Vivendi’s High Wireless Act

CEO Jean-Marie Messier's deals with Vodafone and Seagram were a star turn on the European stage. As information becomes truly portable, a global media company paired with continent-wide distribution may prove an unbeatable combination.

December 8, 2000

Jean-Marie Messier. Photo: Serge Cohen

JEAN-MARIE MESSIER is an apostle of the high-speed world. This has led him to do things in life that strike other people as strange. In 1996, for example, he took command of a hoary French utilities conglomerate called Compagnie Générale des Eaux — which sounds vaguely exotic until you learn it means General Water Company — renamed it Vivendi, and set out to transform it into a media company poised to take advantage of the digital age. Now, with Europeans so crazy for mobile phones that wireless companies have been slinging around billions to buy each other out, Messier is collecting his reward: a partnership with Britain’s Vodafone AirTouch and a merger with Seagram, the liquor-and-entertainment conglomerate, that will put him atop the world’s first media giant to focus on the potential of wireless.
Western Europe is the ripest wireless market on the planet — 390 mil­lion gen­erally affluent people, 59 percent of them already on wire­less, using phones that connect one end of the con­tinent to the other. Having largely missed out on the Inter­net boom that started in the US six years ago, Euro­peans are seizing the oppor­tunity to invent a whole new Inter­net, one that’s weight­less and untethered and follows you wher­ever you go. In the US, where wire­less lags behind, most Inter­net users will be tied to their desks for years to come. But Jupiter Research predicts that in Western Europe about two-thirds of the population will have Net-enabled handsets by 2003.
At the moment, Europe’s wireless Internet is still a hard-hat zone. Introduced over the past year, it remains slow and often frustrating to use, with limited services and periodic disconnects. As a result, it has drawn far fewer subscribers to date than Japan’s i-mode, which went into operation a year before Europe’s effort and now claims 12.7 million users — nearly 10 percent of the population. But with Europe’s technology advancing rapidly and companies scrambling to develop new services, that should soon change. Fueled by the prospect of a market that Jupiter expects to hit $1.7 billion in three years, startups and formerly state-owned monopolies alike have launched spectacular bidding wars to grab the licenses that will let them make high-speed wireless service a reality. Messier is positioning his global content-and-distribution machine to dominate the market.
When the year started, Vivendi controlled France’s second-largest wireless operator and held substan­tial stakes in publishing and interactive television (another digital communications tech­nology in which the US lags behind). Through its $34 billion purchase of Seagram, Vivendi will add Universal Studios and Universal Music to its stable. But the linchpin of Messier’s plan is his deal with Vodafone, the world’s largest wireless carrier, which gives him access to 48 million subscribers across Europe. Vivendi and Vodafone are building an ambitious portal that will work on wireless devices, digital TVs, and PCs — a convergence that promises to make life so convenient it’s become the goal of every major player in the business.
It’s a bold gamble, and a risky one. Europe has no shortage of Internet portals, most of them well estab­lished and already gearing up for the wireless Web. Joint ventures are notoriously unstable vehicles, prone to coming apart when you need them most. And then there’s Vivendi itself: Inte­grating Hollywood’s oldest film studio and the world’s biggest music company into a French com­munications conglomerate is a delicate task — one more suited to a brain surgeon than to an in­veterate wheeler-dealer like Messier. If he can pull it off, Messier will command the only media company in the world with a digital distribution capacity that compares with AOL Time Warner’s; if not, the digital revolution will roll through Europe without him. Investors sent Vivendi’s stock into a nosedive after the deal was announced, and even Messier’s admirers had to wonder if this time his ambitions have outstripped his abilities.
“So far, Messier has demonstrated that he’s a fantastic financier,” says André Lévy-Lang, ex-president of the French bank Paribas and an angel investor in Internet companies. “The test now is going to be man­agement. I think he can do it, but that’s what the challenge is — and that’s why the market has been so skeptical.”

A Decade of Reporting on the Global Media Conglomerates

In the 1990s and into the 2000s, a series of ego-fueled mega-mergers led to the creation of six global media conglomerates: News Corp., Sony, AOL Time Warner, Vivendi Universal, Viacom and Walt Disney. For most, it would not end well.

