Viacom Set to Sign $3-Billion Deal With BET Cable Networks

Viacom Inc. expects to sign a deal next week to buy BET Holdings for $3 billion, according to sources close to the negotiations.

The purchase of the Washington-based cable group, which owns Black Entertainment Television, BET on Jazz and BET Gospel, would add to Viacom’s already vast cable empire, which includes MTV, VH-1, Country Music Television, TV Land and Nickelodeon.

It would give Viacom an African American demographic to sell advertisers that it now lacks in cable, although its UPN television network targets that demographic.

Analysts say Viacom is the most logical buyer because the highest rated programs on BET’s flagship channel are music videos. More than half of Viacom’s cable value comes from music channels that now compete against BET.

BET founder Robert Johnson, who controls a 63% stake, has grown the company into the nation’s largest African American-owned media outlet. Criticized for years for running infomercials in important time periods, low-quality programming, and for shows that stereotype black people, BET has had political leverage because no cable operator would dare drop the only black channel they carried.

But cable operators have other options, as new rivals have gained ground over the last year. New Urban Entertainment Television, backed by Quincy Jones, and the MBC Network, backed by Evander Holyfield, have both launched.

Sources say Johnson is eager to get out of cable and into the airline business. He wants to start up a regional airline in Washington.

Liberty Media Corp., which is controlled by media mogul John Malone and owns 35% of BET, is also eager for an exit strategy. Sources say Malone, a longtime supporter of Johnson’s, has become disenchanted as a result of a $21-million lawsuit against BET by a former chief financial officer.

Sources say Viacom would be indemnified from the lawsuit.

Several industry sources said the rich price would be difficult for any other cable group to match. One said that Viacom could possibly justify it because of the opportunity to raise the rates paid by cable operators. Cable operators pay BET licensing fees of between 12 cents to 17 cents a month per cable subscriber, compared with the 20 cents to 30 cents a month that MTV gets.

“If you’re [Viacom Chief Executive] Mel Karmazin and you are looking for cash flow growth in cable, you won’t get it from the traditional networks because of the high licensing fees they receive,” said the source. “But there are big opportunities in taking up the fees at BET and TNN.”