 percent over the next two years. Add in the non-media businesses and that number is pushed up to $55 billion.
By comparison, Time Warner's 1999 revenues totaled $27.3 billion and AOL's revenues for the fiscal year ended June 30 were $6.89 billion.
Messier says the top-
ranking will be achieved by relying on "internal growth and commercial partnerships before speaking of any acquisitions." However, several industry observers wonder if there's enough internal combustion in the combined Vivendi Universal to propel it to the lofty goal.
Most agree that the force of those efforts will be clearly felt in the United States, quite possibly through the acquisition of a hot distribution property like DirecTV Inc., EchoStar Communcations Corp. or NBC, as well as expanding existing assets.
Industry players will see manifestations of that this week in Los Angeles, both on the Hollywood entertainment scene and at the Western Show.
On the convention floor, members of Vivendi's Canal Plus U.S. Technologies unit will take on the likes of Liberate Technologies and OpenTV Corp. with their middleware. Canal Plus is going after both operators and programmers for deals that can capitalize on the company's sophisticated knowledge of interactive programming, developed at Canal Plus' channels and satellite platforms in Europe.
If Vivendi Universal has its way, it could help the whole U.S. cable industry make a significant jump into the realm of ITV.
Meanwhile, in Universal City, forces at Universal Music Group's eLabs venture will push forward nascent broadband projects that involve a slate of premium music programming designed for high-speed Internet connections and set-top boxes. It's working with such allies as Excite@Home Corp. and Canal Plus U.S. Technologies, which is incorporating set-top software that would allow operators to pick up the music programming.
And Seagram's Universal Studios group will be counting the box office tallies for its just-released Jim Carrey vehicle,
Dr. Seuss' How the Grinch Stole Christmas.
It's that kind of property that can really fuel some of Vivendi Universal's satellite-delivered channels around the world, which between the three companies now number around 75-ranging in scope from the USA Networks properties, to movie channels in every major region, to MTV Asia.
But those activities just scratch the surface of challenges for Vivendi Universal as it seeks the media pole position. High on the "to-do" list is the extremely difficult task of integrating not just two, but three enterprises. Part and parcel with that is the complex issue of internal politics.
PULLING IT TOGETHER
Executives from all three companies are busy protecting their turf or eyeing some additional clout. One key Vivendi official is already out the door; others are rumored to follow.
Fear is also reportedly rife at Universal, as staffers contemplate the very real possibility of corporate downsizing.
Making matters more difficult will be the successful assimilation of two Gallic enterprises into ego-driven
Hollywood, which isn't known for its kindness to foreign strangers. (Remember Sony Corp.'s experience with Jon Peters and Peter Guber in the early days? How about Matsushita Electric Industrial Co.'s four years of losses during its stewardship of Universal in the early 1990s?)
"It will be easier for them [Vivendi] than the Japanese," said one source that lived through the Matsushita regime. "But it still isn't easy for foreign companies in Hollywood. There's a big difference between the way the French TV industry is run and the U.S., which is much more commercial."
There's little wonder that Messier said, "We have enough on our plate." But given his ultimate goal, many are asking if the plate is large enough "I think that as [News Corp. chairman Rupert] Murdoch found, to be a top global media company, you have to be in the U.S," said one media executive "And that business involves being in both distribution and content."
A look at a recently released PriceWaterhouseCoopers report lends credence to the importance of the U.S.-and of distribution platforms-in creating the kind of global traction that Vivendi seeks.
About 48 percent of 2000 global consumer media and entertainment spending will occur in the United States, according to the report. That's taking the U.S., Europe and Asia into account. (PWC will release data on Canada and Latin America next year.)
According to the study, U.S. spending this year will amount to more than $337 billion, and will grow to more than $443 billion by 2004. All along the way, it will outpace industry growth for the other regions tabulated in the study, with average gains of 7.6 percent on a compounded annual basis.
The very highest growth in the U.S. is expected in the broadcast TV, direct-broadcast satellite and cable-distribution sectors, which collectively outperform nine other media categories.
The executive, who requested anonymity, questioned whether Vivendi Universal can really become a force to be reckoned with unless it invests in the likes of DirecTV. Or, perhaps in lieu of that-given Murdoch's aggressive designs on the platform-Vivendi could well become serious about acquiring a property like General Electric Co.'s NBC, with its string of highly desirable broadcast TV stations.
That certainly meshes with the well-reported hopes and desires of a new member of the Vivendi camp, Barry Diller, who is chairman of USA Networks. That company is 42-percent owned by Universal.
The missing distribution link isn't lost on Vivendi Universal officials. On Vivendi's home turf, its pay-TV unit Canal Plus became a powerhouse with a three-pronged strategy: developing sophisticated set-top box middleware to support conditional-access and interactive applications; a huge slew of original channels and programming and-last but not least-a string of direct-to-home (DTH) satellite platforms.
Those platforms serve France, Spain, Italy, the Nordic region, Benelux and Poland. And, according to one well-placed source, French platform CanalSatellite expects to become profitable by year-end-one of a scant few satellite platforms in the world that can make that claim.
While Vivendi's name has been coupled with that of News Corp. in discussions of possible bidders for DirecTV, don't hold your breath waiting for that alliance to emerge. The two titans are known to mix like oil and water, a situation indirectly confirmed by Messier recently when he referred to Murdoch as a "not-so-easy partner." At the time, he was discussing Vivendi's need to divest in the News Corp.-controlled British Sky Broadcasting DTH platform in order to comply with the European Commission's agreement to green-light the Vivendi Universal deal.
Messier explained that if Vivendi exchanges its 24.4-percent stake in BSkyB for a stake in News Corp.'s planned Sky Global Partners venture-which would include News' investments in DTH platforms around the world-it would be only an "interim" measure.
"We are in no hurry.We have a long period of time, two years, to make the divestment," Messier added. And it's that leisurely sell-off situation that makes some observers wonder if Messier and crew will further delay the launch of Sky Global's planned initial public offering, which was recently postponed until first-quarter 2001.
MESSIER THE DEALMAKER
This much is clear: "From day one, we have no debt, free cash flow, and huge assets to arbitrage, like the BSkyB stake," said Messier. That no-debt situation is apparently dependent on the company's sale of Seagram's spirits and wine business.
"I don't underestimate Messier. I think that he's very much like Rupert [Murdoch]. If you look at [The Walt Disney Co. chairman and CEO Michael] Eisner and [Viacom Inc. chairman and CEO] Sumner [Redstone], they're pretty predictable and not financial engineers, and Messier is," said one global player. "If you look at Messier's balance sheet, it's pretty strong.
"He's an unorthodox player that can pull off unorthodox deals."
Added Prudential Securities Inc. senior entertainment analyst Kathy Styponias: "They appear to have more upside than Time Warner and AOL. Part of that is because AOL and Time Warner have yet to say, 'Here's how we're getting our projections.'"
By contrast, she said, Messier "laid out in black and white, 'Here's how we're going to get to these targets.'"
One standout example of Messier's financial acumen and unorthodox vision is his transformation of Vivendi. Some have derided Vivendi as a mere French water-utilities company that's had the audacity to get into wild and wacky world of media.
But Messier has been building Vivendi into a European media giant since he joined the company as chairman and CEO in 1994, when it was known as Compagnie Générale des Eaux.
Tucked into the portfolio alongside Canal Plus is Cegetel, France's first private telecommunications company, with an expected 12 million mobile phone and fixed-line customers by year's end. Also in the mix is the large publishing firm Havas Group, whose estimated 2000 revenue will be 3.5 billion euros ($3 billion) and whose domain includes a string of electronic games that Canal Plus has already made use of on its platforms.
Linking those businesses and that of Canal Plus is a new company called Vizzavi, which has the expressed goal of becoming Europe's leading Web portal within three years, delivered in four different languages.
Vizzavi is a joint venture with the British-based mobile-phone giant Vodafone Group PLC, which is an investor in the U.S.'s largest wireless carrier, Verizon Wireless. Vodafone also has a slew of minority stakes in mobile-phone companies across Europe and has snapped up 3G mobile phone licenses there.
Vizzavi was introduced in France in June, and by year-end will have added operations in the United Kingdom, Germany and Italy. In the process, it's allowing Havas to expand its games business to Wireless Application Protocol (WAP) mobile phones.
"The value of Vizzavi right now is that it will be the default portal of 80 million devices," including the customer bases of Cegetel, Vodafone and Canal Plus's DTH business, explained Prudential Securities' Styponias.
AN ITV VETERAN
Clearly, Vivendi's present and future experiences in delivering Internet content over cell phones in Europe could eventually be transferred to the U.S., just as Canal Plus U.S. Technologies hopes to capitalize on the company's interactive-TV experience.
Right now, Canal Plus U.S. Technologies' business "is being done with the assumption that we don't own a platform. We have to make AT&T and DirecTV our partners," said Arthur Orduna, senior vice president of marketing at the unit. But he's definitely after the programmers.
"We have a list of different kinds of content buckets and the leaders of those buckets that we want to go after," he says. "Sports, music and games are extremely important to us, because we do them in Europe already, and they work very well."
Fortunately, the electronic games developed by Havas-as well as the interactive music experimentation going on within Universal-means Orduna already has a leg up with two of the "killer apps" he's targeting.
Sports, however, could prove a tad trickier, particularly since ESPN recently bowed out of Eurosport, now a European partnership involving Canal Plus and another French media heavyweight, TF1.
Clearly, the unit's ability to ally with U.S. companies that have no corporate ties to Vivendi Universal will be the key to its success. And it's little wonder, as Orduna pointed out, that headway has been made on that front.
