Gaul galling to Viv U

CFO decries pay TV market; mixed on U Music

NEW YORK — Vivendi Universal finance chief Jacques Espinasse on Wednesday bashed the French pay TV market as “dysfunctional,” called the recent perf of the conglom’s game unit “a disgrace” and said that despite improvement, “profitability isn’t where it should be” at Universal Music.

His comments — made at the UBS Media Week investor conference in Gotham — proved a refreshing respite from a stream of propagandistically upbeat exec presentations.

Espinasse used the forum largely to rail against Gallic pay TV, in which two major players — including Vivendi’s Canal Plus — must compete for content, paying through the nose, he said. The competition for channels leaves little coin for marketing and means high costs for subscribers.

“I will give you a parallel example of how bad it is. Imagine DirecTV and EchoStar fighting for exclusivity of channels” such as ABC, NBC or HBO. Stateside, he said, distributors duke it out on the marketing side, but channels are mostly ubiquitous. Unlike the U.S., France has no must-carry reg.

He said that while U.S. pay TV operators’ revenue is split about 50-50 between fees and advertising, in France it’s 95% fees and 5% ads.

“Do you know how stupid we are?” he asked.

Espinasse said the music biz is looking up, but piracy and counterfeit CDs are still thorny problems. Universal Music, the world’s largest music group, is slashing costs with $450 million in cuts targeted. “At the end of the day, you can cut the excess fat, but you can’t cut the meat and the bones,” he said.

At year’s end, he said, about 3% of U Music’s total revenue will come from paid downloading.

Viv U sold the rest of its entertainment business to NBC parent GE earlier this year, retaining a 20% stake in Vivendi Universal Entertainment. “We are happy to leave the driver’s seat to GE-NBC,” Espinasse explained.

“Maybe in 2009, they kick us out. It’s their privilege,” he added, referring to GE’s option to buy Vivendi out. If so, he promised, the transaction would be “at market price, with no discount.”

He said Vivendi has been leaning on the games unit, which posted losses of e200 million ($268.6 million) each both this year and last. New management’s in place, he said, and he expects to hit breakeven in 2005.

Vivendi, which has worked its way out from under a massive debt load, announced this week that chairman-CEO Jean-Rene Fourtou will cede operating control to No. 2 Jean-Bernard Levy next year. Separately, French stock market regulators fined the company and its former chief Jean-Marie Messier $1.3 million each for disseminating excessively optimistic financial information during Messier’s tenure.

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