BET'S TOO HOT A PROPERTY

By Adam Zagorin/Washington

Things seemed just perfect for Robert L. Johnson last week. His BET Holdings Inc. (1996 sales: $133 million), the nation's foremost black media conglomerate, posted its 13th consecutive quarterly profit increase. As the cash floods in, Johnson is living a media god's life. He has built a mirrored glass-and-steel headquarters in a poor neighborhood of Washington and acquired a lavish 133-acre horse farm in Virginia hunt country. He has also planned to buy the company and offered shareholders a deal that values BET at $800 million. His concept: transform BET's golden logo into the pre-eminent brand name for African Americans by stamping it on everything from restaurants to credit cards, apparel and magazines.

Perhaps the week was too perfect. Some of Wall Street's wheels think Johnson is trying to get BET on the cheap, and they are demanding a price that matches the value inherent in BET's mix of African-American-oriented programming and access to 50 million households, a combination that has made it one of the country's most profitable cable networks. The dissidents believe that BET could be worth almost 50% more than Johnson is offering. "It's such a fabulous company that I see Johnson's offer as nothing more than preliminary," says Mario Gabelli, a high-profile media investor who complained to the Securities and Exchange Commission; other holders sued BET directly.

Johnson, who controls a majority of BET's voting stock, now has a thorny problem: sweetening his offer will siphon capital from BET's planned expansion. On the other hand, since he has essentially put the company up for sale, a failure to raise the bid might tempt deep-pocketed media giants like NBC or Disney to make a bid. Johnson is adamant that he won't cede control. Says he: "I will not give up my stake. Never. Why should I, when I can make this company grow so much larger?"

Rags-to-riches stories don't come any better than Robert Johnson's. The ninth of 10 children, he grew up poor in Freeport, Ill., earned a place at Princeton and worked as a cable-industry lobbyist. He founded BET in 1980 with $15,000 in borrowed money, convinced he could mine gold from ore that others had found less rich. Marketers have known forever that black consumers have a ton of money at their disposal--$425 billion annually--and are quality conscious and extremely brand loyal. Johnson not only created a brand, BET (Black Entertainment Television), but in TV he also found an ideal way to reach the target audience.

BET shows are an eclectic if often insipid mix of music videos, infomercials and reruns of sitcoms such as Sanford and Son, along with talk and news shows produced in-house. But the programming comes dirt cheap. Profit margins currently run in the 50% range, in contrast to about 35% for many cable companies. The network already reaches 98% of all black cable homes, so future growth will have to come from new ventures. For example, the BET on Jazz cable channel, which features live performances, has more than 2 million domestic and 300,000 foreign subscribers.

Johnson plans to make BET into what marketers call an umbrella brand, under which any number of businesses can shelter. The first BET SoundStage restaurant, a black version of the Hard Rock Cafe, is already a profitable attraction in suburban Washington. The next one opens at Disney World in Orlando, Fla., in May. Johnson says he may open as many as 20 SoundStages around the country, and take the chain public.

Next stop is Las Vegas. Nevada recently granted BET a gaming license. With Hilton as a partner, Johnson plans to open a $200 million SoundStage Hotel and Casino. Hilton will run the operations while BET enlists top black entertainment. There are also MSBET, the company's Website venture with Microsoft; a line of clothing launched in February; and a BET Visa card. Johnson may even try to market home mortgages under the BET brand.

That's assuming he can come up with a deal. Recently News Corp. dropped $1.9 billion to buy properties, including the Family Channel, equivalent to about $21 for each of its 70 million subscribers. If the price tag on BET gets even close to that level, Johnson will discover that the cost of future success is far higher than he imagined.