Intel’s New Cable Service Could Cripple Companies Like TiVo and DirecTV
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Intel (NASDAQ: INTC) is mostly known for its computer chips. But soon, it could be a major force in the cable industry.
Intel Media’s foray into the content business
Reports about Intel’s work have been around for months. But on Monday, a Wall Street Journal article offered more details. Intel has dedicated 350 employees to the project, and the service is now in its testing phase. The company plans to launch in select markets later this year.
According to the report, Intel’s service essentially offers customers access to the world’s best DVR. Intel has set up a server farm that will record all TV and keep it for days at a time. Subscribers can then access this content through a set top box.
The exact details remain unknown, but given that it’s being made by a tech giant, the service will probably offer an innovative interface, and ability to access any content directly online.
Pressuring the established players
Of course, this is really nothing new. The established players like Comcast and DirecTV have been offering shows “on demand” for years, and subscribers can watch much of their content by logging onto the companies’ respective websites. Time Warner Cable even has a Roku app.
But for the most part, these offerings are flawed. As both a DirecTV and HBO subscriber, I can personally testify to the clunkiness of DirecTV’s online interface. Sure, I can watch HBO content through DirecTV’s website if I want, but HBO’s own app (HBO Go) is far superior -- it has a better interface, and it’s easier to browse and search for content.
Intel, with a more tech-centered workforce, is likely positioned to deliver the superior web-based experience.
Moreover, the fact that it’s web-based should mean that, in time, it will be available to every Internet subscriber in the US. As it stands, most consumers have limited choices when it comes to their cable provider; Intel would be another option.
Satellite companies and TiVo are exposed
If Intel’s new service is successful, it should be most damaging to satellite companies and TiVo.
A Comcast subscriber who wants to switch to Intel will still have to keep paying Comcast for Internet. DirecTV has no such advantage. As I've written previously, this makes a company like DirecTV more vulnerable to cord-cutting than the big cable players who, for the most part, also control access to the Internet.
As for TiVo, the company’s business model is basically predicated on taking advantage of the cable industry’s interface shortcomings. TiVo’s DVR might be the most advanced on the market, but that isn't saying much.
TiVo’s DVR interfaces with web services like Netflix and Hulu, and allows subscribers to better access content on their tablets.
But by the sound of it, an Intel subscriber would likely have no need for TiVo. Without knowing the details, it’s impossible to say that with total clarity, but TiVo investors should carefully evaluate Intel’s service when it’s finally unveiled.
What about Intel?
But what about Intel itself? Can a foray into the paid content business serve as a catalyst to boost the stock?
Possibly. It might not be enough to offset the decline of the company’s desktop processors, but if Intel’s media project is successful, it should definitely help the bottom-line.
DirecTV is a $35 billion market cap company that brought in over $2 billion of free cash flow last year. Most of that money came from its 20 million US subscribers.
It would be naive to assume that Intel could replicate the business of a company like DirecTV right out of the gate, but if its service does become popular, it is a definitely a business where there’s money to be made.
Intel Media as a stock catalyst
Should Intel’s project turn out to be a popular alternative to the existing cable and satellite providers, it could offset some of the company’s PC-related struggles.
At the same time, it will offer consumers more choices when it comes to paid TV, and therefore should put pressure on the established players. In particular, companies that don't provide Internet (like DirecTV) could be most exposed. Moreover, by the sound of it, Intel’s service will render a DVR like TiVo completely obsolete.
Without knowing the final details, it’s too soon to judge the future of Intel Media. Nevertheless, by all appearances, the company is planning to get into the content game, and investors in the space should keep an eye on Intel’s project.
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Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends DirecTV and Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!