By Nick Kostov 

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 EUR900 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 and 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.

To be sure, several streaming competitors to Netflix have emerged as it has embarked on a global expansion and haven't yet dented its growth. In the last quarter, Netflix added 4 million international customers, ending with a total of 75 million subscribers.

Moreover, as the largest global subscription streaming business, Netflix has a bigger budget for content acquisition than local competitors. While much of its original content spending has been focused on premium English-language, it has also been investing in local language series such as the coming political drama 'Marseille,' its first French original production.

Mr. Bolloré has been leading a push for Vivendi to transform itself since taking the helm of the once sprawling conglomerate in 2014.

In recent months, he has shaken up its French pay TV unit Canal Plus and put a multibillion-dollar cash chest to work, buying large stakes in Telecom Italia SpA and two French videogame companies, Ubisoft SA and Gameloft SE.

Vivendi's share price has dropped more than 20% over the last 12 months as shareholders complained of a lack of clarity on the company's strategic direction. In its latest annual report, Vivendi said it still had a EUR6.4 billion cash pile.

"The Mediaset Premium acquisition would be the first stage in Vivendi's project to create a global media group with Latin roots," said Jerome Bodin, an analyst at Natixis. "They're trying to create a cultural group that's sufficiently large and homogenous to exist on the global stage."

Shalini Ramachandran contributed to this article

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

 

(END) Dow Jones Newswires

April 08, 2016 08:17 ET (12:17 GMT)

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