Niche channels face challenges.

It seems there's one born every minute--a new cable channel, that is.

The list of specialty cable and satellite channels seems endless and covers areas such as interior design, video games and second-tier sports.

They're the niche networks, those dedicated to specific subject matters that appeal to a comparatively small but avid fan base. But the proliferation may be slowing as it gets harder for smaller channels to elbow their way through the crowded cable tier system.

Some, like the Tennis Channel in Santa Monica, have managed to break out by scoring major deals big hits that are not typical this late in the cable game.

But others, like the upstart, equestrian-themed HorseTV in Calabasas, are left to make a go of it in the saturated market.

"Capital markets aren't making $100 million bets anymore in the universe of hundreds of cable channels," said George Greenberg, chief executive of HorseTV Media Group Inc.

Historically, the launch strategy for a cable channel goes something like this:

Raise $100 million to fund startup costs and the first several years of existence, over which time the channel pushes itself into 20 million homes. That's a key benchmark needed to qualify for statistically accurate Nielsen ratings that enables channels to sell advertising to big national companies.

The strategy also requires that the channels have a spot on expanded basic cable tiers, not premium packages. However, the explosion of cable channels has made it harder for new entries to get on these tiers, which are limited by bandwidth.

That in turn makes it harder for the channels to reach that key 20 million figure.

Entrants can still get in, but increasingly have to earn their stripes by somehow proving to broadcast partners they can make the money down the road.

"The day of the independently launched digital cable network has passed," Greenberg said. "There will be more, but they will come from incumbents--the ESPN-Disneys, Scripps, or Time Warners. They can leverage other networks and their programming to create new networks. The rest will look for a different way in or alternate distribution."

Different colored horse

Consider HorseTV, which hasn't officially launched and exists in only five markets. The network offers riding competitions, travel shows, documentaries and classic movies.

It is taking a smaller, survival-based approach. Given the lower cost of its programming, the network had decided on a different relationship with cable carriers.

The traditional network-cable relationship involves having the network pay "rights fees" to the carrier, and sharing in the advertising revenue it is able to drum up. Instead, HorseTV is splitting subscriber fees 50-50 with carriers

Unlike other network execs, Greenberg doesn't bridle at the niche label, and describes himself as "platform agnostic."

"We are a nation of appointment viewers. People don't watch a network's entire slate of programming; they watch specific shows," he said. "My biggest problem is getting on the shelf, getting carriage. Once I have that, I know that using good old-fashioned direct marketing, I can drive penetration."

HorseTV signed a deal six weeks ago with one of four top cable carriers, though Greenberg said he can't disclose specifics until later this quarter. The network breaks even at 500,000 subscribers, and based on the company's current outlook that could happen by 2008.

It may sound like small potatoes to some; business plans like HorseTV's, though, are likely to become more common, said David Carter, principal of the consulting firm Sports Business Group, who has studied cable sports business models. However, he doesn't expect that means rights fees are on their way out.

"It's sort of a back to the future. Once the property becomes bigger, and an important piece of programming for the distributor, then they can go back to traditional rights fees," he said.

But even big subscriber numbers may not be enough to move out of the upper, premium tier world. As of this summer, game show cable net GSN of Santa Monica is in 60 million homes, but still isn't included on basic cable in many big markets--Los Angeles included.

And though GSN has two sizable parent companies--Sony Corp. and Liberty Media Corp--neither can bring GSN into the mainstream without cable carrier cooperation. Corporate muscle also has played a role in the deals, making it harder for the upstarts and independents without leverage to elbow in.

"There is a lot of competition for limited space," Said Rich Cronin, GSN's chief executive. "We are in competition with groups such as (Viacom Inc.'s) MTV Networks. They now have 24 different networks and a complicated distribution network and can use incentives and disincentives in negotiations. To get the best rates, carriers have to take all their channels on basic."

Late bloomer 

Still, that's not to say that it's impossible to make breakthroughs.

Tennis Channel, founded in 1990, is financed by a variety of investment groups, including Apollo Partners and DND Capital Partners LLC, as well as tennis legends Andre Agassi and Pete Sampras.

After operating below the radar for over a decade, last year the network inked a deal that brought it onto 30 new cable systems, widening its reach to 10 million households.

"If you look at the history, there are fits and starts as far as carrier bandwidth," said Ken Solomon, chief executive of Tennis Channel Inc. "Right now, it's very tight, so it's hard to get on (cable), and getting over that tipping point is a big deal."

In August, the network--carried primarily on cable sports tiers--scored the rights to the French Open, one of only four Grand Slam events each year.

The deal spans up to nine years and gives the channel broadband and video-on-demand rights to the tournament, as well as access to media archives. They include classic matches from past tournaments, which will be used to create new content. The agreement also includes new media distribution platforms like wireless applications.

Until the French Open deal, the network broadcast mainly middle-level events like the Davis Cup and Fed Cup tournaments, as well as tennis instruction, analysis and commentary, and profiles of top players.