2013/12/11 So Long to Intel’s OnCue TV Service: We Hardly Knew You

By Mike Paxton

It appears that Intel is looking to jettison its much-hyped, yet very secretive, streaming video service.  Several media reports recently stated that Intel is attempting to secure a sale by the end of 2013, with the leading potential suitor being Verizon Communications.

While Intel’s TV service was hinted at prior to this year’s Consumer Electronics Show, it wasn’t until March that more definitive details were released about the project.  Under the leadership of Erik Huggers, who was hired by Intel after successfully driving the launch of the BBC’s iPlayer service, the goal of Intel’s TV service was to provide a pay-TV type of experience over any high-speed Internet connection, which would have made the service a direct threat to existing cable and telco TV services. To support the service, which was to be called OnCue, Intel developed a system that included servers, set-top boxes, and applications that would stream content to phones and tablets, in addition to providing basic pay-TV service.

Source: Intel

Intel began testing the service earlier this year by installing its proprietary set-top box in “thousands” of homes of Intel employees.  Reports from many of the testers noted that the user interface for the service was far superior to the interfaces being offered by other US-based pay-TV service providers.  However, getting the content development community to agree to license their programming to the service reportedly proved to be a challenge that Intel couldn’t overcome.

Both pay-TV service providers and content developers were reportedly leery of OnCue.  The pay-TV service providers were naturally unhappy with the prospect of a potential new “over the top” competitor, while the content developers were skeptical of Intel being able to meet their demands for “fair value” of their programming.

In addition, a number of content developers admitted that they were less-than-anxious to signs deals that might endanger their already stressed relationships with the leading cable and telco TV service providers.

The recent reports about Intel trying to sell the assets of OnCue note that the company is trying to recoup its costs, while still supplying chips to any potential the new owner.  In addition to Verizon, Samsung Electronics and Liberty Global reportedly also met with Intel about acquiring the service, although both of these latter companies are considered to be longshots in terms of actually making a bid for the service.

Multiple sources indicate that Intel has been asking in the neighborhood of $500 million for the service.

MRG Analysis

The attempt by Intel to develop and deploy a new type of pay-TV service has both intrigued and puzzled the pay-TV industry for most of this year.  The idea of a technology company rolling out a service that would offer consumers a new choice in the often clunky and infuriating pay-TV service sector was met with applause from many people, especially those tired of continuous price hikes coupled with indifferent customer service.

However, others in the industry questioned whether Intel had the necessary experience to offer a content-rich, customer-friendly service.  After all, being a consumer-facing service provider was not exactly part of Intel’s corporate DNA.

Still, there were three things that pushed Intel toward shuttering OnCue:

• The content community’s lack of enthusiasm about OnCue.  Intel, like other companies who have recently dipped their toes into the waters of the pay-TV industry (Apple, Sony, Google, Microsoft, et al), found out that signing deals to deliver high-value programming is very difficult.  While a growing number of content developers have been willing to license content to online services like Netflix and Amazon.com, some media executives pointed out that Intel’s OnCue service was different.  More specifically, Amazon and Netflix offer TV shows and movies on demand, while Intel was planning to offer live broadcast feeds.  This would have placed Intel’s service directly into competition with pay-TV service providers, something that made the content community wary of signing deals with OnCue.  In addition, some Hollywood executives highlighted the difficulty of measuring online viewership for ad sales and the robustness of broadband pipes to adequately carry TV channels as concerns for not signing content carriage deals.
• Increasing hostility of competitive pay-TV service providers to OnCue.  While most pay-TV service providers wouldn’t publically comment about OnCue, a number of them privately lambasted the potential of the service.  Key areas of criticism about OnCue included its lack of content and the ability of Intel to successfully support a consumer-facing business model. Last week, TiVo CEO Tom Rogers succinctly summed up the problem that US pay-TV service providers had with OnCue when he noted that the service sought to use “the broadband pipe of the cable operator in competition with the cable operator.  We said for a long time that we see immense complexity with anybody doing that.” 
• A change in leadership at Intel.  One of OnCue’s biggest supporters was former Intel CEO Paul Otellini.  Otellini was a key force behind not only the development of the service, but also the hiring of Erik Huggers to lead the development team.  However, when Otellini retired in May, his successor at Intel, Brian Krzanich, almost immediately ordered a comprehensive review of OnCue to determine its long-term viability.  According to sources at Intel, Krzanich ultimately decided that OnCue was a distraction for the company and redirected R&D efforts away from the service and toward mobile and Internet connected devices.   

With Intel’s move away from the OnCue service, one of the key remaining questions is the value of the service’s assets.  As noted earlier, a number of media reports said that Intel was trying to sell the service for $500 million.  This figure seems a bit high to us at MRG, particularly when the key assets of the service seem to be the user interface and the set-top box architecture.  It will be interesting to see what price the service brings when, and if, the service is sold.  We’ll continue to monitor and report on both OnCue and other emerging pay-TV service models in our Pay-TV research service. 

Source: MRG Analysis