a League of His Own

BY STACI D. KRAMER Bob Johnson swings into the conference room next to his penthouse office at BET headquarters in northeast Washington, D.C., settles cautiously into a chair and places a set of crutches in easy reach. The crutches are the result of a rare misstep for the usually astute entrepreneur, a bad move during a Christmas boat outing in the Bahamas that ended in a ruptured Achilles tendon. They slow Johnson down a tad but haven’t stopped him from pushing ahead on plans for a new NBA franchise in Charlotte or from dealing with his myriad businesses. Nor have they slowed his pursuit of another dream: returning a Major League Baseball franchise to D.C. with Washington Redskins owner Daniel Snyder. As good as Johnson and the industry have been for each other, cable has never been quite enough. Johnson thrives on starting things from scratch and achieving the seemingly impossible — good credentials for the owner of a sports franchise. His desire to own a professional team stretches back nearly two decades. Weeks ago he finally earned the right to cough up $300 million for an NBA franchise and invest countless millions more to make it work. In the process, Johnson may wind up founding another cable network or two. He is already exploring the possibility of a regional sports network in Charlotte, preferably as a joint venture with a distribution partner such as Time Warner Cable, or even a local broadcaster. When the NBA convenes its All-Star weekend in Atlanta on Friday, Robert L. Johnson will be part of a private club with only 30 memberships. He’ll also integrate any gathering of owners. After a lifetime of firsts as an African-American — first network owner, first to go public on the New York Stock Exchange, first billionaire — at 56, Johnson now has the double-edged distinction of being the first to own a major pro team. “Had there been equal opportunity to access for capital or equal opportunity for access to education I wouldn’t necessarily have been the first guy to start a black cable network or the first guy to buy an NBA team,” says Johnson. “The first guy to buy an NBA team is the first guy to show up with $300 million. I just happened to be the first guy with $300 million. Had this country sort of lived out its creed that everybody should be given opportunity, 30 years ago there could have been a lot of rich black guys when NBA teams were selling for $37 million. They could have bought one then, and I would have been the sixth or the seventh or the eighth NBA owner.” That foundation could have been an advantage, he insists. “Instead of my father leaving me nothing but a great sense of who I am and a teaching that says ‘whatever you do be your best at it,’ he might have left me that plus a couple of hundred thousand dollars. So instead of starting with $15,000 I had to borrow from the bank, I could have started out with $100,000 and who knows? I could have created more than I created.” What he created was the Black Entertainment Network, now available to more than 74 million homes, and a number of offshoots such as the BET Jazz Channel. The network’s sale to Viacom, in a deal valued by the companies at $3 billion, made Johnson an instant billionaire and the second-largest individual shareholder in Viacom after chairman Sumner Redstone. He will pay for the NBA team with the sale of some Viacom stock. Like other shareholders, Johnson is disconcerted by talk of Viacom president Mel Karmazin’s possible departure when his contract expires at the end of this year. “I think Mel and Sumner are the two best managers you could work for in the media business, and I hope that they will work out an agreement that will keep Mel and Sumner together for as long as I’m there — if not longer.” Johnson’s five-year agreement to run BET expires in three years. Still, building the sports franchise is Johnson’s future. His first season will be in 2004, and the following year the team moves to a new $200 million arena. “I think the ability to get this franchise for these terms and conditions and start something from scratch is unique,” says fellow NBA owner Jerry Colangelo. A veteran of two NBA start-ups — the Chicago Bulls and the Phoenix Suns — as well as the MLB Arizona Diamondbacks, Colangelo knows what it takes to do it from scratch. “It’s not bad to have a guy who can write the check. I think more importantly this is about how he did it…from nothing,” says Colangelo, who knew Johnson when both attended the University of Illinois in the ’60s. “He created a fortune out of a concept.” What he did to create that fortune also matters, Colangelo adds. “He understands…brand building, what we need to do as a league and how it spills down to the individual franchises and what it takes to be successful on the franchise level.” NBA commissioner David Stern welcomes Johnson’s business expertise. “He understands programming. He understands entertainment. He understands the cable and satellite infrastructure, and he is an extraordinary