Country Focus: France
France - The Vivendi Universal saga, grandeur and decadence (September 2002)
by Fabien Lemercier
07/09/2002 - The saga of the French group. From the conquest of Hollywood to an uncertain future, and the fall of Jean-Marie Messier and the empire he built on shaky ground.
September 2000, Wall Street gives a warm New York welcome to a new world media and communications colossus, France’s Vivendi Universal, come to challenge the Americans on their home ground.
June 2002, the giant is on the edge of the precipice and its enormous debts cause the fall of its star C.E.O. Jean-Marie Messier. From that moment on, fire fighter Jean-René Fourtou, summoned to save the situation, tries to pull VU out of the deadly downward spiral that threatens to affect the entire French and European film industry. An authentic saga that not even the most imaginative and experienced screenwriter could ever have imagined and which Cineuropa attempts to synthesise here.
A Frenchman conquers of Hollywood
The instalments that make up the Vivendi Universal saga are closely linked to the story of its founder Jean-Marie Messier.
In 1996, at the age of 40, this upper-level civil servant is put in charge of the powerful water company, Compagnie Générale des Eaux (CGE). Messier soon reorganises the group around environmental (water, energy, waste disposal and public transport) and communications sectors, as part of the ascent of its mobile phone subsidiary Cegetel.
Seduced by the potential of the multimedia sector and encouraged by a wave of economic expansion in Europe, Messier launched CGE, renamed Vivendi in 1998, by means of a series of acquisitions that received a lot of media attention thanks to slogans like “We have the channels, lets buy the content”. The French publishing and communications group Havas was the first to be absorbed, followed by one of America’s leaders in the educational and video games software sector, then Vivendi joined forces with Vodaphone to create an Internet portal called Vizzavi.
But the climax came in 2000 with the creation of Vivendi Universal, the result of a merger with Canal+ (Europe’s premiere pay-TV group, also digital, and a major player on the audiovisual production sector) and Canada’s Seagram (the global media group, and a strong presence in the film and music industries). News of the deal made headlines around the world and turned film industry operators’ world on its head because this was the first time that a European company set foot in a great Hollywood studio like Universal.
In France, the anxiety becomes almost tangible because Canal+ plays a decisive role in funding film production. By law, Canal Plus is obliged to commit 20 per cent of its revenue to the acquisition of films (almost half of which must be French). Furthermore, Canal+ also invests directly in film production by virtue of its subsidiary, StudioCanal which created an awesome catalogue (5000 films and 6000 hours of television drama) and diversified into distribution when it bought Tobis in Germany and StudioCanal Spain, and Bac Films and its subsidiary Mars Films in France. Nevertheless Jean-Marie Messier reassured operators as to Canal+’s independence with respect to the Americans at Universal Studios, and signed an extension to the contracts that bind Canal + and French cinema to 2004.
In September 2000, Vivendi Universal’s arrival on Wall Street was a triumph, and the group, lead by its captain of industry, does not suspect that all this success conceals a dark abyss.
Vivendi Universal’s strength lies in the multitude of its companies it owns; it employs 381,000 people in over 100 countries, 80,000 of whom work in the multimedia and communications sectors.
Télecom and the Internet, multimedia publishing, music, the environment, without forgetting television and cinema (20,000 alone), the French group’s appetite knows no limits. Not even the collapse of the new technologies financial bubble as of March 2000, assuages VU’s hunger for acquisitions.
On the contrary, since 17 December 2001, Jean-Marie Messier has been thinking about a big new business: the televisions owned by the US Networks group, that Vivendi bought for $10 billion (Euros10 bn).
This company is run by Barry Diller, a former head of Paramount and Fox, who takes command of the new subsidiary called Vivendi Universal Entertainment (VUE). The deal is too onerous for VU’s coffers, especially in the wider context of a general economic slowdown that is further aggravated by the events of 11 September 2001. And above all, by Jean-Marie Messier’s shock announcement during a press conference that "the cultural exception is dead" – this is the verbal equivalent of dropping a bomb on France.
