2 Reasons Sony Can Succeed With Pay-TV, and 1 Reason It Won't

Can Sony succeed where Intel failed?

Jun 12, 2014 at 2:00PM

Intel (NASDAQ:INTC) promised it would roll out a revolutionary new television service by the end of 2013. Instead, it sold its media division to a pay-TV operator after hitting several stumbling blocks.

Sony (NYSE:SNE) says it will deliver pay-TV over the Internet before the year ends. That notion was reiterated this week when Shawn Layden, president and CEO of Sony Computer Entertainment of America, spoke with Re/code.

Can Sony succeed where Intel failed? There are two factors that are in Sony's favor, but there's one big roadblock it will have to overcome.

Sony's equipment is already in the living room
Sony's popular game consoles, Blu-Ray players, and smart TV sets give it a presence in people's living rooms. Intel may dominate the PC market, but it has practically zero presence in the consumer-facing living room entertainment market. In fact, Intel's strengths don't lend themselves to marketing toward consumer electronics.

Sony, on the other hand, has a huge portfolio of consumer electronics devices it sells, including the PlayStation and Bravia television sets. All told, Sony has sold more than 30 million PS3 and PS4 units in the United States, and millions more Internet-connected Blu-Ray players and Bravia TVs. Additionally, the company plans to roll out its $99 set-top box, dubbed PlayStation TV, to the U.S. in order to attract a wider audience geared more toward over-the-top video services.

With a built-in market to sell its service to, Sony can get new customers to try the service with just a few clicks of their PS4 remotes. Comparatively, Intel required users to shell out for new hardware before they could even try the would-be service.

Sony has a better line on content deals
Intel's biggest stumbling block in its pay -TV plans was negotiating content deals. The chipmaker has no experience with content partnerships and practically no clout with the major media brands.

Sony, on the other hand, runs a movie and television studio. Although that division operates separately from Sony's consumer electronics business, it gives the company significantly more weight when negotiating deals with media companies.

The company has yet to announce any definitive agreements with content owners, including its own studios, but it's been in talks with at least one major content company. Additionally, it should be able to work out a deal with its own studio.

In the interview with Re/code, Layden claimed that consumers should expect the content "you would find the most interesting." That includes live sports.

Sony could also make a go at producing original content or acquiring exclusive rights for its service. The company is already developing an original TV series for PlayStation owners called "Powers," based on the comic book. There's not much stopping it from doing the same for its potential pay-TV service.

Additionally, Sony may be interested in the rights to the NFL's Sunday Ticket. The NFL's current contract is set to expire at the end of the 2014 season, and Sony could snatch it up.

One big problem
Sony may be able to work out the content deals and have devices in millions of living rooms, but it still faces one major hurdle. It's going to have to rely on the Internet service providers to deliver its content. That's either not going to work out smoothly, or it's going to cost a lot. Either way, it will deter consumers from choosing Sony's service over a traditional cable operator's.

Recent history has shown ISPs don't always play nicely with over-the-top video services. Sony will have to establish strong relationships with content-delivery networks and ISPs in order to ensure smooth streaming for all of its customers. That won't be cheap. As an added cost on top of the content-acquisition prices, which are sure to be relatively expensive, Sony may get priced out of the market.

Unless Sony can deliver unmatched service in either content, interface, or something truly innovative, it's not going to be able to justify the premium price it will likely have to charge.

Succeeding where Intel failed
If Sony succeeds in bringing over-the-top TV to market, it will be very exciting. The television industry has faced a lot of pressure from other over-the-top services, but has yet to undergo any real disruption.

While Intel's project was swallowed up by the would-be competition, Sony stands a fighting chance of making it to market. If it does, it will face a big roadblock in the ISPs, but it could cause them to innovate instead of complain.

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Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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