2014/02/06 Not a Huge Surprise: Verizon Acquires Intel’s OnCue TV Service
By Mike Paxton
Following several weeks of industry speculation about the future of Intel’s streaming video service, Verizon confirmed last week that it was purchasing the assets of Intel Media’s OnCue service. After announcing the acquisition, Verizon executives said they will use Intel TV to “accelerate the availability of next-generation video services” on its fiber-optic networks and deliver over-the-top online video services.
Verizon noted that it would also receive all the intellectual property and other assets associated with OnCue and it will try to retain the 350-person development team. The unit will continue to be based in Santa Clara, California.
Over the past month, a number of media reports highlighted that Intel was attempting to sell the unit for as much as $500 million. While neither company disclosed the deal’s actual value, sources close to the deal have told SNL Kagan MRG that the selling price was “just under” $200 million. Intel’s OnCue TV service was supposed to herald the company’s move into the media world, but the semiconductor manufacturer announced last year that it was looking for a buyer for the project.
Erik Huggers, the general manager of Intel Media, had said last March that his goal with Intel Media was to launch a service that “incorporates literally everything” and would allow live television to be streamed over the Internet. But those plans changed after Intel appointed a new Chief Executive Officer, Brian Krzanich, in May 2013 to replace the retiring Paul Otellini. With Krzanich at the charge, Intel decided to refocus its energy, and its investment dollars, on its core semiconductor business.
This strategic shift made Intel Media expendable, and last week’s announcement clarified its fate.
In the immediate aftermath of the Verizon announcement, there was a great deal of media speculation about Verizon potentially leveraging the acquisition to create a “virtual” pay-TV service provider. Or in other words, Verizon would use Intel Media’s platform to create and market a full-blown pay-TV service outside of its existing FiOS territories.
However, this potential roadmap was pretty much scotched by Verizon Chief Financial Officer Fran Shammo during the company’s fourth quarter earnings call. According to Shammo, Verizon plans to integrate Intel Media and its OnCue platform into its current FiOS video service. This would enable the company to speed up its multiscreen IPTV transition, while also creating “closer ties” with Verizon Wireless’s 4G/LTE network.
It also should be noted that Verizon’s FiOS TV service currently functions similarly to a cable TV operator, using QAM/MPEG transport to deliver video services to the TV. The acquisition of the Intel Media assets will also ostensibly allow Verizon to “gain control” of its future IP video hardware and software platform, and better position the company to compete with the likes of Comcast, a cable operator who has been investing aggressively in its own next-generation, IP-capable X1 video platform.
MRG Analysis
Last week’s announcement that Verizon was acquiring Intel Media and its OnCue assets wasn’t a huge surprise. Details about the potential acquisition had been leaking out for weeks, and sources from both the tech industry and the pay-TV industry seemed to know a quite a bit about how the final deal would be structured long before the final announcement was made.
One element of the acquisition that was significant was the rumored price of the deal. Intel originally announced that it was seeking in the neighborhood of $500 million for its OnCue assets, although it reportedly settled for just under $200 million. To MRG, this seems like a fair price that acknowledges the value created by the efforts of Intel’s Media group.
While some industry observers have characterized Intel’s sale of its OnCue assets as an effort to “dump” a bad idea, we believe Verizon’s acquisition underlines the fact that Intel Media did manage to succeed in the development of a viable video delivery service platform. Based on discussions with several sources close to Intel and Verizon, the OnCue assets are viewed as having both measureable market value and solid potential for integration into Verizon’s existing FiOS TV service.
It is also relevant to point out that Intel’s OnCue service is just the latest in a series on video-related acquisitions for Verizon. In December, the company bought EdgeCast Networks, a leading content delivery network company. In November of last year, it acquired the assets and operations of upLynk, a company that supports more efficient video uploading and encoding for both live and on-demand video.
Source: MRG Analysis
