Are Independents’ Days Over?

The prospects for start-up digital networks are looking grimmer than ever, and many of them are blaming Comcast for their predicament. That’s because the MSO is pitching start-ups on its VOD "mall" called Select on Demand. Is a virtual channel that resides on a server a substitute for a stand-alone network? By Shirley Brady The message on the Ice Channel’s website says it all. "As we begin the new year, financing prospects for the channel now appear to be bleak," reads the Jan. 3 message from the start-up network’s president and CEO, Michael Rosenberg. His plans to launch the skating-oriented service Ice Channel are now on ice. "We are not completely giving up," Rosenberg continues. "We are simply acknowledging that the time for a new, stand-alone channel which provides 24-hour/day figure skating coverage, is not now." The Ice Channel isn’t the only would-be digital cable network to have called it quits in the past year. The trouble is that this year may be even harder for those hopefuls. "The landscape is intensely difficult right now," says Cathy Rasenberger, a consultant to many start-up networks. "There are still networks getting launched, but in fewer and fewer categories." Those categories include ethnic, sports, interactive games and gay-themed channels, she says. As a result, some of Rasenberger’s clients are revisiting their strategies. "Anime’s retrenching," she says of the Anime Network, a breakout hit on Comcast’s video-on-demand platform that’s still chasing a linear launch. Pridevision, a Canadian service targeting the gay community, changed owners (and its mind about the U.S. market). Better Life Television, a motivational start-up that’s doing well on AOL Broadband and on hotel SVOD, is rethinking its plans. "Their cable network strategy has been put on the back burner because it’s just too hard to get distribution right now," she says. "You need an equity partner these days among the distributors, and there aren’t that many guys that will take an equity interest." It’s not all doom and gloom. A few of the start-ups on our 2004 list of diginets seeking launches have been busy getting launch commitments and signing deals. Blackbelt TV has 12 deals in hand (with three more almost done), and is getting ready for a simultaneous cross-country launch as early as this summer. Also doing well on the linear distribution front in the past year are services such as Gospel Music Channel, BlueHighways TV and Bridges TV (a channel for Muslim Americans). On the VOD side, BOD VOD (a Bollywood movie programmer that Time Warner Cable and Comcast have launched) and Eurocinema (whose foreign films are now available to Charter, Insight and RCN customers) have seen action in the past year. Going the On-Demand Route Failed and struggling diginets place much of the blame for their troubles on Comcast, which has sharpened its focus on on-demand programming. (Programming executives contacted for this story spoke about Comcast on condition of anonymity.) Last year’s password for getting carriage on its systems was "VOD." This year, it’s not being whispered and it’s certainly no secret. Shortly after CableWORLD‘s 2004 look at digital start-ups ("Attention New Nets!" June 21, 2004) was published, the operator hired former Mag Rack head Matt Strauss, a VOD veteran, as VP of VOD programming investments. His charge: to nurture Comcast CEO Brian Roberts’ favored child—VOD—and run with a wish list of proprietary VOD concepts from then-EVP of programming investments Amy Banse, who now oversees content development. Strauss was given carte blanche, if not unlimited funds, to create a new business for Comcast, while cutting down its reliance on outside programmers for on-demand content. That has led to Select on Demand—a virtual shopping mall of VOD content. A year into the job, Strauss launched 16 VOD "channels," ranging from Dating on Demand, a virtual video matchmaker, to more utilitarian content that lends itself to on-demand’s pause/fast-forward/rewind anytime availability, such as exercise, home repairs and step-by-step recipes. VOD’s Go-To Guy In his role, Strauss has become the face of Comcast’s aggressive VOD strategy. Start-ups have to go through him, especially if their programming strategy doesn’t fit into Comcast’s criteria for a linear launch. "[One] big challenge for a start-up is that not very many have a big library yet of programming," Strauss says. "What I’ve tried to do, if you follow this notion of branded destinations, is to create places on demand where these new start-ups could live." He points to the example of Wheels and Wings, a Mag Rack-like category that offers some programming from a start-up network, Wheels TV. He’s optimistic that more start-up digital networks will embrace what’s he’s doing, and not fear that their ideas will be replicated with the acquisition of off-the-shelf evergreen video. Strauss dismisses concerns that participation in Select on Demand is a dead end. With the advent of all-digital and cross-platform availability of content, Comcast’s own linear video business is evolving. "There’s nothing that ever really precludes an on-demand service from evolving into a linear channel," he says. "If you look at the bigger picture, at some point it’s all just going to merge anyway." Open Minds on VOD? One of Strauss’ first virtual channel launches, Anime Selects, gave start-ups cause for worry: The channel mimics what the Anime Network already was delivering on VOD to Comcast’s digital subscribers. "If you go into Comcast with your channel, you’ve got to be really careful that chances are, quite probably, they’re going to turn around after your meeting and do you on VOD themselves," says one digital network adviser (not Rasenberger), who declined to be named for fear of repercussions. "It’s tough because start-ups insist you take them into Comcast first. For these small guys, a piece of paper from Comcast is something they can take to a bank and go get funding." Strauss defends the Anime Selects launch. "Our objective is not to shut people out of the opportunity, but actually to empower programmers to take advantage of this crossroad in time and give them the best chance of success." Programmers that stand the best chance of getting their own branded destination are those who embrace VOD first, he says. "The economics of launching and creating a linear channel today are more challenged than at any other time," he says. "For