Vivendi, AOL valued scale over synergy: ad buyers

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The golden promise of cross-platform media sales is quickly tarnishing as two major media companies struggle with declining stock prices and analysts questioning the wisdom of their bigger-is-better strategies.

Both Vivendi Universal and AOL Time Warner are facing down talk their individual units would fare better if allowed to stand alone.

Their problems stem partly from the overall concern that media conglomerates grew too fast with too many disparate assets that don't make sense, and should be re-configured into smaller and more logical groups, media agency executives said.

"A lot of these companies have been chasing the wrong `S,"' said Renetta McCann, CEO of Bcom3 Group's Starcom North America, Chicago. "They are chasing scale and not necessarily synergy."

"People assume there is synergy in scale, but the real synergies turn up in the compatible target audiences or compatible brand equities," she added. "Vivendi was a water company that sort of decided it would get bigger by buying all these assets, and ultimately all this stuff didn't go together."

long haul

Media buying executives, who formed mega-media agency groups to combat the growing leverage of media conglomerates, agreed the possibility of media units spinning off from the giants means little in the short-term.

"We are in this for the long haul," said Donna Salvatore, chief executive officer of Bcom3's MediaVest USA, New York. "The whole idea of cross-media has to make sense. It's got to have strategic roots."

But even if the current troubles of the media selling giants lead to a break-up, media agency executives feel their own efficiencies of size are still valuable.

"We deal with individual parts anyway," said Jon Mandel, co-managing director of Grey Global Group's MediaCom. "After all, that's what media agencies do. We have to figure out the best place for our clients among everything that everybody has to offer."

Andy Donchin, senior VP-national broadcast for Aegis Group's Carat USA, New York, echoed those thoughts: "If they would break up tomorrow, I don't think it would have a huge effect. Most of the business isn't done as cross-platform deals."

blurred vision?

Outgoing Vivendi Chairman Jean Marie Messier's vision was that its content could be used for Vivendi's growing network of portable telecommunications assets, which include a partnership with Vodafone. He also believed that advertising could eventually be sold around that content.

Since December 2000, Vivendi's stock has been in a free fall, dropping 70% to the $22 range July 2. It took another 21% drop the next day to around $17 due to questions concerning accounting procedures.

AOL Time Warner's stock price has fallen steeply as well, from the mid $60 range in 2000 to $14 last week. But, unlike Vivendi, AOL Time Warner has made inroads in pulling in new revenue from cross-platform deals. But not fast enough for the market.

Now analysts are broadly questioning the wisdom of the media conglomerate.

"The conglomerate model is looking less fashionable," said Reed Phillips, managing partner of media investment bankers DeSilva & Phillips, New York. But that has "largely to do with the current economic climate. If we were in the economic climate of 18 months ago, it would probably be very fashionable." Added Scott Peters, managing director of media investment bankers Jordan Edmiston Group, "It's a difficult environment to get full value for assets."

next move

"The bigger issue for Vivendi is that its management is being changed when its management is half through its strategy," said Chris Dixon, managing partner of UBS Warburg, New York. "Whether you agree with the strategy is not the point. The question is: Are they are going to continue?"

French pharmaceutical Aventis executive, Jean-Rene Fourtou, is the new chairman of Vivendi Universal and will make those decisions.

contributing: mercedes m. cardona, jon fine, richard linnett, david goetzl, laurel wentz.

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