<PAGE> 1
Filed by The Seagram Company Ltd.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: The Seagram Company Ltd.
Commission File No. 1-2275
and
Subject Company: Canal Plus S.A.
Commission File No. 82-2270
Date: August 21, 2000
The following filing contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These statements are based on management's current expectations or beliefs
and are subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Actual results may differ from those set forth in the
forward-looking statements as a result of various factors (including but not
limited to future global economic conditions, market conditions, foreign
exchange rates, the actions of competitors, consumer preferences and operating
and financial risks related to managing growth and integrating acquired
businesses), many of which are beyond the control of the Company. More detailed
information regarding these factors is included in the Company's Annual Report
on Form 10-K and other filings with the U.S. Securities and Exchange Commission.
The forward-looking statements contained in the following filing also address
the strategic business combination of Vivendi, Seagram and Canal+. The following
factors, among others, could cause actual results to differ materially from
those described in the forward-looking statements: the risk that the Vivendi,
Seagram and Canal+ businesses will not be integrated successfully; costs related
to the business combination; failure of the Vivendi, Seagram or Canal+
shareholders to approve the business combination; inability to further identify,
develop and achieve success for new products, services and technologies;
increased competition and its effect on pricing, spending, third-party
relationships and revenues; and the inability to establish and maintain
relationships with commerce, advertising, marketing, technology and content
providers.
Investors and security holders are urged to read the joint proxy
statement-prospectus regarding the strategic business combination transaction
referenced in the foregoing information, when it becomes available, because it
will contain important information. The joint proxy statement-prospectus will
be filed with the U.S. Securities and Exchange Commission by Vivendi, Seagram
and Canal+. Investors and security holders may obtain a free copy of the joint
proxy statement-prospectus (when it is available) and other documents filed by
Vivendi, Seagram and Canal+ with the Commission at the Commission's web site at
www.sec.gov. The joint proxy statement-prospectus and these other documents may
also be obtained for free from Seagram. Information regarding the participants
in the proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, is contained in the joint press
release relating to the transaction filed with the Commission by each of
Vivendi and Seagram on June 20, 2000.
* * * * * * * * *
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THE FOLLOWING IS A TRANSCRIPT PREPARED WITH REPSECT TO A CONFERENCE
CALL HELD ON AUGUST 17, 2000
Coordinator Good morning and welcome to the Seagram fourth
quarter earnings conference call. All lines will be
in a listen only format until the formal question
and answer session. At that time, instructions will
be given should anyone wish to ask a question.
Now, I would like to turn the meeting over to today's
host, Mr. Joe Fitzgerald, Vice President of Investor
Relations for Seagram.
J. Fitzgerald Hello, everyone. We're going to get started very
quickly this morning. We have Edgar Bronfman, Jr.,
our Chief Executive Officer and Brian Mulligan,
Executive Vice President and Chief Financial Officer.
Before I turn the meeting over to them, I just want
to remind you again that any use of this call without
our permission is prohibited.
With that, I am going to turn it over to Edgar.
E. Bronfman, Jr. Thank you, Joe. Good morning, everyone. I want to do
two things, if I may, on our call today. First, what
I'm going to do is give you highlights of Seagram's
fourth quarter and full year results for our fiscal
year 2000 ending June 30th. Then, I'll update you on
Vivendi Universal: where we are in the regulatory
process and what our integration plans are.
On both fronts, I think we have very good news to
report. Seagram had an exceptional fourth quarter
with overall EBITDA up 70%. You've seen our recorded
results in the press release. If you eliminate the
impact of foreign
<PAGE> 3
exchange on these results, however, our underlying
performance was even stronger.
At the Universal Music Group for example, revenues
would have increased 10% and EBITDA would have
increased 66% at constant exchange rate. Full year
Music EBITDA would have grown approximately 25%.
Our goal in transforming Seagram to a leading
entertainment company over the past two years was to
accelerate our growth and we've clearly done that.
We're gaining momentum in every one of our
entertainment businesses: in music, in recreation and
in filmed entertainment. Now, our goal will be to do
all that we can to both accelerate Vivendi
Universal's transformation to a global communications
leader and to accelerate its underlying growth.
Seagram's recent results show that we are ready to
significantly contribute to that growth. You should
know that once we provide supplemental information to
the EC by the end of this month, Vivendi Universal
will have completed its regulatory filings in Europe,
the US, and Canada. All three companies, Vivendi,
Seagram and Canal+ are already developing a strong
integration plan. More on the merger later.
<PAGE> 4
First, let me give you the highlights of our fiscal
fourth quarter. Music in the June quarter, on
virtually every level, the Universal Music Group
demonstrated why it is the industry leader. UMG's
revenue quotes for the quarter, 10% excluding foreign
exchange impact, far outpaced industry growth. UMG's
full year reported EBITDA of $1.18 billion included
over $100 million of new business spending and
negative foreign exchange impact.
