July 25, 2017
45 Great Moments in Black Business – No. 36: Essence Sale Continues Debate Over Black Ownership
Over 45 days, Black Enterprise shares 45 milestone events among the nation’s largest black-owned businesses that have had widespread impact on black economic development and American industry across four decades. This is in tribute to the 45th anniversary of Black Enterprise’s iconic BE 100s yearly list of the largest black-owned companies.
Today we reveal No. 36 in the web series “Great Moments in Black Business.”
2005: Essence Communications Partners sells the remaining 51% of the company that publishes the leading black women’s magazine to Time Inc. brings shock and awe from black consumers.
Essence is back on the block.
The Wall Street Journal reported yesterday that Time Inc. has decided to hawk a majority stake in the media property once boldly regarded as “The Voice for Today’s Black Women,” seeking a “strategic partner with investment capital” while the media company—home to Fortune, Sports Illustrated, and InStyle—seeks to retain minority ownership. In fact, the report further stated that this was Time Inc. “first major move since it decided not to sell itself in April.”
That news report represents the latest chapter in the ongoing saga of one of African Americans’ most treasured black-owned institutions at one time. In fact, the news about the sale of BE 100s companies—from haircare firms to media companies—has always gone viral—even pre-Internet—when it involved one of our most revered companies having fallen into white hands.
Why Essence’s Sale Is a Vital Moment in Black Business History
The sale of Essence may not be considered one of the greatest achievements in black history but the moment represents one of the most vital. It’s central to the debate that continues today: Should African American entrepreneurs retain ownership to build multigenerational black-owned institutions or unlock value in companies by selling them, in many cases, to majority-owned acquirers? Over the years, a number of BE 100 CEOs have wrestled with that question, feeling additional heat from loyal consumers about whether they would be selling out or selling up.
Reviewing Essence’s history may offer some valuable clues.
Launched in 1970, Essence’s mission of celebrating the beauty and brilliance as well as accomplishments and aspirations of African American women resonated with its audience across generations. Essence started as a partnership between four black men—Edward Lewis, Clarence Smith, Cecil Hollingsworth and Jonathan Blount—that would eventually owe much of its decades of brand-building success and business growth to a leadership triumvirate.
Building a Media Powerhouse
That’s why when BE developed its list of Titans: 40 Most Powerful African Americans in Business in 2010, this collective trio was recognized as a single entry: Chairman & CEO Lewis and President Smith, who handled operations, finance, and sales, and Editor-In-Chief Susan Taylor, the face of the publication who guided its uncompromising editorial direction and gave black women a powerful voice. Together, they built Essence Communications Inc. (ECI) into a media powerhouse. In fact, ECI was one of a handful of BE 100s companies that could boast inclusion on the Top 100 for 31 consecutive years after its appearance on the first list in 1973.
In 2000, ECI decided to sell a 49% stake of to Time Inc., a division of Time Warner (it was spun off into a separate entity in 2014), and was renamed Essence Communications Partners. Five years later, in 2005, the company sold the remainder to the media conglomerate. At the time, Lewis said that “Time Inc. has distinguished itself by recognizing the impact of African Americans on a global scale and their influence within the cultural landscape. Thanks to our partnership with Time Inc., Essence Communications is a stronger, more competitive publisher.” (According to Lewis’ autobiography, The Man from Essence, “the combined amount of the two sales totaled nearly $270 million—the highest price-per-page Time Inc. had ever paid for a single-title magazine publishing company.”
Break Up of One of the Greatest Media Partnerships
BE covered ECP’s five-year transition, which included the bitter dissolution of Lewis’ and Smith’s 32-year partnership, one of the longest-running unions in black business.
The final sale was greeted with shock and awe from quarters of the black community. Ken Smikle, president of Chicago-based Target Market News had approved of the deal but explained that the sale hit a raw nerve because it represented the loss of one of “our cultural guideposts” like Motown, BET, and black haircare companies. “These are institutions that we share a common experience with. They are woven into our everyday life,” he asserted. “We feel that we lost something because these institutions and their ownership by extension represent a part of us.”
Decrying Essence as a “Sell Out”
After the sale, a BlackEnterprise.com poll revealed that 34% of respondents felt that ECP had “sold out” vs. 14% who felt the transaction made good business sense. Another 46% of those who replied were concerned with how the new ownership structure would affect the magazine and other events like its popular Essence Music Festival. For instance, Leslie Mays, then-president of the National Coalition of 100 Black Women and an Essence subscriber, found it “extremely disappointing on a personal level” to have discovered that ECP surrendered control and ownership of the publication. “It enables Time to reach an influential market segment—black women—directing our dollars away from reinvestment in our community and businesses and into the deep pockets of another multinational corporation,” she asserted. “I also have a worry that such a deal almost certainly guarantees loss of editorial control and content on subjects of interest and concern to black women as a primary audience.”
Rev. Al Sharpton made the case at the time for creation of a bidding process in which African Americans would gain a shot at retaining black ownership. The civil rights leader had met with Lewis, who said that he sold Essence to Time Inc., in part, “do what Bob Johnson did”—use the proceeds, clout, and connections from his corporate dealings to build other black institutions. But Sharpton countered, asserting there were African Americans within the financial community who could have raised the necessary capital to acquire ECP. He further argued that African American entrepreneurs and financiers should have at least been given the option to make a bid.
Johnson Quells the Controversy
When Thomas J. Burrell, for example, decided to step down from his post as chairman and CEO of his Chicago-based BE advertising firm, Burrell Communications Group, he intentionally crafted a succession plan to sell 51% majority ownership to his top managers even though Publicis Groupe, the French global media, owned a 49% minority stake. A more recent example was BE 100s media company Urban One—formerly Radio One Inc. —buying back media giant Comcast’s stake to gain 100% ownership of cable channel TV One as well as having its digital unit gobble up existing black digital properties to become one of the largest digital outlets for black consumers.
BET founder Robert L. Johnson weighed in during the controversy of ECP’s sale, maintaining that it was part of an evolutionary model of black media—a paradigm shift that includes deep-pocketed corporate partners and, in some cases, acquirers. “The only reason Time Warner would want to buy [Essence] is because of the strength and power of Essence‘s voice that has been built up over 30-plus years,” he said. “It’s just a sheer economic fact of life that over time, as black companies become very valuable for their brand and market penetration, it’s going to be very difficult for African American [potential buyers] to offer the kind of financial transaction that’s going to maximize shareholder value for the seller.”
The Essence sale illustrates the continuing need for companies to continue to scale up through partnerships and, in some cases, divestitures to gain expansion capital and other strategic resources.
Even though the news reports on Time Inc.’s announcement does not provide financial details, the move, however, may open the door for African American entrepreneurs to bring Essence back into the fold of the BE 100s.
Watch Susan Taylor’s interview at Black Enterprise’s Women of Power Summit:
Access the entire digital version of the 2017 May/June issue of BLACK ENTERPRISE featuring our 2017 BE 100s report and subscribe to Black Enterprise Magazine here.