When Intel lifted the veil from its stealthy media division in February, many outsiders scratched their heads. Why was the chip manufacturer, which has tried and failed to sell consumer products before, trying to launch a TV service, one of the trickiest consumer markets of all?
Computer companies including Apple (see “Apple’s Next Innovation”), Google (see “When Will the Rest of Us Get Google Fiber?”), and Microsoft have wrestled for years with how to become Internet TV providers. They see a massive “pay TV” market ripe for Silicon Valley-style disruption. Today’s TV interfaces are exceedingly complicated, and content packages are bloated with channels that most subscribers don’t watch. Furthermore, there are new business opportunities in the progressively more social and mobile nature of TV-watching that tech companies are well-positioned to exploit.
Intel’s ambitions make sense given that the company needs a new growth business and has cash to spend. PC sales are slumping—research firm IDC recently reported the worst quarter globally since it began tracking data in 1994—as mobile devices become more powerful PC replacements. Intel’s first quarter earnings report this week reflected this decline, with revenues dropping 6 percent in the PC division that accounts for $8 billion of its $12.6 billion in quarter revenue. The company’s mobile chip business, meanwhile, is only in its infancy (see “Intel’s Mobile Chips Advance, But are Still a Tough Sell”).
Intel does have an impressive 300-plus person TV team, led by former BBC executive Erik Huggers. And it has some interesting technology, too—including a front-facing camera that allows for viewing suggestions based on who is watching and a cloud-based DVR that lets viewers scroll back in time and watch shows they missed without actually having to record.
But many in the industry are skeptical that a U.S.-only TV service will be the multi-billion-dollar growth market that Intel needs to lift its bottom line, partly because of the challenges of negotiating groundbreaking live content licensing deals. “This is an expensive undertaking with very little chance of success,” says Bernard Gershon, a former Walt Disney senior executive who developed the company’s digital business strategy for TV content and is now a consultant.
The problem so far with all tech companies’ dreams about changing how we watch TV is that new entrants need the go-ahead from one major part of the established industry: companies like Disney, MTV, and Time Warner, which own many shows and channels. TV programmers’ biggest fear is the idea of a cheaper, more customizable service that ends their ability to package together popular and unpopular channels for one price. But without breaking up these “bundles,” any new TV subscription service ends up looking very similar to what’s already offered by Comcast or AT&T.
The economics of the TV business could be especially hard for Intel. It doesn’t own the underlying broadband delivery infrastructure, so it can’t attract customers by bundling Internet and TV service as Google has done with its experimental gigabit fiber network in Kansas City. And if it does succeed in negotiating innovative content deals, other companies like Apple—which, unlike Intel, already have set-top box TV hardware in people’s homes and billing and customer service relationships with consumers—may swoop in from behind and sign similar agreements.
For Intel to succeed, its aggressive push into the living room must be timed perfectly. TV programmers are starting to experiment with new Web and mobile delivery formats, and they want to attract a new audience of young people who still like to watch TV but may not want to do so on their couch every Tuesday at 8 p.m.
When DirectTV launched its satellite service a decade ago, it took off because it spent billions to land exclusive rights to many NFL games. Though no content deals have been announced, Intel’s service is already being tested internally and with some limited partners, and is expected to launch this year. It may just need its version of the NFL.