Messier Makes a Mess

Vivendi and AOL have the same basic problem.

The implacable Inspector Javert from Les Miserables never pursued his quarry across the Atlantic, but then Javert never had access to the Concorde. The enemies of Jean-Marie Messier are not so handicapped; they will follow him from Paris to New York this week to beard him at the Vivendi Universal board meeting on May 29. Messier, the company’s chief executive, championed the media convergence strategy that has rendered Vivendi shareholders so miserable of late. So a boardroom coup is possible.

If Messier were to fall, he would be the second high-profile convergence prophet to be defenestrated this month. The first was Gerald Levin, who stepped down as AOL Time Warner’s CEO on May 16, taking his last bow before a distinctly unfriendly audience of AOL shareholders at Harlem’s historic Apollo Theater. Levin technically left of his own volition, though there is speculation that AOL Chairman Steve Case may have given him a push. Either way, Levin’s departure was anything but triumphal. AOL’s share price, like Vivendi’s, has deflated along with the telecommunications stock bubble. (In the past 12 months, Vivendi has skidded from $66 to around $30 in New York trading, while AOL fell from $55 to under $20.)

The merger that Levin arranged in 2000 between his Time Warner and Case’s America Online was touted as the template for the post-convergence world, when voice, video, and data will have merged into one digital stream, and all forms of media content will be delivered to a mass audience via high-speed “broadband” Internet networks. Alas, that world is not yet in sight, and impatient investors have long since soured on Levin’s ideal. The AOL Time Warner merger now is widely derided as a misalliance of epic proportions. But it’s way too soon to conclude that Time Warner’s content (Harry Potter movies, People magazine, CNN, Madonna) cannot eventually be delivered over the Internet in such compelling form that consumers will pay AOL vastly more per month in subscriber fees than the paltry $23.90 they pay now for dial-up Internet access plus a few bells and whistles.

Messier had something similar in mind in 2000 when he acquired Universal along with its corporate parent, Seagram, in a $34 billion deal. Paris-based Vivendi has mutated in startling fashion since its 1853 origins as a water utility created by order of Napoleon III. The firm has diversified frenetically into telecommunications, the Internet, pay TV, and publishing, a process that accelerated after Messier took the helm in 1994. Universal’s movies and music (A Beautiful Mind, Eminem) give him a source of English-language content to run through his various networks. More recently he added the entertainment assets of Barry Diller’s USA Networks, which are being folded into Universal.

Certainly, convergence had worked for Levin in the past: It formed the basis of his entire 30-year career at the media conglomerate that evolved into AOL Time Warner. When he joined Time Inc. as a Home Box Office executive in 1972, it was primarily a magazine company. Levin helped make it a major cable service provider, and he also helped negotiate its 1989 merger with Warner Bros. Levin eventually emerged as the chief executive of the combined firm, and in 1996 he acquired Turner Broadcasting. That deal added CNN and Ted Turner’s other networks to the Time Warner content menu, which ultimately was to be offered to the firm’s cable subscribers via the broadband Internet.

It’s difficult to say how successful Levin was in making these mergers work, because he never waited very long before doubling down on his bet by arranging yet another deal. The biggest was struck in 2000 with Case, another convergence visionary, who was flush with bubble-inflated America Online shares and looking for a cable partner who could ease AOL’s path to broadband. (Then as now, AOL was heavily dependent upon Internet customers who use slower dial-up modems. True convergence requires broadband, which can deliver higher-priced services such as video-on-demand.) The historic merger was consummated, and the newly christened AOL Time Warner was duly anointed the galaxy’s dominant media power. Then the share price began falling, and it kept on falling as investors grew fearful that AOL’s Internet growth prospects were fading; and finally there was Levin on the Apollo stage saying goodbye.

He will have plenty of company in that Valhalla for sidelined convergence visionaries. AT&T’s Michael Armstrong was one such prophet, but Wall Street grew too impatient, forcing Armstrong to abandon his grand scheme and sell his cable unit to Comcast. If the deal goes through as expected, Armstrong will become chairman of the combined firm, but Comcast’s Brian Roberts will be running the show as CEO. Meanwhile, German billionaire Leo Kirch is now well on the way to ex-mogulhood, having fatally overreached with his pay-TV plans. Even Rupert Murdoch is running into obstacles as he tries to complete his global pay-TV system—although Murdoch’s effective control of News Corp. insulates him from the troubles currently besetting Jean-Marie Messier.

Which brings us back to that Vivendi board meeting scheduled for May 29 in New York. Messier is expected to try to allay shareholders’ concerns by announcing a plan to sell off another chunk of Vivendi’s water-utility subsidiary and use the proceeds to pay down debt. That should buy him some time. But Messier is very unpopular these days in France, where he is viewed as having become overly Americanized since he bought Universal. The French elite takes a dim view of that sort of convergence; there have been calls for Messier’s head. If he goes, then Vivendi seems sure to pull back from his ambitious strategy, perhaps by selling off Universal.

There would be no shortage of potential buyers, despite the perceived disaster of the AOL Times Warner merger. Every company that wants to be a future media player thinks it needs a content strategy. Such were the dreams of Matsushita, the Japanese consumer-electronics firm, which acquired Universal Studios in 1990 and sold it in 1995 to Seagram’s Edgar Bronfman Jr., who in turn sold it to Vivendi. Now rumor has it that Bronfman (who sits on Vivendi’s board) may be contemplating snatching it back again with help from Messier’s enemies. (The Bronfman family reportedly denies this.)

Few media-convergence deals have yet measured up to their billing. That does not mean Levin and Messier necessarily were wrong to chase the mirage. The future is bound to get here at some point, and somebody will profit enormously from the delivery of content to millions of consumers via broadband and high-speed wireless networks. Players such as Vivendi and AOL Time Warner, with their enormous content resources, may yet figure among the winners. When that day comes, perhaps AOL will invite Jerry Levin back to the Apollo for another bow.