The television industry does not like newcomers. Media distributors have their own content deals and defend their territories like prized possessions -- and outsiders aren't welcome. That's one reason why it's not surprising that new reports say Intel (NASDAQ:INTC) is trying to sell its set-top box project to Verizon Communications (NYSE:VZ).
Buffering content deals
Intel has been working on a streaming content service for the past few years and hired more than 300 employees to get a device off the ground. But so far it's only been released to Intel staffers for testing. Despite talking with major content distributors including Time Warner and Disney, Intel hasn't been able to nail down any content contracts.
That's inhibited the company's public timeline for releasing a set-top box by the end of this year.
According to AllThingsD, Verizon is in talks with Intel to possibly buy Intel Media, the division of the company working on the streaming box. The move would make a lot more sense for Verizon than a set-top box ever made for Intel. Verizon already delivers cable channels to about 5 million customers through its FiOS TV service and has an online streaming and DVD service partnership with Outerwall through Redbox Instant. Meanwhile, Intel doesn't have a great track record for selling devices directly to consumers and has virtually no experience procuring television content. On top of that, margins would be low for chips powering and Intel set-top box, which would make it hard to bring in significant profits for Intel, even if the device were successful.
No deal has been announced yet, and it's still not clear how Verizon would incorporate an Intel Media purchase. Verizon could adapt the box to its current FiOS service or use it for the Redbox Instant partnership. Intel could also keep partial control if a deal goes through.
But Intel investors should be pleased the company is looking to step off of a path it really had no business walking down in the first place. Much stronger competitors like Apple and Roku already have set-top boxes, while Amazon.com is working on such a device and has millions of content subscribers, as does Netflix. The likelihood of Intel bursting onto the scene and making any significant waves in the space is improbable. Even if Intel was able to secure the programming it needed to bring a successful device to market, the number of strong set-top competitors would squeeze an already low-margin device.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Intel, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, Intel, Netflix, and Walt Disney. 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.