Verizon bets on the future of television

  @brianstelter January 21, 2014: 2:32 PM ET
NEW YORK (CNNMoney)

Verizon's purchase on Tuesday of Intel's OnCue television service foreshadows a day when a paying television subscriber will be able to watch any channel on any device, whenever and wherever they want.

It's been a long time coming.

A television subscription is still mostly confined to the living room and tied to infrastructure like an underground cable pipe. You can only buy Comcast (CMCSA, Fortune 500)'s cable service if you live in a Comcast neighborhood; for the most part, you can only watch DirecTV (DTV, Fortune 500)'s satellite service if you're at home. OnCue, and services like it, could change that.

The prototype for OnCue included a bundle of TV channels, like traditional cable, but was delivered over the Internet with a user-friendly interface. Now Verizon will put it to use.

For Verizon (VZ, Fortune 500), the acquisition greatly broadens the company's ability to sell TV packages across the country. Its current FiOS service is well-regarded — at least by the low standards of television distribution — but it has been limited by the footprint of its fiber-optic network: it is available in only 15 million of the 115 million households in the United States. Verizon says FiOS has 5.3 million subscribers.

Related: The day of online cable TV subscriptions is coming

The company has many more Verizon Wireless customers — 103 million at last count, most of whom have smart phones — so it will likely seek to sell an OnCue-type service to them in the future, leveraging its fast LTE wireless network.

Other companies have been working on so-called "over the top television" products like OnCue. Sony, for example, said recently that it would start to test a "cloud-based TV service" later this year.

Intel (INTC, Fortune 500) had a head start: it tested OnCue in thousands of employee homes last year. With a beautiful interface and a better video-on-demand system than anything currently available, the service solved many of the problems that cable subscribers tend to complain about.

When new Intel CEO Brian Krzanich took over last May, however, he concluded that Intel could not commit to a nationwide rollout of OnCue -- Intel didn't have the media experience or the necessary contracts with cable channel owners. Krzanich told the team in charge of the prototype to seek partnerships, resulting in the deal with Verizon.

"The critical factor in gaining efficient access to content" — meaning cable channels — "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," Krzanich said in a statement on Tuesday.

A Verizon spokesman declined to comment on whether its existing contracts with channel owners (like Time Warner, which owns CNN and this Web site) included the rights to start an Internet-delivered service like OnCue. But even if Verizon has to negotiate for new rights, it's in a better position to do so than Intel was in.

More from Brian Stelter: The internet is a threat to the Weather Channel

As envisioned by Intel, OnCue was a nationwide bring-your-own-broadband TV service. You'd be able to sign up if you had Comcast or Time Warner Cable broadband, then stop subscribing to Comcast or Time Warner Cable's competing TV package.

This is how Netflix operates, but it's not how any major television distributor has operated before. (Currently you can't buy Comcast's Xfinity service over the Internet if you have Time Warner Cable broadband.)

So if Verizon sells something like OnCue nationwide, it will break new ground in the television business — and foster new competition, since companies like Comcast would almost certainly start to do the same thing.

A Verizon spokesman said Tuesday that the acquisition gives the company the capability to sell a TV package "both in and outside FiOS markets" and through Verizon Wireless's LTE network. "We will provide more information about these plans at a later date," the spokesman said. To top of page



Join the Conversation

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.