Vanguarde media files for bankruptcy; Savoy, Heart & Soul, and Honey fold due to lack of capital, flawed business strategy.

The clock ran out for high profile Vanguarde Media Inc., publisher of Savoy, Heart & Soul, and Honey. Principals were unable to make a last-ditch effort to raise capital for the cash-starved company and successfully pursue a viable publishing model.

A total of seven black magazines have been consumed by the birth and death of Vanguarde. Honey, repositioned as a fashion and entertainment magazine for urban women, was the company's first acquisition. Vanguarde later bought and subsequently closed a music trade magazine called Impact! Following the $3 billion sale of BET to Viacom, Vanguarde launched Savoy, a general interest lifestyle magazine (Savoy Professional, its spin-off, arose in January 2003). Savoy supplanted incumbents Emerge and BET Weekend, which Vanguarde shut down.

Savoy, Heart & Soul, and Honey circulated their December-January issues as their final output, ending the employment of approximately 70 staff members two days before the Thanksgiving holiday. Vanguarde's decision to cease publication of the magazines and liquidate the assets of the company came after majority shareholder Provender Capital Group, a New York-based private equity firm, voted to file Chapter 11 bankruptcy. Vanguarde's other primary financial partner was BET founder Robert L. Johnson. The company's plan for growth required additional financing in 2003. Vanguarde simply ran out of money to meet its obligations.

According to a statement from Provender: "The environment for raising capital for a young company remained difficult this year and the sources of capital limited. As such, it was the fiduciary duty of the company's board to support a decision to file for bankruptcy protection." The statement continued, "Vanguarde was building its business in a magazine industry that has struggled with dramatically lower advertising revenue due to the downturn in the economy."

Vanguarde was considered the most highly capitalized black company in U.S. history, gaining roughly $60 million over four years. It has been widely reported that Provender invested in excess of $40 million in multiple rounds of financing, and that Robert Johnson kicked in $19 million after the sale of his publications.

Vanguarde Chairman and CEO Keith 2: Clinkscales, who left his post as president, CEO, and co-owner of Vibe to launch the company in 1999, concedes he was not the majority shareholder and would have opted for other alternatives rather than file bankruptcy. However, he gave his investors credit for backing the publications for as long as they did.

Clinkscales says that the company had 70% of the funds it needed. "As we got closer to our deadline, we just couldn't close the gap." Even though the business continued to grow, "it could not get to a point of profitability as quickly as it needed to attract additional capital." be adds.

According to an industry insider, Vanguarde needed another $5 million to $7 million to reach profitability. In 2002, the company posted a loss of between $3 million and $6 million on revenues slightly under $25 million, reports Advertising Age. Publishers Information Bureau data shows that from January through October of 2003, advertising pages for Savoy, Heart & Soul and Honey collectively rose by 67%. At just over 400,000, Honey's circulation was the largest. Together, the magazines reached nearly one million readers. Even in a growing economy, it takes five to seven years before a magazine breaks even or turns a profit.

"The news was disappointing," says Roy S. Johnson, assistant managing editor at Sports Illustrated as well as former editorial director at Vanguarde and editor-in-chief of Savoy. "It's a testament to everyone involved that they made it this tar," says Johnson. He was editor-at large at Fortune, but left to join Vanguarde and help create Savoy in 2000.

Lack of sustained funding may have been only part of Vanguarde's difficulties. Mounting expenses, a flawed newsstand strategy, and problems with operations also contributed to its demise, For example, Clinkscales admitted that he overpaid for the company's Park Avenue office space. Sources say that the company's poor negotiations with its landlord cost the company close to $1 million a year and that Vanguarde was unable to break its 10-year lease. And insiders say the company spent millions to gain premium positioning on newsstands nationwide. Another area in which Vanguarde miscalculated: The company's defunct Web arm, NeoMedia, spent millions of dollars trying to develop a number of Websites such as www.SideHustle.com, an entertainment industry job board.

For nine months, Vanguarde had been proposing a merger with Chicago based BlackVoices.com, which is owned by Tribune Co. According to Target Market News, this would have created projected annual revenues of $50 million. However, a source revealed that the deal fell through because of a disagreement among investors on how the stock would be distributed.

When asked why the board did not seek other options such as selling all three publications, or scaling back operations and continuing to run its most viable publication while closing down the other two, Provender managing part her and CEO, Fred Terrell, declined to comment Clinkscales says up until the last minute all efforts had been exhausted for raising the capital.

Chapter 11 bankruptcy filing will allow Vanguarde to retain certain assets while selling others. It will also allow the corporation to put a restructuring plan in place. The great irony here, says one insider, is that there seems to be a great deal of interest in the company all of a sudden. Several parties--including Clinkscales and other key people from Vanguarde--are interested in buying the magazines out of liquidation and giving them a new life in publishing.

Carolyn M. Brown

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