as the pages turns.

Black magazine owners shake up the industry with the next chapter of business

TO JUXTAPOSE AN EARLY COVER OF ESSENCE MAGAZINE WITH AN EARLY COVER OF HONEY magazine is to see a glaring sign that times have changed. In one hand, you'd see an afro-ed beauty with fake eyelashes, and in the other, you'd see the belly of a pregnant African American blonde. Just as different as these images are from 30 years ago to the present, are the business practices of black publishers.

The publisher of the leading black women's magazine for 30 years, Essence Communications Inc. (ECI) (No. 22 on the BE INDUSTRIAL/SERVICE 100 list, with $123.4 million in sales for 1999), shattered the glass ceiling for black magazine publishers when it confirmed a deal to join with the nation's largest publisher, Time Inc., a subsidiary of Time Warner Inc., that publishes, among other magazines, Time, People, and Sports Illustrated. While this was a move that startled some black consumers, it also served to legitimize their existence in the mainstream business community.

Once Ed Lewis, CEO and chairman of ECI, got past the whispers of "sellout," he was able to bask in a deal that not only catapulted his empire into the big leagues, but also made him proud. "People are saying things like we've been acquired and I sold out," said Lewis in an interview the day the partnership became public. "But Time's decision to partner with us validates our worth and our market, and that's one thing that makes me feel good because we never thought marketers valued black women."

Just as notable a milestone is the deal struck between two African American concerns that are positioning their franchises to take advantage of their own burgeoning market. On the adjacent shelf, next to the ECI deal with the largest majority-owned publisher, is newcomer Vanguarde Media Inc.'s deal with BET Holdings II Inc., (No. 6 on the BE INDUSTRIAL/SERVICE list) one of the largest black-owned media conglomerates with $225 million in revenue for 1999. Vanguarde publishes Honey, a fashion and entertainment magazine aimed at young urban women, with an estimated circulation of 200,000, and Impact, an urban music trade publication.

Prior to forming Vanguarde, CEO and Chairman Keith Clinkscales had made a pretty reputable name for himself in the media industry. As president, CEO, and co-owner of Vibe/Spin Ventures, a former joint venture between Quincy Jones and Time Warner, Clinkscales grew the circulation of Vibe magazine from 100,000 to 700,000 in less than seven years. Ever since Clinkscales resigned in May 1999 to start Vanguarde, industry players have been waiting for him to change the publishing climate. So, it only follows suit that he would be at the forefront of this new order of business for publishers.

"The rules of publishing for African Americans have changed, and the new top three roles are partners, partners, and partners. That's the thread that runs from the Essence alliance with Time Warner and Vanguarde's relationship with BET," says Ken Smikle, president of Chicago-based Target Market News, a marketing research firm that tracks the trends of black consumers. "Whether black publishers are seeking ways to grow an established franchise or establish a new title, it's going to take the resources of partners with deep pockets, media savvy, and existing channels of distribution in order to market the magazine."

THE ESSENCE OF THE DEAL

"Deep pockets" and "existing channels of distribution" are key for the growth of Essence, the circulation of which has been standing at I million for the past five years. Until now, unlike its white counterpart, Vogue, it has struggled to attract major advertising dollars. Vogue's circulation is 1.1 million, which is only slightly greater than that of Essence, but Vogue sold 3,167 advertising pages compared with the 1,167 pages sold by Essence in 1999. This disparity is in part due to the lower household income of Essence's readers ($34,936 in 1999) compared with Vogue's ($47,576 in 1999), and some speculate that Essence is simply at its saturation point.

"Joint ventures are really the next step for African American companies to move to the level of commerce that permits a company of 100 to multiply in size by 10%, 20%, or 30%," said ECI President Clarence O. Smith.

The families under Time Warner offer ECI capital and resources to expand the Essence brand through the Internet, film, music, and new related businesses, including magazine launches and acquisitions.

