Vivendi Falls Flat

Vivendi Universal (V) took it on the chin yesterday after a report that its music sales dropped a whopping 15 percent in the first quarter.

Shares of the French media and water company fell 5.1 percent on the day, closing down $1.71 to $31.69. 

Everyone in the music industry is suffering these days - but no one more than Vivendi Universal and its chairman, Jean-Marie Messier, who bet the farm on music when he acquired Seagram. 

All the music companies are being hit by music piracy and copyright theft, primarily from downloading over the Internet. 

"People just aren't buying as many compact discs as they were because of things like Napster," said one source close to the company. 

Vivendi has been struggling, already taking an $11 billion writedown to cover the lost value of the merged company. 

Overextending the company's debt, Messier has spent $50 billion to turn the French water company into a key media player. 

Messier argues that his strategy will spur growth in the company. Unfortunately for him, Messier acquired Universal Music Group just as it hit a difficult stretch. 

A report by Merrill Lynch analysts said the sales decline at Universal Music Group was "due to a soft market and a weak first-quarter release schedule at UMG." 

But sources close to the company counter that Merrill underestimated the company's cash flow at $70 million, when it's actually $106 million. 

A UMG spokesman was not available for comment. 

Several analysts dropped their recommendations on Vivendi stock. 

Universal Music Group, though down in sales for the quarter, still dominated last week's market share with nearly 27 percent of sales. Insiders pointed to the debut of first-time R&B female artist Ashanti, who sold 502,524 copies of her self-titled album to become the No. 1 selling album in the country. 

Moreover, The Island Def Jam Group scored four records in the Top 10, achieving one of the biggest market shares of current new albums by any record label so far, with 14.3 percent for the week ending April 13. 

"We have kicked off 2002 with a solid start and we are excited about our upcoming release schedule, which includes some of the industry's most popular artists," said UMG Chief Executive Officer Doug Morris in a statement.