The Wall Street Journal recently reported that Sony (SNE) has executed a preliminary deal with Viacom for its online pay-TV service. Also, many reports in the past talked about Sony developing various alternatives for cable networks. Well, it does look like that the company is planning to roll out its services in the near future with the help of major content providers.
However, Sony is confronted with rising competition and its services need to be unique, as Intel (INTC) also has similar plans like Sony. On the other hand, Apple and Google are keen to get into the paid-TV space, and this could impose great challenges for Sony in the future. Yet Sony is busy in differentiating its new services.
Isn’t it surprising for Sony to get into paid-TV? Not really, because Sony has identified potential market opportunities, thus it can bundle a cable service with its massive consumer electronics business that, on the contrary, will create a new platform for Sony TVs, Play Station consoles, and Xperia tablets. In addition, the company will also benefit from the recent spats between Time Warner Cable and Cablevision that are making it quite difficult to be in this business.
Also, Sony is focusing on creating a new standard for the TV industry with its 4K launch. Sony has planned a streaming service for owners of its 4K sets. It can probably even offer 4K online cable channels to entice consumers to upgrade. Thus, it looks solid with its plans that will bring additional market share for the company.
On the other hand, Sony’s TV business continues to weigh on the company as it is faced with tremendous competition in the market. As a result, Sony heavily undercut its budgeted brands like Vizio, Insignia and Magnavox. This strategic move will definitely help the company to deliver high-tech, high-quality TV service to its consumers with a higher margin. Hence, this could pace the way for Sony to turn the TV division around and yield higher returns in the future.
It’s interesting to see that chip-maker Intel has been more public about its plan for a TV service. The company even reiterated that it is focused on rolling out its online cable service in a few of its markets later this year. Though Intel hasn't unveiled the full details, reports have indicated that the company is building a large server farm to record TV broadcasts. Users will likely have the option to stream TV shows online or watch channels over the Internet.
However, Intel’s motivations for launching such a service aren't as clear as Sony’s. As primarily a PC chip maker, an online TV service does not appear to support Intel’s core business. If it catches on, it could provide a new source of revenue to offset the decline of PC chips, but as a $110 billion company, it likely wouldn't move the needle too substantially.
Perhaps Intel’s move into TV is just a case of having the resources to do it and identifying an untapped market. While the existing cable companies all have various online offerings, they leave much to be desired. As a tech giant, Intel may have the resources to deliver a superior product and win good traction in the market, though the initial response could impact its profitability.
It also offers an alternative to consumers who aren’t happy with the current cable TV service. Intel’s online-based TV service offerings should eventually become available to these unsatisfied consumers and nearly anyone with an Internet connection. In addition, these online services could pose an immense challenge to companies that are dependent on paid TV.
Sony is determined to crack this market that could help drive sales of the company’s electronics business. If Sony was to broadcast content in 4K, for example, it might help drive sales of Sony’s high-margin, expensive TV sets.
Moreover, Sony’s upcoming service, along with Intel’s paid-TV operation, represents a major shift in the paid-TV industry. While Netflix and Hulu might not do it, online alternatives to the traditional content companies could drive away subscribers from the existing players. Companies that aren't major Internet providers, like DirecTV, could be exposed to a wave of Internet-based competition.