Will Intel’s Digital TV Be DEAD On Arrival?

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Intel (NASDAQ:INTC) has been making efforts to float a virtual TV service that could use facial recognition technology to improve the targeting of TV advertising.

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First, a look at what the Intel offering really is: according to an article in the Wall Street Journal the company is developing an Internet-based television service, a so-called “virtual cable operator,” that would offer U.S. TV channels nationwide in a bundle similar to subscriptions sold by cable and satellite-TV operators, and viewed via a set-top box developed by Intel.

Unfortunately, according to a report by Reuters, Intel has come up against a major road block – content. Intel wants to keep costs down by streaming fewer channels targeted at a larger number of viewers. However, the large studios and media providers that control the production and distribution of content are not playing ball. They fear that Intel’s model would lead to unbundling of the content and enable Intel to offer it at a discount to what their cable and satellite customers pay.

This reluctance has led Intel to appoint some media heavyweights to negotiate and conclude these all-important deals that could enable the service to take off. These include Erik Huggers as head of Intel Media, who handled Microsoft’s media before moving on to the BBC. Garth Ancier, adviser, was recently president for BBC Worldwide America. Entertainment lawyer Ken Ziffren and former MTV executive Nicole Browning are also on board as consultants.

Intel needs to make the proposed service a success and thereby secure an entry into the country’s living rooms and onto devices other than PCs, such as set-top boxes, smartphones and tablets. The facial recognition technology could be a game-changer in the way TV user statistics are collected – the current antiquated system operated by Nielsen has long been questioned given the scope for digital collection of data. Intel is seeking to join Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) who are jostling to get into the huge entertainment industry and change its dynamics with innovative and user-friendly offerings that are also cost-competitive.

But this is the logjam – content providers don’t need to offer their stuff at a discount, whereas Intel won’t pay a premium. “They’d love a better deal but they won’t get one,” said Needham & Co analyst Laura Martin of Intel. “The industry has always worked on volume discounts.”

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