businessman,” says Stern. Marketing a new team isn’t that different from marketing a new cable channel. “You’ve got to convince the customers that you have an exciting product,” he says. “They’ve got to be convinced that it’s something they want to access for entertainment, i.e., come to the games.” The two also have similar dual revenue streams from subscribers/ticket holders and advertising. Says Johnson, “Just like a cable channel, you’re measured by, in some cases, churn — how many people renew tickets, don’t renew tickets. You could liken that to a cable channel. You’ve got your ratings — how many people show up every night and how that affects your revenue.” There are also differences. Cable channels start out with a “wait-and-see” incubator period. “In the NBA, when you start out, you go play the best teams in the world. Fans want a winner. You’re in the big leagues when the ball is tipped off in ’04.” The NBA also offers a third revenue stream: TV rights. Johnson will have some guaranteed income from the national rights packages with TNT and ESPN/ABC. He also has rights to regional broadcasts of his team. Johnson doesn’t see much growth on the national side. “That revenue stream for the business side of sports is one that’s going to have to take a new format. You can’t look to the networks to keep going crazy on bidding rights and solving your problem when you’ve got to overpay your players,” he warns. “I think the question is where do you find new revenue streams? Is it in regional sports networks? Is it in maybe the local TV rights, or is it in pay-per-view games on demand?” He approves of the NBA Channel now in the works, brushing aside the suggestion that there might be too much basketball on TV. “That’s like saying, ‘Is there too much Riviera Beach?’ There’s only so much beachfront on the Riviera, so people who want to go there are always going to want to go there. The NBA is basketball at the highest caliber of any place in the world, and as long as you have that exclusive sports product, particularly a live product like sports is, you’re going to always have demand for the best sports content.” Johnson hasn’t yet decided how he’ll handle the regional rights for the Charlotte franchise. “You could basically sell your game rights to somebody and just take the cash and let them make their money off selling the advertising. They can either produce it for you or you can sign a contract to produce your own so you can control what it looks like. You could partner with them so it’s a joint production and you share in the ad revenue in some form, or you could look to use your own content as sort of an anchor product to create your own regional product in conjunction with a distributor.” That would be a local cable operator or a local broadcast station with must-carry. It sounds like he’s leaning toward launching a network. “To me that’s really how a franchise owner is going to have to figure out ways to make money. I’d much rather be the one to create a premier regional sports network for Charlotte.” Time Warner Cable is the dominant operator in the area, and Johnson has already spoken with Fred Dressler, EVP of programming at TWC. The conversation was informal, but Dressler has someone looking into the possibility of Charlotte supporting a regional sports network. “You’ve got Fox [Sports South] in the market; they own the ACC package and control the hockey rights in Raleigh,” Dressler says. “It’s unclear at this point as to what product is available. I’m trying to get prepared if I do have further discussions with Bob.” Johnson says the questions would include, “What can we create on cable and how do we market it? Is it on basic? Is it an add-on? How do we share? What’s the cost of capitalizing this thing to get it together? Of course, it’s also going to be a question of how do I create additional maximum value using my content as leverage or using my willingness to invest my own capital with a partner to create a long-term regional sports network for Charlotte that’s anchored by the basketball team. It’s a question of economics.” It’s also a matter of control. “My initial sit-down’s going to be with either Fred or the TV guys. I probably won’t do it with the Fox guys because they’re already established; they’re a buyer of sports content. They’re not going to joint-venture with me. I’m a content guy, so when I sit down with someone, I’m going to say let’s look at the market as X number of homes, let’s look at the content we can put together.” Dressler says he’s open to any idea that makes economic sense but cautions that such a joint venture “is not something that we’ve been involved in, so it would require a change in strategy on our part.” Johnson already has received an overture from a local broadcaster. He’s planning to sell a minority stake in the team to some Charlotte investors and, should he decide to go that route, would offer them the chance to include a regional network in their investment. He’s also willing to go it alone. Asked