Intel Media built what company execs -- and others in the industry -- believed to be a smarter, sleeker and more personalized subscription TV service, designed to steal customers from cable and satellite incumbents.
But now it appears Intel's ambitious project could be absorbed by one or more of the pay TV providers it was trying to unseat. Liberty Global, the international cable operator led by John Malone, is in early discussions to acquire the over-the-top video service for deployment outside the U.S., Bloomberg reported.
Verizon has also had talks with Intel about partnering or buying the division. The telco has sought to bring in Liberty Global as a partner to jointly purchase the Intel Media business, although Malone is reluctant to pair up with Verizon, according to a report by Multichannel News.
Intel has also approached Amazon and Samsung about a partnership. But ironically, the chances are good that Intel's advanced Internet TV technology will become a weapon wielded by an entrenched player in the pay-TV ecosystem.
Why did Intel pull back from the strategy? Analysts say the company had a change of heart, after the appointment of CEO Brian Krzanich this spring. In an interview with Reuters in June, Krzanich said about the TV project, "we are not experts in the content industry and we're being careful."
Intel seems to have determined that standing up a pay-TV service on its own would be too costly -- for too little gain -- in a market that isn't growing.
"(W)e believe the problem is Intel's appetite for the size of the financial risk required to launch, which includes large commitments to programmers, direct-to-consumer marketing, subsidized consumer premises equipment and the buildup of a subscriber support team," BTIG Research analyst Rich Greenfield wrote in a note.
Intel Media has spent millions of dollars and more than two years on the project, staffing up with more than 350 employees, taking over a building on the chip maker's Santa Clara, Calif., campus.
Building a better mousetrap is one thing, but turning it into a commercially viable service is another. In contrast to a greenfield challenger, Intel's technology would be a better fit with for Verizon or Liberty Global, which not only already have the broadband and call-center infrastructure to support such a service but also have relationships with TV programmers that they could extend to Internet screens.
If Intel does sell the TV unit, the next big question is what the new owner would do with it. A pay-TV operator could use the multiscreen technology to enhance an existing video service -- or could itself launch an over-the-top competitor.
BTIG's Greenfield assumes Verizon would want to launch a nationwide "virtual MVPD," or multichannel video programming distributor, targeted at regions outside of its FiOS footprint. The telco currently has a subscription VOD service, the Redbox Instant by Verizon joint venture with Outerwall, which at the very least shows it's interested in competing in the over-the-top market.
And once a big player launches a virtual MVPD, expect other cable, satellite and telco TV providers to jump into the fray. Execs at Dish Network and Charter Communications, for example, have said they could offer over-the-top TV packages at some point.
"We've talked to virtually every programmer about OTT," Dish chairman Charlie Ergen said on the satcaster's earnings call Tuesday. "I would say it's going to happen at some point in timeâ¦ but most programmers have been hesitant to make such a dramatic change."
SEE ALSO: Sony Is Keeping PlayStation's Internet TV Options Open
Why Intel's Huge Project to Challenge Pay TV Could End Up in Pay-TV Land
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