Vivendi Looks to Expand Pact With Yahoo! to Match AOL
April 24, 2001
PARIS -- Vivendi Universal SA hopes to broaden its two-week-old music-licensing deal with Yahoo! Inc. to encompass movies and television shows in a bid to match the distribution clout of more vertically integrated AOL Time Warner Inc.
In a 90-minute interview at the Franco-American media giant's Paris headquarters, Vivendi Universal Chairman Jean-Marie Messier spelled out his vision of a close and mutually beneficial partnership with Yahoo that would stop short of a takeover.
"We believe that Yahoo could be the privileged partner of Vivendi Universal and vice versa," he said. "We have other content. Let's discuss this other content with Yahoo."
Mr. Messier also confirmed that Vivendi and News Corp. have reached a deal to merge their unprofitable Italian pay-TV businesses. Vivendi's Telepiu subsidiary will effectively take over News Corp.'s Stream unit, according to people familiar with the deal.
Vivendi will own two-thirds of the merged entity, while News Corp. will own one-third and hold an option allowing it to raise its stake to 50% within three years. The deal could be announced as early as Tuesday. Telecom Italia SpA, which owns 50% of Stream, is angling to sell its stake to News Corp., but no agreement had yet been reached on that aspect of the deal as of Monday afternoon.
Broadening its deal with Yahoo to areas other than music would enable Vivendi to reach consumers through a wider array of channels in the U.S., where its distribution network is for now limited to movie theaters, traditional retail outlets and cable-TV network USA Networks Inc. By contrast, AOL Time Warner already is in a position to pipe its films and TV shows straight to people's homes through the AOL Internet-access service and its vast network of cable lines. Owning its distribution platforms also enables AOL Time Warner to cross-sell and cross-promote each of its products to a wider audience.
"Unlike AOL Time Warner, Vivendi Universal has to rely on third parties," said Carlo Campomagnani, an analyst with Credit Suisse First Boston in London. "That is a potential weakness. You're much more limited in the flexibility you have to package and price products."
As he outlined the shape that a tighter alliance with Yahoo could take, Mr. Messier gave previously undisclosed details of the companies' music licensing deal. Under the terms of the agreement, Yahoo will make the Duet music-subscription service, a joint venture between Vivendi and Sony Corp., available on its Web site in exchange for a take of "well below 20%" of revenue, Mr. Messier said. That compares with the 40% take the online music-swapping service Napster Inc. would pocket under a proposal agreed to by Bertelsmann AG's BMG Entertainment but rejected by the other major music labels.
Yahoo's take of the revenue will increase once it has signed up 500,000 paying subscribers to Duet and rise again once the Web portal has signed up two million subscribers for Duet, Mr. Messier said. Although the deal is nonexclusive, Vivendi will make Yahoo its preferred promotional outlet on the Internet, he added. "For us, it's a very important and close deal," he said.
Although the partnership between Vivendi, Sony and Yahoo will compete with MusicNet, a rival online music alliance between AOL, Bertelsmann and EMI Group PLC, Mr. Messier said he was in favor of striking a cross-licensing deal with the members of the other alliance. "At the end of the day, our music has to be distributed on AOL and vice versa. That's what consumers want."
Mr. Messier welcomed the appointment of Terry Semel as Yahoo's new chief executive officer. Noting that the former Hollywood executive had played a key role in bringing Vivendi and Seagram together last spring, he called Mr. Semel "a great manager with a great vision joining a team that we are already pleased to be working with." However, Mr. Messier played down speculation, stoked by Mr. Semel's appointment, that Yahoo could sell itself to Vivendi, saying that for now Vivendi was only interested in "a soft alliance" with Yahoo.
Yahoo spokeswoman Nicki Dugan said, "As with all of our content partners, we're always open to exploring extending our relationships in ways that benefit consumers."
Vivendi released strong first-quarter earnings Monday, which Mr. Messier said partly reflected progress already made from merging Vivendi's European businesses with Universal Studios and Universal Music Group. Excluding Vivendi Environment, Vivendi's majority-owned utility arm, earnings before interest, taxes, depreciation and amortization reached 900 million euros ($812.5 million), more than double the pro forma earnings of Vivendi and Seagram a year earlier. Revenue increased 10% to 5.9 billion euros. Mr. Messier said he was confident Vivendi would "reach 100% of our ambitious 2001 targets" of 10% revenue growth and a 35% increase in Ebitda.
Mr. Messier reiterated his interest in swapping Vivendi's 23% stake in U.K. pay-TV group British Sky Broadcasting PLC for Liberty Media Corp.'s 20% share of USA Networks. Such a swap would bring Vivendi's stake in USA Networks to 63%, giving it full control of Barry Diller's network. Under a deal reached with the European Commission last fall in exchange for clearance of its merger with Seagram and French pay-TV group Canal Plus SA, Vivendi has 18 months to sell its BSkyB stake.
Mr. Messier said he had already discussed the idea of a swap with Mr. Diller and John Malone, CEO of Liberty Media. While Messrs. Diller and Malone both look favorably on such a deal "in principle," Vivendi and Liberty Media are still far apart on a valuation and "there are no active discussions at this date," Mr. Messier said. "Hopefully, we'll come to a middle ground someday."
-- Mylene Mangalindan in San Francisco contributed to this article.
Write to John Carreyrou at john.carreyrou@wsj.com , to Charles Goldsmith at charles.goldsmith@wsj.com and to David Woodruff at david.woodruff@wsj.com .
