Music pirates hit profits at Vivendi

SALES AT the world's largest music recording company, Universal Music Group, collapsed by more than a fifth last year as online piracy sent the highly-profitable operation into reverse, it has emerged.

The dire performance tarnished otherwise solid progress towards recovery by its parent Vivendi Universal, the reshaped French media conglomerate that almost collapsed under the weight of its debts 18 months ago.

Operating profits at UMG fell to e70m (£47.4m) last year from e556m in 2002 as music sales slid 21% to e4.97bn. Stripped of the currency impact of a weak dollar, the slide was 12%.

Although American rapper 50 Cent gave UMG last year's US best-seller, and t.A.T.u. and Eminem scored big successes, the company suffered from fewer releases by its biggest stars from a portfolio including Sheryl Crow, Toby Keith, the Black Eyed Peas, Sting and Busted.

The prevalence of online file-swapping websites forced Vivendi to slash CD prices to combat the piracy.

To reflect the music arm's waning fortunes, Vivendi said it booked a e1.37bn charge against a write-down in its valuation of UMG and to provide for restructuring.

There were also more modest charges against the value of the video game business, a e188m charge against its Universal Studio theme parks, and e165m for French TV station Canal Plus.

However, executive chairman Jean-Rene Fourtou, parachuted in to sort out the mess after the departure of empire builder Jean-Marie Messier, says that with telecoms now the growth driver and with debt slashed from e35bn to e11.6bn after disposals, the group is on course to resume dividend payments in 2005.