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Vivendi CEO: Video game and music businesses play it cool in rough economy

February 3, 2009 |  3:24 pm

Jean-Bernard Levy, chairman and CEO of French media conglomerate Vivendi, doesn't strike the pose of a mogul. For one thing, the silver-haired 53-year-old isn't going to the star-studded Grammy Awards this year, even though Vivendi owns Universal Music Group, the label for Kanye West, Beck and Mariah Carey. Instead, he will be home in his native France.

Jean-Bernard Levy

Vivendi CEO Jean-Bernard Levy. (Photo credit: Alex Pham / Los Angeles Times.)

He did, however, take time out to speak with us today about Vivendi's far-reaching businesses and how they are faring in the tough economy. Here's an excerpt of our conversation with Levy about music and video games.

Q: How has the music business evolved?

JBL: We are doing very well during what is a migration to a new business model. We know that it will be a business that is not focused on a single product, but a multiple source of revenues, not just the CD. We used to be the major company music company producing the records. Now we form many partnerships. MySpace is a very big destination for music fans, so we formed a partnership with them. We know the music industry will have multiple sources of revenues.

Q: Can you give us some examples?

JBL: You cannot only rely on records to grow the business. What was once ancillary revenues or given away for free as marketing will now be part of the core business. Videos were considered just promotion and given away free to MTV, who made a lot of money from them. We say a music video is a piece of art by itself that can be monetized. We're also looking at merchandising. And we look at advertising-based revenue from endorsements. Of course, the record is the majority of the revenues. We’ve doubled our publishing business. And download continues to grow. For some artists we have, the download business is bigger than their CD business.

Q: Does Apple have too much leverage over music labels? Do you think Amazon provides an effective counterbalance to Apple’s influence? ...

... JBL: I believe that in the long run, the people tend to look at multiple stores to find what they want to buy. That will be also true of music.

Kanye West
Universal Music Group artist Kanye West. (Photo credit: Scott Gries / Getty Images.)

Q: What percentage of Universal Music Group’s sales are from digital downloads?

JBL: Worldwide, it’s 20%. And it’s growing quite significantly. In the U.S., it is more like 30%.

Q: How well positioned is Vivendi for the economic downturn?

JBL: Vivendi’s revenues are 70% based on subscriptions. We have cellular phone service, Internet broadband service, pay TV and online games [such as World of Warcraft]. Less than 30% of our revenues are driven by purchases of things like DVDs, CDs and console-based games. Advertising is less than half of 1%. It was 0.4% of our total revenue. So we are not directly hurt by the fact that there is less advertising money available. I believe our businesses are going to be very resilient. Most people will keep their subscriptions.

With respect to games and music, people will buy if we have hits. As long as we produce hits and have good quality services, we will be resilient.

Nevertheless, we will have some indirect damage. People who lose their jobs may not keep their subscriptions. We may be hurt by the increase in the number of jobless people. While we are very resilient, we are not immune.

Q: So for you, the relevant economic indicator is the jobless rate?

JBL: That's one of the metrics I am watching every closely, especially in the U.S., where the number of people unemployed is growing very rapidly. It’s growing much more quickly than in Europe, where you have better social benefits than in the U.S.

Q: How has the economy affected the games business?

A: The games business is still growing, but less quickly than a year ago. The games industry is focusing on a limited number of very popular games. There is less of the long tail. So we focus on our most popular games. We want to limit the number of new products. It has never been our strategy that our future would reside in unproven [franchises]. The strength is in leveraging existing [franchises].

Q: With valuations so low relative to a year ago, do you have any interest in acquiring companies such as Ubisoft or Take-Two Interactive?

A: We are not really looking at growing by acquiring large publishers. Our growth will come from leveraging our existing franchises. Our future resides more in our ability to manage our existing properties even better. I don’t believe that external growth is the key to our future. Internal efficiencies is the key.

-- Alex Pham