In worldwide market share, we remain the industry
leader as we continue to grow our share. Our market
share in the US for the fourth quarter was number one
in current releases with 28.3% of the market, number
one in catalog with 24.4% of the market, and number
one in overall releases with 27% of the market. These
shares are consistent with our year-to-date
performance and are the largest shares ever achieved
by a music company in the United States.
I'd like to comment briefly on just two of UMG's
Internet initiatives, both of which have exceptional
long-term potential. On August 2, just two weeks ago,
UMG launched its digital downloading business,
bluematter(TM). We want to emphasize this is just a
start, but we will ramp the business up this fall not
only in the US, but also in Great Britain, Germany
and the Netherlands. Once the merger is complete, we
expect
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digital music will be a critical application for
Vivendi Universal's multi-platform subscribers.
As we begin to grow this business, we are encouraged
but not surprised by the recent MP3, Napster and
DeCSS court rulings and we believe the courts will
continue to enforce copyright laws. We are also
thrilled with the continued progress of Jimmy and
Doug's Farmclub.
In filmed entertainment, we reported $5 million in
EBITDA in the June quarter, better than our business
plan. This is a start to what we believe will be much
more consistent profitability. We have, over the
past year, shared with you the details of our plan to
return to profitability. We've been disciplined in
executing this plan and we expect further progress
over the next year.
In addition, our international television channels
also grew in subscribers and viewers in the quarter.
We added a second channel, Studio Universal in Spain
in May, bringing the total number of Universal
managed channels outside the United States to nine,
and all nine channels continue to grow ahead of our
original business projections.
In recreation, Islands of Adventure had a very
successful quarter and first full year operating
results, contributing to our overall recreation gain.
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As part of our longer term growth plan, the Hard Rock
Hotel with 650 rooms is scheduled to open in January
at Universal Orlando. A third hotel, the Royal
Pacific, will open in mid-2002 with an additional
1,000 rooms, bringing the resort's total rooms to
2,400.
In only eight more months, Universal Studios Japan
will open in Osaka. By the end of Universal Studios
Japan's first year of operation, we expect our total
attendance at all five of our theme parks to reach 30
million visitors annually.
In the spirits and wine business as all of you know,
as part of the Vivendi Universal merger, we plan to
sell our spirits and wine business. Because we are
currently in discussions with our advisors of how to
best monetize these assets, I can't comment
extensively right now. However, spirits and wine had
an excellent June quarter. Revenues were up 7%
adjusted for foreign exchange and EBITDA was up 19%
adjusted also for foreign exchange and for the sale
of our champagne operations last year. Total volume
increased 6% from continuing operations.
If I may, just a comment on our balance sheet. Net
debt at year end is $6.6 billion, down from last
year's $7.0 billion US dollars.
Just some comments please, if you will allow me, on
Vivendi Universal, and then Brian and I will be happy
to take your questions. On regulatory issues, in
Europe, Vivendi and Canal+ announced last week that
they would provide supplemental information by the
end of August to their EC filing. Both companies also
said that, following the supplemental filing, they
are hopeful that a phase one review would be
completed by the EC before the end of September. In
addition, in July, the CSA (the French Broadcast
Authority) notified Vivendi and Canal+ that it would
not object to the proposed transaction.
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In the US, and this is a bit of news, the statutory
waiting period expired without any additional
requests and, therefore, the antitrust clearance
process in the United States is now complete.
In Canada, there are three filings. On August 4, we
filed with both the Minister of Industry and the
Minister of Canadian Heritage. Each ministry is to
determine whether the transactions are of a net
benefit to Canada. We hope to have a clear indication
by the end of September of any commitments that may
be expected by the ministries as part of this
process.
We expect to file with the Canadian Competition
Bureau imminently. We also expect that this bureau's
review on antitrust issues will be completed in one
month.
Vivendi, Seagram and Canal+ are working to
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schedule their shareholder meetings as soon as
possible upon completion of the regulatory review
process. Preparation of proxy materials for those
shareholders meetings is in progress.
Vivendi Universal also plans to hold an investor
meeting in October. We know how important this
meeting is and we plan to do several things. We'll
provide pro forma financials to help you understand
the new company. They'll include a base year of
revenues and earnings and forward-looking information
so that you can more fully understand why we are so
enthusiastic about this combination.
We'll highlight our communications assets, as
impressive a combination of global and local content
and as broad a distribution platform as exists
anywhere in the world today. Going forward, we
promise to continue to help you understand, meaning
our investors and shareholders, where we are headed.