if he’s sought advice from others, Johnson replies, “This is not rocket science. When I started BET I had an idea…and in 20 years we created a company with a $3 billion valuation. I’m talking about maybe creating a company that if it grows $65 million a year, that’s great, and if it can drive $5 or $6 million to the bottom line, that’s great. This is not something I need to sit down and talk to anybody about; I could do this in my sleep. All I need to do is find out whether or not there’s a market for the product and if I can get the product cheap enough.” Doing a regional in D.C. should he and Snyder prove successful in moving the Montreal Expos to town would be more complicated. Comcast has a major presence with Comcast SportsNet Mid-Atlantic, with rights to the Baltimore Orioles and Washington Capitols. Snyder is willing to move the Redskins’ preseason games and other programming from broadcast to a regional sports net led by Johnson. “I think it would be fantastic,” Snyder says. Johnson says he hasn’t had any serious discussions with Comcast and won’t unless it looks like a baseball deal is going to happen. “I couldn’t imagine really putting money into baseball in D.C. without having a good indication of where the revenue streams are. If I do this, I’m going to do it with a distribution partner,” he adds. “There’s no way I’ll try to go out and fight my way to get carried on a cable channel or to get on the air somehow. That’s why it’s logical to do it with a partner. But it should be more than just showing your basketball team. It should be a real channel that identifies with the region.” Johnson is constantly looking to enhance the value of what he owns. Fascinated by the potential of adding radio to the BET mix, he was rebuffed when he tried to acquire Radio One from his friend Cathy Hughes and her son Alfred Liggins III. When Redstone called BET investor John Malone to sound him out on a possible sale of BET, Johnson was, as he puts it, “days, if not hours, away” from signing a $1 billion deal to acquire stations from Clear Channel. “That would have meant taking on a significant amount of debt,” Johnson says. “And when I saw the Time Warner deal go down, I thought, hmm, maybe the play is not to get distribution in radio but to just sell the content you’ve got now.” He sold to Viacom at the top of the market with a price set by a merger that is the poster child for new economy failure. Johnson is one of the few people who can safely say he is still profiting from the merger of AOL with Time Warner. “We sold on the back-draft of the AOL Time Warner deal because they had this huge stock valuation that paid for Time Warner at a premium. The only difference was they paid it with phony currency — but at the same time it made Time Warner a very attractive asset. I decided if people are paying this much for content, why not sell BET right now? “In the case of Mel and Sumner, I was selling it to two guys I trust, and there were no tax consequences, which is something both John and I wanted. So we took the right time in the market to sell to the right company under the right terms. You can’t have an exit strategy better than that.” You can still hear the crackle of electricity when he talks about the potential of that Radio One offer. “I thought it would have made a huge, major, historic company — the largest African-American-owned company in the world. It would have had tremendous free cash flow, it would have had a tremendous ability to create content for the African-American community. It would have had tremendous marketing clout, both political and cultural.” Now Liggins, who calls Johnson’s success “an inspiration,” is making the move into cable programming in partnership with Comcast via a new network aimed at African-Americans 25-to-54 scheduled to launch this summer. The move has been painted as a head-to-head competition with BET. “We’re going to target African-Americans, so in that sense it is a competitor,” Liggins says. “We’re also targeting adults who live in the United States, so it’s a competitor of Lifetime. It’s not going to target BET’s current position. It’s a complementary format.” Liggins says he’s picked up a lot from Johnson. “I’ve learned that relationships in high places and partnerships in ventures where people have very similar views are critical to success. I saw how Bob nurtured his relationship with John Malone.” Johnson sees a comparison when he looks at Liggins’s plans for the network. He had the backing of Malone and TCI; Liggins has Brian Roberts and Comcast. He describes both Liggins and Roberts as smart men surrounded by smart people. But, he muses, “I don’t know what a 25-to-54 demo product is. I don’t know how much it costs to do and whether or not advertisers are going to be interested in that market if you can’t come up with the programming that appeals to them. Dramas are too expensive. Sitcoms are too expensive. So it’s got to be in-studio product, and that lends itself to either news or talk shows. I