By Nick Kostov 

PARIS -- French media firm Vivendi SA said Friday that it had acquired the pay TV business of Italy's Mediaset SpA as part of a broader alliance, 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, Vivendi and Mediaset will swap 3.5% stakes, the companies said. Since Vivendi's market value is roughly six times more than Mediaset's, Vivendi will acquire Mediaset's 89% stake in Mediaset Premium, the Italian company's loss-making pay TV unit. The unit is valued at around EUR900 million ($1.02 billion) by some analysts. Spain's Telefónica, which owns about 11% of Mediaset Premium, is also selling its shareholding to Vivendi as part of the deal.

The alliance with Mediaset is a key step in Vivendi Chairman Vincent Bolloré's project to build a multilingual, pan-European group to challenge Netflix and pay-TV giant Sky PLC. Vivendi and Mediaset also said that they would jointly work on a new European streaming service.

"When Netflix announced it was opening in France, Spain, Italy, it was clear Vivendi as a media company would have to adapt," said a person familiar with Vivendi's thinking.

Vivendi also has its sights on the U.S. market, said a person 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 such as Africa and Latin America where they speak the same language. On Friday, it said it would work jointly with Mediaset to create content.

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

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

To be sure, several streaming competitors to Netflix have emerged as Netflix 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 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 direction. In its latest annual report,Vivendi said it still had a EUR6.4 billion cash pile.

"The Mediaset Premium acquisition is 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."

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

 

(END) Dow Jones Newswires

April 08, 2016 14:20 ET (18:20 GMT)

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