Friday, January 04, 2013

Intel's "virtual cable" service: A "cable killer" one week, on life support the next

Two weeks ago, news about a new "virtual cable" service developed by Intel leaked to several outlets. The service was said to use Intel-designed set-top boxes and software to deliver broadcast and cable networks, along with video-on-demand, to televisions and mobile devices via consumers' existing high-speed Internet connections. It would also feature something called "perceptual computing," which would use face and voice recognition as part of the system's user interface. (One possibility is that the system would use a camera to identify the family members in front of the television or mobile device, and automatically select their favorite channels.) The Intel system was to be announced as early as next week's Consumer Electronics Show, and was to be rolled out on a city-by-city basis.

Blogs and websites published breathless stories about how Intel was going to "destroy the cable industry." However, the cablepocalypse lasted only until The Wall Street Journal reported that Intel is delaying the announcement of its virtual cable service for several months, if not indefinitely, because it can't get access to sufficient content. No one should be shocked or surprised that Intel can't get the content it needs; after all, it was widely reported last year that Apple was working on a very similar service, which it too had to rein back because it couldn't get enough content to make it a viable competitor to cable, satellite and IPTV services.

From one perspective, Intel's proposed system is very similar to satellite TV--it would eventually cover the entire country, and I assume that Intel plans to offer local broadcast stations, as Dish and DirecTV do in the U.S. However, there's no legal requirement that broadcasters, cable networks or movie studios do business with Intel. Comcast owns NBC, several cable networks and Universal Studios; it's required to offer its content on reasonable terms to other cable, satellite and IPTV operators, but it has no such requirement to do business with Intel. Cable and satellite operators have made equity investments in some other cable networks over the years; they can influence who the networks license their content to (or don't license it to, as the case may be.) The remaining cable networks and studios have to weigh the revenues they could get from Intel with how Intel might impact their revenues from other distributors. In addition, we don't know what financial terms Intel wants. For example, Intel may want to pay for content as it adds subscribers, while content providers may want Intel to pay a base fee covering millions of subscribers, even if the company might not be able get that many subscribers for years.

In any event, Intel's "cable killer" is apparently on life support, at least for now. Eventually, someone is going to figure out how to get enough content to make an over-the-top Internet video service competitive with cable and satellite. It might be Intel, Apple, Aereo, FilmOn, or a company that doesn't even exist yet. It might require Federal legislation. But, it will happen eventually.
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