Tuesday, October 1, 2013, 9:51 AM ET|Posted by Will Richmond
Reports surfaced last week that Intel Media's planned OTT pay-TV service "OnCue" has hit a major speed bump, and the company is now looking for potential partners such as Samsung or Amazon to help get the service launched.
I for one was not surprised by the news, as I've regarded Intel Media's pay-TV venture as facing extremely long odds. As well, I view the likelihood of Samsung, Amazon, or anyone else riding to Intel's rescue as being similarly improbable. Since Intel Media reportedly has had a 300-person team working on OnCue for almost 2 years, its potential demise would be an expensive lesson for the company in how hard it is to break into the pay-TV industry.
The trouble Intel is experiencing stems from 2 sources as I see it: the highly interdependent pay-TV ecosystem which rebuffs outsiders, and a series of questionable strategic decisions by Intel Media itself. The fact that a new CEO took over at Intel this year no doubt prompted a fresh evaluation of the project.
Intel's key problem breaking into the industry is that the big cable TV network owners are cautious about striking deals with any outsider who could (operative word is "could") disrupt a status quo that is already under considerable pressure. As well, any deals they would make with Intel would be at full rate card and require minimum payments, creating lots of exposure to Intel if it couldn't meet its subscriber targets. Further, though Intel Media's head Erik Huggers said at the D: Media conference earlier this year that it would offer "flexible programming bundles" to subscribers, content deal terms would make this economically unfeasible to deliver.
Given the power of content suppliers, and other operating/capital costs, Intel Media's ability to introduce a new service at a materially lower monthly cost than existing pay-TV services was likely impossible. So although cost is the top pay-TV subscriber complaint (and therefore the easiest way to gain attention and induce switching, as existing players do), Intel Media couldn't position itself as a "value play," and instead opted to be a "better experience" play (UI, DVR, etc.).
Intel Media should have realized at this point that this positioning would make it very tough to compete effectively. As a "better experience" play, Intel needed to have ALL the cable channels in today's typical lineup (but see above for the Catch-22 there), and it would be evaluated against a very high bar set by companies such as Apple, Google, Amazon, etc. which specialize in customer experience. Even then, getting prospects to pay attention to something new in a saturated market, when it doesn't save them any money, is a tall order.
Compounding things, Intel Media's service would require a proprietary set-top box that subscribers would have to buy or rent (note, it's likely Intel would have wanted to do this anyway, as it is a chip company after all). But the world is already awash in connected devices which are getting cheaper and more capable all the time - the new $35 Chromecast is the best example of this. Inducing a prospect to both switch to an untested service AND buy/rent a device is a very tough sell.
Add it all up and Intel Media was painted into a tight corner: difficult industry conditions, limited content, a value proposition not well-aligned with what prospects seek, expensive new customer devices, etc. Why a company like Samsung or Amazon (which have both placed their own video bets) would want to get involved with OnCue is unclear to me, but we'll see.