Intel Corporation (NASDAQ:INTC) plans to come up with a new service that allows for web streaming of cable TV content. However, The New York Times illustrates that Intel could be in some trouble:
As Intel tries something audacious — the creation of a virtual cable service that would sell a bundle of television channels to subscribers over the Internet — it is running up against a multibillion-dollar barricade. That barricade is guarded by Time Warner Cable Inc (NYSE:TWC) and other cable and satellite distributors, which are trying to make it difficult — if not impossible — for Intel to go through with its plan. The distributors are using a variety of methods to pressure the owners of cable channels, with whom they have lucrative long-term contracts, not to sign contracts with upstarts like Intel, that way preserving the status quo.
Intel Corporation (NASDAQ:INTC) could be under pressure due to anti-competitive practices employed by these firms, but with Intel having $18.16 billion in cash and cash equivalents, I find it highly plausible for the company to be able to buy enough content in order to become competitive with companies like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN). The problem is that Intel is being thwarted by industry giants and is forced to play by their rules. The company is experiencing headwinds in computer demand and in order to offset this, it is launching Intel TV by the end of the year.
Will it even work?
Just because Intel Corporation (NASDAQ:INTC) is able to divert the content from channel owners to the internet doesn’t mean it will work. It would be difficult to imagine how it would scale in the beginning stages. The company would need the support of its highest level executives in order to keep this operation going as Intel would have a very high break-even point for a project of this scale.
Plus, everyone recognizes Intel Corporation (NASDAQ:INTC) as a semiconductor company, and the thought of tuning into “Intel TV’ is sort of absurd now. But then again, the company has some of the most creative ad-men in the industry, so I am sure they could come up with something that could sway public sentiment in a positive way. The problem comes from a mix of competition and anti-competitive practices.
Companies like Time Warner Cable Inc (NYSE:TWC) may not be willing to hand over content to channel owners, so channel owners cannot stream via internet. There’s also a lot of legal jargon and anti-competitive clauses getting in the way. This is troublesome because if everything is based on a broadband connection, then cable providers like CenturyLink, Inc. (NYSE:CTL), Comcast Corporation (NASDAQ:CMCSA), and Cox will suffer terribly. The gatekeepers will keep Intel Corporation (NASDAQ:INTC) away as they have a financial interest in cable’s success.
These companies, when combined, have enormous financial resources along with non-financial resources to keep Intel away from this business. This makes it difficult for investors to buy Intel stock on the hopes that Intel TV becomes Intel’s next multi-billion dollar business.
Netflix wins with everyone
Investors would generate greater returns when investing into Netflix, Inc. (NASDAQ:NFLX). Unlike Intel Corporation (NASDAQ:INTC), Netflix was pretty smart about how it pursued its business strategy.
Start with pebbles that cause ripples, then eventually start throwing rocks that cause waves. The company has a winning strategy that compliments the pre-existing eco-system. When content is too expensive, the company develops some of its own in-house programming, which to the most part has been effective.