Finally, all three companies are working together to
develop a seamless integration plan. We have already
met in Paris and New York in both top-down and
bottom-up strategic sessions. We've established 22
integration teams to explore cross-economies
throughout all of our businesses. We've already told
you that there are ample opportunities to drive
revenue growth and to eliminate costs.
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As in the PolyGram merger, we will look to fully
exploit those opportunities as we drive our
integration process. We look forward to updating you
on our progress.
Now Brian and I will be happy to take your questions.
Coordinator Our first question comes from Jill Kritick of
Salomon Smith Barney.
J. Kritick Thank you. Good morning. Edgar, I was impressed by
the turn in the film and entertainment business. It
seems like you've also had a recent spate of success
at the box office. What would you attribute that to?
Would you say it's the recent change in your
green-lighting process or if that's yet to really
have an impact on the results?
Secondly, I was curious about, with the Asian park
opening, what type of pre-opening costs we should be
looking for and how that might affect your
recreational performance going forward? Finally, on
the music margin, it looks like you are seeing
terrific leverage there and what kind of margin
expansion should we be looking for going forward?
E. Bronfman, Jr. I'm going to ask Brian to answer your second question
on USJ pre-opening costs. On the motion picture
business improvement, I guess I would say a number of
things. The first thing I would say is that, as with
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every company, motion picture performance is always
variable and the best managements in the world have
strong expectations which are not always met by box
office reality. And vice versa, are sometimes
pessimistic when there is no need to be.
Having said that, the impact that a motion picture
management can make is clearly being evidenced by Ron
Meyer, Stacey Snider and the group at Universal
Studios and Universal Pictures. I think the
green-lighting process has a great deal to do with
it, but I think frankly, the leadership is being
challenged with discipline in terms of understanding
the market, the cost of pictures that are designed
for the markets, the way that we interact with the
creative community to make better pictures than we've
been making; all of that has contributed to the
performance that we've seen so far.
They have also contributed to the excitement that we
have about a number of films that are coming out
between now and the end of the calendar year,
including a picture called Watcher, a picture called
Billy Elliott, a picture called Meet the Parent, and
certainly both How the Grinch Stole Christmas and
Family Man, two holiday pictures. We have a high
degree of confidence that we're going to do well
throughout this calendar year.
Brian, do you want to answer?
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B. Mulligan Jill, in terms of our pre-opening costs at Universal
Studios Japan, as you know, we only own 24% of the
equity while we get 40% of the profits. As you know,
with the new accounting standard, we've been
expensing as we go along. So, this year, we expensed
about $15 million, and we expect to expense a like
amount next year. As you know, because we only own
24%, it'll be in the unconsolidated line as it was
this year.
E. Bronfman, Jr. Jill, I think what I can say on music margins,
statistically I think what I would say is that we are
off to a good start in the music business in this
quarter. We ended last year with a very, very strong
quarter. Clearly, as we expand the business, our
music costs we hope will not rise as quickly as our
revenues and our EBITDA. But, I would caution also
that the guidance that we have tried to give and
which we've given publicly of low double digit
growth for next year, is appropriate. The reason I
say that is that our music margins, as you know, are
already well in excess of any of our competitors. I
don't want to feel that we can continue to grow
music margins necessarily in the way that we have
through the PolyGram integration. We certainly
expect to hold those margins and to increase them
over time, but I just wouldn't rush to writing down
huge margin expansion when we're already probably
about five margin points ahead of our competition.
<PAGE> 12
J. Kritick Thank you.
Coordinator Our next question comes from Richard Greenfield of
Goldman Sachs.
R. Greenfield It's Rich Greenfield. Two questions, both related to
Internet. First, regarding the Sony announcement for
a subscription service, could you just give us your
thoughts on how that might be structured and what
type of discussions are going on there?
Secondly, related to EMI and their digital download
roll-out, which has had numerous troubles which have
been written up in the press, how was your initial
roll-out of bluematter(TM) done in terms of the
technology side and the consumer experience?
E. Bronfman, Jr. Rich, let me talk about bluematter(TM) briefly and
then I'm going to let Brian answer the question on
the Sony joint venture.
I think what people need to understand, and I don't
want to comment specifically on EMI obviously, but I
will speak on bluematter(TM) a little bit. What
people need to understand is that it is easy to
download MP3 files, which are non-secured and, more
importantly, have no record of artist or ownership.
When you start laying in the technology that allows
artists and
<PAGE> 13
other copyright holders to recognize their works that
are being downloaded and to receive payment, whatever
the payment may be, for the use of their copyrighted
material, that introduces a layer of technological
complexity that really should not be underestimated.
Therefore, I applaud EMI for getting into the market.
