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Intel sees something wrong with the way Americans consume and pay for television. So this week it confirmed that this year it would roll out a live television service delivered over the internet, without a subscription from established video distributors such as Comcast or Time Warner Cable.
But what is the problem, exactly? What is driving customers to "cut the cord." Maybe Intel thinks that the distributors are charging more than they would in a well-structured market, making excess profits but driving marginal customers away. A superficial look at the distributors' financials suggests that this is so. Time Warner Cable had $11-billion (U.S.) in video revenue in 2012, and paid just $4.6-billion for programming. Surely Intel could build a business around slimmer margins than that?
But this is deceptive. Distributors price their goods to earn a return on their network investments. And Time Warner's returns on invested capital, at 8 per cent, or on tangible assets, at 6 per cent, do not look especially bloated. If Intel or anyone else tries to take some of the distributors' returns by moving consumers from buying two of their services (TV and internet) to one (internet) there is going to be an ugly fight. Perhaps Intel is simply betting that this is a fight it can win.
On the other hand, maybe the problem is not what is paid, but what is paid for. Everyone wants to buy programming à la carte, but the distributors force everyone to the buffet: the only option is to buy lots of (mostly unwanted) channels. Remember, though, that this is true largely because content producers want to get as much content as possible in front of viewers, so they can sell as much advertising as possible. If Intel wants its customers to see less junk, it is going to have to pay more for the good stuff.
TV has problems, undoubtedly. What remains to be seen is whether any of them is big enough for Intel to make much money solving.
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