QUOTE AND NEWS
Wall Street Journal  Nov 19  Comment 
Vivendi and others will pay $275 million to settle shareholder litigation arising from its $8.2 billion sale of a stake in Activision Blizzard back to the videogame maker last year.
Reuters  Nov 14  Comment 
Vivendi Chief Financial Officer Herve Philippe said on a conference call after third-quarter results:
newratings.com  Nov 14  Comment 
PARIS (dpa-AFX) - French media giant Vivendi SA (VIV.L, VIVEF.PK) reported earnings attributable to company shareowners for the third quarter of ¤839 million or ¤0.62 per share, compared to ¤376 million or ¤0.28 per share for the year-ago...
Wall Street Journal  Nov 14  Comment 
A drastically slimmed-down Vivendi said profit more than doubled in the third quarter, boosted by one-time gains linked to recent asset sales.
Reuters  Oct 28  Comment 
French cable telecoms operator Numericable is to launch a 4.7 billion-euro ($6 billion) capital hike on Wednesday to finance its takeover of Vivendi's SFR mobile network...
Reuters  Oct 27  Comment 
French cable telecoms operator Numericable won conditional approval on Monday for its multi-billion-euro takeover of Vivendi's SFR mobile network operator, paving the way for it...
TheStreet.com  Oct 2  Comment 
NEW YORK (TheStreet) -- Vivendi , the French media company, is looking to get back in the U.S. media business five years after it sold off its 20% stake in NBCUniversal to General Electric for $5.8 billion, the New York Post reports. Now...
Wall Street Journal  Sep 19  Comment 
French media and telecom conglomerate Vivendi said it would sell its Brazilian unit GVT to Spanish telecom giant Telefónica in a deal valued at around $9.3 billion.
TheStreet.com  Sep 17  Comment 
Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. aTheStreet Ratings quantitative algorithm...




 

Vivendi is a French media and telecom company traded on the Paris stock exchange (EPA: VIV). The company has diverse holdings in telecommunications, television, music, and, through its majority stake in Activision (ATVI), video games. The company has a focus on subscription sales, whether in terms of phone service, television channels, or online games, which allows the company to maintain constant revenues while keeping costs down. Improving worldwide economies are creating new markets for telecom technologies in developing countries, and Vivendi is in a position to take advantage of such growth, as it is already established in a major African country (Morocco) and recently entered the telecom Brazilian market. The company is heavily affected by digital piracy, antitrust regulation, and terrorism in developing countries. While Vivendi faces competitive pressure from a wide range of companies, like Microsoft, Sony, and Time Warner, the company's strong position in every industry allows it to hold profitable competitive advantages.

Company Overview

With a solid grip on every sector of entertainment, Vivendi is firmly rooted in the modern media. The company has large stakes in mobile telecommunications, television, music, and electronic gaming; its reach spans from the U.S. to Europe to Morocco, though 60% of its revenues are earned in France. The company has been successful offering products across categories; for example Vivendi has combined its telecommunications business with its music and television businesses to great effect.

Vivendi has 73 million subscriptions for mobility, broadband, and digital content representing 75% of sales in 2009. Vivendi's portfolio included Universal Music Group, Canal Plus Groupe (pay TV in France), SFR (alternative telecom in France), Maroc Telecom (telecom in Morocco), Activision Blizzard (video games), and GVT (alternative telecom in Brazil)[1]

Business and Financial Metrics

First Quarter 2010 Results[2] Vivendi reported revenues of €6.9 billion, an increase of 6.0% compared to first quarter 2009. The company reported EBITA of €1.6 billion, an increase of 14.1% and 14.7% at constant currency. Adjusted net income totaled €736 million, an increase of 13.4%.

Business Segments

Telecommunications (55.7% of 2009 revenue)[3]

Vivendi's telecommunications business spans land-based phone lines, mobile phones, internet service, and television service. Vivendi has heavy interests in mobile technologies under SFR, which it holds in conjunction with Vodafone. SFR is the second largest telecommunications operator in France, and has major stakes in both mobile phone and Internet services. As Vivendi’s largest revenue-generator, SFR faces competition from Orange and Bouygues. Amongst the three, SFR ranks second in market share and is tops in pre-tax income margin (a measure of profitability).

Morocco

Vivendi owns a 53% stake in MarocTelecom, which provides the majority of telecommunications for Morocco, including land lines, Internet service, and mobile phone technology. The African nation has relatively low rates of telecommunications use by household, but has experienced strong economic growth. Due to the large amounts of electronic infrastructure that must be present, including land lines and mobile towers, MarocTelecom strongly relies on stability in the region; increase in terrorism may undermine growth of infrastructure. It should be noted that Morocco has signed free trade agreements with both the EU and the USA.

