Vivendi SE (VIV) Earnings Call Transcript & Summary

Great. And before I move on to UMG, maybe last question on from a capital cash standpoint and portfolio shape. I mean there's been a number of headlines in Italy about your relationship with Mediaset. And I think European Court of Justice they even validated the customary law. So I'm just wondering like how does that change your thinking around your stakes in Mediaset and TI because, I guess, now you could potentially own both stakes? And would you consider increasing your investments in these 2 companies?

Italy is an important country for us. And as they said, in Italy, we love that, [Foreign Language]. So I think that, yes, Italy, and we discussed that in the past, Lisa, I think that it been a tough journey, I don't need to say differently, obviously. But with the sequence of news that we benefited from post summer, which is on Telecom Italia, the point is that under the leadership of Luigi Gubitosi, who is your guests at this conference tomorrow, I think, you will ask, but the job done by the team here, be it the situation in Brazil, the capacity to get KKR within our secondary network in Italy. The capacity to get this potential event, which single broadband with the support of the Italian State. The capacity now to be in an environment where certain people who try to do something, which was not very good for the company, I'm talking about the past, I would say, difference of opinion between shareholders of Telecom Italia, all this is in the past, and Telecom Italia is on the right track, and I'm cautiously optimistic I say that by certain kind of understatement, if you allow me to say that. I'm positive about the capacity to show that Telecom Italia is going to be successful in the industry and will be a participant of what will happen in the industry in the foreseeable future. But Telecom Italia has its own agenda with Mediaset, and this 5% is that, obviously, in the different arguments we had with Mediaset, we have some rights that have been exposed. But that's the past, as I said, and it's been covered by the press. We're having discussion between the 2 CEOs of Vivendi, that is myself and the new CEO that is coming. We think that there is an opportunity to open a new chapter. I think that in the market and evolution of our competitive environment, there is a opportunity to be able to perhaps start a kind of on a different foot, and we see whether we make that happen, and we do our best to make it happen. And Mediaset is another story. We don't expect, in any shape of form, an increase in stake in the operation. This is not on the agenda. We do think that in the -- in those combination of Media asset and Telecom asset, see what's happening in the U.S., huge cautiousness. Telecom Italia, Mediaset, two different strategic moves, two different situations, two different objectives. No need to increase our stakes in any shape or form, not on our road map. And happy about the last sequence of events and happy to be in a position probably to be able to showcase that Italy is going to contribute to the success of Vivendi for the foreseeable future.

Very clear. Maybe we can move on to UMG. And I guess my first about the streaming opportunity, clearly, streaming has seen tremendous growth and has boosted the overall growth profile of UMG. I think last year, we reached about 340 million paid users, which I think it counts for about less than 10% of total smartphone population. How do you think as the largest music company in the world, how do you think about the growth in the streaming that we had ahead of us, especially, I think, in emerging markets?

Well, without the shadow of that, we have plenty of room for further growth, even in the more that love streaming markets to say, such as the U.S. and U.K. When you consider that the second largest music market in the world, Japan, is still 70% physical. You realize that we have a lot of opportunities. 2 of the other top 5 global music markets, Germany and France, to name them, are just now transitioning more heavily into streaming. And emerging music markets, particularly Latin America, China, Africa, India and Southeast Asia, are beginning to contribute more meaningfully to the Vivendi growth. So UMG took a number of important steps recently in continuing to expand its global footprint, including opening for -- for example, opening offices in Morocco and Israel, launching Def Jam, one of our record base in South Africa and Nigeria, and announcing key partnerships with Sugar in Italy, The Aristokrat Group, Africa and Desi Melodies in India, among others. So to answer your question, very, very straightforwardly, there are still a lot of exciting factors that are going to help grow the markets. Voice control speakers, connected car opportunities and audiovisual product innovation. So we are also -- started seeing the early days of the extension of streaming music licensing into new lifestyle categories like health, fitness. So this is kind of, as we call it in French, [Foreign Language]. But opportunities in front of us are very stimulating. And to answer your question, we see strong opportunities for continuing growth on the foreseeable future.

Yes. Clearly, I think the streaming growth opportunity is huge, especially on the longer-term horizon. But recently, I think COVID-19 has had some impact on streaming, I think, especially on the high teens. I think if you think about the coming months or quarters, and I know you've mentioned in your guidance, but do you think how quickly do you think we could go back to the pre-COVID level of growth, which was more around 15% to 20% level?

