[opendtv] Amazon Considering Online Pay-TV Service
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Wed, 22 Jan 2014 07:46:24 -0500
As Intel walks away, Amazon is said to pursue licenses to compete with the
MVPDs.
The strategy could be based on selling the service at break even or a loss,
with profits made by selling merchandise.
Regards
Craig
http://online.wsj.com/news/articles/SB10001424052702304757004579334981130200324?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304757004579334981130200324.html
Amazon Considering Online Pay-TV Service
Live TV Channels Would Compete With Cable, Satellite
Updated Jan. 21, 2014 8:29 p.m. ET
Amazon.com Inc. has approached big entertainment companies about licensing
their television channels for a possible new online pay-TV service, in what
would be a significant expansion of the company's online video efforts.
The new service it has discussed with media companies would offer live TV
channels, such as those available now on cable or satellite TV. Through its
Prime Instant Video service, Amazon now offers various TV shows and movies on
demand for subscribers to its Prime free-shipping service.
Several other tech companies are pursuing similar initiatives, including Sony
Corp. and Google Inc. Intel Corp. said Tuesday it has sold its Internet
TV-related technology to Verizon Communications Inc., which could use it to
offer an online pay-TV service in the future.
The new entrants hope their services will appeal to consumers who have dropped
their traditional pay-TV connections or are looking to do so—whether out of
frustration with outdated technology or rising bills.
After initially declining to comment, Amazon said in a statement late Tuesday,
"We continue to build selection for Prime Instant Video and create original
shows at Amazon Studios, but we are not planning to license television channels
or offer a pay-TV service."Amazon is still in the early stages of discussions
with media companies, and it isn't clear it will move forward, the people
familiar with the matter said. Amazon is also developing a set-top box to
stream video, much like a Roku player, The Wall Street Journal previously
reported.
Amazon has approached at least three big media conglomerates seeking rights to
distribute their channels online, people familiar with the matter said.
Acquiring TV-channel rights has proved challenging for the other companies
trying to launch Web TV services. Media giants that control TV networks and
studios don't want to harm incumbent pay-TV providers, whose payments for
carriage of channels are propelling the entertainment industry's growth.
Those companies seeking to launch new services have struggled to negotiate
licensing terms that would allow them to price their services competitively.
Intel, for example, faced significant roadblocks in its efforts to acquire TV
rights, media executives say, despite working on the project for about two
years.
Amazon has an advantage over some upstarts: It already has relationships with a
range of TV networks and studios that it can use as a starting point for
negotiations.
Amazon invested about $1 billion in content in 2013, according to Cantor
Fitzgerald analyst Youssef Squali. Spending on streaming video, as well as
other initiatives like grocery delivery and mobile devices, has hurt the
company's profit margins.
Launching an online pay-TV service likely would mean higher content-licensing
costs for its streaming video business. Amazon hasn't yet determined its
business model for a virtual cable-TV service, the people familiar with the
matter said.
Tony Wible, an analyst at Janney Capital Markets, said Amazon may be able to
offer an online-TV service "at cost" and make its money selling merchandise
through the TV set. He noted that it "doesn't have a legacy margin structure"
in the pay-TV business to protect. "There's a precedent of them pricing stuff
roughly at cost in order to sell other stuff," Mr. Wible said.
Analysts say companies offering bandwidth-hungry services could face increased
technology-related costs after a federal appeals court decision this month
struck down so-called "net neutrality" rules, paving the way for broadband
providers to charge content companies tolls for quality service over their
networks.
That could affect the business models of streaming video giants like Netflix
Inc. and Google Inc. but also the new entrants in online pay-TV like Sony and,
potentially, Amazon.
Verizon and Intel didn't disclose their deal's terms, but people familiar with
the matter put the price at around $200 million.
Intel had been developing a service called OnCue, which would let users watch
both live and on-demand programming over the Internet. The service was also
designed to record live programming on Intel's servers so viewers could catch
up on shows without a DVR.
The effort involved complex negotiations with content providers, in part
because Intel hoped to record local programming as well as shows developed for
a nationwide audience.
The service fell victim to changing management priorities as Intel decided
OnCue was a diversion from its core computer chip business. Brian Krzanich, who
became Intel's CEO in May, signaled that he was uncomfortable with a project
that relied so heavily on content relationships. He has put a higher priority
on getting Intel chips into smartphones, tablets and wearable devices and
boosting Intel's profitability.
Verizon said it will buy rights to Intel's intellectual property and offer jobs
to the bulk of the company's roughly 350 employees, who work in a separate
building on Intel's headquarters campus in Santa Clara, Calif.
Verizon expects the deal to bring advanced technology features to its pay-TV
service, which is known as FiOS. Intel's technology could improve users'
ability to search for content both on the television set and on a Verizon
smartphone or tablet, where customers can already access dozens of channels,
the company said.
The deal could also help Verizon lay the groundwork to offer an Internet-based
version of pay TV at some point, if it chooses to do so. "Strategically we're
setting ourselves up in order to respond to the ecosystem as it evolves," Fran
Shammo, Verizon's chief financial officer, said in an interview.
The deal is expected to close in the first quarter of 2014 and will require
regulatory approvals.
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