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© 2005 UMFK.

BET.com

internet business models

text and cases

Donatas Sumyla

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© 2005 UMFK.

Overview of the Company

• BET (not BET.com) was founded in 1979 by Robert Johnson; he saw an opportunity to provide cable programming to the underserved African-American market.

• Johnson borrowed the business plan for a cable network targeting elderly viewers, then substituted the word “black” to “elderly” and presented the plan to John Malone, CEO of TCI, the largest U.S. cable system operator. Received $500,000 to launch BET.

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Overview of the Company

• One year later BET was airing music videos, black college sports, public affairs programming, etc.

• BET’s business model was simple and its programming was inexpensive: music videos were provided free of charge by record labels hoping to obtain exposure for their artists; black college sports broadcasting rights were not costly.

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Overview of the Company

• In 1991, BET went public, becoming the first black-owned and controlled company on the New York Stock Exchange.

• The same year the company began diversification:– Acquisition of Emerge (magazine focused on public

affairs of concern to African-Americans);– The in-house launch of YSB (Young Sisters and

Brothers), a lifestyle magazine, and United Image Entertainment, which produced movies by black film-makers;

– Creation of BET Direct, a direct marketer of cosmetics, apparel, and other products targeted to African-Americans.

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Overview of the Company

• In the mid-1990s, BET was available to nearly all African-American cable subscribers, and the BET brand was recognized by over 95% of black Americans according to company research.

• Company continued its diversification:– BET Jazz;– BET International;– Joint ventures to increase its production of movies for home video,

cable and pay-per-view markets;– Music-themed restaurant chain;– BET Soundstage Club at Disney World;– Skin care products line;– Credit card (with Chevy Chase Bank).

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Overview of the Company

• As BET accelerated its diversification, the company’s stock fell. Why?– Investments were well outside of its core competencies;– Many institutional investors wanted huge profits paid out as

dividends;– Fear that BET was stretching its brand too far.

• Surprise move:– Johnson and equity partner Liberty Media repurchased the 6

million shares of BET Holdings, the parent company of BET cable network, that they didn’t own for $63 per share;

– BET Holdings again became a private corporation owned 64% by Johnson himself, 34% by Liberty and 2% by Debra Lee, president and chief operating officer of BET Holdings.

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BET.com

• Projected launch date was February 2000;• A portal targeting African-American consumers;• Some problems before the launch:

– Site’s strategic direction (African-American only or together with “urban market”);

– Provide or not some additional products and services to their target market including BET branded internet access;

– Movement of several online competitors.

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African-Americans on the Web

• The market conditions were good for a portal targeting African-Americans;

• Forrester Research reported 3.8 million African-American households to be online and represented only 23%;

• Other studies as many as 6.6 million;• Forrester estimated that by year 2000, online

usage within the black community would grow to over 40% of households;

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African-Americans on the Web

• Some drawbacks:– High PC prices;

– Lack of perceived relevance of Internet content;

• “Four Cs” of a traditional portal were well suited to an African-American portal:– Content;

– Communications;

– Community;

– Commerce;

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BET.com’s Goals & Strategies

Deciding on the target market was difficult because BET’s brand had become increasingly attractive to mainstream America and to what had come to be called the “urban” audience.

• BET’s goal was to serve both the African-American market and the urban music market (but not urban market);

• Primary objective was to establish BET as the leading African-American portal;

• Secondary objective was to be the leading online urban music destination;

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Competitive advantage

• 2/3 of the programming on BET’s cable network featured music videos. This fact, already existing relationships with record labels and BET’s ability to provide national promotion and exposure to new artists, gave BET.com a competitive advantage relative to other African-American and urban-orientated sites. Plus, it was very attractive to new artists because of the exposure BET offered across TV and the Internet.

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Competitors

• NetNoir.com (www.netnoir.com)

• Blackvoices.com (www.blackvoices.com) Blackfamilies.com (www.blackfamilies.com)

• Time Warner’s Volume.com (www.volume.com)

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Competitors

NetNoir.com• Founded in 1995 as the first website targeting content for

African-Americans. • Offered a mix of entertainment-related news and

information relevant to African-American consumers.• In 1995 AOL became 20% stakeholder.• After $14 million additional capital infusion from various

venture investors it was relaunched in late 1999.• The site offered personalization, email, an online store,

and chat functions through a variety of branded “microcommunities”.

• Latest update – the site doesn’t exist anymore. I found www.netnoir.net, which only has directories to other sites.