Well, I think that when you see the shape during the first half and first quarter, second quarter, in Q2, we had the growth rate for subscription and streaming has been affected by a slowdown in the global advertising market, and it's been closed by the pandemic. On the other hand, the pandemic had actually helped to introduce some consumer to stream and subscription services for the first time. So therefore given that consumptions trends we made very strong, we expect this will rebound. That being said and regardless the pandemic, we do realize that this is inevitable that the rate of this growth will be slower over time at the scale of our subscription and streaming business continues to grow. This is a simple mathematics. So it should be taken into context. But again, message is going to rebound. And pandemic is a kind of one-off that is not going to in any shape or form the good momentum that we have seen in our operations.

And I think within that sort of stream market and in terms of the future recovery that we're talking about here, I mean, how do you think about the market share, I would say, UMG? And it looks like UMG has been taking share over the last few years. And I think if I look at the most recently Billboard 200 chart, and you actually had 9 out of the top 10 albums, which is, I think, its best performance in 2018. Like what confidence does that give you that UMG can continue to basically outperform the market?

Well, we are in the creative industry business. So it's all at the heart of what we do in aspect of what we do is about creative talent and to get the very best one. And as a solution range very frequently rightly says, while the charts are snapshots of our performance, this achievement is a true reflections of UMG's long-term artists investment and the quality of the Universal Music team, starting by the fantastic leadership and expertise and capacity to scout talent of Sir Lucian. So I'm not going to extrapolate about what it could mean for third quarter or second half results. But very importantly, having achieved this remarkable statistic multiple times and being the only company ever to do so. It shows that not only that this is the most successful music company in the history of the industry but also the enormous value of UMG consistently delivers to its artist development. Artist development. We're working with our artists to help them achieve quick success and maintaining that success over the course of a career requires a long-term vision and commitment, which we are confident will continue to bring unparalleled job success, artistic success and financial success over time. So as you can feel here and see having the best team provides me with really enthusiasm about the possible future, and the success that we are currently having, served by the capacity to solve the talents and to be the best house to make them very successful over time. So hats off to all the UMG team, starting by Sir Lucian.

And speaking about the opportunity for UMG, could you maybe talk about the progress of how your commercial partnership with Tencent has developed. We saw that Universal is also trying to take a broader and deeper commercial partnership with them? What do you think are the biggest areas of opportunity for UMG? And when do you think we should start to see the tangible benefits on whether it's on market share or on your financial performance?

Yes. So Universal and Tencent continue to work closely together with Greater China to provide opportunities and success for UMG artists across Tencent's platform, including QQ Music, Kugou and Kuwo. In addition, UMG's content will be licensed for use on the Tencent Music Entertainment online Karaoke platform, WeSing, along with other large streaming and extended digital services for the first time. So TME and UMG have also announced the launch of a new joint venture music to launch in China at a later date. And last but not least, both companies are aligned in a desire to grow the new ecosystem within Greater China and increase the numbers of premium subscribers in the coming years. So except -- expect this very great momentum, good relationship and really alignment as regards to the passion of the business to produce tangible effect in our business sooner than later.

And we spoke about UMG's market share earlier, and I guess, your ability to continue to attract the best can you maybe tell us whether this is coming at an increase cost? And how has the cost of all these new labels over time? And how do you balance that against scope for further margin expansion at UMG?

So in fact, it's always been and remains a very competitive market for talents, and we believe UMG continues to be best positioned in the market. When you look at our chart success and you name them around the world, this sends a clear message that UMG's labels are the home choice for artists at all stages of their careers. So artists are attracted by our broad-based capacity to produce global superstars. The ability to deliver marketing, promotion and industry-leading career development, in addition to the wide distribution, most artists seek. Operating directly in about 60 countries, executing hundreds of digital partnerships and numerous physical retail relationship visibility and track record simply can't be matched. So we recognize that in a streaming world, the return of an artist can be longer than in a physical or download world. But that being said, in a streaming world, revenue is recurring and becomes incremental once the target ROI is achieved. This can actually lead to higher ROI over time. So of course, our aim is always to continue to improve our margin over the long term. And the key is to be, as said previously, the home for artist on the short, mid and long term.

