TORONTO — Three years after an ill-timed launch in September 2001, when television viewers were seriously distracted by coverage of the terrorist attacks, many of the so-called "diginets" appear to be on target for a financial break-even point some time in the next couple of years.

In fact, the whole specialty channel world - once accused of fragmenting the TV audience to the detriment of the future of traditional conventional broadcasting - is considered quite promising.

One reason is that most of the specialties are owned by conventional broadcasters who have pockets deep enough to sustain losses until the day when the bulk of viewers have entered the legendary 500-channel universe with either direct-to-home satellite or digital cable delivery.

CTV, CHUM and Alliance Atlantis each possess a dozen or so specialty services whose costs are being offset with expectations that they are the future of television.

"Some people throw their hands up and say 'Gee, I hate this fragmentation,"' observes Janet Yale, chief operating officer for Alliance Atlantis. "Well we don't call it fragmentation, we just call it growth, because at the end of the day it's clearly where people are going."

According to Decima, the respected public opinion and marketing research company, subscribers to digital tier services are just now reaching the critical four million penetration mark, or about 40 per cent of the potential viewing audience, which means that the five-year plan with which the diginets were launched is pretty much on course.

"Our latest numbers show about four million, so I think the growth has been pretty good," says Mario Mota, vice-president of broadcast and media research for Decima.

"I don't think anybody can complain about the growth of digital. . .it still keeps inching along quarter by quarter."

Mota, like other industry watchers, is surprised, though, at the relatively small shakeout of the young services.

Only a couple of stations have gone blank, including Edge TV, Corus Entertainment's music video channel and WTSN, a women's sports service by CTV. Also Craig Media's western-themed channel Stampede never launched due to the broadcaster's financial woes. It remains on a back burner.

But Alliance Atlantis, although putting off plans for a D.I.Y (do-it-yourself) Channel, has just fired up Fine Living TV, a sort of cross between the Food Network and HGTV.

Other new channels include Silver Screen Classics, CHUM's MuchMoreRetro and Global's jazz-themed Cool TV. Global is also reported to be submitting plans for a specialty devoted to reality TV and makeover programs while PrideVision, the gay-themed service, is aiming to air XXX Gay Erotica, a 24/7 outlet devoted to hard-core fare.

The most popular specialties include Discovery, HGTV, TSN, History, Bravo, Space and Showcase. A couple of diginets even crack top 20 lists, including Animal Planet and, surprise, the Game Show Network.

"We're right where we thought we would be in terms of our business plan," says Yale. "Some of the channels are a little better off than we thought they would be."

One surprising statistic from Mota: Only 39 per cent of Canada's four million digitally armed households actually subscribe to one or more of the digital channels. A digital cable box is also attractive, it seems, for the interactive program guide, digital picture and sound, the a-la-carte flexibility and the digital music channel package. Also those timeshift channels that allow a viewer to catch a missed program from a network's regional service in another time zone.

There are hidden program gems in the specialty world. In fact there may be more all-Canadian series drama there than on the conventionals which have been fixated lately on reality fare, movies of the week and American imports.

Alliance Atlantis's Showcase, for example, has one of the most popular all-Canadian sitcoms on the dial in Trailer Park Boys, season 5 of which debuts early in the new year. Other original series include Paradise Falls, Kink, Moccasin Flats and Naked Josh.

YTV offers tween series like 15/Love, Drake & Josh, Spy Academy and Dark Oracle while the Family Channel has Radio Free Roscoe, which claims to reflect teen life better than CTV's Degrassi.

The pay channels, Astral's The Movie Network and Corus's Movie Central, even combined forces this year for the upcoming original bio-terrorism drama series ReGenesis starring Peter Outerbridge.

Second windows and classic reruns remain a huge benefit to having the specialties as well.

Early-nighters can catch the Daily Show with Jon Stewart in prime time on the Comedy Network and Leno and Conan the following night in prime time on Star.

Reruns with popularity potential include Sex and the City and Law and Order on Bravo, Saturday Night Live reruns weeknights on Prime, Gunsmoke and Have Gun Will Travel on Lonestar, Peter Gunn on Mystery and the Dukes of Hazzard on CMT.

There's also American cable fare unavailable anywhere else: The sci-fi series The 4400 on Space: The Imagination Station, Denis Leary's Rescue Me on Showcase, The Office and Dalziel and Pascoe on BBC Canada and Resurrection Blvd. on TLN.

But TV technology keeps evolving and it's anyone's guess what the ultimate impact will be of PPV (pay-per-view), VOD (video-on-demand), HDTV (high-definition television) and PVRs (personal video recorders like the TiVo). Satellite is already all-digital and cable is heading that way, but there's also the approaching telco factor that will accelerate the competition for customers.

"I think Bell Canada's application to offer digital TV service through its phone lines in Ontario and Quebec, is certainly a battle," says Mota. "If Bell gets those licences, and there's no reason why it shouldn't really."

The prevailing optimistic view holds that any expansion of the digital TV market means expanded audiences for the specialty services which in turns means expanded revenue.

"As revenues go up, more money is invested into the Canadian programming industry," Doug Wilson, CRTC director of industry analysis and program monitoring, said earlier this year.

"It's a win-win situation for everybody."