intel
Author
Bill Niemeyer
Date
January 15, 2013

I’ve been trying to complete an opinion piece about Intel and TV. Unfortunately, the news landscape keeps making right turns and I’m having to rewrite this as it does. Hopefully, I can bring a bit of clarity to the news of the last couple weeks and describe why Intel’s virtual MSO plans are going to find a hard road ahead.

Here’s a rundown of the key news that informs this piece:

  • January 3rd – a Wall Street Journal article says that the launch of Intel’s virtual MSO service was experiencing delays and would not be announced at CES. The problem – delays due to issues in reaching content licensing agreements with TV networks.
  • January 7th – at CES, Intel announces a “partnership” with Comcast to enable a variety of Intel-based devices to access Comcast’s cable TV services without a traditional set-top box. These include IP STBs, laptops, PCs, tablets and smartphones, and smart TVs. Some in the press said this actually was the “virtual MSO” announcement (it was not).
Now to the clarity (hopefully).

Intel’s virtual MSO effort and the partnership with Comcast are two very different initiatives. The latter is part of Intel’s long-standing efforts to gain share in the CE device market (smartphones, tablets, smart TVs, etc.) for Intel’s Atom line of SOCs (system on a chip). This follows Intel’s traditional successful strategy for making money by selling microprocessor solutions. Unfortunately for Intel, the SOC effort so far has not yielded much success as CE makers have primarily stayed with incumbent SOC vendors. No actual launch plans were announced.

The virtual MSO initiative is its own separate effort within Intel.

It’s led by Intel corporate VP and GM of Intel Media Erik Huggers (ex BBC and Microsoft). The objective is to create a full up Intel-branded multichannel TV service delivered over the Internet via set-top boxes (with Intel Atom SOCs inside of course). This is a very different kind of business for Intel and it dives head first into a place where the laws of normalcy do not apply, the incumbent multichannel TV contractual landscape.

Right now, the multichannel TV business is making a lot of money for both operators and networks. And, they really want to keep it that way even in the face of many “OTT barbarians at the gate.” To try to keep things from changing, TV networks and operators have been moving to multi-year overarching carriage agreements that bundle all of a media company’s TV properties into one pan-platform operator deal. Add in some “most favored nation” clauses and you create a very tough environment for the launch of new entrants.

These agreements are constructed so new entrants must take effectively the entire media company bundle of properties. Prospective virtual MSOs are essentially forced into becoming “me too” analogs of current MVPDs that are beholden to the current business practices of the incumbent television landscape (including channel bundling to consumers).

This is why the Forbes article got my attention. Intel’s virtual MSO is described as one providing Internet-delivered cable channels offered to consumers on a per-channel or even per-show subscription basis (à la carte on steroids). The service would also offer a cloud DVR that could control both live TV and “any past TV show.” This service was described as going into limited beta in March.

Since both TV networks and multichannel operators regard à la carte channel subscriptions as akin to the Mayan Apocalypse, I was very surprised that this service was launching soon. The article even included the phrase “kill the cable industry as we know it” in the lead paragraph. I’ve been hearing that the Internet has been going to “kill the cable industry as we know it in the next 5-10 years” for at least the last 15 years.

Considering the smart and experienced people within Intel working on this effort, I wonder how this Forbes article came to be.

The WSJ article brought things down to earth. Sources say that Intel is finding it very hard to do business deals because no media companies want to step out of line and offer networks on an à la carte basis, lest the black helicopters appear overhead. A source does tell the WSJ that Intel has reached one content deal (but it’s not noted if it’s for a top-shelf network or a small one willing to take a risk).

In thinking about Intel’s initiative to bring about an OTT “virtual MSO” with full à la carte channel buying, Warren Zevon’s exhortation “bring lawyers, guns, and money” keeps coming to mind. Launching an Internet-based, virtual MSO is a very challenging effort in itself. But to add to it the task of overturning pay-TV’s channel bundling seems to me a bridge too far.

I personally believe that à la carte channel subscriptions are something to which multichannel TV will inevitably move (eventually). If the digital future is about consumer choice and control, then a key aspect of that is choosing not to pay for channels you don’t watch. I also believe that TV networks and MVPDs will do everything they can to fight even any semblance of à la carte until they have gone well past the point of damaging their financials through subscriber abandonment.

For tech companies like Intel (and as rumored Apple and Microsoft), being a virtual MSO has been a holy grail worth years-long quests. Even though offering à la carte services seems completely rational and consumer friendly, it will be a huge stumbling block for years to come. This leaves new entrant virtual MSOs with two choices.

One is to become that Internet-based “me too” of current multichannel TV for which business practice innovation is going to be severely constrained.

The other alternative, and one that I would suggest is ultimately more fruitful in a strategic sense, is to strike out in a different direction. Prove, as Netflix has done, that OTT provides a way to create new value propositions for both consumers and content owners. Prove that the à la carte channel model works, by offering channel and content alternatives not currently on television.

Major media companies have demonstrated with Netflix that they are more than willing to work with competitive, new entrant OTT services if they don’t directly infringe on first-run TV programming models. If Intel, or others, can prove that à la carte channel monetization through “better than TV” subscription and advertising models provides greater revenues for content owners, first run TV network programming should follow.

Leave a Reply