I think we've done a very good job with
bluematter(TM). It's very early. We only launched two
weeks ago with very limited tracks, really on a
technology trial. We do expect to significantly
increase the amount of material available to
bluematter(TM) into the thousands of tracks,
certainly over the next couple of months. So, you
will see a real expansion, but it really is purely to
comment, except to say that a great many
technological hurdles have been overcome. Certainly,
we will continue to need to overcome others, but I
think the people at UMG and their technology partners
at Matshushita, at Real Networks, at InterTrust, and
at Magex have really done a fine job in putting
together a form of digital downloading that I think
is scaleable and easy for consumers to use.
B. Mulligan Rich, in terms of the structuring of the Duet deal
and our negotiations with Sony and moving that
forward, that's going very well. I think in terms of
thinking of how that's going to be structured, you
should think of it as similar to our UIP arrangement
which is pretty much a cautionary arrangement with
the revenues and profits after covering costs, going
to each of the
<PAGE> 14
parties in accordance with the product that's
generating the revenue. Just as a benchmark, you
should think as being allocated based on market
share.
So, I think that's the structuring of the Duet deal
and that's moving along very well.
R. Greenfield Thanks a lot.
Coordinator We have our next question from Christopher Dixon of
PaineWebber.
C. Dixon Thank you. Two questions if I could. One, we've seen
a lot of the various film companies take down
reserves under new FASB requirements. Where are you
in that process, Brian?
Secondly, for Edgar, if you could drill down a little
bit as to the international television opportunities.
Clearly, you are getting some strong results, but
give us some metrics if you could and how you see it
evolving with Canal+?
B. Mulligan On the SOP question, we're very close to finalizing
it, Chris, and I think there have been numbers out
there. We're going to be at the low end of the range
for the major studios.
<PAGE> 15
E. Bronfman, Jr. We'd like to give you more specifics, but we really
have to wait until we actually file. I hope that
that range is helpful to you.
I think with regard to the International television
channels, the business model is a very, very strong
business model because we are generating almost no
original programming for these television channels,
both Studio Universal and 13th Street, the
action/suspense channel. We are really using our
library which is certainly the most extensive
hour-long library in the world, to create 13th
Street, and using our movie library to create Studio
Universal.
So, the business model, once we get to a sufficient
level of subscribers, is really quite extraordinary
because the costs of programming are really already
sunk costs from the Universal library. We are about
to hit 25 million subscribers on those channels.
Subscriber growth is strong. As I said, each of the
channels is ahead of our original business
projections.
13eme Rue, which is the 13th Street in France, is the
number one rated channel on the Canal+ satellite
platform. We believe in working with Canal+ to
increase distribution of these channels in Europe to
improve their viewership through increased promotion,
to be able to raise advertising
<PAGE> 16
rates as a result of increased viewership, etc., will
allow this business model to accelerate.
So, where we were looking at perhaps a break-even
across all of these channels in approximately three
years, it is my hope that we can actually move that
to at least accelerate that by half and move that to
a full break-even within 18 months. As you know, once
you pass break-even on these channels, it is a very
swift move forward.
Remember, also, that we own Sci-Fi and USA outside of
the US and, within the US, Sci-Fi has been an
unbelievable success. I remember when we acquired
Universal, just over five years ago now, Sci-Fi I
think had just broken even or made a couple of
million dollars in its fiscal year. It's now making a
lot of money and is an asset worth, just that channel
alone, in the billions of dollars.
We expect to have that same phenomenon both with
Sci-Fi outside the US and with the other channels
that we're managing.
C. Dixon Thank you. Brian, just a follow-up, bigger-than-
breadbox question. We've seen ranges on the SOP,
a high of 750 down to about 200. Where are you in
that range? Top, low or middle?
<PAGE> 17
B. Mulligan Chris, who's at 200?
C. Dixon We've seen one small studio at that.
B. Mulligan Okay, that's what I mean. We're well below the top
end of the range. We're not at 200, quite frankly no
studio is at 200. I'm confident we're going to be the
lowest of those. I think, by the way, you've seen
numbers as high as close to a billion. We'll be
significantly less than the top end of your range.
C. Dixon Thank you very much.
Coordinator Our next question comes from Irene Natal of RBC
Dominion Securities.
I. Natal Thank you. Turning back to the recreation division,
clearly IOA had a strong year, but I was wondering
how the performance was at the end of the first full
year relative to expectations, and if we could
actually have some attendance numbers?
E. Bronfman, Jr. We haven't, I don't think, given out specific
attendance figures, but what I would say is that we
told you that we thought the park would be up about
60% to 70% versus the year before. We're in line with
those projections and we're seeing continued growth
now that we're on a full like-to-like
<PAGE> 18
basis. Both through June and July, we're seeing
continued growth of the park in Orlando on a
like-to-like basis.
So, word of mouth is spreading. It is the best
experience for visitors in Orlando and we are
continuing to see strong growth. And we're getting
the kind of margins per customer that we were hoping
to get both in terms of the merchandise and food and
beverage.
