Intel on Tuesday announced an agreement to sell its TV business to Verizon Communications for an undisclosed sum, giving the telecom giant an edge in the market to deliver live television over the Internet.
The deal spotlights the growing importance of video content delivered over the Internet rather than by broadcast or cable-TV technology. Verizon plans to use the Intel Media technology to deliver video over both its Fios fiber-optic home broadband service and its 4G wireless network service.
"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," said Verizon Chairman and Chief Executive Lowell McAdam in a statement. "Verizon already has extensive video content relationships, fixed and wireless delivery networks, and customer relationships in both the home and on mobile. This transaction provides us with the capabilities to build a powerful, capitally efficient engine for future growth and innovation."
The companies didn't say how much Verizon paid for the Intel Media assets, but earlier reports pegged the price between $200 million to $500 million. And industry sources estimated the value of Intel's TV business at about $300 million. Bloomberg, meanwhile, said that Verizon paid less than $200 million for the TV service.
Intel Media, led by former BBC executive Erik Huggers, had worked for two years to build hardware and software that would let users watch live TV, recently aired content, on-demand programming, and other content in their homes and on mobile devices. The subscription service, dubbed OnCue, would deliver the programming over a broadband Internet connection, known as "over the top," and it would launch by the end of 2013, Intel vowed.
Intel almost made it. The company had created the product, developed its marketing plan, and got close to signing deals with big content companies when its new CEO decided to refocus on Intel's core chip business. Brian Krzanich, who took over the top job at Intel in May, wanted Intel Media to find a partner for its TV service. Soon, the quest became finding a buyer.
The sale allows Intel to focus its attention and resources on computing segments ranging from data centers to the Internet of things, Krzanich said in a statement Tuesday.
"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 said.
Everyone from Samsung to Verizon rival AT&T talked with Intel about its TV business, according to people familiar with the matter. Verizon soon emerged as the frontrunner because its plans for the Web-based TV market closely resembled Intel's vision, those people said. Video is expected to become a bigger part of mobile and Web usage. While traditional wireless providers could benefit from the spike in traffic, they're trying to figure out other ways to profit from the video surge.
Buying Intel's TV business gives Verizon a big boost in releasing a Web-based TV service. The company will be able to leverage the hardware and user interface that Intel created while figuring out distribution and finalizing content deals. Verizon will be able to offer a service much faster than starting from scratch on its own.
Verizon and Intel -- including their CEOs -- negotiated over the course of about three months to reach their deal, one person said. Now, it's up to Verizon to decide whether to pick up where Intel left off with its content negotiations or start over on its own. Intel was close to programming deals with enough content companies that its service would have launched before the end of the year had Krzanich supported the plan, people familiar with the matter said.
In addition, Verizon has a huge subscriber base. Its Fios footprint isn't as broad as what some of its rivals possess, but the company's subscription numbers have grown quickly. In the third quarter of this year, Verizon added 173,000 Fios Internet connections and 135,000 Fios video connections. The company had a total of 5.9 million Fios Internet and 5.2 million Fios Video connections at the end of the quarter. Then there's Verizon's huge mobile subscriber base, another group that could be interested in its TV services.
Verizon also has formed partnerships and made several acquisitions to boost its video offerings. Last year, the company formed a joint venture with Coinstar to offer streaming and downloadable video through RedBox. And Verizon last month acquired upLynk, a TV cloud company whose technology makes it easier to upload content for live, linear, and video-on-demand viewing. Then earlier this month, Verizon reached a deal to buy EdgeCast, a content delivery network that helps distribute content more efficiently.
Intel Media employees will become Verizon employees but will remain in Silicon Valley. The 350 employees had been based at Intel's Santa Clara, Calif., campus. Intel Media executives will continue running the company after the deal closes.
Updated at 7 a.m. PT and 9:40 a.m. PT respectively, with Intel comment and possible deal price.