Brazil

In November 2009, Vivendi acquired GVT, an alternative telecom operator in Brazil.

Television (16.8% of 2009 revenue)[3]

While Vivendi owns such minority stakes in U.S. programming through NBC Universal, its major stake is in European television, which is dominated by pay-tv subscription broadcasting where consumers pay to receive certain channels. Vivendi, whose Canal+ business has over 10 million subscribers, is the largest pay-TV broadcaster in France. Canal+ is also available in Spain, the Netherlands, and Poland, and broadcasts across every television platform. In addition to regular programming, specialty channels for movies and sports are also available, as is content through satellite and DSL subscribers.

Music (16% of 2009 revenue)[3]

The number three music publishing company globally, Universal Music Group represents Vivendi's music business. The company operates via a number of joint ventures, licensees, and subsidaries all over the world, and is now focused on three major areas of the industry:

  • Recorded Music: Vivendi has the largest recorded music business in the world. Its roster of profitable artists include Snow Patrol, the Killers, U2, Nelly Furtado, and the Pussycat Dolls; revenues stem from album sales, ticket sales for live performances, television and radio ads, and Internet sales. Such revenues are currently threatened by the digital piracy trend, as the Internet has made sharing music between users very easy.
  • Music Publishing: Vivendi's music publishing business involves the acquisition of the rights to musical compositions. Rather than acquiring the rights to a particular recording of a song, which is a single artist or groups interpretation of the written music, acquisition of the composition allows different versions of it, played by different artists, to be used in films, advertisements, and concerts. As the third largest publisher in the world, Vivendi's musical property ranges from hits like "American Pie" to the entire BMG Music Publishing library.
  • Distribution: Vivendi distributes its recorded music through traditional media like CDs, and is making headway into digital distribution.The company is focusing its energy to build revenue models from various digital mediums; for example, monetizing music videos shown online. Vivendi's SFR is France’s leader in music mobile downloading and trails iTunes as the #2 digital music store. SFR recently launched VEVO, a premium music video service.

Video Games (11.2% of revenue in 2009)[3]

Electronic games is Vivendi's smallest but fastest growing business. The company owns Sierra Entertainment and a 57% stake in Activision Blizzard, the developers responsible for the very popular Crash Bandicoot and World of Warcraft franchises.

Vivendi has recently been capitalizing on a new trend in the gaming market: subscription gaming. Worldwide there are 11.5 million World of Warcraft subscribers, a multi-player online role-playing game developed by Vivendi's Blizzard Entertainment. The basic business model entails a one-time purchase of core software as well as a monthly subscription fee that provides consistent cash flow over time. In comparison, most consumers buy a single video game title as a one-time purchase.

Vivendi has also leveraged its relationships across its different business units, including NBC Universal, UMG, Fox, and games based on famous novels from the estate of Robert Ludlum. It has also created the largest selling group of mobile phone games.

Trends and Forces

Mobile Communications Growth

The rapid economic growth of developing countries in Africa, Asia, and South America has created a growing demand for mobile communications. While mobile communications has been adopted by 90% of the developed world, two-thirds of the developing regions are still untapped. Vivendi and its competitors (including Vodafone, Orange, and Telenor) have made strides to leverage these markets, and Vivendi in particular has a strong foothold in Morocco with its MarocTelecom investment. In countries with politically unstable environments, an increase in terrorism may undermine growth of infrastructure.

Opportunities From Advancing Mobile Technology

The increase in technological advances for mobile technology — namely, cheaper phones and the creation of new networks — represents a double-edged sword for Vivendi. These technologies often allow smaller companies to charge less for service and still remain profitable. Recently, a telecommunications competitor, Bouygues, started a mobile phone firm called Neo that rapidly gained market share because of its low costs.

Furthermore, the vast majority of Vivendi’s mobile phone customers are in Europe (specifically, France), where VoIP has received some of the heaviest development anywhere. Cost-free Internet phone service represents an obvious threat to landline and mobile telecom companies, especially if WiFi-enabled phone sales rise and public WiFi Internet catches on. As one of the largest firms with vast resources and a large existing customer base, Vivendi could also be in the best position to exploit and develop such new technologies.

Digital Piracy Threat

Digital piracy poses a huge threat to Vivendi's recording business, largely through Internet technologies such as peer-to-peer platforms. It presents a problem because companies that record music, make movies, and develop programs usually get paid for hard copies of those media (e.g., CDs, DVDs). The piracy threat could grow even larger over time as an increasing amount of media becomes digital, which is relatively easy to copy and inexpensive to distribute.

