Cable Network Valuations To Be Tested With Potential Sale Of BET

Paramount is in talks with Tyler Perry to sell a majority interest in BET Media Group, which owns Black Entertainment Television (BET) and VH1. Tyler Perry has close relations with BET which licenses a lot of his movies. He already owns a stake in the channel’s online platform, BET Plus.

However, shortly after the rumors hit the wires on Monday, Byron Allen’s spokesperson issued a statement saying “Byron Allen is interested in buying BET, and he will be pursuing the acquisition of the network.” Thus, there is possibly going to be a bidding war just over the horizon.

There have been very few cable network deals over the last several years as cord cutting and cord shaving has turned this industry from a huge growth engine into a declining business. More and more consumers continue to get their video from the myriad streaming services, making linear TV programing on cable and satellite become increasingly obsolete. With cable and satellite operators continuing to jack up prices and add on mysterious surcharges like a sports surcharge and a broadcast surcharge, this trend of consumers fleeing to cheaper streaming services is likely to continue.

BET was valued at $2.7 billion when it was acquired by Viacom in 2000 (Now rebranded as Paramount), a hefty $38/sub and more than 21x cash flow. However, it is unlikely to fetch anywhere near that in this environment.

In the 2000’s, cable networks typically changed hands in the range of 14-20x cash flow, or Earnings Before Interest, Depreciation, Taxes and Amortization (EBITDA). Up until 2017, they continued to trade in the low to middle double digits. Since then, double digit deals have been rare (a notable exception being Walt DisneyDIS
Company’s $36 billion acquisition of the 21^st Century Fox cable networks at more than 15x cash flow in 2019).

However, since then, transactions have been typically sold at single-digit multiples, with the largest recent transaction being the Discovery Communications acquisition of WarnerMedia (announced in 2021) where the domestic cable networks were valued at $45 billion, or 9.5x cash flow.

It’s unclear whether Tyler Perry or Byron Allen would go anywhere near this multiple for BET and VH1 given their lack of growth prospects. Still, both channels have come a long way. BET was formed in 1980 by Bob and Sheila Johnson with the backing of media mogul John Malone, and became the first cable network specifically targeting the African American demographic. By 1990 it had reached over 27 million subscribers and by 2000 was in 61 million homes. It peaked at 91.3 million subscribers in 2012, and from then on it was all downhill—it ended 2022 with 63.4 million subscribers, according to S&P Global Market Intelligence.

Cash flow, peaked in 2013 when the company generated $589 million in revenue and $319 million in cash flow, a whopping 54.2% cash flow margin. By 2022, revenue had been diminished to $433 million and cash flow was less than $200 million with a 43.6% margin (also attributable to S&P Global).

As part of the proposed transaction, Tyler Perry would receive a majority stake in BET Media Group, which includes other channels like VH1 and a number of smaller BET networks (BET Gospel, BET Her, BET Hip-Hop, BET James and BET Soul), as well as BET Studios, which Kenya Baris, Rashida Jones and Aaron Rahsaan Thomas have a minority stake in.

It’s likely that BET and VH1 would be run separately as there does not seem to be a natural fit between their programming line-ups. VH1 (Video Hits 1) was launched in 1985 by Warner Communications, at the time the owner of MTV.

It did not break-even until 1992, but by 2000 it had become a powerhouse with 71.7 million subscribers, $323 million in revenue, and $120 million cash flow, according to S&P Global Market Intelligence. Cash flow peaked at $223 million in 2017 when it had 87.6 million subscribers (down from its peak of 98.3 million in 2011). By 2022, subscribers were down to less than 70 million, and cash flow had declined to $170 million (also attributed to S&P Global).

Perry would seem to have the upper hand in the sales process given his long history with BETk. BET. BET partially funded his first feature film, “Diary of a Mad Black Woman” in 2005. In addition, he signed a long-term film deal with Paramount in 2017 and a TV deal in 2020.

However, with billionaire Byron Allen publicly stating he will bid on the channel, it will clearly drive up the price of the group of cable networks, and there have been few buyers in this sector recently. Allen Media Group owns the Weather Channel, Black News Channel, a number of digital cable networks and a large portfolio of TV stations.