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BOLD AND RISKY ARE TYPICAL MESSIER. A compact dynamo who goes by the nickname J2M, he is a legendary figure in France, and for good reason. Though he boasts impeccable credentials — de­grees from the École Polytechnique and the École Nationale d’Administration, the approved training grounds for France’s business and government elite, followed by stints in government and banking — he has ripped his country out of the past by its roots. As a finance ministry bureaucrat he privatized state-owned enterprises, reversing a course of state control that dated from the 17th century. Then, as the youngest partner at the investment bank Lazard Frères, he helped facilitate the frenzy of mergers and acquisitions that privatization helped set off. In 1994, when he was brought into Générale des Eaux as heir apparent to its 73-year-old CEO, one board member threatened to resign, telling journalists “This is grotesque” and declaring his own preference for “a solid, serious professional who will calm things down.” Messier ascended to the top job two years later, and nothing about the company has been calm since.
As CEO of Vivendi, Messier has come to symbolize a new generation in French business, one more focused on results than on political machinations and palace intrigues. “Messier was one of the first to change the rules,” says Francis Cohen, cofounder of K-Mobile, a wireless Internet startup in the funky east end of Paris, a world away from Vivendi headquarters on the haughty Avenue de Friedland, a few steps from the Arc de Triomphe. “I have a lot of respect for him.” Though Messier cuts a decidedly establishment figure — the impeccable navy suit, the red tie, the perfectly pressed powder-blue shirt with those tiny checks that are so common in Parisian boardrooms — he clearly loves playing the revolutionary. “If I were 20 years younger, I would just go and create my own startup in France — or not in France,” he quips. Being 44, alas, he contents himself with a blinding display of dealmaking that tends to leave onlookers feeling dizzy.
In four years, Messier has initiated dozens of transactions that have made Vivendi one of Europe’s top five media players — not to mention the world’s leading water company, its third-largest waste management outfit, and Europe’s leading energy and transportation firm. “What I’ve done is not very different from what I did at the state level when I was the small and young guy in charge of privatizations,” he says. “A lot of people were looking at me as, ‘He’s crazy.’” Some still do — particularly French journalists, who’ve lampooned him for years as J6M: Jean-Marie Messier moi-même, maître du monde (translation: myself, master of the world). Messier’s response? He’s written a gossipy book celebrating both the Internet age and his own financial razzle-dazzle, just published in France under the title
Vivendi had dabbled in communications before Messier’s arrival. In 1984, it cofounded Canal+, the country’s first pay-TV channel. A few years later it created a wireless company called SFR, short for Société Française de Radiotéléphonie. But these were lost in a jumble of holdings — a typical situ­ation in France, where grab-bag conglomerates that combine disparate businesses have never gone out of fashion. Messier decided to make a strong telecom play in France while building a media presence across Europe. Frank Boulben, a Messier adviser and the architect of this plan, says the idea was “to have one foot in telcos and one foot in content, with the idea of a convergence between the two.”
So Messier bolstered Vivendi’s stake in Canal+ with an investment that enabled it to provide state-of-the-art digital television across most of Western Europe. He augmented SFR, the wireless company, by starting a fixed-line telco called Cegetel to compete in the newly deregulated French market. He then moved into publishing, staging a gradual takeover of the French book and magazine giant Havas, a venerable enterprise that started out in 1835 as a news service relying on carrier pigeons. He made Havas a major force in electronic publishing by buying Cendant Software, a US-based giant in games and educational software, and transforming it into Havas Interactive.
Somewhere along the way, Mes­sier decided his company need­ed a new name. Générale des Eaux was too utilitarian, too old economy — and too French. Mes­sier wanted a sleek new Euro-name to match his in­creasingly global ambitions — a name even Americans could pro­nounce. So the cor­porate ID people were called in to brainstorm: Viva . . . Vivaldi . . . Vivendi! It tested great in every language except Chinese.

Messier, aka J2M, became legendary for ripping French business out of the past by its roots. As a young bureaucrat he privatized state-owned enterprises. Then, as the youngest partner at Lazard Frères, he fueled the subsequent frenzy of mergers and acquisitions.

By the time Messier made his deal with Seagram CEO Edgar Bronfman Jr. in June, Vivendi had been streamlined into two quasi-autonomous units: Vi­ven­di Environment, the water and utilities businesses, and Vi­vendi Communications, a force in tele­vision, telecom­munica­tions, and traditional and elec­tronic pub­lishing. Seagram adds entirely different strengths to this mix: music, movies, and theme parks. (Universal Music is the largest music company in the world, a global powerhouse that’s number one in sales in the US and Europe. Universal Pictures is on the rebound from a recent slump with hits like The Nutty Professor II.) The plan is to sell both the Seagram liquor and wine group and Vivendi Environment, resulting in a focused global entertainment and communications conglomerate called Vivendi Universal that will pull down $21 billion in annual sales.
Shortly after inking the deal with Seagram, Messier announced that the various corporate staffs these businesses now maintain (departments like finance and human resources) will be consolidated into the main office in Paris and a satellite in New York. He didn’t elaborate, but it was clear he means to slash the bureaucracy — not surprising for a CEO whose hero is Jack Welch, the GE chair who earned the sobriquet “Neutron Jack” because he left the buildings standing but fired all the people.
When the merger goes through, probably by the end of this year, Bronfman will be vice chair under Messier, with responsibility for two of the combined company’s key businesses: music, which will be run from New York, and Internet operations, which will be run from Paris. Canal+, now 49 percent owned by Vivendi, will become a wholly owned subsidiary that will take over Universal’s film and theme-park businesses to form a multicultural entertainment giant called Vivendi Universal Image. Heading it will be Canal+ CEO Pierre Lescure, a pop-culture enthusiast who grew up on American movies and once hosted a TV show called Les Enfants du Rock. Canal+ is the biggest film producer in France, and it’s long had Hollywood ambitions — though it wasn’t eager to give up its independence to achieve them. “We are still independent in our mind,” says Lescure.
“Pierre Lescure’s choice,”says Messier, “was to remain a regional player with a nice shareholder, Vivendi, or to be part of a larger world group that needed to be 100 percent owned and not 49 percent. I’m not saying it was an easy choice, but it was an explicit choice.”
The combination puts Messier astride a world stage. “At the end of the day,” he asks, “who will be our competitors? AOL Time Warner, CBS Viacom, Disney.” Of those, only one — AOL Time Warner — has a digital distribution system that will allow direct access to consumers’ homes, unmediated by outside cable operators or Internet service providers. Messier believes that people will want access to interactive services, information, and entertainment anywhere they go, any way they can get it. That’s why he views the portal venture with Vodafone as critical.
“We decided as soon as I took over this group to conduct a strategy based on the convergence of technologies,” Messier says. “So this merger with Seagram is not an idea that came recently. Even in ’96 it was obvious that we were going to a high-speed world, to a world where technology is, at the end of the day, of no interest. I’m a customer. What I want is to receive my services, whatever technology is used.”


