Jean-Bernard Levy, the chief executive of Vivendi, is confident that his conglomerate, which stretches from World of Warcraft to Morrocan telecoms, makes sense. After all, this weekend, after a year-long courtship, Mr Levy helped to stitch together the takeover of Activision, the American computer game company, in an $18 billion (£8.5 billion) deal – and the Frenchman believes that there are several synergies that help to justify the deal.

“Look at product like Guitar Hero,” Mr Levy says, referring to the hot-selling Activision game, which comes with its own guitar – of sorts – that allows wannabe rock stars to emulate their favourites, be they Eric Clapton or Richie Blackmore. “Put Guitar Hero on the XBox 360 or the PlayStation3 and, once it gets connected to the net, people will want to download content and have the ability to buy music for their console system.”

Vivendi also owns the Universal Music Group, home to The Who and Lynyrd Skynyrd, although hope for “downloadable content” is rather greater than just providing a few songs that Guitar Hero players can buy. Internet knowledge, Mr Levy adds, is provided by the company’s control of SFR, France’s No 2 mobile phone operator, (to the perennial frustration of the minority shareholder Voda-fone) and a 40.5 per cent stake in the fixed-line operator Neuf Cegetel.

Yet ask Mr Levy to spell out, in financial terms, how buying Activision might benefit Vivendi as a whole and no figure is given for the possible revenue synergies, presumably for risk of overpredicting. “This is a large new domain for us, but we are not quantifying how much it could be worth,” he says, although the reality is that the company does not need to own Guitar Hero to participate in selling songs to the PlayStation at home.

In part, though, this does not matter, because the games deal makes sense on its own terms. Vivendi has been in games since the late 1990s, when, almost by mistake, in the acquisition spree led by Jean-Marie Messier, it picked up Blizzard Entertainment. Blizzard, though, had a hit in World of Warcraft, the swords and sorcery game, for which people pay a monthly subscription.

Heavily loss-making as recently as 2004, Blizzard, or rather Warcraft, has managed to defy expectations since. “Six months after Warcraft’s inception, people were telling us it was no longer popular. They were saying that when we had four million to five million subscribers; now we have 9.3 million and it’s still growing,” the chief executive says.

Warcraftis the single most valuable franchise in the computer games business. The division in which it sits is expected to generate $517 million in operating profit this year on sales of $1.1 billion, a margin of 46.5 per cent. The problem was that the games division was dependent on it: games for consoles lost $159 million, the area where Activision is strong.

Mr Levy says that he “started to get together a year ago” with Activision, a publicly listed American company, which has enjoyed rapid growth as the new XBox and PlayStation consoles have come along. “Little by little we gained confidence in each other, and this accelerated over the last few weeks.” The Activision deal creates the second independent computer games major in the world – the first is Electronic Arts, home to The Sims and also valued at about $18 billion. Vivendi injects its games division, supplies $1.7 billion to $2.4 billion of cash and ends up with 52-to68 per cent of the enlarged company, where sales are forecast to be around $3.76 billion this year and operating profits of $698 million.

To be called Activision Blizzard, the company is only marginally larger than Warner Music, the only remaining quoted music major, but the relative valuations tell a very different story: Warner’s $1.1 billion is vastly lower than the $18 billion new computer game company is aiming for. But that reflects the fact that music, where sales are down 10 per cent, is in crisis.

“Games is the fastest-growing sector in the entertainment industry,” Mr Levy says. “The market is worth over $40 billion worldwide and is bigger than film box office.” It is growing by 10 per cent a year and both Vivendi’s games unit and Activision have outpaced a hit-dependent market. The combination will save “$50 million to $100 million annually within six to twelve months”, although the cost of achieving the cutbacks is not clear. “We’ve worked at such speed that there has been little time to look at it,” Mr Levy confesses. Yet, for all the positive gloss on the deal itself, it is less clear that bulking up in computer games answers the question as to what Vivendi is for. Mr Levy says that the French group’s size is one answer: “Vivendi Games, if it had not been supported by Vivendi, would not have kept going [because it was once loss-making]. Keeping in the family has allowed us to achieve lots of value.”

Mr Levy arrived at Vivendi as managing director, the company’s No 2, in the wake of its brush with bankruptcy that led to Messier’s ousting. In the first three years, under Jean-Réné Fourtou, a string of businesses were sold to cut debt, but under Mr Levy, Vivendi has been expanding, buying Bertelsmann’s music publishing catalogue for $2 billion and leading a merger of France’s two pay-television operators, giving control to his Canal Plus unit. There have been telecoms deals in Africa, too.

“The idea is not to change the balance between telecoms, media and television and so on,” says Mr Levy, rejecting the perpetually touted notion that he should break up the group. “Over the past 12 months we have made acquistions in all our five divisions,” he says, looking back on a year when the shares improved by 11 per cent. That is reasonable in an environment where many media stocks have been hit by fears of a downturn next year, but at some point all non-family-controlled media conglomerates come under pressure to split up when they stop delivering. For the moment, Mr Levy is doing enough to keep the critics at bay.

The global business of gaming

— Vivendi is the leading global developer, publisher and distributor of subscription-based massively multi-player online role-playing games (MMORPG) and “multi-platform interactive entertainment”

— Key franchises include World of Warcraft, StarCraft and Diablo (through Blizzard Entertainment division); Crash Bandicoot and Spyro (through Sierra)

— Blizzard Entertainment released four of the five bestselling PC games, with more than 56 million units sold since 1995

— There are 9.3 million subscribers to World of Warcraft. The World of Warcraft: The Burning Crusade sold 2.4 million copies in 24 hours

— Activision is the fastest-growing leading independent publisher of console and handheld games in Europe and North America, and boasts Guitar Hero, the leading console gaming brand

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