Intel isn’t known for surprises. But during the past two years, the company built what could conceivably be the best set-top box on the market, coupled with a whole new way to deliver television content that liberates consumers from the cable TV monopoly. Improbably, the chip maker managed to do something Apple, Google, and Microsoft have yet to accomplish: They created a single box that offered traditional network TV, streaming services, and DVR capabilities, all wrapped up in one service.
It worked great, it was ready to go -- but Intel just handed it all to Verizon.
This week, the chip maker sold both its internal Media team and the On Cue pay-TV service to Verizon for between $200 and $300 million. The deal comes as part of a corporate realignment intended to focus it more on its "core business" -- things like mobile, server, and desktop chips, as well as wearables.
From a practical and even financial standpoint, the move makes sense. Hardware is easier to manage than services, especially a pay-TV service with millions of customers and perennial contract discussions with networks. For a company whose bread and butter has always been processors, On Cue was definitely a risk. But arguably it was a time when Intel needed to take risks. The PC market, after all, isn't what it used to be; Intel was late to mobile devices, and that market is now dominated by ARM. On Cue promised to be for Intel what the Xbox was for Microsoft: an entirely new product, an idea from way out in left field, that opened up new horizons for a tech industry giant.
Intel's former CEO, Paul Otellini, recognized that Intel needed to diversify. Back in mid-2012 he recruited the general manager of Intel Media, Erik Huggers, to head up the company's foray into pay TV. Large players like Apple and Google were reportedly in talks with networks about their own TV service but had nothing to show for it. With Huggers vision and Intel's resources, Otellini thought the company could do something that even Apple couldn't pull off.
Huggers, a 40-year-old native of the Netherlands, had already played a key role in bringing the BBC iPlayer app to life in the UK. It was a huge get for a company known more for silicon than for services. In just a year and a half, the Intel Media team and its On Cue service ballooned from 12 employees to 350 as it raced to build not just a set-top box, but also the software, the backend to deliver instantaneous streams, and even the network deals for content.
In February 2013 Huggers took the stage at All Things D's Dive Into Media to lay out his ambitious vision. Pay TV would be delivered through broadband from Intel's servers instead of via coaxial or satellites. As with cable, viewers would still have to choose a bundle, but those bundles would be smarter: If you were a movie lover, for example, you wouldn't be forced to also subscribe to sports or reality TV networks with these smarter bundles. Best of all, the whole experience was intuitive and wasn't mired in deep, impenetrable menus. Even the On Cue box and remote were elegant and well thought out. The former resembled a smaller, low-profile version of the Kinect while the touchpad remote was shaped to fit perfectly in your hand.
Instead of channel numbers, On Cue used network logos that could be placed in any order and resided along the side of the screen. Selecting a network presented you with current shows, future shows and shows that had already aired. Miss the first 10 minutes of a show? No problem: Intel would store episodes of the networks you subscribe to and serve those streams quickly. In fact, you could go back in time up to three days.
Pricing would be on par with what satellite and cable offered; after all, the networks weren't going to give the up-and-comer any sort of deal. But what Intel Media was counting on was an experience. Like TiVo, it was a quality play, a service that was better than what was already out there. TiVo customers usually pay a premium to use its box instead of the no-name DVR or satellite box offered by pay-TV providers. On Cue was going to take that even further: It was going to out-Tivo Tivo. And the box was ready to go.
The first glimmers of the project's eventual fate occurred in June, when Brian Krzanich, who assumed the CEO position last May, told Reuters during an interview that Intel's new future would not be tied to delivering content to viewers. "We are not big content players," he said. The new boss had spoken, and the On Cue team wondered what would happen next.
The original plan had been to ship the device and launch the service during the holiday season, but soon that plan was scrapped. In late October, it was reported that Intel was talking to Verizon about selling the division outright. After three months of negotiations, a deal was announced. On Cue would join Verizon as it hopes to supercharge its pay-TV service tied to FIOS broadband.
On Cue will certainly help Verizon gain stronger foothold in the living room. With 100 million mobile customers, it has a built-in audience of new TV customers that Intel never had.
According to both companies, the service will be initially added to Verizon's FIOS offerings. One of the more intriguing features of On Cue was the ability to deliver TV anywhere. But in addition to FIOS customers, Verizon sees the possibility of extending the service to its 100 million mobile customers. A spokesperson for the company said the deal will provide both "the platform and skill sets for Verizon to expand the depth, breadth and scope of its video offerings -- both in and outside of FiOS markets, and including mobile offerings leveraging Verizon’s industry-leading 4G LTE network."
In other words, expect On Cue on your phone or tablet, maybe even piped over the broadband of FIOS' competitors.
On Cue media ultimately makes more sense for Verizon as it hopes to make a bigger splash in the pay-TV world. The carrier is better equipped to roll out the service and has 100 million mobile customers that are potential On Cue customers. Intel, by contrast, would have been starting with no customers at all. Even if you have something great, starting with nothing makes for a tough climb.
But -- for a brief moment -- Intel had a rare shot at its own "Xbox moment," a chance to expand its purview beyond the realm of silicon and processors. With On Cue, it could have launched itself as a serious contender in this wild new world of digital television. Instead, as it has for decades, Intel played it safe. That might look nice to investors today, but the future might not be so kind.
