A tech giant like Intel, which has a $17 billion cash stockpile and a few big ideas, should be able to make a giant splash in the television business. Then you remember who they have to deal with just to get into the pool.
Intel is planning to launch an IPTV service called OnCue later this year that promises to stream live television over the internet. OnCue will be an over-the-top service, meaning that it will require only an internet connection — presumably a pretty fast one, too — and not a cable TV subscription of any sort.
On paper, it’s a great idea. People are starting to turn away from pay TV services, and offering an alternative should be attractive to all sorts of customers. What’s more, Intel is reportedly offering media companies a 50% to 75% premium over their usual subscriber fees to make their channels available on the OnCue service — something that would seem extremely attractive to media titans on the surface.
So why doesn’t Intel have any content deals in place yet?
For starters, Time Warner Cable is up to its old tricks again. The cable incumbent is throwing both incentives and threats at media companies in order to keep them from doing business with Intel, Apple, Google, and other deep-pocketed tech companies working on IPTV services. Comcast, Charter, and AT&T are reportedly making similar moves. It’s exactly the sort of anti-competitive maneuver you would expect from cable companies, which thrive on a lack of competition. Two years ago, Time Warner Cable convinced the North Carolina legislature to pass a law restricting municipal broadband services, largely because it was cheaper for them to pay off politicians than to improve their networks.
Media companies, however, are just as complicit in avoiding deals that would impact the current cable bundle — not just because they fear reprisal from the incumbents, but because an unbundled IPTV future might put an end to many of their channels and, by dint, many of their revenue streams.
Suppose, for example, that Intel approaches various media companies with the idea of making OnCue a TV service that offers channel bundles based on genre — a sports bundle, an entertainment bundle, a kids-channel bundle, etc. — with discounts based on how many bundles you buy. Suppose further that Intel would offer the OnCue Sports Bundle by itself for $39.95/month, and would pay those sports channels the 75% premium they’re reportedly offering.
To potential customers, paying $39.95 a month for just the sports channels and getting everything else from Netflix, Hulu Plus, Amazon Prime, and other online services would be appealing for two reasons: it’s cheaper than the average cable bill, and it gives customers the content they actually want without forcing them to pay for stuff they don’t. Plus, the networks they do pay for would get more money than they would in the cable bundle.
But would Disney be okay with such a plan? Yes, ESPN, ESPN2, ESPNU, and ESPNews, which already receive more than $6/month combined in the cable bundle — a rate that could lead to a carriage fight with Dish Network soon — could get more than $10/month from each OnCue Sports Bundle customer. Great for ESPN. What happens to the Disney Channel and its two sister channels? Or ABC Family? Or the A+E Networks channels in which Disney has half a stake? Would the Mouse sacrifice its other channels to prop up ESPN?
What about Fox? They have reason to deal with Intel, surely, given how much less Fox Sports 1 is getting from carriers than they had planned. Imagine if this tech giant with more money than sense came along and offered a 75% premium on their asking price. Plus, Fox co-owns the Big Ten Network and has lots of regional sports networks that could be included in a deal. That would be pretty big. But then, what happens to Fox News, Fox Business, the FX channels, and the Nat Geo channels? Is Fox willing to cut funding to those channels to prop up sports?
Then there’s Time Warner, which doesn’t have a dedicated sports channel, but does have TNT and TBS, which carry Major League Baseball, the NBA, and the NCAA Men’s Basketball Tournament. Those channels would have to be part of the OnCue Sports Bundle, too, wouldn’t they? And if they were, then what would become of all the CNN channels, or all the Cartoon Network channels? Also, how would OnCue handle HBO, which is practically married to pay TV incumbents?
CBS is in a similar situation, though its recent spat with Time Warner Cable might make it more likely to strike a deal with Intel — even if CBS Sports Network isn’t exactly robust. NBCUniversal, on the other hand, is owned by a cable incumbent, so the chances of seeing the NHL, the Premier League, or any Comcast RSNs in the OnCue Sports Bundle are mighty close to nil.
Because so few media companies own so many channels in the cable bundle, the IPTV future that many tech companies would like to deliver is effectively stifled, and customers who are willing to pay for what they want to watch remain stuck choosing between “paying for everything” and “paying for nothing.” The problem with that sort of thinking, though, is that it ignores the growth of online streaming services, which makes the “paying for nothing” option much more appealing. At some point, big media corporations like Disney, Fox, and Time Warner, will have to consider the offers that cash-rich tech giants like Intel, Google, and Apple put in front of them.
After all, it’s better to cannibalize your own business than to let someone else do it. Just ask the music industry.
