Universal Faces Significant Cuts

Falling sales at Universal Music Group have caused Vivendi chief financial officer Philippe Capron to warn the unit faces “very, very significant” cost cuts.

Vivendi’s Q3 balance sheet, which shows Universal’s revenues were down 1.7 percent – 6.3 percent at constant currency – reflects chief exec Jean-Bernard Levy’s strategy of investing in games to offset the decline in the recorded music business.

Universal’s Q3 revenues of euro 2.9 billion are not so far ahead of the euro 2.3 billion made by Activision Blizzard, in which Vivendi holds a 59.6 percent stake, with sales of such video games as “Call of Duty” and “Starcraft 2” up 14.8 percent.

The music group’s earnings before interest and tax were euro 244 million, a 9.3 percent drop on last year.

Although Capron’s warning of cost cuts in the music sector was quickly followed by the promise he wouldn’t hurt “the muscle and the bone” of the business, it’s clear Vivendi is expecting games to sell better than music in the lead up to Christmas.

“We should have an exceptionally strong year-end in the video-games unit, thanks in part to the new ‘Call of Duty: Black Ops’ title,” Capron told investors during a conference call.

Universal’s results would have been worse if it hadn’t rallied in the third quarter, when revenue was up 6 per percent to euro 1.03 billion ($1.39 billion) and earnings before interest, taxes and amortization were up 47 percent to euro 85 million ($116 million).

Much of the damage was done in the first six months when revenues were down 5.4 percent compared with the same period in 2009.

The major sellers for the first nine months include Eminem, Lady Gaga, Justin Bieber and Michel Sardou, plus the debut albums from Drake and Florence & The Machine.

Vivendi’s overall net income, including its TV and mobile phone networks, rose 6.7 percent to euro 688 million ($936.5 million) from euro 645 million in the same period last year.

That’s slightly higher than the euro 684 million analysts had estimated, according to a Bloomberg poll. Earnings before interest and tax are up 10 percent to euro 4.7 million.

The release of the figures saw Vivendi shares to rise 1.5 percent to euro 20.50 on the Paris exchange, giving the company a market cap of euro 25.3 billion.

The company has confirmed it will pay a 2010 dividend of euro 1.40 per share.