Intel: The New Cable TV

Intel is considering its own online pay-TV service for U.S. consumers.

According to a report from The Wall Street Journal, Intel has been pitching media companies on a plan to create a “virtual cable operator” that would offer U.S. TV channels nationwide over the Internet in a bundle similar to subscriptions sold by cable- and satellite-TV operators. Intel wouldn’t provide Internet access, which subscribers would obtain separately.

In its presentations to media companies, Intel says it is making its own set-top box to carry the TV service, and it has demonstrated an interface for users to browse programs.

Intel plans to launch a service by the end of 2012, though it faces hurdles such as scarce bandwidth and the high price of TV programming.

The new effort would mark a big shift for Intel Chief Executive Paul Otellini, who has made clear his determination to move the company beyond the computer industry. Those efforts so far have include a series of TV-related businesses that have largely failed to gain traction.

Intel’s maneuvers come as the broader television business undergoes a major shift, with people spending more time watching video on the Internet and mobile devices.

Several technology and electronics companies have considered offerings that would use the Internet to deliver bundles of live or on-demand TV channels. In recent months, Sony Corp. and Dish Network Corp. have held exploratory talks about creating such services. Others, including Google, Apple Inc. and Microsoft Corp.

A virtual cable service could theoretically offer smaller or cheaper bundles than traditional cable subscriptions. Intel, for instance, has talked about offering, say, 50 channels, rather than 150, according to one of the people familiar with the matter. But media companies are likely to resist such shifts, at least initially, because they make money by selling big bundles of channels via cable operators.

Internet bandwidth could be another problem. Some tech companies have retreated from plans to become virtual cable operators in part because of an inability to guarantee enough bandwidth for high-quality video at all times of day, one media executive said. Cable operators, which also sell high-speed Internet access, could shift to usage-based Internet pricing if more people start consuming their video online. If that happened, consumers watching a lot of online video could end up paying much more for Internet access—cutting into what a virtual cable operator could reasonably charge its subscribers for a package of channels.

A third issue could be many existing TV channels’ lack of Internet rights to all of their own shows. That would mean some channels on a service like the one Intel is proposing could be reduced, at least initially, to a selection of shows in an on-demand format, rather than live. That could make a Web offering less competitive.