Q&A: Messier on the Record: Settling into the Hot Seat

The Vivendi Universal CEO talks about his precarious position--and his plans for getting the job done

It's hard to open a newspaper these days without seeing something about Jean-Marie Messier, CEO of Vivendi Universal. Vivendi started out as a water utility but is now a $50-billion-a-year media conglomerate after its purchase in 2000 of Seagram and its Universal movie and music businesses.

Today, Vivendi is wrestling with big challenges. It lost money last year after taking a big writedown. It has huge debt, and it has seen its share price drop some 79% from its peak in March, 2000. And, as with AOL Time Warner, the very idea of a media conglomerate with lucrative synergies among its units is open to question in the minds of some. That has stirred speculation that Messier may not survive as CEO.

BusinessWeek Editor-in-Chief Stephen B. Shepard spoke to Messier about these issues on June 13, as part of the magazine's Captains of Industry series at Manhattan's 92nd Street Y. Here are some excerpts from that conversation:

Q: Last December, you said the French cultural exception was dead. Tell us what you meant by the remark and why it caused such a stir in France.

A: Our world is becoming [one] of cultural diversity, and speaking of national culture is not that meaningful. You have to realize that [I spoke] in the context of the French election [in which nationalism was an issue]. I do regret that I caused such emotion. But if to any extent my statement has been part of the fight against [unsuccessful right-wing French presidential candidate] Mr. [Jean-Marie] Le Pen and his ideas, I am proud of that. As a Frenchman, when I see people like Le Pen and the risk that they represent for our country and for all culture, I have only one thing to say: "Mr. Le Pen, no. Nowhere, never."

Q: What language is spoken within Vivendi in France?

A: All our board meetings and executive committee meetings are in English, with all the documents in English. The rule is that if someone wants to speak French, he can.

Q: You created Vivendi Universal to marry content and distribution and take advantage of emerging broadband technology. Why does a content company have to own distribution? Why not let the markets sort out the relationship between content providers and producers?

A: Vivendi Universal (V ) is 75% content and one-fourth distribution. So, we are first a content company. We do not intend to be more than regional distribution players. But in some fields, distributors become so strong that they can squeeze the margins of the content provider. You gain leverage in making alliances with other distributors.

Q: Why has the promise of broadband gone unfulfilled?

A: Those technologies are very late. We were expecting that they would come in one year, then we realized that they wouldn't come for two or three additional years. Did we invest too much two years ago in the new technologies? Yes. And we have to reduce our investment. But would it be wise to stop those investments? No. Because the trend of broadband is there.

Q: A lot of users want to download music and burn CDs and share them with friends. The technology companies don't seem to think it's their responsibility to prevent that. Yet content providers have intellectual property rights to protect. How do we deal with this?

A: You will never be successful if you don't give the customer what he is looking for. We were unable to give the right service and the right added value to the customer. So, first to be blamed are the content and music companies. That's the reason why, in the movie industry, for example, we are trying to be first online to offer new services.

How can we solve the problem? First, giving the right answer to the consumer. Second, agreements with manufacturers and software companies. We were the first content company to make an alliance with one manufacturer--Thomson Multimedia--to defend intellectual property rights. [But] there is a cost. At the end of the day, we will have to discuss money [with consumers]. And third, education. Let's explain to our children that stealing music or movies is just trading the value of creativity for zero.

Q: Vivendi has to reduce debt. How are you doing that? What is the situation with Vivendi Environnement, the water unit?

A: First, in the past we made some errors by pre-announcing what we were going to do. So I'm not going to [do that] again. [On June 17, Vivendi's board okayed plans to reduce the stake in Vivendi Environnement from 63% to just over 40% when market conditions are "appropriate."]

Q: One recent rumor was that Vivendi had to dip into a reserve fund to the tune of $1 billion to pay dividends and some related taxes. Is that true?

A: When you manage a company, you are not like a retail store. You do not keep the cash. You put it into bank accounts and have undrawn facilities. Those banks tell me: "I will give you up to X-billion dollars, and when you need them, just call." This was the case for our dividend. Banks are ready to give us more than 3.2 billion euros.

Q: So there is no cash-flow problem?

A: Our media assets will generate this year close to 2 billion euros in operating cash flow. Month by month, our excess liquidity is 4 billion to 6 billion euros. That means that if there were a new macroeconomic event like September 11, in the worst-case scenario, Vivendi is not at risk.

Q: You own only 44% of telecom outfit Cegetel, and under U.S. accounting rules, you can't consolidate earnings unless you have at least 50%. But you consolidate all Cegetel earnings.

A: That's not our choice. Under U.S. generally accepted accounting principles, as under French GAAP, we are obligated to consolidate. When we introduced Vivendi Universal into the New York Stock Exchange, the [Securities & Exchange Commission] reviewed and [ruled that we] consolidate. We have to state, especially in terms of debt, both consolidated earnings and proportionate earnings.

Q: How would you describe your relationship with Barry Diller?

A: Barry Diller manages all of VU's TV and film operations in the U.S....integrating those activities, [finding] the efficiencies. Barry Diller is someone who, since he left Rupert Murdoch, has never accepted working for anyone. Why would he work for this little French guy? Barry has a great ego, true. But he has something greater than his ego, that's his talent. And I prefer to have Barry Diller working with Vivendi Universal than with someone else. We have no contract between us. That's the reason it's going to last for a long time, because we have a strong mutual interest in working together.

Q: What has he done so far? Is there new programming?

A: We have three key new channels to launch around yearend or at the beginning of next year. When you have Universal Music within your group, you have the right tool to create a competitor for MTV, which went from being a provocative channel 21 years ago to more a way-of-life channel now.

Q: So there is an opportunity for Vivendi to compete with MTV?

A: When you look to the music TV market, yes, there is room for competition.

Q: And Barry would help you do it?

A: Barry, along with the strength of the Universal Music team.

Q: There are rumors that you are going to lose your job. Do you think it would ever happen?

A: I am not the owner of my company; I am a paid CEO. So from the first day I became a CEO, I knew that this job could stop tomorrow morning if my board or if my shareholders lose their confidence and decide to change the CEO. That said, I do hope to be able to continue to manage, let's say, for the next 15 years.

It's fair to say that at least one of the directors of Vivendi Universal has expressed--in a manner that I'm not sure is in the best interest of all shareholders--his dissatisfaction with our stock price and the way the company is managed. Okay. You have to live with it. Today I have the strong support of a strong board. We have to execute our merger. We have the best margins of our industries or we are in the top tier of performance.

That's the way I'm going to create value for this company and its shareholders. I'm not thinking every morning about whether I will lose my job.

Q: But the Board did establish a committee to oversee you?

A: Not to oversee. This is part of the misperception in the media. We announced the creation of a corporate governance committee which, for me, is one of the basics. The creation of this corporate governance committee became the news of the day. And the following day in the media, it was "Messier under scrutiny. There is a committee created to oversee what he is doing every day." Stop. I am in charge of the day-to-day job. If the board is not satisfied with my job, it has to oust me, not to oversee these day-to-day actions.

Q: Do you have any regrets about your performance?

A: As CEO, I have made errors. And one of them has been to take too high a media profile on a personal basis. We have to correct that. On the other hand, the media, and the markets, are in many cases overreacting. One of the most difficult tasks I have today is how I can get Vivendi Universal out of the headlines.

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