BET Holdings, Inc.

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BET Holdings, Inc.

1900 W Place NE
Washington, D.C. 20018-1211
U.S.A.
(202) 608-2000
Fax: (202) 608-2595
Web site: http://www.betnetworks.com

Public Company
Incorporated: 1979 as Black Entertainment Television
Employees: 452
Sales: $115.2 million (1995)
Stock Exchanges: New York
SICs: 4841 Cable & Other Pay Television Services; 6719 Holding Companies, Not Elsewhere Classified

BET Holdings, Inc., with its centerpiece Black Entertainment Television cable television network, is well on its way to becoming the nation’s preeminent media empire targeting the growing African American consumer market. Under the leadership of founder Robert L. Johnson, BET has expanded beyond its low-cost television format to include the BET on Jazz cable television channel, the pay-per-view Action movie channel, direct merchandising, and beauty products, as well as magazines, with the upscale general interest Emerge and the teen lifestyle YSB (“Young Sisters & Brothers”). BET has also entered original film production through United Image Entertainment, a joint venture with actor/director Tim Reid (of “WKRP in Cincinnati” fame) and boxing promoter Butch Lewis; BET Pictures, a joint venture with Blockbuster Entertainment; and BET Film Productions, a joint venture with LIVE Entertainment and the Encore Media unit of cable television giant Tele-Communications Inc. (TCI). In 1996, Johnson further expanded the BET brand name, in a partnership with Microsoft’s MSN online service, to include World Wide Web content. More than 90 percent of BET’s $115 million in 1995 revenues was generated through its core cable television network, which reached more than 47 million homes over more than 2,500 cable television systems in 1996, with revenues split approximately equally between advertising and subscriber fees. In the mid-1990s, CEO and Chairman Johnson owned 40.65 percent of the company; 20 percent of BET was owned by long-time backer TCI. BET has been a publicly traded company since 1991, when it became the first black-owned company to be traded on the New York Stock Exchange.

Founding a Media Empire in 1979

The cable television industry was still in its infancy when Robert L. Johnson first began to develop the idea of a television network devoted to the interests of the black community. Johnson’s business experience, however, was largely limited to a childhood newspaper route. The ninth of ten children of a working class family (his father worked at a battery factory, his mother worked on an assembly line) in Freeport, Illinois, Johnson attended college at the University of Illinois. Johnson next attended Princeton University’s Woodrow Wilson School of Public and International Affairs, where he earned a master’s degree in public administration in 1972. From 1973 to 1976, Johnson served as press secretary to Walter E. Fauntroy, then congressional delegate for Washington, D.C. Johnson left that post to become vice-president of government relations for the National Cable Television Association (NCTA), a position he held until 1979.

Johnson’s lobbying work for the NCTA gave him an insider’s perspective on the nascent cable television industry, as well as contacts with major industry players. These contacts would serve Johnson well when he left the NCTA to begin a new venture: the building of Black Entertainment Television. The idea for a television network providing programming geared toward the country’s black population, then an estimated $75 billion consumer market, came to Johnson one night while sharing a taxi. His fellow passenger showed him a proposal for forming a cable television channel with programming for the nation’s senior citizen population. Johnson, then 33 years old, liked the idea, but reasoned that it could also be applied to the black community. His fellow passenger gave him permission to use the proposal. “So I took it, and wherever he had the word ‘elderly,’ I put the word ‘black,’ and it worked,” Johnson told the Chicago Tribune.

Johnson secured a $15,000 loan from a Washington bank to launch his channel, which he dubbed Black Entertainment Television. Next, Johnson approached John Malone, head of TCI, which was then the third largest cable franchise in the country and beginning to compete for expansion into the urban market. Johnson believed, as he told the Washington Post, that “[o]perators out franchising would want to tell city officials that they could serve a black audience.” In November 1979, TCI agreed to give Johnson $180,000 in return for a 20 percent stake in BET, as well as a $380,000 loan to finance the channel’s start. Malone also gave Johnson a piece of business advice, as Johnson told the Washington Post: “Get your revenues up and keep your costs down.” Johnson took Malone’s advice to heart.