can’t imagine what they’ll try that we haven’t.” Liggins and others argue that if the Hispanic population can support five networks, African-Americans should be able to have more than one. Johnson retorts, “There’s no logic to that. A Hispanic from Mexico is pretty different from a Hispanic from Central America in terms of their culture, their orientation, their entertainment issues. African-Americans are far more homogeneous in that sense. The other part about it is African-American content is available on every broadcast and cable network. You don’t see Lifetime putting on a Spanish-speaking show in the middle of their regular programming, but you’ll see UPN stick a great black sitcom in the middle of their UPN white-oriented programming.” Unless his contract with Viacom is extended three years from now, Johnson will enter his 60s without cable at the core of his business. A regional sports net or two is a far cry from the national cable stage. He still labels himself “a cable guy,” though. Borrowing a line from Ted Turner, Johnson says, “I was in cable before cable was cool.” It’s just that Johnson, like Turner, has never been content with cable alone. The cable industry is absolutely failing in providing opportunities for African-Americans at the highest levels of this industry. It is failing. There is no other way to put it. If you look at all the programmers who operate cable channels — many of them a product that appeals to African-Americans — ask them to list the highest-ranking African-Americans involved in making programming decisions and determining what gets on the air. It will be so few that it’s embarrassing. Then the same thing goes on at the operator level. How many African-Americans are in key decision-making roles at the cable operator level? Very few. How many times do you walk into a room where you’re negotiating with a guy about carriage who’s African-American? I’ve never gone to a cable operator — I can’t think of anybody — where they have been in charge of negotiating. That’s the industry’s failure, and it’s something that the industry ought to try to rectify. The only way to do it is somebody makes a decision and says, “Look, we’re going to make sure we hire qualified African-Americans at this company throughout all levels of the company,” and if nobody makes that decision things will never change. People hire their friends, people hire people they like, and if you don’t have that association you’re not getting hired, and if nobody mandates that you do everything to hire African-Americans it’s not going to happen. It’s holding the industry back. I think the industry could find itself facing some sort of class-action discrimination case if they don’t address it. They’ve got to recognize that more and more of their customers are African-Americans, and they’ve got to appeal to that market, and they’re going to need people who know how to appeal to that market. I think it’s just plain wrong not to make sure this industry reflects the market that we serve. Trent is a friend of mine. I called him and said, “I thought here was a way you can explain what’s really in your heart, not what you said to Strom Thurmond,” and I said, “I think you ought to tape the show” and he agreed to do it. That’s the only time I’ve ever done that because he is a friend. I wouldn’t do it on the entertainment guys because the stuff they get involved in is kind of frivolous. Trent Lott was worth the call because I saw it as a way to get the country focused on race relations. It was a combination. I know Trent, we’re both from Mississippi, and he was helpful to me when I was trying to do the airline deal. I understood what he was trying to say; he just said it in a lousy way. I thought that…it was worth a shot — both to help a friend and to get the debate going. Had he been a Democrat or an Independent I would have said the same thing because I believe there needs to be a two-party debate on race, and I’ve said to Republicans “You guys can’t continue to ignore blacks,” and I’ve said it to my Democratic friends, “you guys can’t continue to take blacks for granted.” To me, any dialogue that would cause the two parties to compete for the black vote is in the best interests of black people. I love the idea of people competing for the black vote. If they don’t compete for the black vote it’s like anything else in business — if there’s no competition for the product the product is devalued. I started District Cablevision and I was partners with John Malone in Mile Hi in Denver so I understand the distribution side. Cable is a very attractive business with great margins, but in order to get into the cable business you’ve got to have either access to capital or expertise in running cable systems. If you think about it, during the early days of franchising, many of the big-city franchises were won by African-American groups that formed with white partners, and eventually, because these African-American groups could not convince the bankers and Wall Street to invest in them because “you don’t know how to run a cable system,” you eventually have to sell out. We had the franchise in D.C. The banks were not willing to loan me and my group the $100 to $200 million it took to build DC [District Cablevision], but they were willing to open up to TCI, who said if I’m going to take the risk I’m going to have control. Well, of course, there’s no begrudging that. Eventually the locals who were in got bought out. Granting the cable franchise was a political decision — but getting money was a business decision. 