Verizon Buys Intel’s Internet TV Unit, and Telco Plans to Launch Virtual TV Services

Verizon acquires chip maker's OnCue platform, after Intel concluded that entering pay-TV biz was too pricey

Verizon Buys Intel's Internet TV Unit,

It’s official: Verizon Communications and Intel announced that the telco will acquire the chip company’s over-the-top broadband TV division, and Verizon plans to use the technology to spruce up FiOS as well as deliver “over-the-top” TV that could compete with cable and satellite services nationwide.

Terms of the deal were not disclosed. Verizon had been in advanced discussions with Intel on a deal for the division, after the chip maker had made overtures to several parties. Intel originally had sought more than $500 million for the unit, but Verizon offered less than $200 million, the Wall Street Journal reported last month.

SEE ALSO: Verizon Paying About $200 Mil for Intel’s Internet TV Group: Sources

Verizon will acquire intellectual-property rights and other assets that enable Intel’s OnCue Cloud TV platform. Verizon also expects to make employment offers to “substantially all” of the approximately 350 employees in the Intel Media unit, which will continue to be based in Santa Clara, Calif., and be led by its current management team, including GM Erik Huggers.

Deal is subject to customary regulatory approvals and closing conditions and is expected to close early in the first quarter of 2014.

“The OnCue platform and team will help Verizon bring next-generation video services to audiences who increasingly expect to view content when, where and how they want it,” Lowell McAdam, chairman and CEO of Verizon, said in announcing the pact.

“Verizon already has extensive video content relationships, fixed and wireless delivery networks, and customer relationships in both the home and on mobile,” McAdam continued. “This transaction provides us with the capabilities to build a powerful, capitally efficient engine for future growth and innovation. We will have the opportunity to enhance, expand, accelerate and integrate our delivery of video products and services to better serve audiences on a wide array of devices.”

SEE ALSO: Why Cable Operators Might Be Secretly Rooting for Over-the-Top TV Services

Verizon didn’t provide details on when it might launch a virtual pay-TV service, which the telco may launch outside its FiOS footprint, or what it would look like. The company said OnCue will let it develop “next-generation video services, both integrated with Verizon FiOS fiber-optic networks and delivered ‘over the top’ to any device.”

Separately, at the 2014 International CES earlier this month, Sony announced plans to test an over-the-top TV service sometime this year.

Once the Intel transaction is closed, Verizon said, it expects to integrate the Internet Protocol-based TV services with FiOS video to further differentiate FiOS from traditional cable TV offerings and to reduce ongoing deployment costs. The telco also said it anticipates enhancing FiOS search and discovery, interactivity and cross-screen features integrated with Verizon Wireless’ 4G LTE network.

“As far as, would we enable this platform to take us over the top — obviously we have our video digital media services that we have been working on for two and a half years,” Verizon CFO Fran Shammo said on the telco’s fourth-quarter 2013 earnings call. “So, look, we are positioning ourselves strategically to be in a position to competitively compete around the whole mobile-first world and video.”

Intel, after spending more than two years — and millions of dollars — developing the Intel Media project, ultimately didn’t have the appetite to pay the billions required to bring together a collection of broadcast and cable TV programming that would rival current pay-TV services.

Intel CEO Brian Krzanich said the “critical factor in gaining efficient access to content is based on your ability to scale quickly in subscribers and end users, which is why selling these assets to Verizon makes perfect sense, with its millions of FiOS network and wireless customers.” He added, “This sale also enables Intel to further align our focus and resources around advancing our broad computing product portfolio in segments ranging from the Internet-of-Things to data centers.”

Intel ramped up the Internet TV initiative, taking over a building on the company’s Santa Clara headquarters campus. It spent more than two years developing a set-top box and service that would deliver live and on-demand TV programming over the Internet, under the brand name “OnCue,” in a bid to challenge incumbent cable and satellite TV services.

But Intel had trouble clinching programming deals with major media congloms. After Krzanich, formerly Intel’s chief operating officer, was tapped as CEO in May 2013, the company decided that broadband TV was too far afield from its core business — and that the expensive project would take years to achieve a return, if ever.

Huggers joined the company in April 2011. Previously he was the director of BBC’s Future Media & Technology group, overseeing products including BBC iPlayer video streaming service. “We’re incredibly proud of what we’ve achieved,” Huggers said in a statement. “Intel provided us with the technological know-how and resources to develop products and services that will fundamentally change the way we experience TV, and now Verizon gives us access to the marketplace and the ability to scale. It’s the next logical step, and we’re excited about the road ahead.”

Intel had believed its user interface and VOD-centric service, offering a three-day replay of TV shows from a network DVR, would help it win subscribers away from incumbent services. Industry insiders who saw the OnCue menu agreed it was slicker than what’s available through most cable and satellite TV providers.

Another one of Intel Media’s innovations was a camera-enabled set-top that was designed to recognize individual TV viewers, in order to serve up personalized content suggestions and potentially targeted advertising. But the backlash against the idea — fueled by the NSA spying controversy — led Huggers to decide to pull that feature from the device over the summer.

Verizon’s purchase of the Intel Media group comes after other the telco make two other video-related infrastructure purchases. In December, Verizon announced a definitive agreement to acquire content delivery network provider EdgeCast. That came after Verizon announced the acquisition of upLynk, a startup that streamlines the process of uploading and encoding of video for live, linear and video-on-demand content.