Why Intel Wants to Launch a TV Service…and Why It Will Fail

Intel is in discussions to launch an internet-based pay TV service that would compete directly with traditional cable providers. The Wall Street Journal reported today that Intel intends to sell a set-top box which would access a mix of live and on-demand channels, similar to current cable bundles. On the surface this seems a bizarre strategy for a chip maker known for powering desktops.

Let’s look at what’s going on here

Intel knows that its core PC market is mature, and that growth will come from tablets, ‘connected’ consumer devices, and smart phones. The connected living room (as well as the connected house and car) is fast become a reality and it makes sense for Intel to try to be the one powering all those devices. It also, at least in theory, makes sense to move up the value chain in order to gain control over the user experience and create bargaining power with the Samsungs, Microsofts and Sonys of the world that are fast gaining a foot hold in that connected living room.  Intel has struggled to gain share in this market and last October wound down its efforts to make chips directly for connected televisions.

The pay TV market is ripe for disruption (although not in the near future). If Intel can create consumer demand for “Intel TV”, it can force other hardware and service providers to utilize their technology. This is how Intel became a $100 Billion dollar company to begin with. In the PC wars the “Intel Inside” brand became so strong that as long as a box had Windows and an Intel chip, no one cared about the brand of the computer itself. Intel wrestled margins away from manufactures like IBM and HP, turning the PC into a commodity product housing an Intel chip.

This strategy is all well and good in theory but unfortunately won’t work for several reasons

1. Intel has no direct customer relationship experience. When your cable doesn’t work, what do you do? You call your cable company.  Comcast takes over 400 Million customer calls each year. That is no easy feat. Google learned this the hard way when they tried to sell the Nexus One phone direct (with no live customer support, Google was pounded for months before cancelling the whole project).
2. The Intel brand currently means next to nothing in the entertainment space. The chief complaints about “smart TVs” are around lack of content, poor user interface, and lack of connectivity – not a lack of processer speed.
3. The connected set top box market is already extremely crowded.  Roku, Google, Sony, LG, Samsung, Apple, Boxee, Panasonic and a host of others already make devices that allow you to access internet content through your TV. Let’s not forget Microsoft, which already has connected Xboxes in 57M homes (compared to 23M homes for Comcast, the largest distributor of traditional set top boxes). Those XBoxes use an IBM chip, not Intel.   Now, none of these manufacturers offer a comprehensive content package that could easily replace cable, but that brings us to the most important point…
4. Internet television rights are extremely expensive and notoriously tricky. Most networks don’t actually own the internet distribution rights to all their programming, making licensing negotiations complex, costly, and in some cases impossible.  Why would Intel succeed where Google and Apple have failed? Netflix and Hulu have a 5 year head start and even they can’t offer what Intel is suggesting. I’m not saying it can’t be done, and for sure it will be done in the next 5-10 years, I just don’t think Intel is going to be the ones to do it.