I. Natal That's great. Thank you very much.
Coordinator Our next question comes from Kathy Styponias of
Prudential Securities.
K. Styponias Hi. Thank you. A couple of questions. First, Edgar, I
was hoping you could give us some color on your
expectations for music top-line growth next year. You
obviously had phenomenal chart positioning this year
and fantastic market share. What are your
expectations for next year? Do you expect to maintain
market share for the
E. Bronfman, Jr. Kathy, I'm very sorry, but we just lost you when you
asked about maintaining market share. Operator, could
you either fix that or take us to another question
and bring Kathy back as soon as we get the problem
fixed?
<PAGE> 19
Coordinator Certainly, sir. Our next question comes from Stewart
Halpern of Bank of American Securities.
S. Halpern Hi. Congratulations on great results. Two questions.
First, could you update us on the technology spin in
the music area and then sort of picking up on Kathy's
question, in terms of the low double-digit growth
that you are expecting. If you could talk about how
much of that is coming from market share, continued
growth in the music marketplace overall, and perhaps
how much you are still seeing the impact of further
savings related to the PolyGram merger.
E. Bronfman, Jr. In terms of technology spending, we projected about
$85 million. We came in somewhat below that. Not
seriously below that, but somewhat below that, just
to give you in order of magnitude, number one.
In terms of overall music growth, clearly, when
you've got revenues up on a constant exchange basis,
let's say 10% and EBITDA up 66%, you've got margin
expansion. Some of that, of course, is coming from
cost savings. But, I would point up to the 10%
revenue growth and say that that is a very, very
strong quarter, and it is stronger, frankly, than our
competitors in, the music business.
<PAGE> 20
It is coming also from real strength of our music
company in markets around the world. One of the music
markets where we've traditionally been weak and where
we've been even weaker since we acquired PolyGram,
has been in Japan. Japan had a good June quarter and
we are seeing the beginnings, I hope, of a turnaround
of that business. As you know, Japan is the world's
second largest music market, so the importance of
Japan to our overall music growth is important.
If we can turn around the Japanese market and
maintain the momentum that our tremendous executives
have given us in the US, in the UK, in France, in
Germany, in Brazil and other major markets around the
world including Spain and Portugal, then we're going
to continue to outperform the industry and outperform
underlying music industry growth.
S. Halpern Great. Thanks.
Coordinator Our next question comes from Kathy Styponias of
Prudential Securities.
E. Bronfman, Jr. Welcome back, Kathy.
K. Styponias Thanks, Edgar. I think actually Stewart might have
asked at least part of my question. I hadn't heard
his whole answer, so if I'm repeating it, I
<PAGE> 21
apologize. Essentially, I was just looking for
guidance on what your expectations are for top-line
growth from music next year. You've had tremendous
market share growth this year. Do you expect your
market share to continue to grow or do you expect to
maintain it for the overall industry to grow?
Second, when you announced the Vivendi Universal
deal, there was discussion of a Johnny Hallyday
promotion that was being done over wireless phones. I
was wondering if you can give us some color on how
that went, whether your album sales exceeded
expectations because of that marketing approach?
Finally, I was just wondering if there was any
concern or precautions that you are taking with
regards to a potential actors and writers strike next
June? Thanks.
E. Bronfman, Jr. Okay. Let me try and do that in order. In terms of
guidance for overall growth, we haven't given revenue
growth guidance and I hesitate to do that. It's just
difficult to for something that's this broad and this
global, in particular with the kind of fluctuations
that we've seen in exchange rates, it also makes it
extremely difficult to project revenue.
<PAGE> 22
What I would say is we do expect the overall market
to grow, the overall music market to grow. We do
expect to increase our market share on top of that
growth. I hope that is helpful and responsive. Also,
just to say, the US market is leading the overall
industry growth and unit volumes have been up about
8% per quarter, I think, now for seven consecutive
quarters. So, we are seeing some very strong
underlying growth in the US and as I indicated
before, our market shares in this country have
outpaced that growth significantly.
With Johnny Hallyday, it's difficult to measure. That
was a very exciting, but still limited promotion
where we really did that, Jean-Marie and I did that,
really in sort of two days, we decided that we should
send out these FMS or short messages is to about two
million SFR consumers. We hope to be able to do this
to all 80 million Vizzavi subscribers next year. To
two million French consumers, we sent out the message
that Johnny's album was coming out in two days.
What I can tell you is, that it's been one of the
most successful albums of his career. It sold over a
million units in the first two weeks in France. The
difficulty is saying what would it have done without
that and we don't know. I can't honestly say it meant
this or that.
