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diddy launches revolt

Painting by Borbay 

With his new REVOLT television channel, Sean Combs is one of the lucky recipients of an agreement reached by Comcast and the FCC en route to the mass communications company’s purchase of NBC Universal. Comcast, the largest US cable and internet provider, began pursuit of NBCU in 2009. The deal received the final vote of approval from the Federal Communications Commission in late January 2011. Comcast’s vow to increase minority programming and network ownership played a highly publicized role in this approval. REVOLT is the first of many new minority-owned channels to come.

Time Warner was courted by and came on as carriers of REVOLT in June of this year, expanding the channel’s reach to over 20 million subscribers. Diddy can be seen in the commercial pitching his channel to Time Warner subscribers. Of course the music sync license for that would go to French Montana’s “Pop That.”

REVOLT premiered on Monday, October 21st and was streamed live on REVOLT.tv for the first three days. The channel seeks to leverage television, digital and mobile platforms to push content to consumers. Social connectivity will be an important part of the network’s presentation. It will major in music videos and fresh, young coverage of news. Diddy mentioned a debate show as an example of possible original content. But he wants to keep the focus squarely on music in the beginning, a plan that other music networks have largely abandoned.

TV networks earn money two main ways: from subscription fees and advertising. Cable companies pay subscription fees to networks. This gives the cable company the right to broadcast the network’s content. Comcast can’t just have MTV or The Food Network for free. They pay them a set amount per monthly subscriber. These fees will vary in size. A brand new station may get $0.25 per subscriber. ESPN, the world’s most valuable network, gets $5.54 per subscriber per month. The next highest fee payed is about $1.20 (TNT).

The other way that channels earn money is from advertising. Companies know that people are tuning in to watch these TV networks. So they purchase commercial slots to advertise their products. The more popular the show is, the higher the commercials will cost.

Diddy, who has a net worth of over $500 million, is the majority owner of REVOLT. So at least 51% of the network’s value will be added to his in the future. Forbes’ Zack O’Malley Greenburg thinks that the venture could make him hip-hop’s first billionaire:

Turning a profit may prove difficult in the early going, but a well-oiled network can generate margins in excess of 25%. So, some back-of-the-envelope math: say REVOLT manages $4 per subscriber per year. That works out to $100 million in sales, and perhaps $25 million in profit. Apply a 15x earnings multiple, and you get a valuation of $375 million for the network.

This valuation is a bit ambitious (a 15x earnings multiple is high). But even lowering the multiple and increasing the subscriber base over the next five years could yield a similar value. REVOLT also has a film division. A successful original series or movie release would further broaden the company’s scope and revenue streams.

According to The Hollywood Reporter, key executives at REVOLT will include Keith Clinkscales of ESPN and Vibe magazine, former MTV chief programmer Andy Schuon and Bruce Perlmutter, the one time editor of E! News and E! Online.

Check out Mr. Combs below as he discusses the network and more on The Breakfast Club:

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