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That's why Barry Diller, a bona fide media honcho, was brought to the rescue. When Vivendi took control of the USA Networks' TV and film assets (which previously belonged to Seagram), Diller personally got a 1.5% stake in a new partnership called Vivendi Universal Entertainment, worth a guaranteed $275 million. Diller was placed in charge of the venture, which consolidated Vivendi's film and TV assets and theme parks. Messier figured that if anyone could restore order to his empire it would be Diller. But investors didn't accord Vivendi's stock a Diller premium. Problem is, Diller still runs his own company, USA Interactive, which includes Ticketmaster and the Home Shopping Network, in which he has a multibillion-dollar stake. "Barry is the smartest guy in town, but so far it's my impression he's done very little at Vivendi," says an executive close to Universal. Diller and Messier, through spokespeople, declined to be interviewed.
Too bad Diller can't work his magic in the music business. Universal Music accounted for a third of last year's operating income for Vivendi's media and telecom business, but sales and profits in the industry are sinking. When Messier bought Seagram he inherited such top labels as Interscope and PolyGram--for which Seagram CEO Edgar Bronfman Jr. had spent billions. Global-industry music sales fell, however, from $40 billion in 1996 to $33.6 billion last year, largely because of piracy and the advent of easy CD burning. In hopes of attracting paying customers online, Vivendi and Sony came up with a website and a service called Pressplay. So far sales are said to be immaterial.
Investors also fret that Diller or not, Vivendi's TV-distribution outlets in the U.S. aren't strong enough to compete with larger rivals like Fox, Disney and Viacom. The USA Networks' two cable channels (Sci-Fi is the second) reach a combined 157 million households. But Messier paid lavishly to reach those viewers. At USA, ratings declined 9% after the network lost WWF wrestling to Viacom's TNN and MTV. Vivendi's stake in EchoStar, which is merging with DirecTV, provides for five channels, with as many as 18 million subscribers, assuming the deal goes through. But without a major network to air its shows, Vivendi won't generate the big back-end syndication fees that, say, a Viacom can. "Foreign buyers don't like getting USA Networks shows--they want shows that aired on NBC or CBS," says an industry insider.
Vivendi's CFO, Guillaume Hannezo, says the company's top priorities are to lower the debt ratio and restore investor confidence. Last week Vivendi made some progress, striking a deal to sell a business- and-health publishing unit for $1.07 billion. Hannezo says the company beat its targets for cost reductions in 2001, saving more than $250 million. "The cost synergies are obvious," he says. "And the revenue synergies are beginning to happen."
Messier, for his part, has repeatedly stressed that he will focus on operations this year. That will entail restoring morale and profitability at Canal Plus. It's a beloved French asset but a dog, losing $440 million last year. With Lescure's ouster, Messier got a bit of what he wanted: Vivendi's stock rallied. The incoming chief--Xavier Couture--is known as a proponent of trash TV, which reaped big profits for his former TV station, TF1.