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Viacom Expands Cable Empire With BET Purchase


Viacom Inc. made it official Friday: The owner of the MTV Networks is buying BET Holdings Inc., the nation's largest African American-owned media company, for about $2.34 billion in stock, plus debt. The deal, a record price for a cable network, was rumored this week.

The purchase ends the 20-year control over the privately held cable company by founder Robert L. Johnson, who will convert his 63% stake into Viacom stock. Johnson retains his title as chairman and chief executive, and the company, whose prized asset is the Black Entertainment Television cable channel, will continue to be based in Washington.

BET has struggled as a niche player, ranking 27th among cable channels in the ratings. But cable networks are cash cows and BET is uniquely valuable as one of the few remaining independent cable channels with a wide reach.

With BET, Viacom catapults over Time Warner to become the nation's leading owner of advertising-supported cable channels. Viacom's cable empire, worth an estimated $30 billion, includes MTV, VH1, Nickelodeon, Noggin, TV Land, Country Music Television and the National Network.

Two of those networks were part of the acquisition of CBS by Viacom six months ago. Viacom also owns Paramount Pictures, TV and radio stations, billboards, the UPN television network, Blockbuster video stores and Showtime, a commercial-free cable TV channel.

As owner of the nation's second-largest radio station group and the country's three largest music channels--MTV, VH1 and CBS' Country Music Television--Viacom already has clout in determining hits and misses in music. Black Entertainment Television solidifies that dominance. BET's 20-year-old channel, which until recently enjoyed its own monopoly as the only channel targeting African Americans, gets its highest ratings from rap music videos.

Under the deal, Johnson will report to Viacom President Mel Karmazin and will not be part of the company's powerful MTV Networks, headed by the widely respected Tom Freston.

The deal, if approved by regulators, is expected to close early next year.

Karmazin promised Friday to bring the company's advertising and distribution strengths to bear on BET, whose flagship channel reaches 62.4 million of the nation's total 76 million pay-TV households. The purchase also includes two other narrowly distributed cable channels--BET on Jazz and BET International--as well as publishing, Internet, movie production and radio programming assets.

In a conference call with analysts Friday, Karmazin said advertisers pay at least 50% less to reach African American audiences than for comparable white audiences. "Advertisers are absolutely discriminating," he said, adding that establishing parity was a major opportunity.

He said African Americans account for 13% of the nation's population--and growing. But only 1% of the targeted advertising is aimed at the demographic, said Karmazin, who made his name selling radio advertising.

In an interview, Karmazin said that under the new five-year employment contracts, management control over BET would remain in the hands of Johnson and President Debra Lee, who owns 2% of the company. Liberty Media Corp. owns the remaining 35% of BET.

"We won't force any synergies, but we have these great products that we would make available to them," Karmazin said on the call.

For instance, he noted, the 27 of Viacom's 187 radio stations with urban or smooth jazz formats have large African American followings that could be useful to BET. He said BET could be part of the "Viacom Plus" pitch that sells advertisers time across the company's media outlets.

Viacom's UPN television network could also cross-promote BET. Still struggling to break even, UPN shows such as "The Hughleys" and "Moesha" target black audiences. One analyst said they could be migrated to BET should Karmazin shut the network, which is losing $150 million, if it is not profitable soon.

BET is one of the few cable groups not acquired in the merger frenzy that consolidated media power into the hands of Time Warner, Viacom, News Corp. and Disney. Discovery Communications remains independent.

Karmazin said the difficulty BET had competing against these giants for programming, advertising dollars and distribution was a factor in Johnson's decision.

Indeed, BET has been criticized by cable operators for low-quality programming, for infomercials during key time periods and for exploitative shows that earn it the nickname "The Booty Channel."

"Bob now has the resources to invest what he needs in programming," Karmazin said. "He'll be stronger with every one of his constituencies with our resources."

Many cable executives, however, were surprised Johnson is staying on. He has a reputation within the creative Hollywood community and the cable industry for controversial business practices.

Johnson and BET were sued this summer by a former chief financial officer who claimed wrongful termination and that the company evaded taxes. Karmazin on Friday dismissed the lawsuit as meritless.

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