SyFy turned the series down because it was too expensive, I think. They just couldn't afford to do it on a weekly basis.
I wish they could afford to do a few telemovies, though. By dumping this online (and on home video, a market that hasn't exactly been doing well lately) they're being pretty clear about their intentions: this is it.
According to longtime BSG executive producer David Eick, Blood & Chrome
was always meant to be a web series. SyFy did
several options--including it being straight-to-DVD or something that could
be a traditional on-air series--but decided to stick with the original plan. Somehow, though, this got leaked out onto the 'net and turned into the idea that it was a failed TV series pilot when it never was one at all.
Co-Creator & Executive Producer David Eick:
"I think where the confusion [about Blood and Chrome not being a web series] came in was the network, after seeing the scripts, said, ‘Gee, we don’t want to rule out the possibility of just abdicating [to] the online venture altogether..."
Personally, from all indications I've seen, it seems B&C
works best as a web series since it was structured that way, IMO.