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Verizon Snatches Intel Media Assets

Alan Breznick
1/21/2014
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In another move to boost its cloud-based multiscreen video capabilities, Verizon plans to buy the assets of Intel Media and integrate them into its FiOS TV and mobile media operations.

Verizon Communications Inc. (NYSE: VZ) announced early Tuesday morning that it will buy the intellectual property rights and other assets behind Intel Media's OnCue Cloud TV platform, including the 350-employee unit of Intel Corp. (Nasdaq: INTC) working on the platform. Terms of the deal were not disclosed.

Intel, which has been shopping around OnCue since the early fall, had reportedly been seeking $500 million for the servers, set-tops, and software that would have been the foundation of a new over-the-top (OTT) pay-TV service. But, with such other potential suitors as AT&T Inc. (NYSE: T), Samsung Corp. , and Liberty Global Inc. (Nasdaq: LBTY) reportedly dropping out of the bidding, industry observers believe that Verizon may have snapped up Intel Media from the chipmaker for considerably less. (See Intel Kissing OTT Goodbye?.)

With the purchase, expected to close by April, Verizon intends to move even more quickly into cloud-based delivery of video services, both over its FiOS fiber-to-the-premises (FTTP) architecture and its wireless network. In the press release announcing the buyout, the company said the deal "will accelerate the availability of next-generation video services, both integrated with Verizon FiOS fiber-optic networks and delivered 'over the top' to any device."

Further, Verizon said it expects to use OnCue to "integrate IP-based TV services with FiOS video to further differentiate FiOS video from traditional cable TV offerings and reduce ongoing deployment costs." With OnCue on board, the telco also said it expects FiOS video customers to "benefit from elegant search and discovery, interactivity, and cross-screen ease of use, integrated with the Verizon Wireless 4G LTE network."

On the company's year-end earnings call Tuesday morning, Verizon CFO Fran Shammo elaborated a bit further on the deal in response to analyst questions. Shammo said Verizon executives looked at either buying a property like OnCue or building their own cloud-based TV platform. In the end, they decided that buying OnCue was the better way to go.

"This really accelerates us," Shammo said. "We are positioning ourselves strategically."

But, as in the past, Shammo indicated that Verizon still has no plans to go beyond its wired footprint and launch its own national OTT video service. Verizon now covers nearly 19 million homes with its FiOS network, with no plans to expand it further.

Notwithstanding the company's rhetoric, some industry observers are not sure exactly what OnCue gives Verizon that it didn't already have. With its previous FTTP, wireless, and content assets, plus its recent pickups of cloud-based video specialists EdgeCast Networks Inc. and upLynk, Verizon had already been thought to possess the capability to deliver cloud-based video and OTT services. (See Verizon Beefs Up TVE Unit and Verizon To Buy EdgeCast.)

The key to the deal may be the software and user interface that Verizon will gain from Intel. While FiOS TV continues to gain new customers, its user interface has not been upgraded much in a while. Meanwhile, such key cable rivals as Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) are now deploying cloud-based guides to their video subscribers. (See TW Cable Beams UI to Cloud.)

Verizon said it aims to retain "substantially all" of the 350 Intel Media employees in Santa Clara, Calif. Most notably, that group includes Intel Media's current management team, which is headed by Erik Huggers, corporate vice president and general manager.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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KBode
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KBode,
User Rank: Light Sabre
1/22/2014 | 1:33:37 PM
Re: It was a huge mistake for Intel from the start
There's a general animosity between cable, broadcast and Netflix, and I'm not sure either Verizon or AT&T feel differently. A lot came from the network neutrality fight, and more recently Netflix's naming and shaming of under-performing ISPs (or ISPs that refuse to partner with their CDN). AT&T wants nothing to do with the OTT market, and Verizon seems like it would be a point of pride to dethrone Netflix, not acquire them (and a lot of duplicate CDN assets).

