Armed with billions in cash and promising advanced features, Intel, Google, Apple and Sony are gunning to take on cable, phone and satellite companies by offering pay TV via the Web. TV networks are “deathly afraid”

Silicon Valley’s Bid for $100 Billion Slowed by Hollywood

Armed with billions in cash and promising advanced features, Intel Corp. (INTC), Google Inc. (GOOG), Apple Inc. (AAPL) and Sony Corp. (6758) are gunning to take on cable, phone and satellite companies by offering pay TV via the Web.

The tech giants plan to use existing cable, fiber and wireless networks, just as Netflix does, to offer Web-based TV in living rooms and on tablets and smartphones. In just the latest sign of change in TV viewing, Google last week introduced Chromecast, a $35 device that lets mobile-phone and tablet owners watch YouTube and Netflix on their TV sets.First the companies need content. And broadcast and cable networks are determined not to make the same mistake of the hollowed-out music industry, done in by the economics of digital distribution. At stake is the $100 billion a year in fees the networks share with cable, phone and satellite providers, which charge viewers about $80 a month for programming bundles.

“In music it was getting stolen and then Steve Jobs came to them and said, ‘Let me sell songs at 99 cents and you’ll get paid for something,’” said Laura Martin, a Needham & Co. analyst in Los Angeles. “But that unbundled the album, which has been disastrous.”

TV networks are “deathly afraid,” of the same outcome, said Martin. That’s why they are refusing to unbundle their channels for Silicon Valley companies, which want to offer TV to a new generation of viewers already accustomed to finding shows on the Internet.

Industry Upheaval

Technological upheaval is nothing new for TV programmers. It began with stringing cables in the 1960s to improve reception, evolving into hundreds of channels of paid programming. In the 1990s, DirecTV (DTV) and Dish Network Corp. (DISH) began beaming TV from satellites to homes equipped with small dishes. A decade ago, phone companies laying fiber-optic lines crowded in. Today 101 million U.S. households pay for TV.

In addition to monthly fees, the TV industry collects $59 billion a year in ad sales, with most going to network owners like Walt Disney Co. (DIS), parent of ESPN and ABC, CBS Corp. (CBS), Comcast Corp. (CMCSA)’s NBCUniversal, 21st Century Fox Inc. and Time Warner Inc.

To obtain their shows, tech companies will have to agree to offer programming bundles and pay a 20 percent premium above what current providers are assessed for packages that include broadcast TV and cable channels like CNN, Discovery and ESPN, according to Martin. Those are the terms Hollywood demanded of telephone companies when they were getting started.

The price may be worth it, as tech companies seek new revenue in the wake of slumping personal computer sales and as they try to cash in on the soaring mobile ads market.

Utopian TV

Technology companies have been trying to shake up TV for years with little success. In 2007, Intel introduced Viiv, a PC designed to work with living-room TVs. In 2010, Qualcomm Inc., the largest maker of chips for mobile phones, closed FloTV, a service for small screens, citing a lack of customers.

“It isn’t clear to me that there’s a different formulation that will be as popular and as profitable to all the participants,” Glenn Britt, chairman and chief executive officer of Time Warner Cable Inc. (TWC), said in an interview. “There’s a sort of shallow view where others think they can disrupt this whole thing and it will be wonderful.”

Intel and Sony are both working on pay-TV products. Intel is developing a set-top box for sale in stores this year, Eric Free, a vice president and general manager, said in June. The product will be sold with a monthly subscription providing live and on-demand entertainment.

Media Talks

The Santa Clara, California-based chipmaker has held talks with companies including Viacom Inc. (VIAB), the owner of MTV and Nickelodeon, and Comcast’s NBCUniversal, people with knowledge of the situation said in March.

In talks with content owners, Intel has touted something called frame accurate dynamic ad insertion, technology that replaces commercials with more user-relevant ads when a show is watched on demand.

“The television experience is approaching an inflection point with changes in consumer behavior and significant advancements in the business rules and technology,” said Jon Carvill, an Intel spokesman.

Tokyo-based Sony, which runs successful film and TV studios alongside its electronics business, has also held talks with Viacom Inc. and NBCUniversal, according to people with knowledge of the situation who sought anonymity because they weren’t authorized to speak publicly.

Program Bundle

The company is considering selling a bundle of programming over the Internet that can be seen with almost any Sony device, including PlayStation game consoles, Bravia TVs and Blu-ray players, said the people.

Dan Race, a Sony spokesman, declined to comment, as did Mark Jafar, a spokesman for Viacom. Cameron Blanchard, an NBC spokeswoman, didn’t respond to a request for comment after normal business hours. The Wall Street Journal reported in late 2011 that Sony was considering such a service.

Apple, in Cupertino, California, is seeking to work with pay-TV providers, at least in the near term, to offer services letting current cable subscribers watch using an Apple device. Tom Neumayr, a spokesman, declined to comment.

Meanwhile, Mountain View, California-based Google is again discussing buying streaming rights from Hollywood, according to people with knowledge of the matter, after years of investing in original YouTube channels and faltering with Google TV, a home screen and navigational tool built into some sets from Sony and LG Electronics Inc. The company would still have to address the industry’s concerns about piracy.

Leslie Miller, a Google spokeswoman, declined to say whether the company is talking with network owners.

Hulu Factor

Price and channel choices aren’t the only obstacles tech companies face. Broadcasters and cable networks are pursuing their own Web initiatives, through services like Hulu, which is owned by Disney, Fox and NBCUniversal, and with incumbent pay TV providers to offer shows on tables and smartphones.

“Cable operators today are extremely strong because people are watching more TV than ever and have a dependence on broadband,” said David Zaslav, chief executive officer of Discovery Communications Inc., owner of the Discovery and Animal Planet networks. “The overall package of TV, broadband and phone is still the most compelling offering out there, and it doesn’t look like there’s anything in sight right now that has that kind of strength and value to consumers.”

To contact the reporters on this story: Alex Sherman in New York at; Ian King in San Francisco at; Andy Fixmer in Los Angeles at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: