Vivendi's Mobile Entertainment Move

The French company's new multimedia service, called Zaoza, will deliver content across multiple devices and encourage users to share it with friends

by Jennifer L. Schenker

French conglomerate Vivendi's (VIVEF) first attempt to move into media and deliver it across different platforms was a disaster. Its $41 billion deal in 2000 to buy Universal Pictures' parent company Seagram left the company swimming in debt, and it spent tens of millions more with partner Vodafone (VOD) on a service called Vizzavi to deliver content across mobile, Internet, and TV, an effort that fizzled and then died.

But times have changed, so eight years later Vivendi, a onetime water utility for the city of Lyon, is at it again. The French company held a press conference Feb. 19 to launch a multimedia service called Zaoza, Chinese for "word of mouth" or "buzz," that will work on mobile phones and personal computers and later perhaps on TV set-top boxes. Zaoza will offer consumers unlimited downloads of exclusive content—including music, ringtones, video clips, and games—from a variety of content partners for €3 ($4.40) per month. The twist is that subscribers will be able to share—to and from PCs and mobile devices—everything they download with up to five friends.

The service, which is primarily targeted toward 15- to 35-year-olds, is designed to work across all models of mobile handsets, with the notable exception of Apple's (AAPL) iPhone. The goal is to ensure that all operators in any given country offer the service. Zaoza is being launched in France first, will then be rolled out across Europe, and may later be introduced in the U.S.

The Stars May Be Aligned

Analysts say Vivendi, which has so far shelled out more than $14 million to build Zaoza, may have it right this time. Apple's iTunes service has proved that people are willing to download content onto their portable devices, mobile broadband speeds are finally becoming a reality, and operators across Europe are introducing flat mobile data rates.

Vivendi is also a very different company that it was five years ago. It sold off Universal to General Electric (GE) in 2003 for $14 billion, while keeping a 20% stake and buying down some of its debt. Today it controls the world's largest video game company, thanks to an $18 billion deal in December with video game publisher Activision (ATVI) that merges it with Vivendi's own Blizzard Entertainment, owner of the ultrapopular World of Warcraft online fantasy game. And Vivendi also owns Universal Music Group (BusinessWeek.com, 2/11/08). .

Vivendi has become quite adept at squeezing revenues from its content. It is now positioned as a company focused heavily on subscription revenues, a pricing strategy that hedges against piracy. The company collects a monthly fee, roughly $15, from each of its more than 10 million online game subscribers, which helped it record a 27% increase in its game revenues last year. Mobile-phone revenues from its majority stake in French mobile operator SFR increased 4% in part because of the music downloads and ringtones it delivered to customers.