Intel and Sony Ambitions for Internet TV Services Meet Skepticism

September 29, 2013

Intel and Sony Ambitions for Internet TV Services Meet Skepticism

By BRIAN STELTER

Television services delivered via the Internet by companies like Intel and Sony could someday transform how Americans watch TV shows. But the services have to get off the ground first, and there are new doubts about whether that is going to happen. Intel’s consumer-friendly plan for a version of cable television that is streamed to paying subscribers — the same way Netflix is streamed — has been scaled back recently to satisfy channel owners, and its goal to introduce the service, called OnCue, by the end of this year has been scrapped. Intel says it now hopes to introduce it in 2014.Sony’s plan has been shrouded in mystery. Like Intel, it has yet to announce licensing deals for any channels — and without those deals, the companies have nothing.

“This time it is really true that content is king,” said Mike Vorhaus, the president of Magid Advisors, a unit of the media consulting firm Frank N. Magid Associates.

Earlier this year, Google showed interest in a so-called over-the-top TV service, too, but those talks have apparently cooled for the time being. (Over the top is a reference to how Internet video is delivered on top of existing broadband lines; future Intel or Sony subscribers would be broadband customers of a wired provider like Time Warner Cable or a wireless provider like Sprint.)

On paper, the pay TV industry in the United States is ripe for revolution. Most Americans subscribe to one of a handful of entrenched providers, like DirecTV, Comcast or Time Warner Cable, but they give the industry dismal scores in satisfaction surveys and they complain regularly about slow customer service. More and more households are supplementing cable or satellite with on-demand streaming services like Netflix and Amazon, which offer movies and episodes of TV shows. A small minority has given up on cable altogether. But most remain subscribed, knowing it is hard to switch providers and believing the others are not much better, anyway.

Intel’s OnCue intends to address those complaints. It would supply customers with the same basic bundle of channels that existing companies do, but it would do so via the Internet and on screens of all sizes, from smartphones to wall-size TVs. Its interface would be smoother than that of most cable set-top boxes, and it would be personalized, so daughters, for example, would see different show recommendations than fathers.

Maybe most important, OnCue would automatically record everything on every channel and save it for a period of three days, giving viewers far more flexibility to watch on their own terms.

During Intel’s demonstrations of its technology for channel owners, the automatic recordings are frequently an “aha” moment. But Intel still has some persuading to do, even inside its own company, where a new chief executive, Brian M. Krzanich, took control in May.

Reports emerged last week, first on the Bloomberg newswire, about Intel seeking partners who could help with OnCue; that is because Mr. Krzanich wants more evidence from Erik Huggers, the executive in charge of the TV project, that OnCue can ramp up quickly once it starts, according to three people with knowledge of the company’s plans.

Intel projects that it needs to sign five million customers in OnCue’s first three years to make the initiative worthwhile, according to the people, who insisted on anonymity to speak freely. It needs scale in part because carriage contracts with channel owners usually guarantee certain minimum payments. Intel wants partners that are already in millions of homes, like Samsung or Roku, to better its chances of getting to scale quickly.

The company is in advanced stages of negotiations with Amazon for one such partnership, according to two of the people. Having Amazon’s on-demand service, called Amazon Prime Instant Video, baked into OnCue would help merge what are now two separate worlds of live and on-demand television. (For example, episodes of “The Big Bang Theory” would appear from both sources — recordings and Amazon’s rental library.) Intel and Amazon declined to comment.

Sony is thought to be a little further along than Intel. During the summer, it was reported that Sony and Viacom, the owner of Nickelodeon and MTV, had reached a tentative carriage deal. But the companies have not confirmed that, and no other deals have been reported since.

Sony’s streaming cable service would be sold through its PlayStation video game console at first, and might eventually span Sony’s product lines, from phones to TV sets. But it does not appear ready for public release yet, either. A Sony spokesman declined to comment on Sunday.

New cablelike services that aim to replace incumbents like Comcast would most likely have to compete on convenience, not cost; newer and smaller providers generally have to pay more for channels than bigger ones do. For Intel and Sony, the services would be peripheral to their core businesses, at least in the beginning, but could give them closer relationships with customers. (Imagine Sony selling one of its $3,000 flat-screen TVs by promising three months of free cable.)

The firms that have talked most openly about Intel and Sony’s plans are the half-dozen media companies that own most of the nation’s television channels. They generally say they are happy to have more customers for their channels.

“We are completely open to selling our product to them,” Robert A. Iger, the chief executive of the Walt Disney Company, said at a Goldman Sachs conference last week. He observed that some “new platforms” were technologically advanced, so Disney and its rivals could “offer customers product that is in many respects more attractive than what we’ve been able to offer before, more bells and whistles.”

The services could help media companies package their content in new ways; through OnCue or through the PlayStation, Disney could create a “Phineas and Ferb” channel, with nothing but reruns of the animated series, or NBC could create a channel for “The Voice.”

But Mr. Iger and his counterparts have to tread carefully, lest they offend the cable and satellite providers that are their main customers. Some of the incumbent providers have recently put up roadblocks for Intel and other over-the-top competitors. Partly for that reason, “no one wants to go first; no one wants to be isolated” while making deals with the Intels of the world, said an executive from another channel owner.

Media companies like Disney also want to make sure that they do not undermine their core businesses, like advertising sales. Intel initially proposed recording everything on every channel for 30 days; that timetable was reduced to three days after some channel owners objected, noting that Nielsen counts only three days of video-on-demand viewing.

Among Intel’s would-be rivals, skepticism reigns supreme about whether OnCue will ever be seen by the public. But analysts expect that something like it — a bundle of channels, live and on demand, streamed online — will bubble up someday, possibly from Comcast, Dish Network or another existing provider.

Mr. Vorhaus, of Magid, predicted that catch-up products like Netflix and Internet cable services like OnCue would “both produce small nicks in the traditional pay-TV guys over time.”

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 (www.heroinnovator.com), 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.

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