Johnson expected to achieve revenues by selling airtime to advertisers. These advertisers would be led to BET because it offered access to the black consumer markets. Analysis indicated that the black population watched more television than the white population and tended to be more fiercely brand loyal. And, Johnson told Broadcasting, “Blacks will watch black programming before they will watch white programming, everything else being equal.” Indeed, Johnson would later tell Forbes: “The idea for BET was not conceived out of idealism, but as a business opportunity that had been ignored.” By the time of the TCI investment, Anheuser Busch had signed on as BET’s first major advertiser. That company was joined by Sears, Pepsi, Kellogg’s, and Time, Inc. as BET neared its launch. Johnson also was able to secure channels for BET on a number of cable systems, including industry leaders American TV and Communications Corp., United Cable TV Corp., and Warner Cable, as well as on TCI. Expectations for the cable industry itself were high: with many rural and suburban areas already wired, cable was preparing to move into the more lucrative urban areas. BET was expected to profit from this shift, which would bring cable to the nation’s largely urban black population.

But BET’s birth, in January 1980, was inauspicious. The company’s broadcasts were limited to two, and later three, hours on Friday nights in a spot given to BET on what would subsequently become the USA Network. Despite Johnson’s pronouncement to the Washington Post that BET would be “a special channel that will showcase the full creative range of black entertainment,” BET’s early programming centered around a low-cost mix of gospel music and low-budget films from the previous decade. “Some of the product I have happens to be so-called ‘blaxploitation,’” Johnson admitted at the time, “but this is a one-step-backward, two-steps-forward kind of thing.” Johnson hoped to turn a profit within three years.

BET remained in its 11 p.m. to 2 a.m. weekly spot for more than two years. In 1982, however, TCI brought in a new investor, Taft Broadcasting Co. (later Great American Broadcasting Inc.), parent of Hanna Barbera Productions and other programming providers. Taft’s investment of $360,000 for a 20 percent interest in BET enabled the network to move to its own satellite signal, and in August of that year the company expanded programming to six hours a day, seven days per week. The company added music videos (provided free by record companies) to its programming mix and began producing its own programs, including the popular “Bobby Jones Gospel Hour” and “Video Soul” hosted by Donnie Simmons.

By 1984, the network was reaching more than seven million homes on 365 cable systems. The company had yet to turn a profit, despite instituting a 3 cents per subscriber fee, which was not uncommon among cable networks. Profitability would come only when BET could reach 11 million subscribers. Yet, Johnson was experiencing difficulty finding cable providers to offer his network. One problem BET faced was the limited number of channels available on cable systems at the time. Cable operators servicing primarily white, suburban, and rural areas were less likely to add BET to their limited roster. A larger problem was the continued delay in wiring the country’s cities, precisely where BET’s core audience was located. In the mid-1980s, many cities—including the principal markets of New York, Chicago, Washington, D.C., and Los Angeles—still did not have cable services up and running. BET’s limited programming hours also made it difficult for cable operators that did not have the technology to allow them to switch a channel between BET and another network. Hampered by a lack of funds (its partners contributed relatively small amounts of cash loans) BET was also criticized for its programming content, which had grown to include reruns of network programs, but had not yet fulfilled Johnson’s promise of original, creative black programming.

Johnson soon began, however, to expand BET’s offerings. BET launched its own news division in 1984, establishing a Washington news bureau and reaching an agreement with ABC to carry that network’s national and international footage. Other programs included a weekly half-hour entertainment magazine, a weekly call-in talk show, and a one-hour show featuring celebrity and political guests. BET received a new boost in September 1984, when Time, Inc.’s HBO division provided BET with the use of one of its satellite transponders in return for 16 percent of the company (with TCI’s and Taft’s shares shrinking to match that and Johnson holding the remaining 52 percent). BET was then able to make the move to 24-hour programming. Videos, especially those featuring the black artists still largely ignored by MTV and other networks, figured prominently in BET’s lineup. The network’s daily broadcast was built around an eight-hour grouping of programs, of which six hours were music videos, repeated three times a day. Infomercials also became an important source of BET’s revenues.

Company Perspectives:

BET Holdings, Inc. ‘s mission is simply to become the preeminent media company serving black consumers, thereby creating substantial value for its shareholders.