Lewis said talks of forming a relationship with Time Inc. began last October when ECI was seeking ownership of Spin, Blaze and Vibe, which were put up for sale by new owner Miller Publishing for an estimated $200 million. Lewis said once he found Time was also interested in purchasing these titles, his first thought was "everyone else will have to move over." But fortunate for the future of ECI, Lewis had another "think" coming.

"Then I thought if Time's interested, and we're interested, then let's work together," said Lewis. All of this pondering ultimately led to Time Inc. gaining a 49% stake in ECI's brands, including Essence magazine, Essence Entertainment, Essence Travel and Essence By Mail. Latina magazine, which was just launched four years ago, will remain the sole property of ECI. ECI and its shareholders retain a controlling interest in the venture, which therefore still qualifies as a BE 100s company.

Don Logan, CEO and chairman at Time Inc., said he and the management at ECI are forming committees to outline the best products to create and promote under this new venture.

With the digital divide closing and the drastic increase in the amount of money spent by African Americans on Internet access, it's very likely Time Warner will promote the Essence brand to its Internet customers. "Time is positioning itself to bring segmentation to virtually all of its media properties, but especially those that fall under the AOL side of the business. The Essence name and expertise will help them to do that," says Smikle.

Time Inc. agrees. "I don't know what's best to develop for the African American market. That's why we're forming a partnership with someone who is a major player in that community," says Logan. "Our first mission is to expand and grow into the African American marketplace. The opportunity to grow and go global will depend on our partners providing the information and making that decision."

Time Warner is no stranger to the African American media industry. Aside from its investment in Vibe/Spin Ventures, which launched Spin, Blaze and the Vibe magazine and television talk show, Time Warner had a 15% stake in BET until 1995.

AH! VANGUARDE

Coming off the ropes swinging, Vanguarde proved it wasn't going the long route. There would be no 30-year anniversary before Vanguarde made its first $100 million. As part of the alliance formed in February between BET, Vanguarde, and Provender Capital L.L.C., a private equity fund based in New York, BET and Provender are to front the capital for the magazine conglomerate and Vanguarde's team is to manage the magazine products. Initially, there were five publications: BET's Heart and Soul, Emerge, and BET Weekend, as well as Vanguarde's original titles, Honey and Impact.

At first glance, this deal seemed to prime Vanguarde as a major contender in the industry. The combined entities aimed to reach a circulation of 2.2 million, which would make one-year-old Vanguarde the second-largest publishing giant after 58-year-old Johnson Publishing Co. in Chicago (No. 3 on the BE INDUSTRY/SERVICE 100 list with $386.8 million in sales for 1999). Ebony and Jet magazines, published by Johnson Publishing, have a combined circulation of 2.7 million.

But soon after signing the deal with BET, Clinkscales began making some major changes. As a result, the circulation of the five-magazine-deal dropped from 2 million to about 600,000.

These moves have left some industry insiders leery of Clinkscales' leadership and vision, but the BET team is still very confident that the Harvard Business School graduate knows his stuff.

"Keith decided to suspend BET Weekend until he finds out about the staff the economics, and what makes the best combination of magazines," says Debra Lee, president and COO of BET Holdings II. "It's just part of the whole new deal to take the magazines forward."

With its suspension, BET Weekend appeared to be the second of BET's three titles that Clinkscales closed, but he sets the record straight here. "I only closed one publication, and that publication was BET Weekend," says Clinkscales about the magazine that accounted for 1.8 million of BET magazine readers. "We put Emerge on hiatus to re-launch it as Savoy."

Within months of inking the deal with BET, Clinkscales decided Emerge magazine, which had plummeted from a circulation of as high as 300,000 in the past to a low of 165,000 this year, would serve better as a lifestyles publication with a broader editorial focus. George Curry, Emerge's editor in chief, resigned in objection to the change.

Curry, who had been the magazine's editor since 1993, is presently consulting investors about plans to either buy the Emerge name or start a similar news magazine before the end of the year.

According to Vanguarde Editorial Director Roy Johnson, decreased circulation and stagnant advertising from Emerge prompted the business decision. "The magazine began losing substantial amounts of money and netted no profit on the business end earlier this year," said Johnson.

