Vivendi's Dead, Long Live Vivendi


CEO Jean-Bernard Lévy is a smooth operator who's reinventing the French entertainment company by moving it from movies to video games and music

With his French-tailored suit, near-perfect English, and 100-watt charm, you would never guess Jean-Bernard Lévy is something of a corporate undertaker. At 52, Léevy, chairman and chief executive officer of French conglomerate Vivendi (VIVEF), is well on his way to burying the image of his company as one of the biggest suckers ever to hit Hollywood.

Vivendi, the onetime water utility for the French city of Lyon, created back in 1853 by decree from Napoleon III, descended on the U.S. entertainment industry in 2000 with more money than smarts. Led by a dilettante French investment banker named Jean-Marie Messier, it jumped into the entertainment business by plunking down $3 billion for French theater chain Pathé (PTHZF) and its stake in Britain's BSKyB satellite service. Then it swooped in with a $41 billion deal to buy Universal Pictures parent company Seagram. By 2002, it was swimming in more than $20 billion in debt, and Messier, who had enjoyed the high life with an expensive home in New York, was sent packing. Lévy, a financial type appointed chief operating officer after Messier's departure, was named CEO three years later.

Since then, Vivendi has been working to change itself from a bloated, out-of-its-element media company. It sold off Universal to General Electric (GE) in 2003 for $14 billion, keeping a 20% stake, while buying down some of its debt, and taking $3.4 billion in cash, according to its annual report.

Feeling Comfortable with the Business

But shrink from show biz? Well, not exactly. Vivendi pulled one of the big surprise deals of the past year, striking an $18 billion deal with video game publisher Activision (BusinessWeek.com, 12/2/07) (maker of the popular Tony Hawk series) that merges it with Vivendi's own Blizzard Entertainment, owner of the ultra-popular World of Warcraft online fantasy game.

Together with its ownership of Universal Music—which it didn't sell to GE—that makes Vivendi owner of the world's largest video game company and the top-ranked music company as well. It's not Hollywood, but to listen to the understated Lévy, the deal gives Vivendi something even better. "We gave up a business that we didn't really understand, and really were never able to manage correctly, and replaced that business with managers we feel comfortable with," he says. In essence, "We took the money that we got from GE and put it into businesses that we feel much more comfortable with."

Lévy, who was in Los Angeles recently for a board meeting at the new Activision-Blizzard, smiles as he discusses the new Vivendi. Sipping tea at the Shutters Hotel alongside the Pacific Ocean, he says he understands the music business is "challenged right now." Others would say it has been cold-cocked by music pirates. Excluding acquisitions and the effects of currency changes, Vivendi's music revenue fell 3% last year, which the company says "reflects a difficult music market." No kidding.

Depending on Subscription Services

Still, Lévy has reason to smile. The Vivendi of today is shorn of the heavy debt Messier slapped on it. It's now positioned as a company focused heavily on subscription revenues that it believes make it less susceptible to piracy and economic slowdowns. It generated the largest single chunk of its $31 billion in revenues last year from its majority stake in the SFR mobile-phone service and another nice chunk from the more than 10.5 million subscribers to its pay-TV service Canal Plus.

But increasingly, says Lévy, Vivendi is finding ways to squeeze revenues from its entertainment properties. The company collects a monthly fee, roughly $15 from each of its more than 10 million online game subscribers, which helped the company record a 27% hike in its game revenues. Its cell-phone revenues increased 4%, in part because of the music downloads and ringtones it delivered to its customers. Lévy and other Vivendi executives recently were amazed when twice as many people—250,000—signed on for unlimited music downloads from SFR in the first two months it was offered.

Does this mean Vivendi has licked its image as a bumbling entertainment enterprise? It's looking that way—Hollywood has a short memory. The good news is Vivendi has stepped back and let its entertainment executives run their businesses. Universal Music, despite the tough business it operates in, has seen its digital revenues increase to 14% of its overall revenues, a 51% hike from last year, as it has shoved out ring-tones and found more download partners. (If anything, the business was maybe a touch too aggressive: The Justice Dept. is investigating possible collusion between Universal and Sony-BMG to offer a subscription online service, which Lévy wouldn't comment on.) And it hasn't squelched the freewheeling culture at Blizzard Entertainment, which has generated a bone fide video blockbuster in World of Warcraft.

A Good Night at the Grammys

Lévy says his team has all kinds of great ideas for using its entertainment properties in the digital world. He notes Universal Music already sees plenty of its music downloaded on the ultrahot Guitar Player game that Activision released for Christmas last December.

I like Jean-Bernard Lévy. He jokes easily about the entertainment industry, acknowledging what he doesn't know and how he leans on veterans such as Universal Music Chairman Doug Morris and Activision's Bobby Koticik. That's usually a good first step for hot money when it comes traipsing into Hollywood. And when he attended the Feb. 10 Grammy Awards, he knew his role. "I'm wearing a suit and tie. I'm a suit after all," he said before the event.

Whatever he wore, he must have enjoyed himself: Universal Music artist Amy Winehouse waltzed off with five Grammys, even if her visa problems forced her to accept them from London via satellite. Chalk one up for the good guys—no, not Amy, the smooth-talking executive from France, who has finally buried Vivendi's old Hollywood image.


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