THE PORTAL THAT VIVENDI AND VODAFONE ARE BUILDING is called Vizzavi. Adapted from the term vis-à-vis, the name is meant to suggest a reflection, a duplicate, a virtual companion. It’s no accident, of course, that it also has a couple of Vs in it. Vivendi and Vodafone have set it up as a separate company based in London, with national offices in every country in which it will operate — France, Germany, Italy, the Netherlands, and the UK, for starters. The head office in London is responsible for creating a uniform look and feel and for building the underlying technology — a search engine, for example, and an email platform that will work all over Europe. The national offices will develop services in their own languages for their own countries. The idea is eventually to extend Vizzavi across Europe (maybe even to the US). But the reason for the initial focus is clear: Vodafone operates the leading mobile carriers in the UK, the Netherlands, and Germany, and the second biggest in Italy; combine those with Vivendi’s mobile carrier in France, and you have a swath of Europe with as many people — 273 million — as the US.
When Vizzavi is fully built, a year or more from now, users should be able to move seamlessly from device to device and from country to country. They could pick up their email at the office in London, say, or on the TV screen at home in suburban Hampstead, or on their mobile phone or PDA while vacationing in Tuscany. Any local information or entertainment services they access in Tuscany will of course be in Italian, but for that matter so are the road signs — and with so many nationalities crammed into an area not much larger than the US, Europeans are used to negotiating one another’s languages. For the moment, however, this kind of go-anywhere, use-anything service remains unrealized, by Vizzavi or anyone else. Today, only six months after its formation, Vizzavi is operative as a wireless portal, giving access to WAP services in France, the Netherlands, and the UK. WAP portals for Germany and Italy will come in the next few weeks, to be followed early next year by Web portals for all five countries and later in the year by TV portals — once Canal+ delivers on its plans to introduce a set-top box with the extra memory and processing power required to handle Web content as well as television programming.

Vivendi’s $34 billion purchase of Seagram adds Hollywood’s oldest movie studio and the world’s largest record company to an already huge content stable. This includes Canal+, which has the most advanced digital television operation on the planet.

