EUR 850.00 For Business Accounts Only

Morningstar | Vivendi is beginning to make acquisitions after selling telecom assets.

Vivendi's transformation into a pure-play media firm was complete. The firm’s primary business units were Canal+, the largest pay-TV company in France; Universal Music Group, the largest global music label; and Gameloft, a mobile game publisher. However, chairman Vincent Bollore may be dragging Vivendi back to its inglorious past as a conglomerate, exemplified by the recent purchase of Havas, the world’s sixth-largest ad agency holding company.While we believe in the value of content, we prefer those companies that generate a significant percentage of revenue from content production. Companies that depend heavily on buying content from other creators may find themselves squeezed particularly in markets with new entrants. The French market provides an example of how new entrants can alter the acquired content landscape.BeIN Sports has aggressively bid for and won a number of sports rights, including Champions League football. While Canalsat’s agreement to become the exclusive provider of beIN Sports in France limited some of the downside, Canal+ Sport became less attractive to subscribers. Altice is also aggressively bidding in the sports arena, including picking up Premier League rights for three seasons starting in 2016 for EUR 100 million per season.Beyond sport rights, the entrance of Netflix in France marked another competitor for acquired and original series. Netflix is acquiring global rights for acquired and original content while also ramping local production. Given these issues, we expect Vivendi to continue to invest in content and sport rights to right the ship at Canal+.While we expect UMG to benefit from the growth in streaming music, a sustainable model for streaming music has yet to be discovered in the U.S or Europe. While Spotify has over 50 million paying users, it continues to rely on debt to fund growth. Apple may be able to sustain losses on its streaming platform, but the stand-alone players will likely need lower royalty rates to survive. This remains one of the largest threats to growth for UMG, especially as physical media sales and digital downloads continue to decline.