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Summary:

Intel had it all: An A-list team, an intriguing product and even a number of contracts with TV networks, just waiting to be signed. So why did the company end up selling its OnCue TV service to Verizon?

old TV

What does the failure of Intel’s TV ambitions say about the future of TV?

That’s a question on everyone’s mind after the chip maker announced the sale of its Intel Media unit to Verizon Tuesday. The price tag of the deal — Intel reportedly got less than $200 million for the unit, far below the reported $500 million asking price — raises a number of questions: What went wrong at Intel Media? Why did the company decide to get out of the TV biz? And what does the failure say about the chances of others to succeed with similar services?

A serious investment, and lots of ambition

One thing is clear: Intel’s failure to make a mark in the TV space wasn’t because of a lack of ambition. The company’s Intel Media, unit was given a lot of autonomy, a separate building on the Intel campus and the resources to grow a team that eventually encompassed more than 350 people.

The company began to quietly work on a TV service that would be streamed over the internet  in late 2011 and began to beta test it with Intel employees in 2012. Many key details remained under wraps until early 2013. In February, Intel Media boss Erik Huggers finally confirmed the existence of Intel Media and announced that the service would launch by the end of 2013.

The plan at the time was to launch a pay TV offering that would stream all programming over the internet, and differentiate itself from the competition with a novel interface as well as a kind of cross-over between a DVR and a time machine for your TV. Modeled after the BBC’s iPlayer, it would give viewers the ability to go back and watch anything they had missed over the last few days without the need to schedule any recordings. Viewers would access the service through a dedicated set-top box built by Intel, as well as mobile apps.

The service was going to be launched under a separate OnCue brand, but reference the chip maker through an “Intel Inside & Out” co-branding. Intel went on to prepare itself for customer service operations, hired an ad agency for an OnCue launch campaign and even rented retail space in its launch markets to show off the OnCue set-top box and service during the holiday season.

Why Intel sold OnCue

But while Intel Media was getting ready to launch, its corporate parent went through a significant change: Longtime CEO Paul Otellini, who had been a big backer of the project, retired in May of 2013. His successor Brian Krzanich publicly struck a cooler tone on Intel’s TV efforts. And behind the scenes, Intel quickly started to look for possible suitors. Amazon, Samsung and others had talks with Intel, but Verizon quickly emerged as the most serious candidate. Insiders assumed that the deal would be done by November, but with news about the price emerging, it’s possible that Verizon played hardball, and eventually prevailed.

Intel Media's building, tucked away on the corner of the Intel campus in Santa Clara, was supposed to be the birthplace for a new Intel - until the new CEO took over.

Intel Media’s building, tucked away on the corner of the Intel campus in Santa Clara, was supposed to be the birthplace for a new Intel – until the new CEO took over.

A lot of the coverage on Intel’s struggles in the space has focused on content, which definitely wasn’t an easy area for the company. Initially, Intel Media planned for a seven-day catch-up service, but it quickly became apparent that the networks weren’t willing to agree to more than three days. Intel also wasn’t getting TV content as cheaply as some of its competitors, and some of the bigger players even tried to prevent TV networks from doing business with Intel.

But regardless of these struggles, Intel Media as able to hammer out agreements that were close to being signed with a number of networks, according to sources with knowledge of those negotiations. One source told me that all but one of the big broadcast networks were ready to do business, and the company was hoping to bring in a number of new niche programmers to augment what would have been missing from its content line-up. Ironically, it may have been the talk about Intel Media getting sold that slowed down negotiations with networks.

So why did Intel Sell OnCue? In the end, it comes down to something I wrote in early 2012, a month before Intel publicly acknowledged its TV venture:

“For Intel, it’s not just about capturing the living room. It’s about redefining its own DNA to be prepared for a post-silicon future. Otellini has long been talking about his desire to embrace services as the future of Intel. The company’s TV service could become a key blueprint for these efforts, for a future in which Intel sells goods and services directly to consumers, as opposed to just powering devices made by others.”

The key is that this was Otellini’s vision. Krzanich on the other hand wants to stick to Intel’s core competencies, which means making money with silicon, not services. In that future, there was simply no place for an ambitious and expensive attempt to reinvent television.

Of course, launching an internet-based TV service like OnCue is not an easy feat to pull off for any company, including Intel Media’s new owner Verizon. But Intel’s failure also doesn’t mean that others can’t succeed.

Image courtesy of (CC-BY-SA) Flickr user joe.ross.

  1. Intel needs to do something to get our of this hole, sales are declining and business is slowing

    http://bit.ly/1c9dly8

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    1. This isn’t twitter. There’s no need for URL shorteners.

      That could be a rickroll for all I know.

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  2. If you look at OnCue from the perspective of someone who wants traditional cable to die, and a la carte video services to proliferate, I think there are pros and cons to its launch.

    First, I think if we follow current trends to their conclusion, cable will soon become a collection of apps. More and more channels are launching a suite of apps for accessing recently aired episodes of their shows. However, these apps are beginning to go beyond that premise. For instance, FX just launched FX Now, which beyond offering the latest episodes of its shows, also will include every previous episode of the Simpsons (ad-supported). ESPN already offers access to its linear programming through its app. I think as 2014 continues, we will see more channels offering apps, and those apps will become more complex and useful, including linear, on demand, video clips, and even written content.

    The Chromecast will be the great enabler of this. Consider that a single CNN smartphone/tablet app could host CNN’s live channel, recently aired shows, video clips, and written stories, all organized and castable to your television. It will provide the best CNN experience possible. Eventually this move to apps will break up cable’s stranglehold on content, as different networks see enough financial reason to offer a standalone option as well.

    Now, how does OnCue play into this? It’s possible that the quickest way from cable to a la carte involves keeping cable as terrible as possible. OnCue might offer an alternative that provides a much better user experience than cable but might also lengthen the time before mass a la carte adoption. Particularly, the proprietary box described seems to go against the trend we would hope to see. Simply moving customers from one proprietary box to another with a slightly better experience does not sound like much progress to me at all.

    On the other hand, perhaps competition between OnCue and local cable providers would give individual channels more negotiating power, enabling them to more quickly bring their complete experience to their apps. I think it’s hard to say.

    In the end, I don’t think OnCue’s delay is clearly a bad thing for consumers. A half-step forward might delay the full step we need to see a more customer friendly a la carte future.

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