The first to launch was Vizzavi France, which debuted in June with some 200 French-language services. Eventually there will be a monthly subscription fee for basic WAP of­ferings, but the only cur­rent charge is a few francs for premi­um ones. At the Vizzavi France Web site, PC users can choose the WAP services they’d like to get on their wireless devices from a menu of available options: sports, travel, leisure, finance, games, info, shopping, and a catchall category called C’est pratique. Click on “info” and you can select news, weather, traffic, job listings, and tech news. The ones you pick will appear on your mobile-phone or PDA display in any order you specify.
Want to know how bad the traffic is on the expressway that rings Paris? If you chose “traffic” during the setup process, you can punch a few keys on your WAP-enabled phone and wait patiently — at 9.6 Kbps, it takes awhile — until a tiny map blinks onto your screen with a simple message: Périphérique fluide (expressway clear). Through “leisure” you can access things like a restaurant guide from GaultMillau, or the latest hit parade from the French music channel MCM, or movie schedules from AlloCiné, a Moviefone-type service that’s also available on TV, on the Web, and by telephone. (Both MCM and AlloCiné are part-owned by Canal+.) Coming soon: Dédicaces, a service from Universal Music that will let you send a song to a friend. Modeled after a similar offering launched a few months earlier by Omnitel, Vodafone’s Italian subsidiary, it rings your friend, displays the text greeting you’ve keyed in, plays the song, and puts the charge on your bill. Italian teenagers have made it a big success.
Dédicaces might be fun, and AlloCiné is certainly convenient, but these and similar services would work just as well on a PC. Vizzavi won’t really be turbocharged until 3G technology — a replacement for existing second-generation mobile networks — brings wireless broadband in 2002 or so. But it will start to be a lot more compelling early next year with the introduction of “location-based services.” This is what the mobile Internet is all about — not Web sites that have been repurposed for mobile phones, but services that are smart enough to know where you are and to tailor themselves accordingly. Not a restaurant guide you have to sort through, but a restaurant guide that tells you what’s around the next corner without being asked. Weather forecasts for whatever town you happen to be in. Driving directions. Emergency alerts. Local movie schedules. Concert and sporting event info. Delivering all this will be a tricky job involving close coordination between Vizzavi, which supplies the information, and the wireless operators, which know where you are. Once billing mechanisms are in place, sometime next year, your handset will become an electronic wallet that you can use to buy tickets or other consumer goods. “Our lives are going to be changed,” promises Antoine Iris, the former marketing consultant and telecom equipment sales executive who heads Vizzavi France.
Iris runs an organization of 60-odd people on the 17th floor of a glass-and-granite tower in La Défense, the Barbarella-style office complex on the western flank of Paris. Outside his windows, construction cranes sprout from a forest of apartment towers advancing into the hills that surround the city. “You want to be intimate with the consumer,” Iris declares. Vizzavi aims to do just that: It knows your name and your mobile number; it gets your birth date and your personal preferences when you sign on; and because it operates in tandem with your wireless service provider, it can plot your location by tracing your signal within the cellular network. So let the deskbound Web launch you into cyberspace; the wireless Web will link your immediate surroundings.
“With the Internet, you can create virtual communities which transcend geographical boundaries,” says Iris. “But what about your village? France is a country of villages, and as people are exposed to global communities, I think they will also need to feel close to the people around them.”
The irony is that this need will be filled by a pan-European partnership between two companies with global reach and ambition. At Vizzavi’s London headquarters, in posh but temporary quarters not far from Hyde Park, 275 people from across Europe are developing the platform that Vodafone and Vivendi plan to roll out from the North Sea to the Mediterranean. “Finns, Spaniards, French, English — it’s like the United Nations here,” says Vizzavi CEO Evan Newmark, an American. Still, there’s a big difference between the United Nations and the United States. “It’s very hard to put your finger on what constitutes Europe,” he says. “Take sports. Bicycling is big in France, Spain, and Italy, but not in the UK. It will be 20 or 30 years before there’s a European identity — and yet the Internet is about economies of scale and scope. If we don’t have that, we’re going to be in trouble.”
The economies of scale that come with a pan-European operation are vast. Licensing tens of millions of email boxes from a software provider, for example, is very different from licensing half a million: The cost per box can be cheaper by a factor of six or eight. “We’re not talking about a 10 percent discount,” says Newmark. Servers are cheaper by the dozen as well, which is why Vizzavi is centralizing its data hosting facilities in London, with a backup facility in Paris for disaster recovery and load balancing.
Vizzavi is scaling up to be one of the top three portals in Europe, and that’s not a trivial task. Services that work seamlessly on the wireless devices, PCs, and TVs of millions of people speaking different languages in different countries across Europe? “The vision here is the easy part,” Newmark admits. “Making it work is the hard part.”

Vivendi and Vodafone’s ambitious portal, Vizzavi, will work on wireless devices, desktop computers, and digital TVs. Its users should be able to move seamlessly from device to device and country to country, from the North Sea to the Mediterranean.

Lots of people know how to build a Web portal, but few know how to build one that works with wireless devices as well as PCs — and almost no one has tried to throw TVs into the mix. You have to build a database that can deliver the right content in the right language to the right device. You need session-management tools that can hand over information from one device to another, so a customer can start playing chess on his PDA, say, and continue the game at home on his TV set. You have to build an interface that can coordinate Vizzavi’s offerings, be they weather forecasts or the beep-beep that alerts you to a shoe sale around the corner, with the wireless companies that pinpoint the customer and deliver the service. You need sophisticated data-mining techniques to know what type of info each customer prefers — and yet you also need to design a way for the customer to buy into the practice by providing information, or choose not to. And you need to construct all this so that it can keep growing indefinitely. If Vizzavi were a pyramid on the Nile, Newmark and his team would be cutting blocks right now and moving the first ones into place. But all this is possible.
The real danger is that Vizzavi might turn out to be both too early and too late — too early for the still-nascent wireless Internet, which no one expects to gain critical mass until the arrival of 3G; and too late for the deskbound Internet, which has no shortage of portals already. “It’s still the very early days in Europe,” Newmark says. “PC penetration is relatively low, and mobile technology is still pretty primitive. It’s like a wine that needs to mature a little bit.” He considers this image for a moment. “Well, maybe a wine that needs to mature a lot. But that means habits are not as set. We see a window of 12 to 18 months. If we’re nowhere two years from now, we’ll probably be nowhere forever.
That could happen. Europe’s big national telcos own most of the leading Internet service providers — France Telecom’s Wanadoo, Deutsche Telekom’s T-Online — and they already have the most-trafficked Web sites, with a reach approaching AOL’s in the US, not to mention nascent wireless portals of their own. Outside their home countries, however, their strength is negligible — which is why Newmark sees Yahoo! as the one to catch.
Yahoo! claims 27 million European users who access it through eight distinct Web sites, each of which has a carefully cultivated national identity. It is the leading domain in the UK, according to Media Metrix, and it’s second in France and Germany. It has succeeded — unlike AOL, which has never been a force in Europe — because it has tailored its offerings to the tastes and market conditions of each country in which it operates. (Though for some reason the posters in the Paris Métro ask “Do you Yahoo?” instead of, say, “Yahooez-vous?”) Last year the company launched a “Yahoo! Everywhere” strategy aimed at transferring its Web strength to wireless. Before the Vizzavi partnership was even negotiated, Yahoo! had started to land deals giving it preferred placement on the WAP offerings of major mobile operators like France Telecom’s Itineris and BT Cellnet in the UK.
“The way we view the world,” says Fabiola Arredondo, the Spanish-born, London-based managing director of Yahoo! Europe, “is that we’ve got loyalty products, essentials our user base can’t do without — Yahoo! Mail, the portfolio, the address book. If you’ve already gone to the trouble of setting them up on the Web, you’re going to want them on your mobile. But to get to this point it’s taken us close to four years, with lots of heavy lifting along the way. It’s not a light task to create that overnight. In fact, it’s not doable.”
“To catch up with Yahoo!, you’ve got to run harder,” Newmark admits. “Because if you don’t, you’ll get run over.”


