Vivendi Goes Digital

Universal Music and YouTube launched Vevo, their Internet venture for streaming music video, Dec. 8 with a splashy New York City party featuring a bevy of the label’s acts.

By taking official music video to its own social media network, Universal hopes to bridge at least some of the digital divide that has dogged the music industry in the last decade-plus.

Meanwhile, Universal parent Vivendi – the French media and telecom conglomerate – is in the process of bridging a financial gap of its own, rebuilding units and launching new ones in the wake of the financial disaster wrought by former CEO Jean-Marie Messier.

Vivendi’s new boss, Jean-Bernard Levy, has taken on a daunting task. He’s taking a “small-picture” approach to rebuilding the company eight years after a strategy of “overambitious” acquisitions nearly bankrupted the company, according to the Wall Street Journal.

Messier saddled the company with a reported euro 20 billion in debt by 2002 in an attempt to build a global media empire. It took two years of work by Levy and now-chairman Jean-Rene Fourtou to shave that debt to a more manageable euro 5.5 billion by the end of 2004.

Unlike other companies, like Bertelsmann AG, which recently hived off its music businesses to focus on media, Vivendi is making the most of what it has despite the recent sale of its 20 percent stake in NBC Universal, and not worrying too much about specialization.

“Defining clear borders is from an era when it was clear what telecoms and what television was. We span all these borders,” Levy told the WSJ.

The company expects to gain $5.8 billion in proceeds from the NBC sale, which it hopes to spend on “bolt-on” acquisitions for its existing units, and the purchase of the remaining minority stake in a French mobile phone operator.

There are analysts who question Vivendi’s commitment to Universal Music, despite the showy Vevo launch. Recorded music sales continue to tank, with the current exception of one Susan Boyle and a batch of year-end holiday releases.

“It’s hard to see how their strategy will translate into added value for the shareholder,” Sanford C. Bernstein analyst Claudio Aspesi told the Wall Street Journal.

But Vivendi continues its attempt to buck the trend. The company’s revenues rose nearly 10 percent to euro $19.5 billion in the first nine months of 2009 from the year-ago period. A surge in video games demand offset the drop in music sales, prompting video game subsidiary Activision Blizzard CEO Robert Kotick to tell the paper, “Visions are overrated. Vivendi’s focus is simple: make money.”

And Levy continues to do that by making a series of targeted acquisitions, including merging pay-TV unit Canal Plus with its French competitor to form the country’s largest such group. Vivendi also purchased BMG Music Publishing from Bertelsmann and merged it with Universal Music. It then merged its computer games unit with U.S.-based Activision to form Activision Blizzard, now the world’s top computer game maker.

Tapping into the global computer games market may be the smartest move of all by Levy and Vivendi. It’s already scored hits with “Guitar Hero” and “World of Warcraft,” and recently released “Call of Duty: Modern Warfare 2.” The latter rolled up $500 million in the first five days after its November release, a record for Activision Blizzard.

Music is still a drag on the bottom line, however. Sales reportedly fell 5.2 percent to euro 2.7 billion ($4.33 billion) in the first nine months of the year as consumers continue to increasingly buy online.

To counter that, Levy is lobbying for laws in France and Britain that would heavily penalize illegal downloaders, including one recently enacted that will disconnect repeat offenders from the Internet after two warnings.

Vevo, Vivendi and Universal Music adopted the adage, “if you can’t beat ’em, join ’em” with their own foray into digital. Vevo will allow music fans to view videos for free, while providing “a new array of advertising and marketing possibilities,” Universal Music CEO Doug Morris told the Journal.