A prelude to the territory’s first 24/7 dedicated preschool channel, PBS Kids Sprout On-Demand hit U.S. airwaves last month, offering 50 hours of VOD programming culled from the libraries of founding partners HIT Entertainment, Sesame Workshop and PBS. The consortium, which also includes cable service provider Comcast, will follow up in October with PBS Kids Sprout proper, reaching 85% of Comcast’s 8.6 million digital cable customers, as well as subscribers of competing services Direct TV and Insight Communications.

Programming and branding strategy details are still being kept under lock and key. But the joint-venture (Comcast owns 40% and HIT 30%, leaving 15% each for PBS and Sesame) is in the process of setting up a separate company and appointing a GM to hire programmers and steer the course of the new channel.

All four partners agree that for the first year or two, programming will be cherrypicked from the catalogues of HIT and Sesame, as well as the current PBS schedule (including Caillou, Jay Jay the Jet Plane and Teletubbies). After the channel gets on its feet, HIT COO Charlie Caminada says it will begin to acquire and commission original shows. Gary Knell, president and CEO of Sesame Workshop, adds that he hopes to use Sprout as an incubator for new formats.

In the meantime, all parties are viewing the VOD service as a good complement to the upcoming linear channel. In fact, Comcast’s need for kid-targeted VOD programming was one of the main catalysts behind the venture, says Amy Banse, executive VP of content development for Comcast Cable. ‘We couldn’t create brands like these,’ she says. ‘So we tried to bring them together in a partnership.’

As for the audience potential of VOD, Banse says Comcast racked up more than 567 million on-demand views in 2004, and that number is expected to exceed a billion this year. Deron Triff, VP of PBS digital ventures, says the PBS Kids on-demand service, which has been up and running for the past year and a half on most major cable services, nets roughly eight million views a month with just six to eight hours of programming. With 50 hours of content, 25% of which will rotate every two weeks, Triff expects Sprout’s viewership to be considerably larger.

The two services also provide a good opportunity for counter-programming initiatives that drive kids back and forth between them. For example, there may be an opportunity to host theme weeks, with the VOD net focusing on math skills and the linear channel highlighting reading.

PBS is also planning to make good use of its cross-promotional clout. One station in each market will be co-branded on the VOD menu’s user interface. And in August, 45 local PBS stations, representing roughly 50% of all U.S. TV households, will begin airing spots to build awareness for the Sprout channel. In return, Sprout will air cross-channel spots and run print ads to promote the local stations.

But unlike PBS affiliates, Sprout will be partially supported by advertising, and this business model has kicked up some backlash. Knell sees the controversy as a bit of a red-herring and puts it this way: ‘The U.S. just doesn’t have the same kind of history of providing public resources for kids programming like, for example, the U.K. does,’ so revenue has to be generated in other ways.

PBS and Sesame co-wrote Sprout’s sponsorship policy, which is compliant with the Children’s Advertising Review Unit guidelines, and advertising will be limited to spots before and after uninterrupted programs. In addition, advertisers can only target parents and caregivers, not the toddlers watching the shows.

While the blueprint for Sprout’s October launch continues to be hammered out, the elephant in the room is HIT’s pending sale. Caminada and the JV’s other partners insist, however, that the sale won’t affect Sprout, which will roll out as scheduled.

But news about the sale changes almost daily. Just before the VOD service launched, U.K. venture capital firm Apax’s Sunshine Acquisitions tabled a US$936-million bid for HIT. And not long afterwards, Lions Gate Entertainment expressed interest and is expected to make a counter-offer for close to US$1 billion. A May 13 deadline has been set for LGE, but HIT’s management seems to be moving ahead on the Apax offer since stockholders controlling 35.5% of HIT’s shares have thrown their support behind it.