VIACOM BUYS BET FOR $3B

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Viacom Inc. last week said it would purchase African-American-targeted Black Entertainment Network and related assets for $3 billion in stock and assumed debt.

News of the deal generated bittersweet reactions from some industry executives.

The deal would give the oft-criticized BET programming lineup a major boost and provide Viacom-which already owns the urban-oriented broadcaster United Paramount Network-with another avenue to reach the fast-growing African-American population.

While the deal was hailed as a sensible fit, some lamented the loss of one of the most successful African-American entrepreneurs in a telecommunications industry already lacking in minority-owned companies.

Viacom last Friday confirmed it had agreed to buy cable network BET, which is in 62.4 million households, as well as the less-penetrated networks BET on Jazz, currently in 5 million homes, and BET International, which reaches 14 countries. The deal also includes BET Books, BET.com and BET Pictures II.

Viacom will not buy BET's various non-cable businesses, including several urban- targeted magazines and restaurants. It is also not buying BET's Action Pay-Per-View service.

The media conglomerate will issue $2.3 billion in Class B shares to BET Holdings Inc. chairman Robert Johnson, who owns 63 percent; Liberty Media Group, which owns 35 percent, and BET president Debra Lee, who owns 2 percent. Viacom will also assume about $570 million of BET's debt and pay $130 million in cash raising the transaction value to $3 billion, Viacom executives said.

Johnson and Lee retain their titles at BET, reporting to Viacom president and chief operating officer Mel Karmazin.

"The only way we would do the deal is that Bob [Johnson] and Debra [Lee] would enter into long-term agreements," Karmazin said in a conference call announcing the deal last Friday.

Lee added the company has no plans to lay off any staffers. The company's headquarters would remain in Washington.

If the deal closed today, BET shareholders would receive about 40 million Viacom shares, or 2.2 percent of its outstanding shares, Viacom said.

Johnson will continue his quest to own an airline in Washington, D.C., as an offshoot of United Air Lines Inc.'s purchase of US Airways Inc.

The Viacom-BET deal is subject to regulatory approvals.

TALKS KICKED OFF OVER THE SUMMER

Viacom executives and Johnson started talking about a deal over the summer, but talks began to heat up in late September after the Walter Kaitz Foundation dinner, at which Johnson was master of ceremonies.

The talks began with a call from Viacom chairman Sumner Redstone to Liberty chairman John Malone,

Johnson said.

Redstone said his courtship of BET began 18 months ago.

Karmazin called BET's programming, targeted to the fast-growing African-American viewer base, a "strategically perfect fit" for the entertainment conglomerate. He expects the network, whose 12-month revenues totaled about $270 million, could significantly grow in terms of advertising and subscriber revenue under Viacom.

Although BET is a well-penetrated service, Karmazin said, there's no reason why it shouldn't be in all cable homes, given the quality of its programming and brand awareness among African Americans.

African Americans represent 13 percent of the population, but only 1 percent of ad spending is aimed at the African-American market, leaving tremendous advertising opportunities.

The deal creates the potential for numerous programming and marketing synergies with BET and Viacom's cable, radio and broadcast-network properties, although neither side would provide any specific plans.

Karmazin said any programming alliances between BET and Viacom networks, such as MTV: Music Television, VH1, TNN: The National Network, UPN or CBS, would be handled by BET.

For BET, the deal provides tremendous upside for a network that has often come under fire for relying too much on music-video programming and not developing quality original programming.

JOINING A POWERHOUSE MEDIA-BRAND STABLE

"From a corporate standpoint, we're part of a terrific media conglomerate that understands brands and has proven that it can grow brands," Lee said in an interview last Friday. "BET will be part of that family, which means we'll have more resources for programming and additional help on affiliate and advertising sales."

Lee would not speculate on what programming changes might come, adding that no decisions would be made until after the deal closes.

"In the long run, we'll see additional programming and hopefully cross-promotion and cross-selling opportunities," she said.

Viacom could shift urban-targeted programming from its CBS and United Paramount Network broadcast networks to BET, as well as movies from its Paramount Pictures library.

Last year-after Viacom announced its plan to merge with CBS Corp.-Johnson even expressed interest in buying a piece of UPN if the new company was forced to sell all or part of the broadcast network due to FCC ownership regulations.

