Things fall apart (as contributor)
June 6, 2002 - The Boston Globe
Convergence was in the air in December when Jean-Marie Messier, the chairman and CEO of Vivendi Universal, visited Boston to address a luncheon of local executives.
Messier, 45, had recently completed a deal to acquire Boston publisher Houghton Mifflin for $2.2 billion in cash, instantly making Vivendi the second-biggest publisher in the educational market. This came on top of an earlier acquisition of Seagram Co., which owned Universal Pictures and the Universal Music Group. That deal, valued at $33 billion, gave Vivendi the largest music group in the world and a film studio with valuable properties like “Jurassic Park” and “American Pie.” Barry Diller’s USA Networks also was part of Seagram’s stable.
The spirit of partnership extended beyond corporate mergers. A celebrated business leader in France - he was awarded the country’s Legion of Honor for his global media acquisitions - Messier had recently moved his family from Paris to New York to be closer to the center of the international media scene. That morning he wore a ceramic lapel pin with crossed French and American flags, symbolizing his dual allegiances.
Six months later, however, Messier’s strategy appears to be coming apart at the seams. His acquisition binge has left Vivendi saddled with more than $30 billion in debt and prompted Standard & Poor’s, the ratings agency, to downgrade Vivendi’s debt to one notch above junk status. The company’s stock price has declined 48 percent during the last year.
Messier also has alienated many former supporters in France. In April when he fired Pierre Lescure, the popular chief of Vivendi’s French pay television business Canal Plus, he was attacked by French cultural leaders, business executives, even presidential candidates. His attempt to sell Vivendi’s water holdings also offended many in France concerned about foreign ownership of their water supply. Messier’s American CEO-sized salary ($4.7 million in 2001), frequent media appearances, and promotion of US-centric culture also strained relations back home.
Dissatisfaction with Messier reached a high point last week with a marathon nine-hour Vivendi board meeting in New York. Although Messier emerged with his job, a new committee was created to oversee his strategic decisions. Messier was given explicit instructions to rein in his expansionist plans in favor of reducing Vivendi’s massive debt.
But even if his position is safe, for now, Messier’s big media adventure is an indication that the convergence strategy adopted by Vivendi may be more difficult to execute than many initially believed. And Vivendi’s troubles back home in France indicate that not every culture is willing to be merged into a giant global enterprise.
“There’s been a growing sense that the promise of synergy may have been oversold,” said Mark Crispin Miller, a professor of media studies at New York University and the director of the university’s Project on Media Ownership. “It sounds good, it looks good on paper, but it may not work out, for Vivendi, or any of the other large media companies.”
When he was in Boston last winter, Messier did not have to look far for an example of Vivendi’s expensive media strategy.
“Take Curious George,” he said, referring to Houghton Mifflin’s popular children’s book character. “He would be a natural subject for a movie, and a soundtrack, and video games.”
Although the strategy sounds simple, even obvious, it takes an extensive collection of media properties to execute successfully. Messier has been working for years to make the plan a reality. A well-connected figure on the French business scene, he joined Compagnie Generale des Eaux (translation: General Water Co.) in 1994, quickly ascending to chief executive two years later. At the time, the company was an unexciting 143-year old firm with most of its revenue coming from water and waste systems. The sprawling company had a few media investments. It was a cofounder of Canal Plus, France’s first pay-TV channel, and it had created a wireless company called SFR.
When he took over as chairman of the company in 1996, Messier decided to aggressively grow the media holdings at the expense of the water-related products, adding large stakes in European phone companies, publishing houses, and television broadcasters. By 1998, the company had shed its sleepy heritage in favor of a more futuristic moniker, Vivendi.
Messier based his global media strategy on a number of principles. First, he believed that digital television and wireless technologies were “very far from their potential penetration.” He also assumed that content and distribution would move in tandem, not separately.
In early 2000, Messier saw many of his ideas realized - unfortunately by two other companies: AOL and Time Warner. “That was a very clear warning,” he told the Globe. “I knew I had even less time than I thought I had. I needed to move quickly to be a credible player in front of them.”
By June 2000, Vivendi and Messier had merged Vivendi’s Canal Plus with Canada’s Seagram Co., which owned Universal Pictures and the Universal Music Group. With a significant American beachhead, Messier’s growing conglomerate, now called Vivendi Universal, was playing in the big leagues. A subsequent purchase of Houghton Mifflin gave the company a publishing wing.
As 2001 drew to a close, Messier added a number of deals to enlarge the company’s footprint, including a $1.5 billion investment in satellite broadcaster EchoStar Communications and a $10.3 billion joint venture with Barry Diller’s USA Networks. It looked like Messier’s jigsaw puzzle was starting to come together, and Vivendi was ready to start harvesting the revenues from its multiple media properties.
It hasn’t quite worked out that way for Vivendi, AOL Time Warner, or any of the other global media companies, including Viacom and Disney. A worldwide recession reduced revenues at many of Vivendi’s holdings, and the synergies that Messier predicted never materialized. Losses at Canal Plus and Vivendi’s Internet unit dragged down earnings. In March 2002, Vivendi announced a $12.6 billion loss for 2001, the biggest loss in French corporate history. In April, Messier was booed and heckled by shareholders at Vivendi’s annual meeting. And the French government said it intended to scrutinize his plan to sell Vivendi’s water holdings to help pay down debt.
“Even the people who believe in the idea of global media convergence are realizing how difficult it is to pull off,” said David Card, a senior media analyst at Jupiter Media Metrix. “We haven’t really seen any company, not Vivendi, not AOL Time Warner, really make it work.”
According to Card, certain brand synergies make sense. “If you’re ESPN, people expect to get your stuff on a variety of platforms. ESPN Magazine is a good example of that,” he said. “But it’s much harder to make that kind of synergy work at the company level: Vivendi and Universal are not big vivid brand names for consumers.”
“Another dream is to sell companies advertising packages that play across all your platforms,” Card said. “But that hasn’t happened yet either.”
A media company pursuing a convergence strategy has to be willing and able to subjugate all the individual units to the interests of the parent company, Card said. “But we haven’t seen any company, including Vivendi, that’s been able to make that happen.”
To make matters worse, Messier has had to deal with his irate countrymen, who are worried that he may be marginalizing French culture. To many, Messier is sailing recklessly through the uncharted waters of globalization, and they don’t want to go along for the ride. They believe he is dragging the French and French culture carelessly behind him as he bounds around the United States, acting like . . . an American businessman.
It won’t be easy for Messier to win over a country like France that lionizes figures like Jose Bove, the farmer who drove a bulldozer into a McDonald’s to protest the expansion of US corporations.
For Messier, the criticism at home, combined with Vivendi’s inability to quickly wring increased revenues from its many media units, finally came to a head at last week’s board meeting. And although Messier survived with his job, no one is expecting the challenges, and the questions, to go away.
“Companies like Vivendi are discovering that the magic of synergy is not panning out, at least right away,” said Joseph Turow, professor of communication at the University of Pennsylvania’s Annenberg School for Communication.
Turow said he believes that Messier’s, and Vivendi’s, fates depend on whether synergy turns out to be a workable media strategy. Turow is not making any predictions. “It’s still very early in this new media era,” he said. “It’s too soon to tell what the trajectory will be.”
