If You Can’t Beat ‘Em, Try Becoming as Huge as ‘Em

There are two running themes at the coolly elegant offices of French multimedia giant Havas, located just off the glittery Champs Elysee between a computer store and a corner cafe. Havas is big, and it has a global strategy.

As the world’s fifth-largest communications group, Havas did nearly $9 billion worth of business last year, yielding $1.2 billion in profit in a country often stereotyped by the small family business.

Havas is anything but family, though it does boast some cozy partnerships. A sprawling empire with a Byzantine corporate structure, Havas is in the throes of welding together its audiovisual affiliates, seeking to join content, production and distribution into one dynamic entity. With this it hopes to join the ranks of, and possibly do business with, other giants that sit atop the entertainment world, such as Time Warner and Walt Disney.

Havas made a pact earlier this year with a politically connected water utility called Compagnie General des Eaux, which became its largest shareholder. The company in turn gained a greater stake in Canal Plus, France’s leading pay TV firm. With its own film production arm, the second-largest holding of audiovisual rights in Europe, contracts with five U.S. majors and designs on the Internet, Canal Plus is competing with France’s other politically connected pay TV platform, TPS.

Havas’ vision of itself as a global multimedia firm is entangled in a classically French confusion of private and public interests. Beyond the sometimes conflicting roles of the various players, analysts question whether the CGE-Havas-Canal Plus empire is flexible enough to make its way in a global economy that favors speed and creativity.

“ ‘Big is good’ went out the window years ago,” scoffs one London-based media analyst who is skeptical of Havas’ latest growth plans.

But confronted with the rise of behemoths such as Disney, Time Warner and Microsoft, Havas figured the only way to beat them was to join them--sometimes literally.

Indeed, Chief Executive Pierre Dauzier says size is everything in the media business these days, especially as entertainment and telecommunications converge.

“Our savoir-faire in content publishing, wedded to CGE’s in distribution, will permit us to offer a large range of multimedia products,” he told The Times in written response to questions.

Neither Havas nor Time Warner would comment on ongoing negotiations between their respective cable TV affiliates in France, which could lead to a merger.

“We’re optimistic that we’ll get the deal done,” a Time Warner spokesperson said recently, although in this politically sensitive realm in France, nothing moves quickly.

Havas’ history dates to 1832, when it became the world’s first news agency. It continues to publish a host of magazines and runs the world’s eighth-largest ad agency, with control over significant advertising territory in the yellow pages, at airports and even in movie theaters.

With an eye on the growing market for leisure-time activities, it runs a chain of travel agencies. In the 1980s it jumped into the broadcasting business; more recently it got onto the Internet and joined forces with communications mogul Ted Turner to manufacture CD-ROMs.

Along with its 34% stake in Canal Plus, Havas holds 20% of the innovative TV and cinema studio MK-2, plus 10% of CLT-UFA, Europe’s biggest audiovisual enterprise, plus 91% of France’s Tele Images, which churns out films, sitcoms, documentaries and cartoons for TV.

It’s a company whose fortunes historically have hinged on government relations. Havas was nationalized after the war and had to seek approval of former socialist President Francois Mitterrand to create Canal Plus in 1984. The company didn’t become private until 1987, at which point it had to learn to straddle the public and private realms, launching itself as a capitalist entity while exploiting a web of government and business ties.

To give just one example of how public and private interests converge, major shareholder CGE recently sewed up a deal with France’s publicly owned train system to piggyback electronic content on the rails’ new fiber-optic network--a breakthrough Dauzier predicts will one day help Havas get all kinds of products out to customers.

France isn’t the only country that favors consolidation in the fast-paced telecommunications business. But with CGE taking such a large interest in Canal Plus, it’s not hard to envision the future of the French media as a water duopoly. Utility CGE is lined up on one side with Havas and Canal Plus, while rival water utility Lyonnaise des Eaux has thrown its weight behind TPS, Canal Plus’ rival in the pay TV business.

It gets much more complicated than that when you look at the fine print, where the various rival companies are revealed to hold interests in their own competitors. But this is the French way. A hard-core group of business people cross-participate in one another’s affairs. Contributing to the potential gridlock are France’s notoriously stubborn labor unions. A politically astute plan by Havas to help privatize the money-losing French film-production company SFP, for example, ran aground when employees protested.

Parliament’s newly elected left-wing majority, which won an upset victory earlier this year, has made noises about breaking up the deal that gave CGE 30% control over Havas, saying there should be limits on the control of big utilities over media entities.

Dauzier downplays the threat, meanwhile holding strong to his ideal: “a vertically integrated entertainment company that permits us to master the entire program-manufacturing chain, from production to airing and distribution.”

That might sound mildly Orwellian, but it’s hardly a unique view of reality. When queried by a French news weekly earlier this month about Canal Plus’ potential alliance with Time Warner, Canal Plus Chairman Pierre Lescure, noting the potential impact of computers on media and entertainment, said, “Time Warner is one of the only companies that dares stand up to the power of Microsoft.