Jean-Marie Messier, CEO of Vivendi Universal, is one of Europe's top New Economy executives. In December, he concluded the merger of Vivendi, the French media, Internet, telecom, and utility group, with Universal's media properties in Hollywood. The new company will be a giant in the entertainment business, rivaling the likes of Bertelsmann and AOL Time Warner. On Jan. 9, he talked to BusinessWeek editors in New York about his vision for Vivendi Universal and the future of the Net. Here are edited excerpts from the conversation:
Q: How is the merger working?
A:It's going quicker and generating more ideas than we imagined. Our goal is to transform the old media model -- getting 100% of revenue from ads -- into a new model with mixed revenues. We want to leverage our existing customer base through cross-marketing. We are trying to develop subscription models.
Q: Will the customer be willing to pay?
A:If there's one thing we've learned from pay TV, it's that there is no right business model. In the entertainment field, the right model is the one that each customer wants for himself. The choice is on how much to spend, from free service to the full range of services.
Q: Isn't that complicated for the customer? Too many choices?
A:I don't think so. You offer basic service free or for a small fee. The customer is ready to make choices. But you have to make life as simple as possible on the technical side. We want to get new customers for a low cost of acquisition. For example, in 2001, everyone who buys a Universal [music] CD will get a free connection kit to our Vizzavi portal. We will begin with simple, on-the-ground cross-marketing ideas. We will catch them with free services, then offer pay services.
Q: Do you plan any more mergers?
A:In the U.S., Vivendi Universal will expand through commercial agreements, not mergers. With Napster/BMG, [Vivendi Universal's] MP3.com, what's happening? The emergence of a legitimate online music business. You are beginning to see the first distribution agreements between content providers and e-platforms, which you can see as retail networks. Within months, there will be the development of commercial agreements between content providers and platforms.
Q: Is your position against Napster evolving?
A:Bertelsmann was a little too early in settling with Napster. With MP3.com, we were right in continuing the lawsuit to the end point. We ended up with a better deal. We capitalized on one court's decision recognizing intellectual-property rights. There are strengths behind the Napster/Bertelsmann [deal]. Subscription models will be an increasing part of business models.
Q: Did you consider going with Bertelsmann in settling with Napster?
A:As of today, our decision has always been negative. It's too early. We want to go one step further on the legal side before doing anything.
Q: You want to push until you get a ruling against Napster?
Q: Will Microsoft be a player in distribution, with Yahoo! and AOL?
A:In a PC-centric view, yes. If you take a multiple axis approach, it will be more difficult for Microsoft. The key is localized information. You need to be connected to a local provider, on a mobile screen, offering things like hotel reservations and movies.
Q: You're making big bets on untested technology. Why?
A:We thought environment and information would be the two key areas. And it's beginning to be untrue to say it's untested technology. At Canal+ [Vivendi's Europe-wide pay-TV network], we have 1 million pay transactions per month. People are buying goods, not just paying for programs on cable.
And in wireless, the first GPRS [2.5 generation mobile technology] is taking off. The speed is 50 kilobytes [per second]. 3G will increase the speed to 300 kbps. Until 3G is on the ground, we won't be able to offer video. But too much emphasis has been put on 3G. For two to three years, let's work with music, voice, and data.
Q: What level of revenue per customer would be profitable?
A:In pay TV, our average revenue per analog subscriber is 35 euros per month. For digital TV, it's 50 to 60 euros. For wireless, it's 40 to 45 euros.
In three years, wireless revenue will probably still be 45 euros per customer per month, but 30 euros will come from voice services, because prices will decrease. The other 15 euros will come from new services. Without those services, my average monthly revenue for wireless would drop from 45 euros to 30 euros.
Subscription revenues will be increasing with the development of broadband and high-speed access. Two years ago, Napster took 30 minutes to download one song. Streaming [audio] gives access to the full catalog. That's where subscriptions makes sense -- giving access as unlimited as possible to big libraries. That's the core trend for the coming 10 to 15 years. In wireless, Europe is ahead of the U.S. by two to three years.
Q: Does file-sharing have a future?
A:Yes, it will have a role. It can become a legitimate business model. But why should it be free? My bet is that that will change, too. There will be continuing legal battles and investments in technology to protect data, such as encryption. Customers are prepared to pay for simplicity, customer care, and added-value services.
Edited by Patricia Kranz