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Intel's IPTV service has competitors scared

It looks like Intel Corp. has the traditional pay television industry shaking in its boots. Plans for its anticipated Internet TV service this year are advancing rapidly, and the company is offering to pay as much as 75 percent more than traditional cable rates for programming.

Intel said it plans to compete with Apple, Amazon and Google by offering a set-top box and a line-up of live and on-demand programming — all over the Internet without cable or satellite connections. However, what scares traditional cable and satellite providers most is Intel’s plans to break up the bundling of program offerings with smaller and lower-cost content packages.

Erik Huggers, the head of Intel Media, described the Intel offering as a “premium service” and said customers would be offered smaller bundles of content than those currently being sold by cable and satellite operators.

Already, CBS, News Corp and Viacom have reached agreements with Intel on certain details over how their content would be distributed on the service. Comcast’s NBC Universal is continuing its talks with Intel, but its negotiations are not as advanced as other companies, Reuters reported.

Time Warner Cable (TWC) is said to be paying content owners to keep content offline and from services like Intel’s new television offering. Bloomberg News reported that TWC is offering to pay more for content or even threatening to drop programming from its line-up all together if companies don’t comply.

Indeed, cable companies are seeking to keep customers by ensuring access to exclusive content while fending off competition from the upstart Internet providers. TWC has more than 300 carriage contracts in place, and some of them may bar media outlets from providing content to online pay-TV services, said Glen Britt, chief executive of Time Warner, in a meeting with analysts at the National Cable & Telecommunications Association show in Washington, D.C.

“We may well have ones that have that prohibition,” Britt said at the conference. “This is not a cookie-cutter kind of business.”

Some agreements require media companies that license content to Internet-based systems to offer the same online rights to Time Warner Cable, Britt added.

Time Warner, Comcast and other pay-TV 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. It’s a way of preserving the status quo. These content deals are key to alternative television services from Intel, Google and Apple, and could set up an antitrust legal battle in the television industry.

To Intel, and to some analysts, the behavior by the existing distributors — in some cases, giving financial incentives to friendly channel owners, in other cases, including punitive measures in contracts — could be anticompetitive. The U.S. Justice Department is investigating whether cable companies are violating antitrust laws by limiting competition from Internet video providers.

At the end of the day, Intel sees the living room as a potential battleground over the future of television. The company’s advanced semiconductors — used in set-top boxes and to power “cloud” data centers — can give it an advantage and help set the standard for other home entertainment products.

This is why the traditional cable and satellite industries are so worried. Intel, being a powerhouse with the technology and deep pockets to challenge the existing industry, is a deep threat to the business model of current pay television systems.

So the battleground is clearly over programming — what content Intel can carry and what it can’t. The war has already begun, and it could get ugly before the landscape shakes out.