Growth of Subscription Gaming

As traditional video game developers struggle with ever-increasing development costs and the growing popularity of the Internet as a gaming channel, the subscription gaming model is becoming more popular. Vivendi's World of Warcraft owns an astonishing lead in subscription games, cornering over half share of the gaming market.

Government Regulation Risks

Vivendi, because of its size and its leading position in every industry it touches, is often subject to the European Union's anti-monopoly regulations, which are often considered more strict than those in the U.S. In the music industry, for example, small independent music labels often push for the government to act against larger "Big 4" labels, including Vivendi's (Sony, EMI Music Publishing, and [[Time Warner]), which have more recruiting, advertising, and selling power, giving them significant leverage in pricing and distribution. Antitrust actions against the company may limit future growth potential, especially that attained through acquisitions. In addition, Vivendi may have to make key concessions to avoid prosecution (e.g., passing up on the rights to key technologies, products or services).

Competition

Vivendi faces stiff competition from various industry segments in which it plays. Major conglomerate competitors include Sony (SNE), Time Warner (TWX) and even Microsoft (MSFT), which span different media categories, from telecommunications to video games.

Telecommunications

Vivendi's telecommunications business operates primarily in France and Morocco, and its main competition comes in the form of regional businesses and other multinationals. Vivendi's SFR (co-owned with Vodaphone) is the second largest mobile operator, and has a majority stake in Neuf Cegetel, the country's second largest landline operator. Vivendi faces major competition from Orange, France's largest mobile operator, as well as from Bouygues. Though SFR ranks second largest of these three, it often rates first in customer satisfaction.

Vivendi's MarocTelecom is the largest telecom company in Morocco, and has stranglehold in the Internet service, mobile and landline markets; for instance, MarcoTelecom owns 98% of the Internet market. At this point, competition in these areas is negligible.

Mobile Telecommunications: France
SFR (Vivendi) Orange Bouygues Telecom
Market Share (Service Plans)
(%)
38% 43% 19%
EBITDA margin
(%)
39.7% 38% (approx) 29.3%
EBITDA margin change
(%)
2.8% 0.5% (approx) -2.6%

Television

Vivendi's Canal+ ranks as the top pay-tv distributor in France, where the company faces competition from Bouygues and M6 (although these companies also own minority stakes in Canal+ France). In addition, Vivendi faces competition from other European providers, including BSkyB, Sky Italia, Premiere, and Sogecable.

Canal+ competes by signing exclusive deals with film companies and sports leagues, allowing them to show programs that no other channel has. For example, Canal+ held exclusive broadcast rights to the popular French Premier League soccer games. The Canal+ channels also offer the most popular American programs, including Desperate Housewives and 24.

Vivendi offers a wide spectrum of television distribution, from cable to satellite (DTH) to analog. The company also recently leveraged its television content across its mobile phone products using 3G wireless technology.

Pay-TV
Canal+ BSkyB Sky Italia Premiere Sogecable
Platform Offerings
DTH x x x x x
Cable x x x
DSL x x x x
TNT x x
3G x x x
Analog x
Subscribers (millions) 10.2 8.4 4.0 3.4 2.0

Music

Physical Music

Vivendi's Universal Music Group is the largest music company in the world, heading the "Big 4" record groups, which include Sony (SNE), EMI Music Publishing, and Warner Music Group (WMG). The company commands a 26% share of the physical music market, and more than half of the music downloaded legally in the U.S. Its American artist roster covers a wide array of music genres, including Mariah Carey, 50 cent, Black Eyed Peas, Eminem, Gwen Stefani, Kanye West, Jack Johnson, The Game, and Nickelback.

Music Publishing

UMG is also the world's number three music publishing group, and is expanding aggressively as demonstrated by its recent acquisition of BMG Music Publishing.

Music Distribution

Vivendi has been focusing on increasing sales of its music online, and downloads of its music increased by two-thirds in 2006 largely due to mediums such as Apple's iTunes, which has proven to be the most successful digital distribution offering to date. On the competitive front, however, RealNetworks acquired Sony's European mobile phone music distribution arm means competitor are increasingly looking to become less dependent on Apple's iTunes. It should be noted that while Vivendi's digital music distribution revenue has been rising, the company's market share has been falling, implying that demand for digital media is rising faster than Vivendi's digital business.

References

  1. June 2010 Vivendi Investor Relations Presentation
  2. Vivendi Q1 2010 Earnings Release
  3. 3.0 3.1 3.2 3.3 Vivendi 2009 Activity and Sustainable Development Report
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