<PAGE> 23
What did happen is that, of course Johnny is probably
the most beloved artist in all of France. He had a
studio album which was released almost a year ago now
which has been the most successful album of his
career, which is pretty extraordinary I think, at age
57 or 58. In conjunction with the release of the live
concert album, which was the album to which you
refer, we released it on June 30th, we released
Johnny's catalog of I think 22 albums. I think,
perhaps, this is the only time it's ever been done in
history and probably will ever be done in history,
but on that week, Johnny Hallyday had 22 of the top
75 albums in France. So, I don't know how much to lay
at the door of the direct marketing campaign, but it
sure didn't hurt.
The last question on the strike, I think everybody in
Hollywood is conscious that we could be coming up to
a strike. We obviously would like to avoid one, but
not at a diseconomic solution for the studios. We,
like others, are attempting to accelerate production
of those pictures that we think are ready to go, but
we are not going to spend huge amounts of capital on
pictures whose scripts are not ready or with casts or
with other creative talent that we don't feel is
appropriate for the picture.
B. Mulligan In light of that, we have been gearing up and we
actually have seven films in production right now.
<PAGE> 24
E. Bronfman, Jr. That's right. We do have seven films in production
right now, or in various states of production,
including Mummy II and Jurassic Park III and, in
doing that, you may see some cash outlays this
year slightly in acceleration of what we
had expected.
K. Styponias Thank you.
Coordinator Our next question comes from Jessica Reef-Cohen of
Merrill Lynch.
J. Reef-Cohen Hi, good morning. On music, could you give us some of
the highlights of your release schedule for the
current fiscal year? Also, Edgar, you mentioned a few
times what new media spending was in Fiscal 2000.
Can you give us Fiscal 2001?
Also, will there be any meaningful change in purchase
price accounting?
E. Bronfman, Jr. I'm sorry. I just didn't hear the third question.
J. Reef-Cohen Will there be any meaningful change in purchase price
accounting impact?
E. Bronfman, Jr. I think as to the last one, I expect no meaningful
changes in purchase price accounting impact, number
one. Number two, I think in reverse order, we
<PAGE> 25
expect our spending this year to be about the same as
our spending last year in terms of e-spending.
In terms of the highlights for the release schedule,
we have a very strong release schedule coming up
really throughout the year which includes 98 Degrees,
Boyz II Men, LL Kool J, Marilyn Manson, Andrea
Bocelli, The Wallflowers, Limp Biskit, U2, Erica
Badu, Elton John, and then a host of very strong
local artists particular to their country.
We expect, also, a Shania Twain album in this fiscal
year. So, we think we've got a strong release
scheduled for fiscal 2001.
J. Reef-Cohen Can I just ask one more music question? Can you give
us an update on Jimmy and Doug's Farmclub, both
domestic and there's been talk of international
roll-out?
E. Bronfman, Jr. Yes. Jimmy and Doug's Farmclub is doing extremely
well, both as an Internet site and as a television
show. As a television show, actually, it is getting a
stronger demographic than either MTV or ESPN in the
Male 12-34-year-old demo, which is one of the richest
sources of advertising revenue. So, its ratings
continue to improve and be very, very strong.
<PAGE> 26
We are also getting about an average of a little over
of 100,000 unique visitors a day on the site which
now puts us over three million unique visitors a
month, which should put us in the top five or ten
music sites and it's growing rapidly. So, we are
excited about that progress in the US and very
excited that we will be hopefully rolling out a
similar site in European countries over the next six
months, particularly with the help of Vivendi.net.
Jessica, we may have lost you, so if there's a
follow-up?
J. Reef-Cohen No, that's fine. Thank you.
Coordinator Our next question comes from Edward Hatch of S.G.
Cowen. You may ask your question.
E. Hatch Thanks very much. Edgar, given the comments you made
about the regulatory process and investor meetings
coming up in October, could you just restate what you
think sort of an estimated closing range of the deal
may be? Next, I didn't see anything in the press
release regarding Rocky & Bullwinkle and didn't know
if that might require a write-down of something that
will come in the following quarter.
<PAGE> 27
Finally, is there going to be anything coming up
where investors will get the opportunity to be able
to sample and take a look at the new music download
system?
E. Bronfman, Jr. First, I want to answer the Rocky & Bullwinkle
question. There will be no write-down as a result of
Rocky & Bullwinkle. We are disappointed with the
result of the movie, but the strength of our
underlying business is sufficient. There will not be
any write-down for Rocky & Bullwinkle.
E. Hatch Great.
E. Bronfman, Jr. In terms of sampling music downloads, we should put
that together for you and we will do that and will
follow up with Joe so that you all can see
bluematter(TM) and access it, and hopefully enjoy it.
Last, I think with regard to the close, we are
hopeful that we'll be able to close the transaction
sometime in the month of November. That, of course,
is subject to the regulatory process which we hope
will allow us to get to that date and we expect will
allow us to get to that date. But, the regulators, I
have to caution, have not finished their review
process and, until they do, they haven't, so it's
difficult to be predictive.
