Why, they asked, would a mobile operator want a music company when so many attempts to find synergies between content and technology have failed? And why would the French group reject an offer $2bn-$3bn above most analysts’ estimates when it is under pressure to sell assets?
Neither company would comment when the Financial Times reported the news, but six people briefed on the discussions that broke down three months ago shed light on SoftBank’s reasons for coveting the world’s largest music company and on Vivendi’s reasons for saying it was not for sale.
SoftBank’s vision, they said, was to integrate music – some of the most popular content consumed on mobile devices – seamlessly into its wireless services in Japan and the US, where Mr Son this month sealed a $21.6bn bid for Sprint Nextel.
“SoftBank is not known for being meek, and we think management wants to enter the US market with a splash,” Macquarie analysts wrote in March. To do that, they said, it could offer access to music and other content for a monthly subscription, as it does in its home market where it has a valuable stake in Yahoo Japan.
Universal’s EMI acquisition last year made it by far the world’s largest music company, with artists from Kanye West to Avicii. Its US market share jumped from 29 per cent to 38 per cent in the US in the first six months of 2013, according to Nielsen SoundScan.
“There will never be a bigger music company,” one music executive noted, and SoftBank’s approach comes as some forecast a turning point for the battered industry.
Nielsen’s figures show a 4.6 per cent year-on-year fall in US album and track sales, but digital albums now account for 43 per cent of all sales, and streaming volumes are up 24 per cent. That is creating a growing source of subscription revenue, which supporters of the mooted deal say SoftBank could accelerate.
But if SoftBank bids again for Universal or another music company, it will have to overcome 30 years of scepticism about the value of technology-driven companies owning content to advance their devices or software strategies.
“Adding a content play to Sprint makes a lot of sense. Owning it is a whole other thing,” one analyst said. Sony and Philips used their ownership of PolyGram and Columbia to popularise the compact disc in the 1980s, when Matsushita owned MCA and Thorn owned EMI, but most such groupings have since unravelled.
Sony, which invented the Walkman but lost the music market to Apple, is now under pressure from Dan Loeb, the activist investor, to spin off its content businesses. SoftBank’s high valuation of a rival company could strengthen his hand.
Steve Jobs is said to have considered buying a music company to help Apple’s iTunes store, but he opted to strike licensing deals with all the big labels instead. “Apple proves you don’t need to own content. The argument is dead,” one music executive said.
Vivendi is among the companies that have failed to prove the synergies between telecoms and media content.
It owns three telecoms assets – SFR in France, Maroc Telecom in Morocco and GVT in Brazil – and three entertainment businesses – Universal, Activision Blizzard games and Canal+, the French pay-TV group – but has spent a year looking to break the group up.
Vivendi has examined network sharing deals, a Numericable merger or a spin-off for SFR; it tried to sell GVT but bids disappointed; and it is in talks with Etisalat to sell Maroc.
Jean-René Fourtou, its chairman, has had difficulty selling assets at prices acceptable to the board or shareholders, who include Vincent Bolloré, the billionaire French investor. But, after failing to find buyers for its Activision stake, he has pinned his strategy on focusing Vivendi on being “a worldwide European-born media leader”.
Analysts remain unsure of the plan. Bank of America Merrill Lynch this month wrote that without Maroc and SFR, the remaining units would be “a geographically and economically disparate collection of assets without any strategic rationale as a single entity.”
They valued Universal at $5.8bn, so the revelation that Vivendi turned down an $8.5bn offer risks setting up a clash between the company’s long-term strategy and investors’ desire for faster returns.
But Vivendi’s rationale, two people briefed on the talks said, was that a sale of Universal, the only entertainment asset it owns in full, could lead to the unravelling of the group. Without that pillar, one said, “the whole thing falls apart.”