THAT VIZZAVI EXISTS AT ALL is a monument to Messier’s skill and agility as a dealmaker. Messier championed the concept when he gave a speech at a television-industry convention in Cannes in the fall of 1999. Meanwhile, with WAP services on the horizon, the European wireless business was about to hit warp speed. Within weeks, Messier would be swept up in the cascading torrent of events that climaxed in Vivendi’s partnership with Vodafone and its acquisition of Universal.
It started innocuously enough, with a phone call from a senior Universal executive in Hollywood. Edgar Bronfman would be vacationing in Paris in October; would Messier be interested in meeting him? “We had identified Seagram as a very interesting partner,” says Messier, “but there was no reason for me to think Edgar was looking for partners. For me, the main objective of this meeting was to understand who Edgar was.” They set up a 45-minute breakfast; it lasted three hours, but neither of them broached the idea of a merger.

The real danger is that Vizzavi might turn out to be both too early and too late — too early for the still-nascent wireless Internet, which won’t hit critical mass till the arrival of 3G; and too late for the deskbound Internet, which has no shortage of portals already.

Meanwhile, investment bankers in Lon­don were negotiating the sale of Orange, the UK’s third-largest mo­bile operator, to Man­nesmann, a century-old German manufacturing outfit (steel pipes, com­pressors, hy­draulic lifts) that had recently ven­tured into mobile communica­tions. The Orange deal made Man­nes­mann the clear leader in the bur­geoning market for European wireless, with control of major operators in Germany, Italy, and the UK. It also set off reverberations across Europe. In particular, it created a crisis at Vodafone, which had just acquired AirTouch in the US but then joined it with Bell Atlantic’s wireless operations — and ceded control in the process. In Europe, Voda­fone was stuck with minority holdings in almost every country except the UK. Investors were demanding clear control and economies of scale, and Vodafone suddenly found its back to the wall. “It was a question of survival,” says an investment banker who was close to the action. “The downside was very, very severe.”
So in mid-November 1999, Vodafone offered $107 billion for Mannesmann — a move Mannesmann promptly rejected. When Vodafone followed with a hostile bid, Messier was drawn inexorably into the conflict. The continent’s wireless companies were a crazy quilt of competing interests locked into joint ownership patterns — and nowhere more than in France, where Mannesmann, Vodafone, and British Telecom were minority partners with Vivendi in SFR. This put Messier in a complicated — but not entirely disagreeable — position.
Messier had specialized in mergers and acquisitions at Lazard, and his stewardship of Vivendi had essentially been M&A by another name. But Vodafone’s move against Mannesmann presented him with opportunity and risk on a scale he’d never encountered. Klaus Esser, the newly installed chief executive of Mannesmann, was eager to avoid a takeover and viewed Vivendi as a likely white knight — a corporate savior who would rescue him from Vodafone by making a counteroffer for the company. Chris Gent, the CEO of Vodafone, was just as eager to keep Vivendi out of the fight — and ready to make a deal to do so. So just before Christmas, Messier opened talks with Vodafone about turning his idea for a multi-access portal into the Internet access point for a Vodafone-Mannesmann network. At the same time, however, Messier was discussing a possible merger with Klaus Esser of Mannesmann. At issue was the future of Vivendi: Should it try to wrest Mannesmann away from Vodafone, or should it partner with Vodafone and look for a deal that would make it a global media power? Try to be the leading wireless operator in Europe, or try to become another Time Warner? Bulk up on pipe, or bulk up on content?
That was the question facing Messier last January, when AOL and Time Warner announced their merger. In Paris, as elsewhere, people were stunned. “The 10th of January was a wake-up call,” says Alex Berger, a former Vivendi executive who was close to the negotiations with Vodafone. “It was a very violent, very powerful day — an accelerator for everything that happened subsequently.” Less than three weeks later, Messier presented Vivendi’s board with two agreements he’d negotiated. One, with Mannesmann, was for a merger of equals, with Esser and Messier as co-CEOs. The other, negotiated without Mannesmann’s knowledge, was for a 50-50 joint venture with Vodafone to build the portal — contingent upon Vodafone’s winning Mannesmann.
The Mannesmann deal was tempting, but risky: With a $250 billion stock-market valuation compared with Vivendi’s $70 billion, Vodafone could easily afford to make a counteroffer that would blow Vivendi out of the water — and if that happened, Messier would walk away with nothing. The Vodafone deal, on the other hand, was potentially rich: a 50-50 split of gross profits on the as-yet-unbuilt portal, even though Vodafone would be supplying nearly 90 percent of the mobile customers. The board picked Vodafone. Four days after the announcement, Mannesmann ac­quiesced to Vodafone’s latest offer.
Now all Vivendi had to do was execute the media half of its strategy. One of Messier’s lieutenants phoned Terry Semel, former cochair of Warner Bros. and one of Hollywood’s top power brokers. In early February, with Mannesmann’s fate decided, Semel suggested that Vivendi look at Universal, whose boss had hit it off so well with Messier four months before.
Bronfman had been doing some thinking of his own since then, and he too was focused on the issue of content versus pipe. A few years earlier, Bronfman had figured pipe could always be rented, but by the end of 1999 he was having serious doubts. As his competitors bought up more and more channels of distribution, he saw his profit margins being eaten away every time he needed to negotiate access. “I found myself having all the wrong conversations — conversations that were about figuring out how I could keep my piece of the margin,” he says. “We needed to go from this place to a partnership. I didn’t know which partnership. I just knew we didn’t have enough pieces of the puzzle to serve the consumer.”
When the AOL Time Warner deal was announced, Bronfman knew he’d have to act fast. So when Terry Semel called him at home one weekend and said he’d heard the Seagram CEO had been thinking about making a move, Bronfman coyly asked if he had any ideas. He did. The more Bronfman learned about Vivendi, the more intrigued he was — by Havas’ focus on the hot-button Internet trio of games, health, and education; by the Canal+ satellite platform; and most of all, by the portal partnership with Vodafone. “I said to Jean-Marie, ‘Look, let’s keep talking about whether this makes sense, but understand that to me, Vizzavi is critical — so until you sign that contract, this isn’t gonna happen,’” he recalls. “If you’ve got a group that has content, aggregation, and distribution, you can be relatively indifferent as to where the margin is captured. Otherwise you end up saying, ‘No, no, I’m the content, you have to pay me.’ You need to be part of the total value chain to succeed, but you also need to be enormously nimble. You have to be a large, agile company, which is perhaps an oxymoron. But that’s what you need.”