<PAGE> 28
I would certainly suggest that the momentum behind
our transaction is very different than some other
transactions. We are, as I said earlier in the call,
finished with the US process, and I think that's
important.
Now, let me just clarify my comment on Rocky &
Bullwinkle. Rocky & Bullwinkle results are included
in our fourth quarter.
B. Mulligan There's no additional write-off.
E. Bronfman, Jr. There's no additional write-down and we obviously
wrote-down Rocky & Bullwinkle as we do every film
that's not successful, but we did that in the quarter
and still were able to deliver these quarterly
results.
E. Hatch That's terrific. Thanks.
Coordinator Our next question comes from Scott Davis of First
Union Securities.
S. Davis The remaining question I have left is just regarding
the MAP case against the music industry. Edgar, it
doesn't seem to have much teeth as far as I can tell,
but I was hoping for some comments. Specifically, one
of the things I haven't been able to figure out, and
it's a little specific so please excuse it, but it
seems to be important from a legal perspective. If a
retailer was advertising something below the
suggested price, was the
<PAGE> 29
cooperative advertising refused to them just for that
advertisement or were they cut off from all
advertising funds? Thank you.
E. Bronfman, Jr. I really would love to be helpful, but we really
can't comment on litigation. As much as I'd like to
and as much as I'm trying to have my own sense of
confidence about this, I think it's just imprudent to
comment on pending litigation. We just shouldn't go
there. So, I'm going to pass on the opportunity with
apologies.
S. Davis But, you do feel confident?
E. Bronfman, Jr. I do feel confident, but I'm not a lawyer and the
courts will have their own say regardless of my
degree of confidence one way or the other. But, I do
feel confident.
S. Davis I look forward to October.
E. Bronfman, Jr. Okay, thanks.
Coordinator Thank you. Our next question comes from Sharon
Williams of CIBC World Market.
S. Williams Good morning. Thank you. Excellent quarter in the
year.
<PAGE> 30
E. Bronfman, Jr. Thank you.
S. Williams You're welcome. My question is on watermarks on new
CD's, which I thought was one of several important
steps in the whole battle against piracy. Can you
update us on where that stands and sort of give us
some flavor as to how important you think they are?
E. Bronfman, Jr. I think that we said that there will be three general
areas of response to music piracy. One will be
establishing or maintaining, frankly, a legal
environment that protects copyrights. Second will be
our own technological challenges to make music piracy
more difficult. Third will be a market-based
solution.
There will be any number of technological initiatives
to make music piracy more difficult, but I think
really without commenting any further than I already
have on maintaining the legal environment or pursuing
the technological opportunities that exist, I think
the most important thing that the music industry
needs to do, together with the technology community,
is to deliver to consumers in market-based solutions,
where consumers can actually get the music that they
want in the ways that they want it within a secure
environment where the people who own the copyright
are duly paid for their efforts. That is really where
we are focused and we believe we
<PAGE> 31
are ever closer to a solution which will be broad,
which will be comprehensive and will be extremely
compelling from a consumer standpoint.
We believe that the amount of interest in music
downloading, some of this results no question from
the fact that currently, it's free. Nobody can
underestimate the power that the word free has. But,
a lot of people have tried to give away unpopular
things and nobody's very interested.
Free, in and of itself, is not a consumer reason.
It's simply a consumer benefit. But, free
something-that-nobody-wants still nobody wants it.
The fact of the matter is, people want music very
badly. We think this augers extremely well for the
music industry and we expect to have a robust
alternative for music lovers in the marketplace this
calendar year. By robust, I mean broad,
comprehensive, broadly distributed, and scaleable to
the extent that you will see millions if not tens of
millions of tracks transferred on a daily basis
before the end of the year in a legal manner.
That's our goal. That's our hope and it's our belief
that we can get there.
S. Williams Excuse me, then, is it fair to say that that may be
without ever putting watermarks on new CD's?
<PAGE> 32
E. Bronfman, Jr. It may or may not. I don't think we want to comment
on what we may or may not do from a security
standpoint for obvious reasons.
S. Williams Thank you.
Coordinator Our next question comes from Tim Casey of Nesbitt
Burns.
T. Casey Thanks. Good morning. Edgar, I am curious if you have
any comments on what you've seen within your music
group on the impact of Napster with respect to
certain artists. Is there any discernible trends you
are seeing from artists who are supporting Napster?
Did the boycott work, in other words I guess?
Secondly, shifting gears to the spirit side, there's
been a lot of press speculation on Absolut as a role
in the sale process and some reporters have
speculated it contributes a third of the
profitability of the group. I thought that was
overstating the number by three or four times. Are
you able to comment at all on how important Absolut
is and any update on the sale process?
