Nov 20 Earlier this year, Intel Corp rented
temporary retail space in New York, Los Angeles and Chicago for
a splashy launch of Intel TV, a new Internet entertainment
service that the chipmaker promised could revolutionize the
But when customers walk into those stores this holiday
season, they will not find any set-top TV boxes or programming
services for sale. Instead, they will see ultra thin laptops and
new tablets from a variety of vendors that Intel hopes will help
boost its massive but flagging computer chip business.
The drastic change in plans for the retail spaces follows
the company's abrupt abandonment of a grand plan to become an
entertainment hub in living rooms around the world - a retreat
that has been rumored but not yet acknowledged by the company.
The project faced daunting challenges from the start, and
Intel's new CEO, Brian Krzanich, ultimately decided the company
could not afford the distraction and expense, sources familiar
with the decision told Reuters.
At his first annual investor day on Thursday, Krzanich is
expected to discuss the growing use of chips in everyday
devices, plans to breath new life into PCs, and Intel's growing
contract manufacturing business - but not Intel TV.
Sources close to the project confirmed media reports that
Intel Corp is looking to sell the TV technology, called
OnCue, with Verizon Communications Inc emerging as the
most likely buyer.
An Intel spokesman declined to comment.
Intel's retreat is a disappointment not only to former
British Broadcasting Corp executive Erik Huggers, who led the
project, but also to others in Silicon Valley who saw it as part
of a wave of next-generation digital television products that
might help break open a market tightly controlled by a handful
of cable companies and entertainment conglomerates.
Technology heavyweights including Apple Inc,
Amazon.com Inc Google Inc Sony Corp
and Microsoft Corp all have similar ambitions. Yet thus
far only Netflix Inc has proven to be a major
disruption to the lucrative relationship between pay TV
operators and the entertainment companies that provide them with
THINKING OUTSIDE THE CHIP
Intel, a storied semiconductor company that has struggled to
manage the transition from traditional personal computers to
mobile devices, was always an unlikely player in the digital
television wars. Its traditional strengths are in chip design
and manufacturing, and it has little experience selling consumer
products, much less television programming.
But Paul Otellini, Intel's CEO from 2005 until May of this
year, saw an opportunity for Intel to diversify into a new
consumer business, one centered on a high-tech set-top box and a
slick user interface. The often-clunky hardware and software
provided by cable companies, and the highly controlled structure
of cable packages, seemed to beg for a better solution.
Otellini entrusted the project to Huggers, a veteran TV
executive who all but boasted that he knew nothing about chips.
Huggers, who had originally pitched the idea, developed a
business plan, and soon set up his group in offices with the
flashy look of a media startup on the chipmaker's Santa Clara,
Making his case for Intel TV to the public for the first
time in Feburary 2013 at a conference near Los Angeles, Huggers
assured the audience that Intel would not offer channels a la
carte, an industry buzz word despised by entertainment companies
that count on "bundling" lower rated channels with popular ones.
But Huggers also said Intel would offer channel packages
that "are bundled right," which many in Hollywood took to mean
an attempt to slice off the less popular channels - something
that would not come cheaply or easily.
While Intel never said how much it planned to charge for its
TV service, Huggers billed it as a premium product, rather than
a cut-rate option for consumers hoping to save money by
canceling their cable subscriptions.
Huggers ultimately made only modest progress negotiating
slimmer packages of channels, people familiar with the talks
said. Still, by this summer, Huggers had more than 300 employees
and was testing the OnCue device in the homes of thousands of
Many people who saw a prototype of the device, a nondescript
black box, and toyed with the all-important graphical interface
software, described OnCue as far superior to what is generally
offered by cable and satellite TV companies.
Representatives for Verizon, Viacom Inc, NBC
, CBS, Fox, Time Warner Inc
and Disney's ABC all declined to comment on their
discussions with Intel.
THE NEW BOSS
Krzanich, a manufacturing expert who won the top job after
the Intel board decided to stick with an in-house executive,
never shared Otellini's interest in Intel TV.
Meeting with a group of reporters a month into his tenure as
CEO, he spoke for an hour about his mobile chip strategy. When
pressed about the TV business he struck a surprisingly cautious
tone, saying the company is not expert at content.
Intel's TV project was a distraction to Krzanich, company
sources say. He spent his first six months as CEO focused on two
threats to the chipmaker's core business - a declining PC
industry and a lack of progress in smartphones and tablets.
"It's not wrong for them to look for growth wherever they
can find it because they need to," said Bernstein semiconductor
analyst Stacy Rasgon. "But (Krzanich) has enough on his plate to
While Huggers came close to finalizing deals with some of
the major programmers, according to industry sources on both
sides of the talks, the terms were such that Intel would have
faced upfront outlays in the hundreds of millions regardless of
how quickly the service caught on, the same sources say.
"The problem is Intel's appetite for the size of the
financial risk required to launch," said Rich Greenfield, a
media analyst at BTIG, noting the big commitments to media
companies as well as large consumer marketing and customer
service operations. He pegged launch costs in the hundreds of
millions of dollars but declined to be more specific.
Intel also had to make concessions to media companies that
might have made it harder to sell the service: Viewers streaming
previously aired shows from some networks would not be allowed
to fast-forward through commercials, for example.
Still, Intel TV would have offered far easier navigation,
simple access to archived programming, and innovations in
advertising delivery and personalized services. It would have
also held out the potential for other features that could be
readily implemented with an advanced Intel-powered set-top box
and associated Internet-based services.
Ultimately, Krzanich was not willing to make the bet. Media
company sources say tentative deals with Intel are now on hold
as the chip company seeks a buyer for the service.
Huggers hopes to sell the television project as turnkey
operation, including its technology and engineers, and would
like to see the service launch under a more media-oriented
company, some of the industry sources say.
For Intel, it has been a tough lesson in reinvention.
Krzanich "is a bit more of a realist than Paul was,"
Bernstein's Rasgon said, referring to Otellini.
"They really believed they could differentiate on the
hardware," he said. "What they didn't understand when they
started, because it is new, is it's about the content - not
about the hardware."