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Vivendi: Why Empire Building Is No Strategy

French media group Vivendi is benefiting from the growth of music streaming, but investments in struggling Italian companies are puzzling.

Much like its pay-TV business Canal Plus, Vivendi SA VIVHY 0.05 % makes for an entertaining spectacle. That doesn’t make it an appealing investment.

Over the past year the French media giant controlled by billionaire tycoon Vincent Bolloré has performed a bewildering series of strategic pirouettes. Having divested its French mobile business in 2014, it built an almost 25% stake in Telecom Italia, TI -0.11 % the former Italian telecom monopoly.

Having sold out of U.S. videogames maker Activision Blizzard, ATVI 0.58 % it re-entered the gaming market through stakes in two French companies, Gameloft and Ubisoft UBI -0.10 % —eventually taking full control of the former against the wishes of the founders. And having agreed to buy the pay-TV business of Mediaset, MDIUY -1.37 % the Italian group controlled by the family of former Prime Minister Silvio Berlusconi, Vivendi sparked a continuing legal battle by saying that, having looked more closely at Mediaset’s financials, it only wanted a 20% stake.

The Mediaset deal is particularly puzzling. Canal Plus, which has been shedding subscribers for years amid intensifying competition, is due to lose €400 million ($451 million) this year. Mediaset is suffering from many of the same trends: the dominance of free TV, the rise of low-cost internet players such as Netflix, NFLX -0.29 % massive cost inflation in sports rights. Two weak players won’t make a strong one.

The unlikely outperformer in Vivendi’s portfolio is now Universal Music Group, the California-based music rights owner. First-half results published Thursday showed year-over-year organic sales growth of 1.6%, as a 62% jump in subscription and streaming revenue offset declines in CD sales and downloads.

There is promise here, and at Gameloft, which is strong in mobile gaming. But Universal’s turnaround, which is based on the stellar growth of independent subscription services such as Spotify and Apple Music, makes it all the harder to understand why Vivendi also wants to invest in old-media assets such as Mediaset, Telecom Italia or bricks-and-mortar retailer Fnac.

The general impression is one of empire-building. Shareholders already know how that movie ends.

Write to Stephen Wilmot at stephen.wilmot@wsj.com

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