Viacom could also cross-promote BET from its other networks such as MTV: Music Television, VH1 and TNN to an African-American viewership base that watches more television than any other ethnic group.

African-Americans watch 70 hours of television per week-40 percent more than other ethnic groups-according to a TN Media Inc. study. Also, African Americans watch 9 percent more primetime television and 75 percent more late-night television than their counterparts.

In return, BET could move some of its African-American-oriented programming into Viacom's media assets, including radio-station holding company Infinity Broadcasting Corp., which owns outlets in urban markets.

Viacom also absorbs one of the only widely distributed rivals to MTVN's stable of music-video services.

For all his critics, Johnson built one of the most successful minority-owned media companies in U.S. history. He has been an influential, historic and often-controversial figure in cable since BET's launch in 1980.

Johnson has often complained that BET's licensing fee-at around 14 cents-is one of the lowest in the industry among networks with such wide distribution. He dropped plans for launching a family-targeted BET digital service after operators balked at providing financial assistance or guaranteed carriage support.

He has also accused the advertising community of discriminating against minority-targeted programming by not paying as much for BET programming as they do for more mainstream programming.

At a 1999 Television Critics Association event, Johnson complained that the network's ad rates, the lowest in the industry for a 20-year old network, are due to "the nature of the discrimination in this country against minority business."

CRITIC WAS ALSO A LIGHTNING ROD

But Johnson has also come under fire for his handling of the network, especially in the last two years.

Executives within and outside the industry have criticized Johnson for not investing more money into original, minority-targeted programming and instead relying on cheaper music-video clips to fill the majority of the network's on-air hours.

In 1999, then-AT&T Broadband CEO Leo Hindery Jr. aggressively pushed for a new African-American family-values service as an alternative to music video-oriented BET.

Later, Hindery would invest in Chevy Chase, Md.-based NUE-TV, a minority-targeted entertainment service. That network, backed by music mogul Quincy Jones, is currently securing distribution deals with MSOs such as AT&T Broadband and Time Warner.

BET also faces new competition from Major Broadcasting Corp. Network, a family-values and lifestyle network backed by heavyweight boxer Evander Holyfield and entertainer Marlon Jackson and The Word Network, a gospel ministries service.

Johnson has also taken shots from the non-cable sector for his business dealings. In 1999, he battled the American Federation of Television and Radio Artists after the labor organization barred its members from going on the network's stand-up comedy show, ComicView.

The union was upset over the payment comedians received for appearing on the BET show: a one-time $150 flat fee with no residuals, even when their appearances are re-aired.

AFTRA even ran an ad in various entertainment trade papers that included an open letter signed by more than 100 comics-including Jay Leno and Tim Allen-complaining about the pay scale for ComicView. Last August, the network agreed to hike the fees it pays comedians to appear on the stand-up showcase to at least $1,000.

Johnson's handling of BET has also been the target of a syndicated comic strip called The Boondocks, which criticized the network for not adequately serving the African-American community.

DEAL LEAVES VOID IN OWNER RANKS

Though Viacom will most likely furnish BET with additional resources, it can't replace the void created by the loss of a minority-owned company, said Joe Lawson, immediate past president of the National Association of Minorities In Communications.

"The sense of community and connection to cutting-edge issues for people of color is usually not the same [as] when the station or the network is minority-owned," Lawson said. "There need to be media outlets that are owned by African-Americans, and if the industry cannot keep that voice alive through other minority-owned networks, this will be a tragic loss."

But although the network will no longer be minority-owned, Lee said BET's management team will continue to run the network and oversee its programming.

"Everyone in the African-American community has been proud of the fact that BET has been black-owned for so many years," Lee said. "But this is a normal course in the corporate world; when a company becomes profitable, this is the next step."

Other minority-owned networks, such as MBC and NUE-TV, believe they can fill the void.

"[The deal] would put us in the number one position as the alternative to BET," MBC senior managing partner Alvin James said. "[Viacom] will be very aggressive in giving [BET] a general-market/ethnic appeal, but we believe that we'll be able to better serve the urban audience."

Tom Wolzien, a senior media analyst at Sanford C. Bernstein, said the deal would fall in line with Viacom's strategy of acquiring networks targeting young audiences. BET's target audience is 18 to 34 years old.

"This is consistent with the same demographic angles taken by Viacom; it's a logical acquisition for them," he said.

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