Verizon close to deal to buy Intel’s TV service

December 15, 2013

Verizon Communications is near an agreement to buy Intel’s Internet-based pay-TV start-up, according to people familiar with the discussions.

The deal may be announced as soon as this week, after final details are complete, said the people, who asked not to be identified because the talks aren’t public. Intel, which developed the service called OnCue, began looking for a buyer this year rather than invest in the programming and bring it to market.

Verizon, the second-largest U.S. communications company, will use OnCue to extend its pay-TV offering beyond the geographic footprint of its FiOS fiber-optic service. That could shake up pay TV by bringing more competition to cable firms that dominate territories, as well as satellite companies with wide coverage that lack the Web’s interactive capability.

OnCue is designed to provide pay-TV programming over any high-speed Internet connection, making it a threat to cable-TV services that deliver shows over dedicated lines restricted by territory. Intel’s system includes servers, set-top boxes and applications that can stream content to televisions, phones and tablets.

In the hands of Verizon, the product could help spark a trend toward “hardware light” video services, said Andy Hargreaves, an analyst with Pacific Crest Securities in Portland, Ore. That would let people start, stop and switch video services more easily, and could accelerate a shift toward more interactive advertising and advanced analytics, he said.

Intel, the world’s largest chipmaker, decided to divest the business after its new management opted to focus on selling chips for mobile devices, said one of the people.

Intel delayed plans to begin offering the service to subscribers by year’s end. The company was asking about $500 million for OnCue, people with knowledge of the situation said in November.

Spokesmen for Verizon and Intel declined to comment.

New York-based Verizon has been asking media companies if a streaming product would require new contracts for programming, or whether existing FiOS TV agreements could be amended to include the additional rights, people with knowledge of the situation have said.

California-based Intel fell 0.7 percent to close at $24.29 Friday. The shares have advanced 18 percent this year. Verizon slipped 0.6 percent to $47.84, leaving it with an 11 percent year-to-date advance. Dallas-based AT&T is the largest U.S. communications company.

Intel backed off of its TV efforts under new chief executive Brian Krzanich. He took the reins in May and is focusing on revitalizing its efforts to win orders from mobile-phone and tablet makers as sales of those devices erode demand for its traditional market, personal computers.

Intel’s efforts to create a Web-based pay-TV alternative have attracted criticism from potential competitors, including DirecTV chief executive Mike White, who runs the largest U.S. satellite-
television provider. The main drawback is that it requires customers to get a separate broadband connection, White said, so it’s not a stand- alone service.

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