1976-79 Lobbyist, National Cable Television Association. 1980 Launched BET with John Malone’s TCI as minority partner. Borrows $15,000 from the bank and gets $500,000 from TCI. 1984 Forms District Cablevision Inc. HBO receives equity in BET in exchange for transponder access. 1991 Takes BET Holdings public. First African-American firm on NYSE. 1995 Opens BET headquarters in Northeast Washington, D.C. Later adds 50,000-square-foot production facility. 1998 Takes BET private after shareholders force him to raise the offer. 1999 AT&T becomes sole owner of District Cablevision. 2000 Sells BET to Viacom for $3 billion in stock and assumption of debt. 2002 Awarded NBA franchise in Charlotte. Robert Johnson and Debra Lee are keenly aware that some people believe that Viacom is pulling the strings at BET or, to put it more bluntly, that the African-American channel is being run by a white-owned company. But, as was made clear in November 2000, the deal wouldn’t have happened without agreements from Johnson and Lee to stay for five years — and without an understanding that they would be as independent as possible. The two have taken full responsibility for everything from moving the New York offices out of Harlem to cutting back the news division to dropping hosts and programs. They’d also like the credit for moving BET’s ad rate card up the scale and for a deal with Viacom’s Paramount Domestic Television that brings three popular shows to BET. “The thing people don’t understand is that Viacom doesn’t run its divisions,” says Johnson, CEO of BET. “Mel [Karmazin] does not run Tom Freston’s MTV Networks. He doesn’t run Les Moonves’s CBS or Jon Dolgen’s Paramount. All these guys run their own division, so BET came in under that same standard.” Lee, the president and COO, adds, “Every decision that is made here is made by Bob and myself. Mel does not get involved in programming issues. Unless there’s a problem, we don’t hear from him. They promised us autonomy, and that’s what we have.” Make no mistake, BET is very much a part of Viacom. Johnson attends division head meetings. The administrative groups work closely together. BET works with Viacom Plus. The press release for the Paramount deal, which includes two shows on UPN and one from Showtime, describes it as “another shining example of cooperative synergy between BET and its fellow Viacom brands.” Another synergy was the switch to joint production of BET News with CBS. “CBS News was one of the first divisions to call and say we want to work with you,” says Lee. “It’s a matter of having more resources. If a war comes, we can use their reporters. We had our first live election night coverage. We couldn’t do that before.” With BET in over 74 million homes advertising offers room for growth. “Our rates are still low compared to other networks. Our advertising guys are working hard to close the gap,” says Lee. One major difference now: Ad execs “have information from their sister divisions, so when they go in and say, ‘The rate for MTV is this,’ before advertisers could say, ‘No, it’s not. Where did you get that?’ Now they know.” For 2003, says Lee, “there’s a shift to acquisitions, and we’re keeping an eye on what these reality shows are doing. Reality may be something we can afford and would do. We pretty much march to our own drummer and watch what works on our networks. Music videos work. 106 and Park is doing terrific; we’re moving that into prime time to make it more of an evening talk show. Music works. Comedy works. We pay attention to our audience.” Specials and movies work, too. A recent repeat of BET’s music awards show pulled a 0.9. By comparison, the highly promoted Trent Lott interview with Ed Gordon — the one critics said was the kind of programming BET should be doing more often instead of canceling — also did a 0.9. “People have different images of what they want BET to be,” Lee says. “We can’t be that image that every individual has.” Radio One CEO Alfred Liggins III, now at work on his own cable channel for African-Americans, thinks BET “has gotten a lot of the negatives because they are the only one, because people do pin that responsibility and that weight on them.” His take: “BET’s done more black programming and black current affairs programming than anyone else. The reality is that entertainment programming draws larger audiences than serious news or public affairs programming on average.”
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