PARIS—French media firm Vivendi SA is close to acquiring the pay TV business of Italy's Mediaset SpA, according to people familiar with the matter, moving to snap up more assets to create a European rival to U.S. streaming video giant Netflix Inc.

Under the terms of the deal under discussion, Vivendi and Mediaset will swap a 3.5% stake and take seats on each other's boards, the people said. Since Vivendi's market value is roughly six times more than Mediaset's, it will take control of the Italian firm's loss-making pay TV unit, valued at around €900 million ($1.02 billion) by some analysts.

The alliance with Mediaset, which could be announced as soon as Friday, is a key step in Vivendi Chairman Vincent Bolloré 's project to build a multilingual, pan-European group to challenge Netflix, the U.S. streaming juggernaut that has also produced original shows such as 'Orange Is the New Black' and 'House of Cards', as well as compete against pan-European pay-TV giant Sky PLC. Vivendi is also working on a new European streaming service, which could be launched as soon as this fall, the people said.

"To face up to Netflix we're going to have to do something similar," said one person familiar with Vivendi's thinking. "They're the main competitor forcing us to transform and evolve."

Vivendi also has its sights on the U.S. market, said one of the people familiar with the matter.

Subscription-video-on-demand services such as Netflix and Amazon Inc.'s Prime have sent traditional broadcasters scrambling, as they gain millions of customers each year and produce a growing library of their own content.

Netflix launched in Italy, Spain and Portugal last October. In January, it said it was expanding its Internet TV network to another 130 countries around the world.

But European viewers, most of whom aren't fluent in English and are accustomed to watching programs in their local language, pose a challenge for the Los Gatos, California-based firm. Netflix, which has a well-stocked library of movies and TV in the U.S., has a limited offering in its European countries where the rights have often already been sold to other distributors.

Vivendi is betting that it can copy Netflix's streaming service in Europe by simultaneously buying rights in several territories. Traditionally, studios have sold the rights for TV shows individually by country.

Vivendi is also buying some independent studios, underscoring its belief that local content in countries like France, Spain and Italy would appeal to large audiences in places like Africa and Latin America where they speak the same language. This week, it bought minority stakes in Sunny March TV, an independent company co-founded by British actor Benedict Cumberbatch, and Spain's Bambu Produciones.

"If we want to be serious we have to invest in original local content—that's what makes the difference," said Dominique Delport, president of Vivendi Content.

Shalini Ramachandran contributed to this article

Write to Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

April 08, 2016 08:05 ET (12:05 GMT)