THERE’S NO QUESTION THAT VIVENDI UNIVERSAL WILL BE BIG — but will it be agile? The first clue came in July, when more than 70 people from the two companies were thrown together for several days at the Waldorf-Astoria Hotel in New York to see what might actually come out of this combination. Language barriers? These are people who can’t even plug their computers into one another’s wall sockets without an adapter. So there was a lot of apprehension going into it: Would the French be snotty? Would the Americans be imperialistic? No, on both counts.
“It’s a Vivendi takeover — that was made clear in the breakout groups,” says one Universal participant. “But there’s a general feeling within Universal that the swap of Seagram for Vivendi is a good one. The integration of narrowband, broadband, broadcasting, and wireless — that’s an idea they clearly take seriously. These guys are going to go for it. This is going to be a wild and exciting ride.”

“I think perhaps we are paying too much attention to Napster,” Messier says. “Down­loading is just an interim way of consuming music. Fifteen years ago, when you were looking for cash, you had to download it at the bank. Now it’s available everywhere — you stream your cash.”

The meeting was run by the two men who have been charged with putting the com­panies together: Vivendi’s Philippe Ger­mond, who was manag­ing director of Hewlett-Packard Eu­rope before taking over Messier’s wireless operation in 1997, and Uni­versal’s Bruce Hack, a longtime Sea­gram fix-it man whose current as­signment is getting the music busi­ness onto the Internet. Germond and Hack laid out the companies’ businesses on a grid, with the “content buckets” — music, film, TV, games — on the vertical axis, and the pipes — Canal+, SFR, Vizzavi — on the horizontal. Then they divided everyone into teams and directed each one to look for opportunities at a particular juncture. For example, what could Universal Music do with Canal+? With SFR? With Vizzavi? The idea was to create a web that would weave together disparate businesses.
“If this is a global convergence play, you cannot have barriers between units,” says Hack. One thing he learned from the meetings was that the differences between people were less a function of what country they were from than what business they were in. “A telecom is very different from a content company, but I found myself saying, ‘That’s the point.’ It’s an access company. It has to be in touch with the customer.”
In other words, you’ve got to have the pipe to connect your content buckets to the consumer. “We believe in physical access to the customer,” says Germond, who’ll be in charge of both telecom and Internet operations once the merger is completed. His point is key: One thing that has stymied media conglomerates like Universal and Time Warner as they try to go digital is their perception of the customer. To the music giants, for example, the customer isn’t the fan who walks into Tower Records for a CD; it’s Tower Records, whose corporate buyers decide what to stock. It follows that if the customer isn’t the music fan, then the product isn’t actually music; it’s the millions of CDs the music is burned onto. It’s the same across the board: For the Hollywood studios, the customers are the theater chains and the TV networks. For the networks, they’re local stations and cable operators. In every business, these companies operate at least one step removed from the faceless consumer who buys their products.
What could happen when you connect Universal Music to, say, SFR’s wireless phone service? Shortly after the merger was announced, Universal, which controls 35 percent of the music sold in France, released a CD by Johnny Hallyday, the perennial French rocker. Using SMS, a pre-WAP messaging technology that’s available on all digital cell phones in Europe, SFR sent out short text messages to 2 million subscribers alerting them to the release. The next step is obvious. “You take an SFR customer,” says Germond, “and you ask if he wants to download a Johnny Hallyday song, or buy concert tickets, or buy an album using his phone. Then we will have the loyalty of the customer, and we will refine our knowledge of the customer with a lot of information that goes far beyond name and address.”
Obviously, SFR customers will want music from other companies, just as Universal will want access to wireless customers outside of Europe. With companies like AOL Time Warner around — megacompanies that own pipe and content — that could make for some pretty fraught negotiations. The Vivendi Universal combination leaves both Universal and SFR holding a better hand. “The danger for a service provider,” says Germond, “is that you may not have access to any content under good economic conditions” — that is, on terms you’d want to pay. “But now AOL has Warner Music, and we have Universal Music, so we’re at par. We could not be in a better position.”
Of course, there are limits to what people will do with wireless. “I will not use a mobile phone to spend thousands of minutes downloading music,” Messier predicts. “But I do want to use my mobile to get access to my music, which has been downloaded at home on my PC or on my TV.” PC? There’s been this little problem involving music downloads lately, but Messier thinks he can handle it. “Napster is successful because there is no credible alternative,” he declares. “Even if a lot of students will still love to spend hours on their computer screens to get music for free, I think a lot of other customers are ready to pay — but only if they get what they are asking for. And what they are asking for is, Please make it reliable and quick. Second, if there’s a problem, I want to be helped. Third, I want additional services like lyrics, like ticketing. We have to think of what will come after Napster and be there as first mover, not as a follower.”
