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Why Did Verizon Buy OnCue?

Mari Silbey

There's one thing that's puzzled me ever since rumors of a Verizon deal to purchase Intel Media's OnCue assets first surfaced. And now that the deal is done, I'm no less mystified by it. (See Verizon Snatches Intel Media Assets.)

Many have reasoned that Intel Corp. (Nasdaq: INTC)'s OnCue could give Verizon Communications Inc. (NYSE: VZ) the boost it needs to make the transition to a full IPTV service. That would help the company battle against Comcast Corp. (Nasdaq: CMCSA, CMCSK) and its growing cloud-based Xfinity platform, and it would extend Verizon's footprint across the country in preparation for the day when service providers are expected to compete nationally.

There's just one problem with the logic. Verizon doesn't need Intel to make any of its IPTV dreams come true.

Three years ago at CES, Verizon executive Joe Ambeault told me that the company had already worked to overhaul its infrastructure so it could deliver everything over IP. Ambeault painted the picture of FiOS TV as an app, and he suggested that while many business challenges remained, the technical hurdles to making that idea a reality were already more or less solved.

Fast forward to today and I have confirmation from an expert source in the trenches. Technically speaking, Verizon has the equipment and the ability to deliver television over IP already, even without the OnCue assets.

All of which leads me back to one question: Why did Verizon bother to buy Intel's dying TV service?

My only conclusion at this point is that there's a sexy combination of software and hardware in the OnCue assets that Verizon thinks will give it a more compelling offering for consumers. Despite being a software leader five or so years ago, Verizon hasn't invested much in its TV interface in ages. It could partner to bring its guide up to speed quickly, but I can see why bringing a finished product and more expertise in house would be appealing.

On the hardware front, Verizon's got plenty of set-top options at its disposal. But maybe Intel has invented something new; something innovative like Fanhattan LLC 's tiny little box that connects to a motion-controlled remote.

On the other hand, maybe Verizon just couldn't put its own pieces together for the IPTV transition. Maybe so many of the components are locked up in different corporate silos that it's been impossible for the company to make the logistics work. Maybe that's why the big bosses decided to bring OnCue into the fold instead.

I don't know the reason why Verizon pulled the trigger on the Intel deal. However, at the rumored discount price of $200 million, maybe it also doesn't matter too much. In the end, it's only what Verizon does with the investment that anyone will really care about.

— Mari Silbey, special to Light Reading

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User Rank: Blogger
1/26/2014 | 1:55:48 PM
Re: One man's trash is another man's treasure
I agre, Mari. It's like Europe in the summer of 1914 waiting for WW I to break out. The big question is: Which company will be the Serbian nationalist to assassinate the Austrian archduke? 
User Rank: Light Sabre
1/23/2014 | 4:06:49 PM
Re: One man's trash is another man's treasure
One thought... don't forget how much equipment VZ purchases from other people to deliver their content.  They have STBs from Cisco and Motorola that they pay probably limited amounts of money for.  And VOD streamers from Cisco.  And QAMs from Harmonic for their live channels.  And encoders for those channels from Cisco and perhaps others.  Maybe they have in mind replacing some of that stuff with in house equipment developed by some team they'll put together between in-house and On Cue talent? 

User Rank: Blogger
1/23/2014 | 1:53:16 PM
Re: One man's trash is another man's treasure
Connery- I'm betting on "d". But right now we're in a nuclear arms race with a policy of mutual assured destruction. Nobody's quite ready to go outside their footprint yet, because they know that when they do, all of the other dominos will fall. Eventually (who knows when) it will be all-out war. 
User Rank: Light Sabre
1/22/2014 | 6:37:48 PM
Re: One man's trash is another man's treasure
Yeah its not obvious. 

They can talk about offering OTT nationwide all they want--actually doing it is something else again.  I assume their own content partners would NOT be in favor of such a move, and might even have contractual language preventing it.  Plus what would happen if they were to offer a competitive TV package into a Comcast territory...?  Would Comcast:

a) outright block the service now that Net Neutrality is dead? 

b) rate limit the service so it didn't work very well

c) interfere with the service like they did with torrents before so it didn't work very well

d) do something trickier like raise their peering rates with VZ to accomplish the same

e) simply lower the caps until most people who wanted the service priced themselves out of the equation or found they couldn't stream shows much of the month


I'm not sure, but I am sure Comcast would respond.  And if you think content companies have been difficult about allowing streaming outside the home, and getting such rights has been difficult... wait for this!  Some partners might outright pull their content from VZ at the thought of price competition in TV causing price cuts and thus pressure on their potential earnings.
User Rank: Light Beer
1/22/2014 | 4:00:32 PM
Re: One man's trash is another man's treasure
Perhaps it was done to take them off the market thereby, preventing some other company from buying them, adding to the competition. In other words, a defensive play. 
User Rank: Blogger
1/22/2014 | 1:12:59 PM
One man's trash is another man's treasure
I had the same reaction when I heard the news: Verizon, you're buying OnCue because...why? Because Redbox is doing so well?? (Chortle, choke, cough)

As was speculated in yesterday's LR boards, perhaps VZ thinks the purchase would help an IPTV plan or eventual LTE video play. But it doesn't get over the fact that trying to replicate a full slate of live TV channels through an OTT play is a dead-end strategy. The content rights simply are too damn expensive.


And yet, beyond the on-demand realm of Netflix, Hulu and YouTube, it seems there should be room for some type of OTT play with live TV that would appeal to consumers and meet the selfish needs of programmers and service providers. Now if I could just figure out what that is... 


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