Vivendi Ups Stakes in Universal Music, NBC to Maximize its Online Potential

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In an effort to clean up its balance sheet, Vivendi Universal SA, last week agreed to pay $1.15 billion to Japan’s Matsushita Electric Industrial Co. for full ownership of Universal Music Group, and increased its stake in NBC Universal by 2 percent.


The move comes as Vivendi sets a new course after averting financial collapse four years ago. In 2004, it sold an 80 percent stake in its film and television assets to General Electric Co., backtracking from a disastrous foray into Hollywood.


“The real value here is NBC,” said Phil Leigh, senior analyst at Inside Digital Media Inc., in Tampa. “What we’re seeing here is a desire to consolidate particularly because the music business and the television business are going to be radically transformed by the Internet.”


Vivendi bought the 7.7 percent stake that it didn’t own in Universal Music Group, which it now controls outright, and an additional 2 percent stake in NBC Universal, raising its total stake to 20 percent. The deal will boost earnings by $30 million this year.


As the world’s largest record company, Vivendi hopes its future growth will come through the distribution of music online. As sales of recorded music fall, music companies have turned to music publishing, because it provides a steady stream of revenue from concerts, television commercials and the use of lyrics.


Jean-Bernard Levy, Vivendi’s chief executive, told analysts that the deal is “entirely consistent with our view that content will be a value creator for years to come.” Apple’s hugely popular iPod has created opportunities for companies like Universal Music through digital downloads, ring tones for mobile phones and subscription businesses.


Universal Music continues to gain market share from Sony BMG, a joint venture of Sony Corp. and Bertelsmann, and Warner Music. Universal Music controls 31.7 percent of the market, up from 29.6 percent in 2004, according to Nielsen SoundScan

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