Mergers restrict access to content

Like AOL and Time Warner, Vivendi and Seagram may find that their merger affects the quality and range of the content they provide.

The 21st century has begun with a flurry of mega media mergers and acquisitions hot on the heels of 1999’s telecoms merger mania.

Vivendi’s $34bn (£22.7bn) takeover of Seagram and Canal Plus to create the £66bn Franco-Canadian media giant Vivendi Universal is the latest deal, only six months after the £100m AOL and Time Warner merger.

Mergers in the media, telecoms and technology worlds are justified by claims that they are preparing companies for a future driven by content distributed through the Internet, mobile phones and digital radio and television.

But the vertical integration of distributor and content provider could limit the scale of future output and consumer uptake.

Vivendi chief executive Jean-Marie Messier and Seagram chief executive Edgar Bronfman Jr must put their egos behind them to make the world’s second largest media group, Vivendi Universal, work.

Vivendi’s Internet business – it jointly owns Europe’s Vizzavi website with Vodafone – and its cable TV, telephone and software units must marry seamlessly with Seagram’s Universal Music and Universal Studios.

The Seagram alcohol business is bound to be sold – possibly to Allied Domecq – as it does not fit with the content and distribution-led future of Vivendi Universal.

Pumping music and films through Internet and pay-TV (Vivendi majority owns Canal Plus subscription TV service) is touted as the major benefit of this deal.

But there are drawbacks to these deals uniting content and distribution. The merged group could be compared to a supermarket which sells only Procter & Gamble detergents, while its rival offers only Unilever goods.

The point of owning TV channels and Internet portals is to offer a wide choice of quality content, not selected output from one provider. Rival content providers may well balk at dealing with the enemy. And some of the own-produced content may not be up to scratch.

The BBC, for example, has benefited from opening its doors to independent producers, expanding public choice by integrating its broadcasting services across TV, radio and the Internet.

Vertical integration is considered to have had a negative effect on the UK brewing industry, and led to many players being taken over by foreign beer businesses. In recent weeks this has included Bass and Whitbread, which are being snapped up by Interbrew.

UK brewers have reaped the rewards of having tied pub estates which are forced to take their beer brands. Critics argue that this vertical integration has led UK brewers to concentrate less on branding – as they have had secure outlets for their products. The absence of strong home-grown international brands – Heineken, Stella and Budweiser are foreign – has made the UK brewing industry vulnerable to overseas acquisition.

Deals such as Vivendi/Seagram, AOL/Time Warner, Viacom/CBS, Spanish telecoms giant Telefonica’s acquisition of Dutch TV production group Endemol, and the UK’s Flextech and Telewest merger suggest content will not be universally available. The content/outlet tie-up will restrict access to films, music and television programmes.

GWR Group last month acquired most of Daily Mail and General Trust’s radio interests in the DMG Radio Group for £146m.

The deal increases DMGT’s stake in GWR from 18.8 per cent to 26.9 per cent and puts GWR in a strong position to capitalise on consolidation in the radio industry.

The two groups had already agreed to develop joint local Internet portal sites, where GWR radio stations and DMGT local newspapers can combine content, promotion and advertising sales. DMGT’s cable TV will be relaunched as GWR’s Classic FM TV in December.

GWR chief executive Ralph Bernard says the GWR/DMGT deal has been carefully planned to capitalise on the specialisms of each company rather than try and make a radio company run newspapers and vice versa: “There was a period when people panicked about the Internet and entered into deals without necessarily understanding the opportunities and distractions,” he says.

Bernard believes there will be a move away from consolidated groups which cover every media base to groups with a more traditional, specialised focus. He does not believe the UK will be dominated by one radio group.

Bernard says new media depends on content which is most substantial in existing media organisations with well-established brands and can convert momentary entertainment – such as radio shows – into longer lasting content.

The AOL/Time Warner deal showed the high-rated paper world of new media was desperate to get its hands on old media to provide tangible content value if the dot-com bubble burst.

The new enlarged groups must make sense of their synergies while increasing choice, maintaining quality and offering global consumers access to the music, films and TV programmes they want. Their exclusive content deals could make this difficult.

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