If Anybody Can Make Web TV Work, It’s Verizon

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Rick Wilking / REUTERS

Wireless giant Verizon is making a big bet on television delivered via the Internet. Today the company announced that it is buying up Intel’s failed pay-TV service, called OnCue. Though financial terms of the deal weren’t disclosed, Bloomberg reported in November that Intel wanted $500 million for the service, which the company abandoned after new CEO Brian Krzanich arrived in May. With Verizon taking over the project, the disruptive waves that Intel was poised to create may yet be felt. In fact, Verizon is in a much better position to make Internet-based TV happen than Intel ever could be.

Verizon was likely willing to pay a large sum for OnCue because Intel has already done much of the heavy lifting of developing the service. The pay-TV product, which would deliver programming to users online instead of through cable wires or satellite signals, features a smart user interface that can recommend shows to customers and a cloud-based DVR that automatically saves the last three days of live channel content for later viewing. Because the service is Internet-based, content can easily be streamed to both mobile and TV-connected devices. It was so far along that it was already being tested in the homes of Intel employees last summer.

To enter the TV market, though, Intel would have had to pay a big premium for channels. Starting with zero subscribers gives them little leverage in negotiations with TV networks, and cable and satellite operators pressure the networks not to cut deals with new, disruptive entrants into the industry . “When you go and play with the content guys, it’s all about volume,” Intel CEO Brian Krzanich explained to re/code at the start of the year. “And we come at it with no background, no experience, no volume.”

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Verizon will have an easier time making the service a reality. The company already has relationships with television studios thanks to its fiber-optic pay-TV service called FiOS, which currently has 5.3 million subscribers. Verizon is also the second-largest cell phone carrier in the U.S., with more than 100 million subscribers. It will likely market heavily to these wireless customers and may introduce new bundles that link cell phone and television service. In a press release, Verizon touts that OnCue will make use of the company’s 4G LTE data network.

Verizon has also made other recent purchases that could make a widespread web TV rollout possible. In December the company announced it was acquiring EdgeCast, a content delivery network. That was just weeks after it bought out UpLynk, a company that develops “TV Everywhere” streaming technology. Verizon has also partnered with Red Box on an instant streaming rival to Netflix, which could be promoted along with the pay-TV service.

There are other companies that will try to beat Verizon to the punch on Internet TV. Sony just announced a similar pay-TV service at CES this month. And rumors persist that Apple or Google will enter the space. But if any of these companies plan to acquire the same content currently on cable, they’ll have to play by the industry’s rules. That means large bundled channel packages, not a la carte pricing where viewers can buy individual channels. Despite earlier boasts that they could bring a superior product to market, Intel execs never once said they’d offer individual channels for sale to customers.

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Still, Internet-based TV offerings would at least allow viewers nationwide more than one or two options when choosing a pay-TV subscription. Increased competition among the cable, satellite and web-based TV operators would force providers to innovate faster and provide more value to customers.