Yet Universal, like the other music companies, has been trying for years to figure out how to sell music online, with little to show for it. In April 1999, only months after paying $10.4 billion for PolyGram and merging it with Universal to create the world’s largest music company, Bronfman announced a partnership with Bertelsmann to create a standard for online music sales. Investors got so pumped up they sent Seagram’s stock to an all-time high. AT&T and Matsushita joined the project. Nine months later, the whole endeavor collapsed, and Bronfman handed the problem to Bruce Hack. The project Hack is leading now, codenamed “bluematter,” is on what Bronfman describes as “a forced march to market.” Yet its first offering — a service that debuted this summer allowing you to download music over the Internet for a nervy $2 per song — was greeted with catcalls. “This is just a trial,” Hack responds evenly. “I take criticism as input.”
“I think perhaps we are paying too much attention to Napster,” Messier says. “Downloading is just an interim way of consuming music. Fifteen years ago, when you were looking for cash, you had to download it at the bank. Now it’s available everywhere. There’s no more need to download — you stream your cash. People are looking to what is happening now as if it were the end of it. It’s not the end of it. With the explosion of different media, with increased speed, I think that streaming will become even more important than downloading.”


SO MESSIER IS BRINGING MORE TO UNIVERSAL than pipe. Vivendi has a different perspective, shaped by different experiences, different technologies. France is a profoundly orderly country, a place where woodland paths can be as rigidly geometrical as the grand boulevards of Paris, and one expression of its rationalism is a passion for engineering. Often that passion yields hopelessly elitist products like the Concorde. Vivendi has come up with Canal+, the most advanced digital television operation on the planet, and SFR, which began testing wireless Internet technology in 1998. They’re more like the TGV, the high-speed trains that slice through the French countryside in a blur: engineering achievements the US should have noted but didn’t.

“We are a European company with strong European roots. And that means that maybe we have additional skills,” says Messier. “But if a few years from now, you look at Vivendi Universal as being a wonderful European company, I will have missed what I’m looking for.”

Messier, the supreme techno­crat, chose the elite École Poly­technique (which he describes as “the only engineer­ing school which does not lead to being an engineer”) over Harvard Bus­iness School. Yet once in­side the French system, he re­jected its defining element — the drive for centralization that dates from the ad­ministration of Jean-Baptiste Colbert, the finance minister for Louis XIV. The web of connections that Hack and Germond tried to generate at the Waldorf meetings would have been unthinkable under the old system — but then, Messier has been working to destroy that system ever since he was in the finance ministry himself. “I’ve been described as being the most un-French chairman of a French company,” he says. “I was pleased by that.”
Messier is a man of many contradictions. The site he chose for Vivendi’s headquarters, for example, is profoundly French: A sleek limestone structure surrounded by exquisitely manicured trees, it lies within sight of l’Arc de Triomphe and the mammoth traffic circle that surrounds it — a perpetual maelstrom of honking autos locked in counterclockwise rotation around the psychic center of France. The building feels as plush and secure as a foreign embassy. Yet around the corner from the main entrance is a cybercafé called l’Espace Vivendi, jammed full of computers and people and displays for Havas books and CD-ROMs and SFR wireless handsets. You walk away with a sense of a man, and a company, that’s inventing itself on the go.
“We are a European company with strong European roots,” Messier says. “And that means that maybe we have additional skills. We are used to cultural diversity. We are used to foreign languages. But if a few years from now, you look at Vivendi Universal as being a wonderful European com­pany, I will have missed what I’m looking for.”
Messier wants to build a global company, with global management and a global board. In some ways that means an American-style company, with American accounting rules and a focus on shareholder value — one reason he was able to get Vivendi listed on the New York Stock Exchange in September. But as they pioneer the wireless Internet, Messier and Vivendi may be developing a new model of globalization. The kind of globalization the wireless Internet promotes will not be the mass standardization of McDonald’s. French farmers will not go to jail to protest it. The wireless Internet combines strong local identity with global access and outlook. It’s about being intimately connected to where you are — to your village, to your planet. It might be arriving just in time. ♦


