Verizon to Intel Media: Hey chip-fryer. Guess who can help you with OTT TV?
60 million antennas to eliminate a retransmission fee? We think NOT
While many of us spend time talking about the technology alternatives that can or will be used to bring content to the masses over the internet, and especially to portable devices – companies like Intel, Verizon and all the US cable TV companies spend more time wondering about the business model that will go with that technology.
If you discount everything that has been written about Intel Media since Erik Huggers was first tempted away from the BBC iPlayer business, except what has been said on the record, then you would have a very poor level of detail about just how Intel spent hundreds of millions of dollars chasing the pipedream of OTT content, spurring a new world order in technology content delivery.
Most things said about Intel Media have been guesses, right up until the moment that it delayed its content deals at CES this year, and showed an incomplete service offering. Now it is down to another rumour to decide its fate with All Things D reporting that Intel Media may be sold to Verizon.
If you think about it, this is Plan C for Verizon, if not Plan D. It bought NFL phone rights, and that cost it a lot of money. But that will barely get portable devices switched to a Verizon channel for more than a couple of hours a week, triggered by its LTE Broadcast delivery to be started at this year’s Superbowl.
The great bulk of that deal has been about how to deliver it technically within the arena, but of course that was never the entire plan. We know that Verizon has 100 use cases in its LTE Broadcast team, and that delivering the NFL is just one of them.
It now turns out that delivering the Outerwall RedBox service as Redbox Instant was only one of the plays that Verizon has made in content, it just happened to be the first. If you add the fact that it negotiated to bring the TV Everywhere services of Comcast, Time Warner Cable and others via the same route, then taking a holding in Intel Media makes a lot more sense. It becomes its third content effort, triggered perhaps directly after the fourth deal with cable fell apart over the Summer, something that came to light last week.
Yes, but how do we make MONEY with this thing?
If you were looking for a model for the Intel deal you need to look no further than Redbox Instant – a 70:30 or similar split as a partnership, and again the reasons would be clear to both sides – Intel does not have the cojones to spend a few billion dollars on content deals that it might see turn into ash, and a failed attempt at competing with Cable. At least not on its own. But Verizon which has already made the bulk of its investment – a shift to LTE and LTE Broadcast and an early upgrade to LTE Advanced and a rapid US build out of small cells on the back of content delivery – needs only to offer Intel the route to market, and take the Intel OnCue service not only over fixed OTT lines, but over wireless connections too, and in parallel with its other big bets on NFC live sport and RedBox Instant.
We said when Verizon signed up with RedBox that this was really about an infrastructure play – build a network fit for video delivery, but make sure it would get big video delivery fees, by signing up the largest US consumer of data in Netflix. Having failed to do that, go to the second largest video delivery system on the market and partner with them – Redbox. Now buy rights to the largest US live event, and regular set of live events. That was plan A and Plan B.
Would you believe this is Plan D for Verizon?
Now that its talks with US cable have broken down (Plan C), Verizon has slipped to Plan D, which is to partner instead with someone that will go up against cable. It has the power to reduce the network delivery issues of Intel to both fixed and portable devices, and that makes Intel’s job of signing content less of a mountain to climb. If Intel Media had to pay for content, but doesn’t have to find network resources or find a route to market to millions of consumers, then the burden of paying more for content is easier to bear.
Verizon had a choice of Apple, Google or Intel to speak to next after the cable delivery deal fell apart. Apple has to retain the goodwill it has at AT&T, Google has always been a network owners' enemy, but even so some negotiations for its channels and YouTube may still be ongoing. However, Intel always had to be the favourite here. And there is always the FiOS channels to be renegotiated for out of home viewing and the chance that Netflix could still come into the picture at a later date.
This new Intel deal still has to close and it may not, but the ingredients are there to create a content behemoth in the US built around multiple OTT offerings, a stable fixed line network and unique wireless assets which hardly use any Wi-Fi. Cable will go down the (mostly) Wi-Fi route and AT&T has said it will cover every move that Verizon makes, but it doesn’t want to play the pioneer.
Expect paid online content bundles, in and out of home, to be on offer, wrapping VoD (movie and TV series) Live sport (exclusive and shared) and some Linear TV channels, in small, granular chunks, delivered both over LTE and LTE Broadcast and what little Wi-Fi Verizon can muster, as well as FiOS broadband. In a way this it is the TV Everywhere offering of Verizon, and it has gone down a very different route to US cable.
All Things D said people familiar with the talks are unsure whether Verizon will take over control of Intel Media, or if Intel will maintain a piece of the web TV project or a say in its operations. We think it will retain a minority share and that whichever of them runs the service will employ Huggers and his 300 strong team.
Cable will redouble its efforts to prevent broadcast content partners sharing content they buy with a new partner this powerful, which is perhaps why the recent round of contract renewals have been so bit-terly fought, with most content owners wanting to be contractually free to sell OTT, regardless of what cable operators pay for retransmission.
In particular companies like CBS have said that they wanted the online rights for themselves, and will only give out non-exclusive online rights to cable companies. In reply the cable companies have taken the position that US national broadcast networks like CBS should NOT be paid so much, due to the fact that Aereo has been al-lowed to offer their programs for free.
So another piece in the news this week, the case of DTH market leader DirecTV, as well as Time Warner Cable and Charter Commu-nications, all talking collectively about copying Aereo in order to avoid paying billions of dollars in retransmission fees.
Now this is as much the Cable operators not really wanting to pay less, and wanting Aereo not to get away with paying nothing. They feel that either they can pay less or nothing at all to carry pay TV, or that this will apply pressure to the Supreme Court to rule in favor of the National Broadcasters – CBS, Fox, Disney and NBC – so that at least the cable companies can continue to have this content exclusively. We don’t think that is going to work.
Look at the technical issues for a second: can the cable companies really set up 60 million antennas, with each one connected to DOC-SIS internet lines, in order to eliminate these retransmission fees? Of course not, because it would saturate their broadband networks and force them to move to full IPTV delivery sooner.
However it would change the financial equation of when the shift to IPTV makes most sense, if it means that when they move, they also lose retransmission fees. It would, at the same time make the broadcasters far weaker financially, and that would mean a bigger differentiation between cable networks and free to air broadcast networks – which works in cable’s favoUr.
This in turn puts more and more pressure on the broadcasters to resolve this issue, either by buying Aereo, or setting up free internet access to their TV channels, the same way as has been achieved in every other country in the world except the US.
Aereo charges $8 a month for online access to broadcast TV, and re-ports say that Time Warner Cable has even considered buying Aereo. It could then use the intellectual property of how the Aereo system works, to place a hurdle in the way of other companies going down the same route. As retransmission rights are renegotiated, it looks like they will dou-ble to over $6bn a year over the next five years or so, and that increase is certainly worth going to court over.
Copyright © 2013, Faultline
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