With one network it backed already launched, and another to hit the airwaves early next year, Constellation Ventures LLC is a new programming player.
Constellation was formed in 1998, and raised about $450 million in two rounds of funding. Early investments focused on Internet and computer-networking technologies — like Savvis (a provider of virtual private networks for commercial clients) and Salon Media Group (which produces Web sites like Salon.com).
More recently, the fund has focused on cable programming, making investments in startups College Sports Television (CSTV) and TV One. Bear Stearns Asset Management is a major backer and a limited partner.
Exec Was In Pix
Constellation managing director Dennis Miller wouldn't disclose the fund's stake in the cable networks, but said Constellation owns more than 10% of TV One. A group including Constellation, other equity firms and some pro athletes invested about $25 million in CSTV. (The Coca-Cola Co. later put about $15 million into that channel.)
Miller joined Constellation in 2000, after stints as executive vice president of Lion's Gate Entertainment, executive vice president of Sony Pictures Entertainment, president of Turner Pictures and executive vice president of Turner Network Television.
"For three years, we looked at 50 different cable networks, everything from short films, volleyball channels, martial arts, Spanish language, English language, health and fitness, and Christian channels," Miller said. "We settled on two."
The College Sports deal arose from personal ties. Miller had practiced law with CSTV chairman Stephen Greenberg, and had worked at Turner when Greenberg and CSTV president and CEO Brian Bedol launched Classic Sports Network in 1995 (they later sold the network, now ESPN Classic, to ESPN).
Miller said that CSTV fit all of Constellation Ventures' investment criteria: It was in a solid market, had an experienced management team and had a plausible exit strategy.
"They had identified an area with huge advertising dollars, the management team had done this before and they had a set of rights in place — revenue shares with most of the major rights organizations," Miller said.
He also said CSTV came on the scene at the right time, as cable operators are battling larger sports channels like ESPN and Fox Sports Net over high costs, and want lower-cost alternatives.
CSTV also could envision a way to sell out and recoup its investments. Several programmers and operators are expected to want to increase their sports holdings in the not too distant future. Potential buyers could include Comcast Corp., Viacom Inc. and even ESPN or Fox.
"Our concern was, will these sports ever matter?" Miller said. "But look at the success of the Golf Channel. They have no significant marquee events. They're a barker channel for everything golf."
Constellation also likes the potential of venture investment TV One Inc. A new network targeted at African-Americans ages 25 to 54, TV One's principal competition is Viacom Inc.'s younger-skewing Black Entertainment Television.
Unlike CSTV, now available in about 15 million homes, TV One has no carriage deals with MSOs or satellite operators yet. That is expected to change significantly in the next few months.
TV One should have at least one carriage agreement with a major MSO by the time it launches in January, according to one of the partners in the network.
Miller said that by the time TV One launches in January, Comcast Corp. will have signed a carriage agreement for the network across its entire footprint of 21.5 million subscribers.
In addition, one or two other MSOs would have signed on by then. Comcast owns 40% of the network; Radio One Inc. owns another 40%.
"We're in negotiations with the usual suspects — the cable folks and the satellite guys," Miller said. "It's not like we're launching the 32nd movie channel. I believe in January, we'll have [carriage deals with] two or three different MSOs, including Comcast."
That Comcast carriage will be a mixture of digital and analog, Miller added.
Miller said the network also is in the process of signing a programming director and the rest of its management team. "We'll have the team in place by Thanksgiving," he said.
The team currently is topped by former Discovery Communications Inc. president Johnathan Rodgers. Last year, the network signed on actor Tim Reid as executive supervising producer and restaurateur Barbara Smith to develop original programming.
TV One most recently named Turner Broadcasting Sales Inc. veteran TV-sales executive Keith Bowen as executive vice president of advertising sales and marketing. He'll be responsible for developing, implementing and overseeing the network's advertising-sales strategy and building its sales team.
So far, Miller said, TV One plans to license several series and movies from various studios, develop its own original programs and utilize Radio One's programming assets for shows, such as simulcasting its No. 1-rated Los Angeles radio program, The Steve Harvey Show, on the network.
Last month TV One announced a deal to air two syndicated programs —City of Angels and Under One Roof— as part of its primetime lineup when it launches in January.
Constellation got involved with TV One last year. Miller said the VC firm liked Radio One's track record.
"Radio One has 50-plus-percent margins and $300 million in ad sales," Miller said. "They know something about programming and selling advertising."
Constellation senior managing director Clifford Friedman said that while Constellation has more money to invest, it will concentrate on its two investments in the cable industry.
"Do we have more money to invest in more cable networks? Sure," Friedman said. "But there has to be an opportunity. We're not afraid to put in more money if we find uniqueness."