a significantly lower investment you have this opportunity today to reach millions of digital subscribers on a platform that’s [growing]." His biggest challenge in launching the Select on Demand virtual channels has been finding start-up programmers with an open mind about VOD. "My challenge initially was finding programmers who were really focused in developing for on demand," he says. "Historically, most programmers had been focusing on linear distribution. And we’re now starting to see more programmers really recognize the huge opportunity with on demand, and that really is the future. The risk and the exposure on both sides is significantly lower." Diginet Props Last month, Select on Demand launched its first branded start-up—an on-demand-only channel called Alpha Mom TV, which appears pleased with its Comcast relationship. "We reached out to Comcast and they’ve been extremely receptive and responsive," says Alpha Mom co-founder Vicky Germaise. "As we get to know one another better, we’ll be cooking up some interesting things in all of their local markets, and they seem very open to that." Another enthusiastic on-demand-only network is Concert, which was one of the first independent brands to launch on Comcast VOD nearly two years ago. "Comcast has seen an opportunity to aggregate and license content to promote their on-demand platform, which makes sense," says Concert president Michael Shimbo. Strauss knows the cable industry is watching closely as Comcast launches its unique on-demand channels. He plans to monitor usage data and consumer feedback to figure out which programming is popular. And he pledges to work with diginets to develop the platform. "We’re not necessarily looking to do it all ourselves," he says. "We’re looking to partner with other creative producers and packagers of programming to give them the opportunity to create some interesting and unique programming for this new platform." Comcast’s Select on Demand idea has intrigued other operators—not all of whom can boast such a massive corporate commitment to VOD. Strauss is looking for ways to add Select on Demand’s content to other MSOs’ on-demand platforms. A lot of these early categories aren’t carved in stone, but are ways of testing what kinds of original content viewers are eager to access on VOD, he says. One early category, on etiquette and manners, for example, no longer is available, while more recognizable brand names (Charlie Rose, This Old House, Body by Jake) are being added to its lineup. "A lot of our enthusiasm about on demand, and about programming for on demand, isn’t so much that there’s bandwidth constraints on launching more linear channels," says Strauss. "It’s because we actually know and believe that on demand’s a better viewing experience and platform for new forms of content." Start-Ups Starting Over The Ice Channel isn’t alone in its travails. Other networks that have pulled up stakes in the past year include Hype TV, a start-up from former Family Channel president Tracy Lawrence that struck a program distribution deal with Playboy; Gold Buckle Media, a Western-themed channel shooting rodeos and the like in high definition; and SCTV: Standup Comedy Television, a Chicago-based outfit that was sued by local improv comedy powerhouse Second City, which owns the rights to the SCTV series and name. Others are retrenching, exploring other revenue streams and new distribution outlets and business models. That list includes Reality 24-7, the start-up headed by former E! executive Larry Namer and Kay Koplovitz that was bulldozed by the May 31 launch of Fox Reality Channel. Its staff dismissed and its ship abandoned, Namer says he and Koplovitz are developing a new concept. With at least four horror networks vying to launch, the Horror Channel’s Brian Nurenberg stepped down this spring as president and COO while Gerry Granofsky resigned as its CFO, leaving the start-up to its founder, Nick Psaltos, and his executive team. The Destiny Channel has also decamped to its homeland, Israel, to re-strategize. Others have rebranded—as Reality 24-7 itself was forced to last year, after Comedy Central sicced its lawyers on its previous moniker, Reality Central. The X Channel was forced to come up with a new name (Epic Sports Channel) after Disney’s lawyers brandished ESPN’s X Games franchise and claims of legal infringement. Scream Channel, started by Psaltos’ former business partner Kim Bangash, received letters from Dimension Films attorneys snarling about Wes Craven’s Scream films, and is now called HorrorNet. A different horror channel, ScreamTV, has also rebranded to FangoriaTV following its founder Tom DeFeo’s purchase of Fangoria magazine. —S.B. Start-Ups & Comcast We asked executives at start-up networks to comment on their positions vis-�-vis Comcast and, unsurprisingly, they chose to speak anonymously. We presented these comments to Comcast, which responded swiftly. Diginet Gripe: Comcast gets programming for free, uses it as a test pad and sees what categories work. If a category performs, Comcast will launch their own. So the more successful you are, the more likely you’ll be incubating a competitor that’s backed by the distributor. Comcast’s Response: Comcast needs to work with other programmers and content aggregators on Select on Demand, says Comcast VP, VOD investments, Matt Strauss. While Comcast offers an anime category, the Anime Network is also available on Comcast On Demand. Diginet Gripe: Comcast unfairly favors its own networks. In L.A., for example, Comcast moved Comcast-owned networks Style, TV One, Outdoor Life, AZN and G4 from digital to expanded basic in advance of the market’s pending system swap with Time Warner Cable. Comcast’s Response: Channel moves from digital to expanded basic occurred earlier this year and included several non-Comcast owned networks: DIY, Fine Living, TNT HD, Tennis Channel, EWTN, Travel Channel and several Spanish-language networks. Decisions were based on L.A.’s demographics. Diginet Gripe: Comcast offered potential sales from DVDs as compensation for providing free programming. Comcast’s Response: DVDs are not part of every deal. Some programmers are asking Strauss to make their content available on DVD as an ancillary revenue stream. Comcast is preparing a beta version of its DVD store, which will be on selectondemand.com in late July. "It evolved primarily from inquiries we received from viewers," a Comcast spokesperson says. —S.B.