Market Shy

In Stelter’s article, “Intel and Sony Ambitions for Internet TV Services Meet Skepticism”, in The New York Times, the author describes the reluctance from Intel’s management to launch its online TV streaming service, OnCue. This seems strange given the success of Netflix and Amazon, as well as the growing demand from TV services provided to computers and mobile devices. Customers are becoming increasingly dissatistfied with their in home TV provider, and are supplementing that service with online providers, or even switching altogether. OnCue is a TV streaming service, however it has some crucial changes that are aimed to solve some of the problems with TV streaming services that are causing consumer dissatisfaction. Unlike in home TV streaming, it is availale on any device, all shows from all channels are recorded and saved up to 3 days for viewing flexibility, and it would also be personalized to display different recomendations for different users.

So why the reluctance to launch OnCue? There seems to be some significant barriers to entry, or rather barriers to be the first TV streaming service to mobile devices. According to Stelter, “Intel projects that it needs to sign five million customers in OnCue’s first three years to make the initiative worthwhile… It needs scale in part because carriage contracts with channel owners usually guarantee certain minimum payments. Intel wants partners that are already in millions of homes, like Samsung or Roku, to better its chances of getting to scale quickly”. Apparently, there are large fixed costs vital to launching into this industry. Intel needs to make strategic partnerships and then use these partnerships to acheive its minimum quantity sold in order to cover its fixed costs. If OnCue does not get five million subscribers, then their revenue will not surpass their costs and they will be making negative profits.

It is hard to predict if TV streaming to multiple devices will be successful. Either it could be a huge flop and the first to launch its service could end up losing money. On the other hand, if the service replaces the current methods of TV consumption, then it could be wildly successful. If OnCue is successful, then Intel could potentially have a monopoly in the market for some time, and create barriers to entry for other firms. This is providing the prospective firms with a dilema. Stelter described an executive channel owner as saying, “no one wants to go first; no one wants to be isolated”. How can Intel predict if OnCue will be successful or not? Is the gamble worth the potential failure?

2 thoughts on “Market Shy

  1. They might be holding off because their potential competitors are making significant strategic moves to gather larger shares of the market. With a product like Netflix or Amazon prime, you figure a consumer is going to pick one and stick with it. Netflix has been striking deals with companies like TiVo to offer Netflix through TiVo boxes (not to mention TiVo is a potential competitor). The TiVo-Netflix blend has only started in Europe, but Netflix CEO, David Wells says they plan on expanding this service.

    “We would love to reduce the friction to the end consumer, and to be available via the existing device in the home which is the set-top box,” Wells said.

    Perhaps these recent developments and potential for increased competition are the barriers to entry that are scaring Intel.

  2. In the background, content providers seem to demand minimum payments – they won’t let you and me each contract directly with them for their content, and they don’t want to antagonize firms who are currently paying them money.

    The TiVo angle is nice, co-opt when you can. It not only removes a potential competitor, it’s a barrier to entry if you can get exclusivity.

    Note that in Japan you’ve been able to watch TV and the like on moblle devices for may (10??) years – it was possible when I lieved there in 2006-7, and I assume the technologies are now far better. Europe also tends to be ahead of the US in such things…

Leave a Comment!