Europe leads the way in advancing wireless.

THERE ARE REASONS WHY EUROPE IS AT THE CENTER of the wireless revolution. For starters, it has the highest penetration rates in the world — nearly 70 percent of the people in Finland use mobile phones, compared with 57 percent of Japanese and only 40 percent of Americans. The current situation has its roots in the Cold War, when the Swedish government invested heavily in electronics education, producing a generation of graduates who pioneered the technology’s development. Sweden’s Ericsson now claims 30 percent of the $48 billion global market for wireless infrastructure — almost as much as Lucent, Motorola, and Nortel combined. Finland’s Nokia has a similar dominance in handsets. Together with the Nordic telecoms, these companies have invested heavily in wireless R&D, promoting a spirit of openness and cooperation that’s based on the belief that open standards will create the biggest market. “We collaborate with our competitors to make sure we get a good standard,” says Mats Dahlin, president of Ericsson’s wireless unit. “Once the standard is set, we’re in fierce competition.” Other European nations have readily followed Scandinavia’s lead because so much is at stake: Already fragmented by languages, laws, regulations, and customs, these countries have a strong incentive to make communication easier.
▸ The world’s first fully functional wireless network was an analog service called Nordic Mobile Telephone system. Introduced in 1981, NMT was the brainchild of Östen Mäkitalo, a now-legendary engineer who headed R&D at the wireless division of Sweden’s state-owned phone company. Mäkitalo wanted a service that would be cheap, portable, and usable across Scandinavia; his success laid the groundwork for the spread of wireless across Europe.
▸ Work on second-generation wireless got under way in 1983, when the Nordic telcos decided to develop a new standard in partnership with others across Europe. The result was Global System for Mobile Communication, a digital system that went into operation in 1992 and gained acceptance throughout the continent and most of Asia. Half the world’s 500 million mobile subscribers now use GSM phones.
▸ GSM includes a paging system called Short Message Service (SMS) that lets subscribers send text messages of up to 160 characters. Early adopters of GSM phones — businesspeople looking to pack more calls into their day — found SMS too tedious to bother with. But when teenagers discovered mobile phones, SMS use exploded.
▸ A US industry consortium rolled out its own analog system in the ’80s, then continued to go its own way with a second-gen digital service called Time Division Multiple Access (TDMA); meanwhile, Qualcomm came out with a rival system called Code Division Multiple Access (CDMA), and some operators chose GSM over either one. Spotty network coverage, steep roaming charges, and punitive pricing schemes have all impeded wireless growth in the US.
▸ The wireless Internet began to take shape in 1997, when Ericsson partnered with Nokia, Motorola, and, a Silicon Valley wireless pioneer, to create Wireless Application Protocol, or WAP. Based on IP and other protocols, WAP operates with any wireless system. It debuted last spring in both Europe and the US, but because few services have been available, and because 2G wireless is too pokey for efficient data transfer, it has yet to live up to its potential.
▸ NTT DoCoMo’s i-mode service (i for “information”), introduced last year in Japan, quickly became a pop-culture phenomenon there. With subscribers signing up at a rate of more than 1 million a month, DoCoMo has become the most highly valued company on the Tokyo stock exchange. i-mode is cheap, fast, user-friendly, and has 20,000 sites. It’s a proprietary system, however, leading many analysts to question its ability to succeed elsewhere.
▸ GSM was designed for voice communication, but now there’s an upgrade, General Packet Radio Service (GPRS), that’s optimized for efficient data transfer. GPRS, which is coming out now in Europe, transmits information in packets (the way it’s done over the Internet) instead of leaving a circuit open for the duration of a call. It’s up to 10 times faster than GSM, and because customers pay by the bit — the amount of data actually sent or received — rather than by the minute, they can afford to stay connected all the time.
▸ GPRS is a bridge to 3G and true broadband wireless, which will be introduced next year as Wideband Code Division Multiple Access (WCDMA) in Japan and a year later as Universal Mobile Telecommunications System (UMTS) in Europe — same standard, different names. The US, where three different standards are competing for adoption, should begin to see 3G in 2001. Meanwhile, in Europe, the prospect of vast new revenue streams from data services and mobile commerce has sent bids for 3G licenses into the stratosphere. This year, $32 billion was spent on five licenses in the UK, while in Germany, six licenses racked up a total of $44 billion. ♦

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