Dec. 14 (Bloomberg) -- Verizon Communications Inc. is near an agreement to purchase Intel Corp.’s Internet-based pay-TV startup, according to people familiar with the discussions.
The deal may be announced as soon as next week, after final details are complete, said the people, who asked not to be identified because the talks aren’t public. Intel, which developed the service called OnCue, began looking for a buyer this year rather than invest in the programming and bring it to market on its own.
Verizon, the second-largest U.S. communications company, will use OnCue to extend its pay-TV offering beyond the geographic footprint of its FiOS fiber-optic service. That could shake up pay TV, by bringing more competition to cable companies that dominate territories, as well as satellite companies with wide coverage that lack the interactive capability of the Web.
“It has the potental to change U.S. pay-TV forever,” said Andy Hargreaves, an analyst with Pacific Crest Securities in Portland, Oregon. “Untethering the linear video service from the network could dramatically increase competition.”
OnCue is designed to provide pay-TV programming over any high-speed Internet connection, making it a threat to cable-TV services that deliver shows over dedicated lines restricted by territory. Intel’s system includes servers, set-top boxes and applications that can stream content to televisions, phones and tablets.
In the hands of Verizon, the product could help spark a trend toward so-called “hardware light” video services, Hargreaves said. That would let people start, stop and switch video services more easily, and could accelerate a shift toward more interactive advertising and advanced analytics, he said.
Intel, the world’s largest chipmaker, decided to divest the business after its new management opted to focus on selling chips for mobile devices, said one of the people.
Earlier this year, Intel delayed plans to begin offering the service to subscribers by the end of 2013. The company was asking about $500 million for OnCue, people with knowledge of the situation said in November.
Bob Varettoni, a spokesman for Verizon, declined to comment, as did Intel’s Laura Anderson.
Verizon, based in New York, has been asking media companies if a streaming product would require new contracts for programming, or whether existing FiOS TV agreements could be amended to include the additional rights, people with knowledge of the situation have said.
Intel, based in Santa Clara, California, fell 0.7 percent to $24.29 yesterday in New York. The shares have advanced 18 percent this year. Verizon slipped 0.6 percent to $47.84, leaving it with an 11 percent year-to-date advance. AT&T Inc., based in Dallas, is the largest U.S. communications company.
Intel backed off of its TV efforts under new Chief Executive Officer Brian Krzanich. He took the reins in May and is focusing on revitalizing its efforts to win orders from mobile phone and tablet makers as sales of those devices erode demand for its traditional market, personal computers.
Intel’s efforts to create a Web-based pay-TV alternative have attracted some criticism from potential competitors including DirecTV CEO Mike White, who runs the largest U.S. satellite-television provider.
“I don’t think the Intel idea is a very good idea,” White said on Dec. 12 at the company’s annual investor day.
The main drawback is that it requires customers to get a separate broadband connection, White said, so it’s not a stand- alone service. White also said he wasn’t sure whether an Internet-based approach could handle all the traffic generated by streaming services like Netflix Inc.’s.
--Editors: Anthony Palazzo, Ben Livesey