A Landmark IPO in the 1990s

By late 1985 BET was still reaching fewer than ten million subscribers. But, by then, cable was finally reaching the urban market and, by 1986, the company finally became profitable when its subscriber base topped 12 million. Profits in the year ending July 31, 1987 were reported to be $960,000. Two years later, BET’s subscriber base grew to 22 million and its shows were showing up on the Nielsen ratings, which was important for generating advertising revenues. Johnson also convinced cable operators to increase their fees to 5 cents per subscriber. With revenues topping an estimated $23 million, BET moved from leased facilities into its own, newly built $10 million production studio.

Johnson’s biggest move, however, came two years later. Taft, by then called Great American Broadcasting Inc., was struggling to pay down debt incurred in its own leveraged buyout and sought to sell off its BET shares to raise cash. Johnson complied by taking BET public, in the process becoming the first black-owned company ever to be listed on the New York Stock Exchange. The 4.25 million shares, which had initially been valued at $11 to $13 per share, began trading at $17 per share and closed at $23.5. Johnson retained 56 percent of the newly public company’s voting rights, with 37 percent of its Class A shares. His original $15,000 was now worth more than $250 million.

By the time of its initial public offering (IPO), BET’s revenues had grown to nearly $51 million, and its net profit soared to $9.3 million. BET had even more reason to cheer as the cable industry began moving to new technology, allowing cable operators to double the number of channels they offered. In addition, with the coming deregulation of the cable industry, BET became increasingly attractive to cable operators competing for the urban markets. Advertisers were also recognizing BET, now available to more than 30 million households, as a potent force for reaching the black consumer market, whose purchasing power had grown dramatically in the preceding decade.

Joint Ventures, New Markets, and the Future

With BET on “cruise control,” as Johnson told the Washington Post, Johnson turned his attention to expanding BET, now reorganized as BET Holdings, into a media empire. He expanded into publishing, buying a controlling interest in the respected, general interest magazine Emerge and launching the youth-oriented magazine YSB under BET’s newly formed Paige Publications subsidiary. BET also moved into film production, forming its first joint venture, United Image Entertainment, with actor/director Tim Reid of “WKRP in Cincinnati” fame. In 1993, with revenues topping $71 million, BET launched BET Direct, a direct marketing firm developed in conjunction with the Home Shopping Channel, and began featuring its own home shopping program on its BET network. Among the products featured was BET’s own line of beauty products, Color Code.

Johnson’s empire continued to grow with the acquisition of the Action pay-per-view station, which reached seven million homes by 1996. BET formed two more joint ventures to produce films: family-oriented movies through the BET Pictures partnership with Blockbuster Entertainment; and a third joint venture, BET Film Productions, with Encore and LIVE Entertainment. Another subsidiary, BET International, was formed to bring BET programming overseas, into markets including almost all of the Caribbean, as well as South Africa and the United Kingdom.

By 1995, BET’s subscriber base had swelled to more than 43 million households, generating more than $115 million in revenues for a net profit of nearly $20 million. The network was given a big boost the following year when it grabbed the first post-trial O.J. Simpson interview—with three million viewers tuned in, BET had its largest audience ever. Debra Lee was named president and placed in charge of day-to-day operations while Johnson, as CEO and chairman, continued exploring new areas in which to take the company. BET on Jazz, a 24-hour cable network devoted to jazz music programming, debuted in early 1996.

In April 1996, BET repurchased all of Time-Warner’s stock for $58 million. A third network was added to BET’s stable with the launch of BET Movies/STARZ!3, in partnership with TCI’s Liberty Media subsidiary’s Encore division. BET’s move into cyberspace, in a joint venture with Microsoft to provide content for Microsoft’s MSN online service, as well as CD-ROM and interactive television content, was uploaded in early 1996. Johnson was also making plans to extend the BET brand name into the restaurant business, with the first of a proposed chain of black-oriented, Planet Hollywood-style restaurants. Although the company’s core television network continued to produce 94 percent of its revenues and all of its profits, Robert Johnson’s slow, but steady, hand seemed certain to craft his BET empire into a multimedia powerhouse.

Principal Divisions

Avalon Pictures (BET Action pay-per-view); BET Cable Network; BET Direct; BET Film Productions; BET on Jazz; BET Pictures; Paige Publications; United Image Entertainment.