Verizon (NYSE:VZ) has been making some big moves in the video content delivery arena. It recently purchased content delivery network, or CDN, EdgeCast, and earlier acquired video streaming service UpLynk. With these acquisitions, Verizon has all of the pieces of a video delivery ecosystem.
Last month, Verizon was reportedly interested in purchasing Intel's (NASDAQ:INTC) OnCue Internet-based television service. Despite the financial pressure Verizon is facing from its impending buyout of Vodafone's 45% stake in Verizon Wireless, there's even more credence to the OnCue rumor after Verizon's most recent acquisitions.
A better fit
Intel's foray into a pay-TV service was always curious. The company doesn't typically sell its products directly to consumers, and it has no background in media or content delivery. The biggest stumbling block Intel faced with OnCue was negotiating content deals with media companies.
For Verizon, OnCue looks like a much better fit. For one, Verizon has everything I mentioned in the above paragraph: It sells to consumers, works with broadcast media companies, and with EdgeCast has a strong content delivery network. Additionally, Verizon also sells broadband Internet and wireless phone/Internet services that complement a TV over the Internet service.
Verizon has over 100 million wireless customers, and the broadest 4G LTE network in the US, covering over 300 million people. The company can capitalize on these strengths, marketing OnCue to wireless customers, as the only physical requirement is access to the Internet.
Verizon's FiOS is currently serving 5 million customers concentrated in the Northeast. Physical limitations have made it too costly for Verizon to expand its fiber optic network outside of the area, which reaches about 18 million households. Offering video service over the Internet would allow Verizon to expand its footprint nationwide.
That would, of course, be bad for cable companies like Comcast (NASDAQ:CMCSA) and Charter, which are already suffering from increased competition from telecom companies like Verizon and AT&T.
Interestingly, both Comcast and Charter already have the capabilities of serving live television over the Internet, but their content deals prevent them from creating nationwide Internet-TV services. Verizon will likely suffer from the same resistance, but once one company negotiates a deal, it should open the door for competing services.
With Verizon's acquisition of EdgeCast it has a nationwide content delivery network at its disposal. Comcast, too, has a CDN it uses for things like its Xfinity VOD service, but it's an on-network CDN -- meaning it only delivers content within Comcast's cable footprint. For off-network delivery services, operators like Comcast still use traditional CDN providers.
Verizon can leverage EdgeCast along with UpLynk's software to negotiate nationwide content distribution deals for OnCue. EdgeCast's CDN will ensure stream quality, and UpLynk can help content owners manage playback and dynamic ad insertion to benefit from OnCue's reported feature of playing any show broadcast within the last three days.
The vertical integration in the operation ought to help Verizon keep costs low, allowing the company to compete with local cable providers on price. Moreover, potential nationwide Internet-TV competition could be priced out, or take awhile to catch up to Verizon's competencies.
True TV Everywhere
Although cable companies have been marketing TV Everywhere for some time now, we're still far away from a true outside-the-home television experience. Verizon's purchase of OnCue, coupled with its infrastructure, could bring us significantly closer to real TV over the Internet.
For Intel, it gets out of a business that it probably shouldn't have been in. Reports say that Intel is simply asking for the amount it sunk into the OnCue project -- $500 million. Those assets are much more valuable in the hands of Verizon, especially considering its recent acquisitions.
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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