What have we learned here:
- To compete on the high end of the multichannel television business, you need to have all the channels. Having any significant gaps in the lineup means your product isn't meeting the expectations of consumers for a super-premium service. So, Time Warner Cable's Internet restrictions with some programmers, even if a super-premium service provider has networks 1-15, gaps in the coverage of networks 16-50 are problematic. TWC CEO Glenn Britt made these restrictions public at the Cable Show in June.
- To compete in the low end of the market, a new entrant must find a way to get more favorable pricing from programmers and there is little reason for the programmers to support such an effort.
- If the programmers require Intel to meet minimum subscriber guarantees, that creates additional risk for Intel to enter the business beyond the expense of creating the distribution system and marketing it. Perhaps the programmers are unwise to do this -- after all, if Intel doesn't launch, then the multichannel distribution market (buyers of programming) is less competitive than it is otherwise, and that's not good for the programmers (sellers of programming). On the other hand, the programmers all risk annoying/jeopardizing their relationships with the current customers by selling to an OTT provider -- this is new territory and this threat/potential threat has been recognized by distributors for at least a decade. If programmers are going to antagonize their core customers, they might reasonably expect that Intel makes it worth their while. Additionally, there may be incremental costs to distribute their service over the Internet -- programming costs, creating a separate feed with separate advertising, etc.
- The opportunity to compete with the multichannel incumbents may be smaller than Intel thought when they first pursued this effort. In the last year, it appears that the multichannel subscription television business has peaked, at least in terms of number of subscribers.
- Perhaps an executive with experience outside the US was not the best choice to lead this business. The media and television businesses are still highly provincial as opposed to international. All of the problems that Intel has encountered were well known to me and likely dozens of other people with long histories in the US multichannel business. For clarity, I don't know Erik Huggers at all and have never heard anyone speak ill of him in any way -- my point is based solely on his CV. Having lived in the UK, I can say that its television marketplace is very different from that in the US in a number of ways -- the huge role of the public broadcaster (BBC), the national orientation of the media as opposed to local, the dominance of DBS (BSkyB) over cable in market share, the requirement that facilities-based Internet providers wholesale their infrastructure to competitors.
- Any OTT video service faces the potential threat that limits on the amount of data a typical home broadband customer might consume could make using the video service (or using it extensively) impossible or cost prohibitive. This uncertainty certainly (pun intended) makes a big investment in a new business more problematic.
Updated (30 October 2013): According to Peter Kafka at AllThings D, Verizon is in talks to take Intel Media off of Intel's hands.
Updated (21 November 2013): According to Reuters' analysis, For Intel, Hollywood dreams prove a leap too far.
Updated (26 November 2013): According to Bloomberg, Intel is asking for $500 million for Intel Media/its OnCue assets