That said, Verizon isn't very good when they try to create "me too" services. It's simply outside their comfort zone and they're not very good at innovation in content (with a few exceptions, like the FiOS set top). So even if they did try to create a Netflix killer I'm not sure they'd pull it off.
brookseven
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brookseven,
User Rank: Light Sabre
1/22/2014 | 10:50:54 AM
Re: It was a huge mistake for Intel from the start
 

Kb and others,

I agree with you about Netflix and as I have posted in other places, I view VoD as competing with Netflix.

But here is my question.  If I was say AT&T or Verizon and really wanted to get into OTT in a big way, wouldn't just be simpler to buy Netflix?  More expensive than trying to rebuild Intel assets, but you would be big right now.

seven

 
KBode
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KBode,
User Rank: Light Sabre
1/22/2014 | 9:42:34 AM
Re: It was a huge mistake for Intel from the start
"Can Verizon make a go of it?  Possibly, but given legacy services with high margins, there are disincentives to aggressively market OTT services.  In general, I have observed that most telcos and MSOs do not compete effectively against subscription style services like Netflix - not sure if it is the pricing, UI or library, but most seem to be inferior offerings."

It's kind of unfortunate because they're perfectly situated to be the ones that finally are able to be disruptive with an OTT play, and I've read numerous reports over the years indicating they've at least considered it. A national core network, wireless assets, their RedBox venture, an existing relationship with broadcasters....

It's a shame that despite all this the end result will be more of the same simply because they're afraid of upsetting the legacy apple cart. I think such a service would be immensely profitable in time, but investors and these execs lack patience (see the endless hemming and hawing on FiOS rate of return speed for only one example).
David Dines
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David Dines,
User Rank: Blogger
1/21/2014 | 7:26:02 PM
Re: It was a huge mistake for Intel from the start
Alan, I am not sure, but I would venture to say that since they own the infrastructure and have the customer relation, they could have a cost advantage and the abilty to offer new or enhanced services. It will be interesting to see how they package / price it and their business model.  
albreznick
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albreznick,
User Rank: Blogger
1/21/2014 | 6:08:41 PM
Re: It was a huge mistake for Intel from the start
Yep, David. i agree about Intel. Always wondered what they were doing in that spaceto begin with. Now Verizon seems to think it knows something the other players don't. Any idea what that would be?    
DanJones
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DanJones,
User Rank: Blogger
1/21/2014 | 6:07:06 PM
Re: What will the mobile applications be?
Eventually, not sure exactly what it would look like yet.
albreznick
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albreznick,
User Rank: Blogger
1/21/2014 | 6:06:21 PM
Re: What will the mobile applications be?
So when do you think Verizon might actually do something with broadcast LTE, Dan? And what would it look like?
David Dines
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David Dines,
User Rank: Blogger
1/21/2014 | 5:13:54 PM
It was a huge mistake for Intel from the start
It was clear from the beginning that the chances of success for Intel were between slim and none.  Beyond the practical and obvious obstacles to making a service successful, this service is so far beyond their core competency that it makes one wonder how decisions are vetted.

Can Verizon make a go of it?  Possibly, but given legacy services with high margins, there are disincentives to aggressively market OTT services.  In general, I have observed that most telcos and MSOs do not compete effectively against subscription style services like Netflix - not sure if it is the pricing, UI or library, but most seem to be inferior offerings.

It will be interestimg to see how Verizon does with it.
DanJones
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DanJones,
User Rank: Blogger
1/21/2014 | 2:20:30 PM
Re: What will the mobile applications be?
Well, Verizon *is* starting to get it together for broadcast LTE...
MarkC73
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MarkC73,
User Rank: Light Sabre
1/21/2014 | 1:30:45 PM
Re: What will the mobile applications be?
Totally agree with you KBode.  I don't think they (content providers) even know what a new model would look like, ala carte channel selection let alone OTT.

So we need someone to do what Steve Jobs did with the music industry?  Well Sorta but not really, we do someone to push a new model and change the way content was distributed to the customers, but the music execs were also in a panic.  Today, content providers seem to be in control of the distribution still.

Thoughts on what the catalyst will be?
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