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By Nick Kostov
PARIS -- Vivendi SA has agreed to acquire the pay-TV business of Italy's Mediaset SpA as part of a broader alliance, as the French media firm snaps up assets to create a European rival to U.S. streaming-video giant Netflix Inc.
Under the terms of the deal, Vivendi and Mediaset will swap 3.5% stakes, the companies said on Friday. Reflecting Vivendi's much-larger market capitalization, the French company will take control of Mediaset's 89% stake in pay-TV unit Mediaset Premium.
As part of the deal, Vivendi is buying the remaining 11% of Mediaset Premium from Spain's Telefónica SA. Some analysts value the pay-TV unit, which isn't profitable, at about EUR900 million ($1.02 billion).
The alliance with Mediaset is a key step in Vivendi Chairman Vincent Bolloré's project to build a multilingual, pan-European group to challenge Netflix and pay-TV giant Sky PLC. Vivendi and Mediaset also said they would work together on a new European streaming service.
"When Netflix announced it was opening in France, Spain, Italy, it was clear Vivendi as a media company would have to adapt," said a person familiar with Vivendi's thinking, adding that it also has its sights on the U.S. market.
Subscription video-on-demand services such as Netflix and Amazon Inc.'s Prime have sent traditional broadcasters scrambling, as the emerging services gain millions of customers each year and built libraries of their own content.
Netflix, which launched in Italy, Spain and Portugal last fall, said in January it was expanding its Internet TV network to another 130 countries around the world. But European viewers, most of whom prefer watching programs in their local language, pose a challenge for the Los Gatos, Calif.-based firm. While it has a well-stocked library of movies and TV programs in the U.S., Netflix has limited offering in its European countries, where the content rights have often already been sold to other distributors.
Vivendi is betting that it can copy Netflix's streaming service in Europe by simultaneously buying rights in several territories. Traditionally, studios have sold the rights for TV shows country by country.
Vivendi is also buying some independent studios, underscoring its belief that local content in countries like France, Spain and Italy will appeal to large audiences in Africa and Latin America that speak the same languages. On Friday, it said it would work jointly with Mediaset to create content.
"If we want to be serious we have to invest in original local content -- that's what makes the difference," Dominique Delport, president of Vivendi Content, said earlier in the week.
To be sure, Netflix's global expansion has continued apace even as streaming competitors emerge. In the latest quarter, Netflix added four million international customers, ending with a total of 75 million subscribers.
Moreover, Netflix has a bigger budget for content acquisition than local competitors. While much of its spending on original content has been for premium English-language entertainment, it has also been investing in local-language series such as the coming political drama "Marseille," its first French original production.
Mr. Bolloré has been pushing Vivendi to transform itself since taking the helm of the once-sprawling conglomerate in 2014.
In recent months, he has shaken up its French pay-TV unit Canal Plus and put a multibillion-dollar cash chest to work, buying large stakes in Telecom Italia SpA and two French videogame companies, Ubisoft SA and Gameloft SE.
Vivendi's share price, which rose 85 European cents to EUR18.42 on Friday, has dropped more than 20% over the last 12 months as shareholders complained of a lack of clarity in the company's direction. In its latest annual report,Vivendi said it still had a EUR6.4 billion cash pile.
"The Mediaset Premium acquisition is the first stage in Vivendi's project to create a global media group with Latin roots," said Jerome Bodin, an analyst at Natixis. "They're trying to create a cultural group that's sufficiently large and homogenous to exist on the global stage."
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
April 09, 2016 02:16 ET (06:16 GMT)
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