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Gaiam Acquiring Vivendi Entertainment for $13.4 Million

15 Mar, 2012 By: Erik Gruenwedel

Lifestyle and fitness media distributor Gaiam Inc. March 15 said it is acquiring independent distributor Vivendi Entertainment from parent Universal Music Group for $13.5 million plus net working capital.

Los Angeles-based Vivendi Entertainment posted disc and digital unit sales of about 21 million for $200 million in revenue in 2011, according to Vivendi. It has distribution rights with several independent content providers, including WWE, Classic Media, RHI Entertainment, National Geographic, Shout Factory, Nassar Entertainment Group and NFL Productions, among others.

“By combining operations, we elevate the company to a powerhouse independent distributor with a library of over 7,000 titles,” Gaiam chairman Jyrka Rysavy said.

The new company will be called Gaiam Vivendi Entertainment.

Boulder, Colo.-based Gaiam said it expecting to recognize $25 million in annual revenue and gross profit from the transaction, which is expected to close later this month.

Gaiam is the only independent direct media distributor with Target Stores, Walmart and Kmart, among others. Gaiam expects to generate significant operational and financial synergies, including reduced third-party distribution costs, post-production costs and digital distribution costs, as well as the elimination of redundant overhead, replication, warehousing and other costs, all of which are projected to drive significant margin expansion.

In addition to mass merchandisers, Gaiam targets specialty retailers in the book, grocery, toy, and health and wellness segments representing approximately 62,000 retailers and 14,600 stores within stores, along with digital and on-demand services.

“This transaction materially strengthens our existing media distribution services platform, making the combined entity the third largest non-theatrical content distributor in the United States,” Gaiam CEO Lynn Powers said.

This ranks Gaiam only behind Warner and about even with Lionsgate in non-theatrical distribution, Rysavy said, adding the combined company makes Gaiam the largest independent distributor in the United States.

Bill Sondheim, the veteran home entertainment industry executive who is president of Gaiam Inc., calls the purchase of Vivendi “a transformational moment” for both companies.

“It really does position us in a unique place in the market,” he said. “Gaiam has been a brand-oriented company since its formation, primarily in lifestyles and wellbeing, but also in other brands like the Travel Channel and Discovery. We are really comfortable in dealing with branded properties that might need to be refreshed, or get new marketing, but that continue to address the same audience — as opposed to film projects, in which every new release is a new project. We now have the ability to deal with some of the largest mainstream brands in America, and ones that really appeal to a broad spectrum of demographics, and that fits nicely into our strengths. Gaiam has been a direct supplier in the mass merchant business for the last 20-plus years. We built beautiful distribution into supermarkets and sporting goods, and now suddenly we have brands like NFL, which are not just beneficial at the mass merchant level, but also in sporting goods.”

It was not immediately clear if there would be any layoffs following the merger of operations between the two companies.

Powers and Rysavy said they expect to continue the same distribution deals Vivendi already has with its content providers.

“We’ve already started negotiations with Vivendi’s partners to ensure long-term contracts,” Powers said.

Rysavy pointed out that Gaiam’s direct relationships with Target, Walmart and other retailers should be attractive to the labels that Vivendi distributes.

“We have twice as many doors than anyone in the market,” he said. “It’s an upside for those brands.”

Last year, Gaiam became the main aggregator for indie content for Target Stores.

“Target dealt with the six majors and also had 14 independent studios,” he said. “Those 14 were reduced to two, MMS and Gaiam, and all those 14 players had to choose. The vast majority, about 75%, chose Gaiam. We’re already distributing E1, Magnolia, Echo Bridge and many others to Target, and now several of these companies are asking us to distribute them into Walmart, as well. The mass merchants want to deal with fewer suppliers. Of course, they’re going to deal with the majors, but only a handful of strong, well-systemed independents.”

In the company’s financial call made hours after the announcement, Gaiam posted a fourth-quarter (ended Dec. 31) loss of $18.5 million due largely to a non-cash impairment charge of $22.5 million. Without the charge, Gaiam posted net income of $1.4 million compared to net income of $4.2 million during the prior-year period.

The company saw better news in net revenue for the quarter, which increased 15.1% year-over-year to $95.9 million from $83.3 million from the same quarter in 2011. Net revenue for the year was essentially flat at $274.8 million from $274.3 the prior year.

The fourth quarter was impacted in part by DVD market contractions, Powers said.

Company executives seem unfazed by the loss, with Powers saying that 2011 was “a year of repositioning and redefinition” for the company and that 2012 is expected to be a “pivotal year” with continued growth throughout. She said early results for the first quarter already show the company is on that path of growth.

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