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Competitors

Blackvoices.com• Launched in 1997 by the Tribune Company,

owner of the Chicago Tribune newspaper and other holdings in television and radio broadcasting, publishing, and education.

• “African-American community” that attempted to bring together job seekers and employers. Also offered news and entertainment as well as e-commerce opportunities in the form of auctions and online affiliate programs.

• Latest update – has become blackvoices.aol.com.

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Competitors

Blackfamilies.com• Was created through a partnership between Cox

Enterprise, Inc. and Equitable Life Assurance Society. • The site was launched in January 1999 targeting for

African-American adults who wanted family-oriented content, services, and resources.

• The site provided information about family finance, relationships, and parenting as well as opportunities to chat with other visitors and links.

• Latest update – the site doesn’t exist and you are brought to Cox Enterprise, Inc. homepage.

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Competitors

Time Warner’s Volume.com• Only rumors about Time Warner, the world’s largest

media company, creating a portal targeting the African-American and urban markets.

• They had significant resources and content relevant to African-Americans:– Owned WB (TV station);– Owned HBO (provided original programming, sporting events,

and comedy shows featuring A-As;– Rumors said the site would have $16 million startup budget;– Wanted to incorporate content from other Time Warner properties

like Warner Music Group, Sports Illustrated, CNN, etc.• Latest update- the site is still under construction.

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BET.com Content

• The services and products of a mainstream portal like Yahoo!:– Email, personal web pages, chat, search, etc.

• General interest information:– News, entertainment (incl. music), personals, event listings, job

boards, etc.• Specific features that would appeal to African-American

consumers:– Channels with in-depth information on fitness and health, personal

finance, lifestyles, food/recipes, etc.• Vice President of Content, Retha Hill, believed that the

site’s content would be one of its competitive advantages.• Majority of BET.com’s content would be produced by the

BET.com content staff and sourced from third parties.

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Community and Commerce

• Community offerings included personalized web pages, chat and a free and paid personals database.

• Communities were expected to spur commerce, however BET.com launch was expected without an online mall. E-Commerce was expected to be added to the site by the summer of 2000, in time for back-to-school rush.

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Community and Commerce

• Product categories would include:– Urban apparel (activewear, outerwear, sportswear, footwear);– Books by African-American authors;– Music;– Beauty supplies;– Financial services;– Arts and gifts;– Travel;

• All these products were:– culturally distinct;– had high demand; – were well suited for online retailing;– and were consistent with BET’s brand image.

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Community and Commerce

• Key issue: weather BET should be the direct seller of the goods offered for sale on the site, versus an affiliate providing links to other online retailers.

• Products such as flowers, travel, online brokerage would have high infrastructure costs. Products such as books, music, and gifts could be sourced from distributors or manufacturers.

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Marketing

• Planned an aggressive marketing campaign to drive traffic and establish market dominance.

• $8 to $9 million campaign would be one of the largest ever for any African-American product or service.

• Marketing strategy involved promoting BET.com across all BET media (print and cable), integrating site marketing and promotion into BET programming and editorial content, advertising in other African-American and urban-targeted offline media, and advertising online across multiple websites.

• Because majority of African-Americans were not yet online, most of the money would be spent offline.

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Traffic and Headcount

• 1.5 to 2.0 million unique visitors to the site each month by year-end;

• Each of these visitors would make 8-10 page views during a given month;

• 35 people to be hired to develop and support such traffic, raising the total headcount to 60 by year-end 2000.

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Primary Stakeholders

• Strategic partners:– Microsoft;– John Malone’s Liberty Media, a unit of AT&T;– Rupert Murdoch’s Fox Broadcasting;– Barry Diller’s USA Networks;– This group together contributed $35 million

toward the launch of BET.com.

• Institutional employees;

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GBF

• Network effects– Medium. Exist because of these features:

• Email, chat, personals, job boards, etc.

• Economies of scale– ???

• Customer retention rates– Low because most of the content was brought in for

free from labels or from BET archives. Plus all the information was brought in through BET partnerships like USA Networks.

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Success or Failure?

• I think this portal will be successful.• Good strategic direction:

– Focusing on African-Americans;– And urban music market;– Being involved in two markets: getting bigger piece of

a pie in one, and smaller piece of the pie in another;• Enough investments for successful marketing and

putting the brand name;• Staying focused on certain products and services

and doing them right;• Understanding the current flows in the market;

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Questions???