Vivendi’s Universal Music Group Bottoming Out

Canal Plus Group weathers France’s economy

PARIS – Universal Music Group (UMG) revenues jumped 7.5% at actual currency to €4.886 billion ($6.7 billion) as the music company looked to be bottoming out in 2013, UMG owner Vivendi announced Tuesday, unveiling its full year 2013 results in Paris.

Jean-Francois Dubois, Vivendi management board chair, declined to make any new announcement on Vivendi strategy, such as which parts of Vivendi will remain within the group as it recognized Monday that it had initiated talks to sell telco unit SFR.

Vivendi results underscored, however, the more buoyant current performance of the group’s contents and media units, compared to its challenged telco units, France’s SFR and Brazil’s GVT. Media and content sales leapt 5.7% in actual currency to €11.3 billion ($15.5 billion).

The French conglom hopes to clarify its media strategy by mid-Spring, said Arnaud de Puyfontaine, senior exec VP, media & content. “The aim is to make the whole stronger than the sum of its parts,” he added. In that sense, early experience at German SVOD operation Watchever will feed into the development of French operations, he added.

At constant currency, excluding results for EMI’s recorded music arm, which UMG bought in September 2012 for $1.9 billion, UMG sales were on a par with 2012.

Most notably, the decline in physical sales was offset by a growth in digital and other revenues. Subscription and streaming revenues spiked a banner 75% vs. 2012 to around €450 million ($617.4 million), announced Boyd Muir, UMG CFO. For the first time, in 2013 yearly digital sales exceeded physical sales, it added. Among headwinds, however, the digital download market is fast maturing in the U.S.

UMG earnings before interest, tax and amortization (EBITDA) grew 5.8% at actual currency to €714 million ($979.6 million), despite challenges from the Japanese market where UMG sales, excluding EMI, dropped €80 million ($109.8 million), owing to slow digital growth, Muir explained.

UMG was one of the more upbeat narratives at Vivendi last year where earnings attributable to Vivendi shareholders multiplied eleven-fold to €1.967 billion ($2.7 billion), mostly due to the one-off sale of 88% of vidgame outfit Activision Blizzard in October, which brought in $8.2 billion in cash.

But profits were dented by the impairment of goodwill – a fair revaluation of value – at telco unit SFR, the subject of sales talks with Gallic cable operator Numericable, Vivendi confirmed Monday.

Total 2013 Vivendi revenues dipped 2% in actual currency vs. 2012 to €22.1 billion ($30.4 billion) – slightly below expectations. But EBITDA, a stronger guidance to underlying economic health, fell 23.1% to €2.4 billion ($4.1 billion), hit by restructuring at SFR. Dubois declined to give guidance on 2014, which would come in several weeks, he added.

Vivendi stock dropped 4.8% through mid-morning trading on Euronext Paris.

Vivendi-owned Canal Plus Group, Europe’s second biggest pay TV operator, was dented but not devastated by France’s languishing economy. In mainland France, Canal Plus client churn increased in 2013 to an overall 14.9%, though slowing second half 2013, owing to macro-economic conditions, competition from ISP and free-to-air channels and above all price increases, said Canal Plus Group CFO Gregoire Castaigne.

2014 will be a “transition year” for Canal Plus with the impact of VAT increase looking set to lose Canal Plus around €80 million ($109.8 million), Castaigne added. Re-negotiation of sport content, such as U.K. Premiere League soccer rights, will kick in this year as well.

Overall, including international, Canal Plus sales increased 5.9% to €6.511 billion ($8.9 billion) on the back of a 249,000 sub hike driven by pay-TV operations outside France in Poland and most notably in Africa, where subs crossed one million at the end of 2013.

In Africa, where Canal Plus reaches about 20 territories, the pay TV giant is experiencing very significant growth at about 20%-25% per year. ARPU – revs per client – is not insignificant, at around €20 ($27), per Castaigne.

In France, Canal Plus also benefitted from a bullish re-launch of free-to-air channels D8 and D17, which together took a 4.7% market share in France.

Revenues at European film-TV group Studiocanal edged up 1.5% to €473 million ($649.0 million). Revenue drivers included TV and movie sales, in particular on the Joel Silver produced Liam Neeson starrer “Non Stop,” and “Hunger Games 2” in Germany. Studiocanal also bought 60% British TV company Red in 2013.

But international activities will be the biggest growth driver for Canal Plus going forward, accounting for roughly 40% of EBITDA, Castaigne said.

“Canal Plus is relatively strong in Africa, but it is suffering in France, where churn was high at 14.9% and it is losing subscribers,” said Francois Godard, at Enders Analysis.

“The Canal Plus premium channel is not doing too bad, but most of suffering is at the Canalsat package, caused by competition from free-to-air channels, whose number has increased proliferating on ADSL TV which is taken by 40% of French households.”

“On the one hand, Canal Plus has a long-term focus on domestic programming and original productions that is very positive,” Godard added.

But “where Canal Plus is weaker is on the technological side, set top boxes, the user interface, and it has a problem of distributing on ADSL which is technologically very complex, but where it is seeing most new sales.”