Canal Plus U.S. Technologies not only has an interactive venture with The Weather Channel, it has also provided middleware to the former MediaOne Group Inc. (now AT&T Broadband) system in Jacksonville, Fla.
"We are the only middleware provider on a commercial cable system in the United States," he boasted. "Others have commitments for trials, but no deployments."
That may be so, but that deal was done quite some time ago. And Canal Plus' "only-deployed" status won't last much longer, when operators across the country start launching middleware from such competitors as Liberate Technologies, Microsoft Corp. and PowerTV Inc.
Orduna's work is just one indication that Vivendi isn't your typical foreign company entering U.S. turf by buying a major studio property. Another indication is Canal Plus's longtime reputation as a player in Hollywood, albeit one that's somewhat on the periphery.
Its Le Studio Canal Plus unit has helped produce and/or distribute a variety of Hollywood product, from major releases like
to smaller, critically acclaimed pictures like
which recently debuted in U.S. theaters.
The latter happens to be a product of Working Title Films, which is an already-established joint venture with Universal Pictures.
And Canal Plus's CEO, Pierre Lescure, also has a certain reputation as the former live-in
of Catherine Deneuve, a French film icon. He is now Vivendi's most important link to Hollywood.
And that's undoubtedly one key reason why-in the final days before the shareholders' meetings-Messier has so vehemently denied that Lescure is on the verge of leaving. "C'est de la connerie!" Messier exclaimed, in a recent interview on a French radio station. That translates to a well-known barnyard epithet.
If that were to occur, it would be on the heels of another departure that thinned the ranks of Canal Plus executives with Hollywood ties, Alex Berger, who was co-chairman of the Internet unit Vivendi Net and a senior advisor to Lescure.
Berger's defection in late September has largely been attributed to Messier's decision to make the company's Internet strategy part of the domain of Edgar Bronfman Jr. Bronfman is currently
Seagram's president and CEO, and is expected to become vice chairman of the merged entity.
Press reports indicate that Berger's departure provoked tension between Messier and Lescure. But when discussions between executives go on for days and nights, one argument shouldn't be misconstrued, said Lescure.
"When you are making a vital move like a merger [a momentary tiff is like arguing about] the color of the walls, the color of the bedroom.
After that, we are living together, we are working together."
But for every reassurance, a new report seems to dog Vivendi's heels, pointing to other eminent departures or executives whose duties are being marginalized. One Canal Plus veteran discounted the notion that Lescure is losing significant executive talent.
"First of all, this is all still emerging," he said. "And secondly, the number of people involved isn't that big a number. It's completely reasonable" in a merger situation.
Of course, Vivendi has affected Canal Plus's strategies for quite some time, but under the new agreement, its 49-percent interest will grow to 100 percent of the entire company, with one exception.
Canal Plus's flagship and namesake French channel is delivered with a terrestrial signal, which requires a government license. French regulations stipulate that no one shareholder in the terrestrial Canal Plus can own more than 49 percent. So that portion of the company will be separated from Vivendi Universal as a 49-percent owned entity.
To those on the outside, the separation of a company that has largely been the heart and soul of Canal Plus raises some big questions.
CANAL PLUS CUT LOOSE
"The thing I find amazing about the deal is the way in which one of the almost careless consequences is the dismemberment of Canal Plus," said one source who has partnered with the French broadcaster on ventures. "The French piece goes into one company, and the rest gets absorbed into this behemoth.
"Time Warner and AOL's growth is based on two immensely powerful engines in the U.S. market," the source added. "The risk in Vivendi is that the base is [largely] European. And if Canal Plus is not cherished in the new Vivendi Seagram structure, can it succeed?"
Others, most noticeably the French film industry, have voiced concerns about the local channel's ability to maintain an independent identity and strategy. Canal Plus officials wouldn't respond on the record to those concerns.
Anxieties are also registering in the U.S. at Universal. That's not surprising, as the company has adjusted to two other ownership changes-Japan's Matsushita and Canada's Seagram-in the last decade. And it's also witnessed layoffs that routinely occur at other U.S. companies when they are merged with other entities, such as those that occurred when the The Walt Disney Co. absorbed Capital Cities/ABC Inc.
Clearly, managing and maintaining top talent will be a key issue on Vivendi's agenda as it steps down the road to global dominance. As for what lies at the end of that road, does absolute media supremacy really matter? Is No. 2 really such a downer?
"It's not that important. Because what does it mean? No. 1 in what? We're all in so many businesses," said one top executive at another global media monolith.
Then lumping Messier together with the likes of Viacom's Redstone and News Corp.'s Murdoch, he added, "You're talking about billionaires, where money isn't an object, who are late in their careers."
What the source seemed to forget for a moment is that Messier is a mere 44 years old. Should he succeed in climbing the ever-slippery steps to the top media throne, he'll presumably have a good 20 years of career life left to him.
What will he do for an encore?