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How Intel And Verizon Can Threaten Netflix

April 24, 2014 | About:

Intel (NASDAQ:INTC) is throwing in the towel on its digital TV service. AllThingsD says that the Intel Media team, 300 workers strong, could end up in the hands of Verizon (NYSE:VZ).

The digital media landscape just changed before your very eyes. Should investors in sector giant Netflix (NASDAQ:NFLX) breathe a collective sigh of relief, or should we all run for cover?

Can Verizon go even bigger with Intel's TV team inside?

First up, you should know that Intel actually built something, and it worked. Intel employees have been testing the would-be media service in their spare time for months, and by the thousands. The chip giant is backing off this project because it turned out to be difficult securing media licenses from Hollywood studios.

It's not that Intel doesn't have the capital to make it happen, but the company normally plays in a very different sector. Studio reps can be forgiven for not taking this offbeat side project too seriously, and for giving Intel a hard time at the negotiating tables.

OK, so let's say that Verizon buys this failed project from Intel for a mostly symbolic sum. How does this change Verizon's digital media game?

Even if Intel's homegrown set-top box and the supporting software turn out to be the best thing since sliced bread, it's hard to see Verizon gaining much from owning it. The telecom giant already sells all manner of TV-style media services, mostly through its FiOS fiber-optic broadcast service. It sources set-top boxes from leading manufacturers, and likely won't be too impressed by Intel's hardware or software. And we already established that Intel was unable to build a reasonable content portfolio on its own.

So, if anything, Verizon would get a few hundred highly trained engineers for a song. They'd be ready to join Verizon's bigger digital media efforts, including the Redbox Instant joint venture with Outerwall (OUTR). Whatever prototypes the Intel team, already came up with would be forgotten, with the best features perhaps making their way into FiOS or Redbox Instant over time. It's a nice little win but hardly a game changer.

Outerwall and Verizon already have all the Hollywood contacts they need. They can always use some experienced media engineering talent, I suppose, but the Intel team won't make a game-changing difference either way. I say this as an Intel shareholder with the utmost respect for the company, but the whole media play never made sense in the first place. Which is exactly why it failed. Perception becomes reality, sometimes.

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