Partnering with BET and closing Emerge also makes room for Vanguarde to launch Savoy, a brainchild Johnson created in 1996 when he was a senior editor at Money magazine, also a subsidiary of Time Inc.

"If Keith and Roy are able to do what was planned in the past for Savoy, they will fill a unique niche that no one else currently fills," says Smikle. "There's not a [lifestyles] publication that addresses black people who have an affluent lifestyle, and the reason that is important to have is because it will validate that such a thing exists in the minds of corporate America."

Aside from Savoy, the former Time Inc. duo hopes this partnership with BET will put Vanguarde on the map as one of the key players. "Similar to the way Fox became the fourth network, hopefully we can become the fifth network," says Clinkscales. "BLACK ENTERPRISE, Essence, Ebony and BET are the big four."

BET's value and 60 million cable viewers provide Vanguarde with an outlet that Clinkscales says will allow his company "to grow to a good size pretty quickly." But more important, BET exposes Vanguarde publications to additional forms of media, such as television and the Internet, which are key in this era.

"Small publishers in the African American publishing industry and across the board can't exist anymore," said Samir Husni, author of the Guide to New Consumer Magazines and the head of the University of Mississippi's magazine service journalism program. "Magazines are becoming part of a continuing medium--online, television, and print--and Essence and Vanguarde aren't going to just sit back and watch this go on."

PARTNER POWER

The combination of Vanguarde and BET gives BET the expertise it needs to develop quality publications that will entice the younger urban audience. Granted BET only had $225 million in revenue for 1999 compared with the $4.7 billion of Time Inc., but the young black woman with the blonde hair on the cover of Honey offers a lot of potential for advertising revenue. "Advertisers always lean toward the 18-to-24 age group because their habits are less rigid and can still be influenced," says Smikle.

To view today that woman who graced the first cover of Essence is to view a time of yesteryear when the first order of business for black people was to receive equal treatment and be viewed as a force to be reckoned with in mainstream society. Well, today, that woman's descendants are achieving those goals.

Once ECI joins Time, the opportunity for an Essence television show on HBO is possible, an Internet channel on AOL is possible, the launch of a world music label, which insiders say the principals at ECI have been eyeing for some time, also becomes a possibility.

As separate entities, BET and ECI are powerhouses. Thirty years ago, there was nothing like ECI, and today it still maintains its place in society. Likewise, 20 years ago, there was nothing like BET, and today it is still the only black-owned multimedia conglomerate. However, as each becomes stronger, the lines of separation become thinner, and competition increases.

"There are plenty of magazines to fight, so I don't want to fight Essence," says Clinkscales. "Now ask me do I want to compete, and the answer is yes."

With the cable and Internet resources at BET, Vanguarde can very well escalate its magazine brands into the necessary media outlets to vie with Essence. BET already has a cable program for its Heart and Soul magazine and more are sure to follow. "[Clinkscales] is looking at ways the network can do more with the magazines. That's part of why he wanted to work with us," says Lee.

A head-on competition between Vanguarde and ECI is not immediately in the cards, and it's expected that the two companies will do more to complement each other, at least initially.

"Essence and Honey are not competitors, but the success of one can help the success of the other," says Smilde. "Essence has too much of a head start to even think of Honey as a competitor. They have a $100 million and a 30-year head start. However, you can build successful businesses with smaller segments, and that's essentially what [Vanguarde] hopes to do with Honey."

Competition will inevitably continue to grow between black publications, especially since black business people are leaning toward partnerships more these days than ever before. "The ability to compete and develop media properties requires enormous resources that are best gained through joint ventures and partnerships," said Smith. "The major ways of raising capital are either through financial lenders, who take your shirt and want an immediate payback, or the public market, which leaves you with no control over who owns your company anyway."

Likewise, Lee says, "Joint ventures aren't anything new. BET and the Daily News was a 50-50 joint venture when BET started." She continues, "Essence is at 30 years and they found it was the best thing to do. Sometimes it just makes sense to bring on new partners for either money or expertise."

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--Additional reporting by Duane A. Bourne