Great. I think I would like to move maybe towards and switch gears with Canal+. I think Canal have been through kind of swift transformation, I think over the last recent years. Last year, you made a major distribution deal, Netflix, Disney+, et cetera. So do you think that this recovery that we're beginning to see because we are starting to see new subscriber trends and yield stabilizing, margin improving, like how do you think -- how sustainable do you think this is? And do you feel like now Canal+ is well equipped now to face competition again from a Netflix or an Amazon?

Well, thank you for your question. And I do remember previous exchanges we have together, it's interesting to see that since maybe the first one, 2015 or '16, there was some debate about the sustainability of the Canal+ operations. And I think that after what we said, we said what we wanted to do and in terms of where we do stand, we achieved what we wanted to do. And we have thoroughly during the period we then our offers since 2016. And we have started to reap the benefits of those actions since 2019, as we have shown in the numbers. We can propose our subscribers the best sport offer in the market. One of the largest catalogs of films and TV series. And one of the most performing digital platform called MyCanal to view our content. So our objective is to keep on generating profitable growth in a very competitive environment. And our recent deals signed with Netflix and Disney always be in, and the U.S.A. Champions League together with our renewed efforts to create and produce more every year should allow Canal+ to kick one proposition very attractive and entertaining offers to our -- its subscribers. So again, our position compared to very strong growth and a great result international level. Good job in France, but still a job to be done. We are like kind of a watershed in terms of repairing for the future. But the model, which is a general model of Canal+ in that context, which is a production model, which is a distribution model, but which is also an aggregator model, which is best of breed, second to none. And again, we are confident about the capacity to maintaining the pressure in terms of costs in France and pushing our strategic vision on what is making Canal+ offer a unique selling proposition, but it's the best offer you can have in this competitive environment, period.

I guess following up on that, like what do you think could be the next sort of transformation opportunity for Canal+. You can end the day by pursuing cross border consolidation merging with the Telecom operator? What do you think about that?

Well, I think Canal+ has initiated a cost optimization plan. The company has generated around EUR 1 billion cumulative savings in 4 years from its 2015 cost base and more should come in 2021, with the first benefit of completion of the voluntary redundancy plan initiative in 2019. But most of the restructuring actions are behind us, while Canal will remain extremely careful with its spending. Alliances and partnerships should be more effective and cash generative, that cross-border transactions and merger in any shape or form is not on the agenda at all. But when you see what the team has done in terms of international expansion, when you see the fantastic results we're having in different geographies in which we do operate. But let's take as a kind of objective. The great success of the M7 acquisition I was relating to at the beginning of our discussion, which has been fantastic, and enable Canal+ to reach the 20 million subscribers target. And in terms of numbers have been accretive for the old one. I mean I'm very, very satisfying about the way things did transform, were above expectation. And I'm very happy because my CFO, Herv Philippe, is very happy. And the team managed by Maxime Saada and Jacques du Puy for the international part have done a tremendous job. So expect the capacity to keep that as a kind of a discipline that we are going to deploy the kind of criteria that will apply to further development.

I think we're coming towards the end of the session, but I guess, we started a bit later. So maybe I'll just take one question from the audience. And that was, I think regarding -- there's been recent concerns around, I think, Drake potentially going independent as there actually a few press reports about it. I guess, without commenting specifically on one audience like how do you think in general about the risk for UMG of losing one of its top artist? Or maybe you could talk about like how diversified is UMG's revenue stream?

I just think that the part of the know-how and what make UMG an exceptional company # 1 by far in the market is the capacity to create the ecosystem and to deal with artists at a different level. So in a creative field, be it actors, singers, authors, just to name a few artistic director in the public advertising field, part of our job is to create the very best environment to attract, retain and develop the talents. And we've got the best team to do that under the leadership of Lucian. And I'm again thinking that we're going to have some situation, and situations that wins very efficiently and with talent. So I think that when I see the great record and the great success of Universal Music Group, expect that the condition what UMG stands for is the best answer to, I mean, being able to be the place to be for every artist.

And I guess on that great note, I think we're going to conclude this session. Thank you very much again, Arnaud, Herv, for joining us. It's been helpful to hear your views. And thank you, everyone, for joining us again.

Well, Lisa, thank you very much [Foreign Language] And I hope that I'll see you in person next time.

Which is definitely to come.

Sure. [Foreign Language].