E. Bronfman, Jr. Let me answer both the questions. Although we were
extremely pleased with both the initial ruling of
Judge Patel and her written opinion, the Napster case
does still reside in the 9th Circuit in California.
As a result, I
<PAGE> 33
think again, just as my earlier comment to Scott, it
would be imprudent to comment on litigation.
Therefore, I can't respond to the question about
artists and Napster.
With regard to Absolut(1), I would just say to you
that I think your reaction is quite accurate, that
the comment that Absolut(1) is responsible for a
third of our profits is overstated by a very
significant multiple, and you're in the range there,
if not a little low in the range of that multiple.
T. Casey That's good. Thank you, Edgar.
J. Fitzgerald We'll take one more question.
Coordinator Our final question, sir, comes from Michael Florin of
Gerard Klauer.
M. Florin Hi, guys. I wonder if you could talk about some of
the progress at SDMI. It seems like one of the
problems that the music industry is facing is that
there's no sort of industry standard secure solution.
Are there efforts being made to create one? Also,
another question is, on the subscription side, are
you talking to the other labels about creating one
subscription service that might become a legal
Napster?
(1) Owned by V&S Vin & Sprit Aktiebolag
<PAGE> 34
E. Bronfman, Jr. First of all, remember the SDMI effort comes to I
think something like 115 to 130 different companies.
Anytime you do that, it's a process that is bumpy and
awkward, a little bit like making sausage. It may
taste good at the end, but it's not pretty to watch.
Nonetheless, we are, I think, moving very, very
broadly to some industry standards and I think you'll
see both the hardware manufacturers, the technology
companies and software manufacturers in other words
coalescing around SDMI compliant opportunities.
You can't really say that's there one standard
because the multiplicity of platforms and devices
require a multiplicity of standards, but they will I
think in large part be SDMI compliant sooner than the
market expects.
With regard to subscription services, we said we have
a joint venture with Sony which we are calling Duet.
We fully understand that music consumers want all
music available to them on a subscription service.
They're not particularly interested in what label
that music may come from. They are interested in the
artist. They are interested in the song.
I believe any subscription service that ultimately
will be successful in the marketplace will have all
available music on that service. So, let me just
leave it there as that is a fundamental tenet of
where we're going without being specific about what
conversations we either are or are not having.
<PAGE> 35
M. Florin Thank you.
J. Fitzgerald Ladies and gentlemen, one last comment here. You are
all familiar with the safe-harbor language. Rather
than read it to you, I just want to let you know that
those provisions apply to our comments on this
conference call today.
We thank you very much. We will speak to you soon.
E. Bronfman, Jr. Good-bye. Thanks, everyone.
********************
<PAGE> 36
THE FOLLOWING ARE QUESTIONS FROM EMPLOYEES OF THE SEAGRAM COMPANY LTD. AND
ANSWERS FROM JOHN D. BORGIA, EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES,
DISSEMINATED OVER THE INTRANET OF THE SEAGRAM COMPANY LTD.
UNDER THE CURRENT SEAGRAM BENEFITS PROGRAM, THERE ARE CERTAIN BENEFITS EARNED
THROUGH A COMBINATION OF AGE AND YEARS OF SERVICE THAT CONTINUE AFTER AN
EMPLOYEE LEAVES THE COMPANY. BENEFITS SUCH AS MEDICAL (50 YEARS OF AGE AND 20
YEARS OF SERVICE), LIFE INSURANCE (45 AND 15), AND HOLDING STOCK OPTIONS UNTIL
MATURITY (50 AND 15). WHAT HAPPENS TO THESE BENEFITS AFTER THE SALE TO VIVENDI
AND THE SALE OF THE SPIRITS AND WINE BUSINESS TO ANOTHER COMPANY?
John Borgia: Following the closing of the merger with Vivendi, the rule
regarding "50 and 15" for retiree treatment under the stock option plan will
remain in place for currently outstanding options. Similarly, retiree medical
and life insurance will continue to be available to employees who have already
met the current eligibility criteria for those benefits or who meet them within
two years following the closing.
The answers are not yet clear with regard to a sale of the spirits and wine
businesses. We intend to negotiate similar provisions into that merger
agreement, but of course cannot be sure today what the final result will be. As
soon as an agreement is reached, we will let employees know.
WILL THE UNIVERSAL MUSIC GROUP HEADQUARTERS BE CONSOLIDATED NOW? WILL EDGAR BE
BASED IN THE UMG HEADQUARTERS IN NEW YORK?
John Borgia: There are no changes contemplated for UMG headquarters. Edgar will
continue to have an office at 375 Park Avenue in New York (along with Edgar M.
Bronfman and Charles Bronfman), as well as an office in Paris.