It must be mentioned that Messier had just moved to New York and for a year, had been gathering his troops for meetings in an Orlando theme park owned by Universal. Messier’s unexpectedly sharp statement caused a chain reaction in the press and all of France’s leading representatives from the world of culture turned against him. The President of the Republic, Jacques Chirac even mentioned the issue on television last January, and was obviously worried about the danger of seeing the French crown jewels fall into foreign hands.
That was the beginning of the end for the flamboyant manager whose cruel privilege it is to announce, in March 2002, that VU lost Euros13.6 billion in 2001, a record in the history of French finance and industry , and this was further aggravated by debts of Euros 19 billion for VU’s multimedia and communications sectors.
Cornered, Jean-Marie Messier makes yet another mistake when Now at bay, Jean-Marie Messier managed to commit yet another mistake when, on 16 April he fires Pierre Lescure, the president and symbol of Canal+, and this unleashes a strike amongst the television station’s employees that is broadcast live. The media events that he used so well to his advantage when making his ascent now go against Messier with a boomerang effect: angry protests during his appearance before the Superior Audiovisual Council (CSA), shareholders in uproar at the General Board Meeting of 24 April, widespread anxiety amongst other French industrialists, alarming data published by stock exchange brokerage agencies, VU shares in a downward spiral. The axe falls on 30 June: the board forces Jean-Marie Messier to resign just as Vivendi Universal hovers on the brink of bankruptcy.
An uncertain future
Appointed to the leadership of a group now in total disarray on 3 July, Jean-René Fourtou, the former Managing Director of Aventis, inherits an extremely delicate situation. The banks concede an initial loan of Euros3 billion to deal with a liquidity crisis and allow Fourtou to begin an asset disposal plan and restore health to VU’s funds.
Theories abound in every subsidiary and the important role played by Canal+ in the French film industry only causes tension to grow. In July, the announced sale of StudioCanal causes the film producers’ guild and the authors’, directors’ and producers’ association (ARP) to react: they are afraid that the company’s rich catalogue of films will be bought by the Americans. Finally, at the height of summer, Jean-René Fourtou decides to maintain Canal+ and its subsidiary StudioCanal within Vivendi Universal. It is not until the next Board Meeting of 25 September that further details emerge about the Group’s stragegy, which confirms its re-positioning with regards to the entertainment media and telecommunications sectors.
Jean-René Fourtou announces a wide-ranging programme of disposal of assets – to the value of Euros12 billion over an 18-month period, Euros5 billion of which before the end of March 2003 – although the true nature of this programme is obscure, with the sole exception of the sale of the group’s general interest media activities; the Vizzavi Internet portal, the Canal Plus Technologies decoder sector and the sale of the Italian subsidiary of Canal+, Telepiù, sold for Euros1 billion to Rupert Murdoch (save any last-minute rethink).
Numerous other companies endure the same fate, like other Canal+ subsidiaries abroad, AlloCiné, and 39 per cent of UGC, Europe’s leading film exhibitor, owned by Canal+.
As for the rest, all theories are still being examined and the decision is delicate: the French State sees Vivendi Environnement as a vitally important national strategic resource, the Telecommunications arm attracts buyers but it is still the group’s biggest money-maker while the world of culture is ready to fight to save Canal+. For the moment, market analysts can see just one solution on the horizon: separation from VUE that covers the American film activities, television and the group’s theme parks. Some informed sources are convinced of a coming together between Universal Studios and DreamWorks. But for the moment, everything is on hold since a number of rather expensive clauses kick in the case of a sale, binding Vivendi Universal to its subsidiary VUE. Barry Diller would earn a fortune from such a deal and Jean-René Fourtou does not seem in the least inclined to give in to rumour-mongers according to whom the new VU management team has little or no experience of the entertainment sector. It appears that a poker game has begun at the top of the group, and this could mean unexpected novelties over the next few months.
Will the Vivendi Universal giant be forced to implement a serious sizing down, or will it weather the storm only to embark on new adventures?
At the present time no predictions are possible.