Verizon Communications Inc. completed a long-awaited deal to buy Intel Corp.'s fledgling Internet TV service, a
diversion from computer chips that fell victim to changing management priorities.
Financial terms weren't disclosed. But people familiar with the matter put the price at around $200 million.
The unit called Intel Media has been developing a service called OnCue, which lets users watch both live and on-demand
programming over the Internet. The service relies on a new set-top box and interface software Intel developed, and was
designed to record live programming on Intel's servers so viewers could catch up on shows without DVRs.
Verizon said it would buy rights to Intel Media's intellectual property and offer jobs to the bulk of its roughly 350
employees, who work in a separate building on Intel's headquarters campus in Santa Clara, Calif.
The deal is expected to help Verizon improve its home cable service, known as FiOS, by improving users' ability to
search for content both on a television set and on a Verizon smartphone or tablet, where customers can already access
dozens of channels.
It also could help Verizon lay the groundwork for offering 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
chief financial officer, said in an interview.
The deal is expected to close in the first quarter and will require regulatory approvals.
Verizon also released fourth-quarter results Tuesday, swinging to a profit of $5.07 billion on continued growth in
both wireless and FiOS customer additions.
The wireless carrier added 1.57 million lucrative contract subscribers, 824,000 of which were phone customers. That
edges out the 800,000 phone customers that T-Mobile US Inc. said it added in the fourth quarter. FiOS, meanwhile, had
slower growth, adding 92,000 video subscribers and 126,000 Internet customers in the fourth quarter.
Intel began the Internet TV effort under former Chief Executive Paul Otellini, who backed a project conceived by
former British Broadcasting Corp. executive Erik Huggers. The effort, which relied on Intel technology as well as TV
experts recruited from other companies, was tested with Intel employees in several cities.
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. Yet Intel had most of the necessary content providers
lined up for a launch of the service in early December, one person familiar with the situation said.
But that plan was overruled by Brian Krzanich, who became Intel's CEO in May and signaled that he was uncomfortable
with a project that relied so heavily on content relationships. He has put a greater priority on getting Intel chips
into smartphones, tablets and wearable devices and boosting Intel's profitability.
Intel last week said it would trim its work force by 5% in 2014, after announcing a profit that missed analysts'
expectations and projecting flat revenue for the year.
In prepared remarks Tuesday, Mr. Krzanich said Intel Media's offerings are "truly innovative" and under Verizon's
ownership could change how people interact with content. Selling the unit to Verizon made sense because of Verizon's
large number of subscribers, he said.
Besides its FiOS pay TV service, Verizon sells Internet access and operates the nation's largest wireless network by
subscribers. Adding a content service delivered over the Internet would take time to negotiate new kinds of licensing
"We talk to content providers all the time about content being delivered in the mobile world," Mr. Shammo said. "But
it's hard for them because it disrupts their business model on linear TV."
Verizon in June announced a deal with the National Football League, under which the carrier agreed to pay $1 billion
for rights to air more NFL games over its customers' smartphones. The NFL agreement was "the first divestiture of how
content was delivered over mobile," Mr. Shammo said, adding that creating an economic model that works for both sides is
"The ecosystem is going to change," Mr. Shammo said. "It's just a matter of how long it's going to take to change."
Dan Cryan, an analyst with IHS, said "low-hanging fruit" of the deal includes adopting the OnCue interface software,
which he characterized as superior to anything on the market. The most attractive option over the long term for Verizon
may be bundling an Internet content offering with higher-margin Internet or wireless access, as the profits on pay TV
offerings have been getting squeezed, he said.
The deal comes on the heels of Verizon's announcement last month that it would buy Web startup EdgeCast Networks for
an undisclosed sum, continuing a string of deals aimed at expanding the carrier's foothold in Internet technologies.
Yun-Hee Kim contributed to this article
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