VIVENDI SIGNS 2ND BIG DEAL TO CREATE VERTICAL INTEGRATION
Vivendi Universal signed another big deal, purchasing USA Networks for $10.3 billion in stock and cash, adding more content assets to its portfolio just days after it announced $1.5 billion investment in EchoStar. That content includes USA Network’s signature cable channel, as well as Sci Fi Channel, Home Shopping Network, Trio, others. USA Networks will be renamed USA Interactive and will oversee company’s Internet assets: Ticketmaster.com, Match.com, CitySearch.com, Hotel Reservations Network, others. Deal also is pending to acquire travel service Expedia. Having all those interactive assets, “so well-funded, so strong and independent… gives us a great chance to dominate a business sector that will undoubtedly become one of the most important in the world,” USA Networks CEO Barry Diller said. USA will receive $1.62 billion in cash and $750 million full value preferred interest. Company said USA Interactive, while having board representation from Liberty and Vivendi Universal, would be “completely independent.”
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Diller will become CEO of renamed company, as well as CEO of newly constructed joint venture, Vivendi Universal Entertainment. He said USA Interactive would be independent because he would have voting control and other parties wouldn’t be allowed veto rights, despite monetary ties. USA and Vivendi joint venture, VUE, will own all of USA’s entertainment assets and all of Universal Studios Group’s assets, with Vivendi Universal holding 93% stake and USA 5.4%. Diller also will have interest in VUE. Under transaction, USA retires 377.5 million shares (47% of USA’s outstanding shares). “Our strategy is clearly coming together,” Vivendi Universal CEO Jean-Marie Messier said. “Combining with the same operational entity, VUE, USG and the other entertainment assets of USA creates a new U.S. major which will benefit from the full integration of TV and movies… with production and distribution.”
Managers of Universal Studios Group -- COO Ron Meyer and Universal Pictures Chairman Stacey Snider -- are expected to remain in top positions. In addition, combination will establish U.S. Interactive as company with $4.3 billion in sales and $3 billion cash on hand at closing. Vivendi deal reflects “a strategic resource shuffle,” PriceWaterhouseCoopers consultant said. “They're changing their focus from Europe to the U.S. This is the biggest media market in the world, and they're trying to spread out their bets.”
For consumers, DBS and USA deals could mean price competition at time when cable rates were rising, industry sources said. “Right now large cable companies dictate what content gets a chance to make to the American market,” Consumers Union Washington office co-dir. Gene Kimmelman said. “The hope is that this will enable satellite to compete for the lunch-bucket crowd and that as a result, we'll finally see some price pressure on cable.”
Vivendi Universal has drawn attention on Capitol Hill for use of its market power in establishing presence in Internet music distribution. Owner of once-independent MP3.com, Vivendi’s music arm, Universal Music, is world’s largest music producer, with 22% of global market. It also partnered earlier this year with Sony to create pressplay, online service for purchase of music downloads and streams. House Internet Caucus Co-Chmn. Boucher (D-Va.) and Rep. Cannon (R-Utah) introduced bill earlier this year designed to ensure that Universal and Sony, along with other 3 major record producers behind online service MusicNet, didn’t dominate music distribution online, including provisions requiring nondiscriminatory rates but avoiding imposition of Internet compulsory license. Vivendi executives said in news conference on merger that among synergies that would result from merger would be easy downloading of music via EchoStar broadband service.
Vivendi appears to be banking on EchoStar to launch interactive network in U.S., sources said, and deal company signed with EchoStar apparently will help DISH network in effort to prove to regulators that company is viable competitor to cable and not standalone satellite company. With content available from USA networks, company can provide unprecedented level of services including video-on-demand and music from USA’s vast library of content, they said. For first time, satellite provider has many of advantages of cable operators, industry analysts said. “Consumers can now burn their own CDs from advanced set-top boxes and view top movies from the comfort of their homes,” analyst said.
EchoStar merger with DirecTV is key element in Vivendi decision to buy USA and make $1.5 billion investment in EchoStar, analysts said. EchoStar CEO Charles Ergen has said lack of content has been major element in retardation of satellite growth. “One of the reasons interactivity in U.S. has not taken off as much as the rest of the world is that we have had a hard time getting content providers to work with us,” Ergen said.
In Europe, Vivendi subsidiary Canal Plus users can gamble, shop and play games via advanced set-top boxes that EchoStar hopes to introduce in 2002. U.S. cable companies have invested billions of dollars in laying groundwork for interactive networks and cable operators say investments are about to pay off through VoD and high-speed Internet service in areas where DBS service lags. “Satellite will erode market share of cable on a global basis because it’s easier to implement,” media analyst Harold Vogel said: “You throw up a dish and you've got it.” Carmel Group analyst James Stroud said Vivendi investment was “confirmation that satellite’s competing very well against cable.”