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Intel TV is dead. Long live Web TV.

Intel had been close to signing the content deals it needed to launch its Internet-based TV service. Now it's up to Verizon to finally get the product to market.

Intel's headquarters in Santa Clara, Calif. Shara Tibken/CNET

Oh, what could have been.

Last year should have been the year the US television market changed. Early in 2013, Intel executives talked up their efforts to build hardware and software that would let users watch live TV, recently-aired content, on-demand programming, and other shows in their homes and on mobile devices. The subscription service, dubbed OnCue, would deliver the programming over a broadband Internet connection, known as "over the top," and it would launch by the end of 2013. Or so Intel vowed.

Not quite. Intel had the hardware and sleek, personalized user interface all ready to go and even had the "vast majority" of big content companies on board with its plans, according to people familiar with the matter. Now, however, Intel has decided to sell the business.

Intel's efforts all came to a close Tuesday when Verizon said it would buy the chip giant's TV assets for an undisclosed sum. Verizon will put the Intel Media technology to use in delivering video via two mediums: through its fiber-optic home broadband service, Fios, and through its 4G LTE wireless service.

Intel's failure to launch the TV service on its own shouldn't be viewed as a benchmark for the entire industry. Rather, the company's progress should be seen as signal for how close the US is to a true Web-based TV service. Intel had basic terms set with most of the major media companies, people familiar with the matter said, and it would have met its 2013 deadline had new CEO Brian Krzanich not pulled the plug.

It's only a matter of time before Web-based TV becomes a reality, whether the first major offering ends up being Intel's OnCue under Verizon's ownership or someone like Sony or Apple.

Web TV in 2014?
US companies have been trying for years to provide live TV over the Internet, but none have been able to pull it off. Sure, people can watch a baseball game or certain other live one-off programs online, but there's no service in the US that lets users watch a full suite of live TV channels, as well as programming that aired days or weeks before. Intel designed its TV service to do just that, as well as integrate with video streaming services such as Netflix.

Despite Intel's abrupt change of course, Viacom CEO Philippe Dauman, speaking in December at a UBS investor conference in New York, said 2014 held a "very strong chance" that a virtual TV distributor -- what Intel TV aimed to be -- would emerge. And Disney financial chief Jay Rasulo, speaking at the same conference, agreed that an online TV service is coming, though he didn't project a timeline. Disney, which owns ABC and ESPN, would be "happy" to license its content, he said, as long as consumers still have to pay for channels they don't watch.

Whether Intel TV will be that vanguard depends on Verizon, the business' new owner. Verizon already operates pay-TV services through Fios, which means Intel's technology could simply become another facet of its portfolio of products, rather than emerging as a pure online-only alternative. The most likely scenario, however, is that Verizon uses Intel's technology to offer a true "TV anywhere" product, allowing subscribers to watch live TV from any mobile device no matter where they are. It can also provide the broadband access that powers the service.

"The OnCue platform and team will help Verizon bring next-generation video services to audiences who increasingly expect to view content when, where, and how they want it," Verizon CEO Lowell McAdam said in a statement Tuesday. "We will have the opportunity to enhance, expand, accelerate and integrate our delivery of video products and services to better serve audiences on a wide array of devices."

Intel had finalized most features of its service, including the cloud infrastructure backbone, the user interface, and the first and second generations of the hardware, according to people familiar with the matter. That would allow Verizon to release the service as soon as the first half of 2014, the people said.

"Intel's over-the-top product is ready from a technology standpoint," BTIG analyst Rich Greenfield said. "It's just a matter of having somebody who wants to invest in it and leverage it to a broader consumer base."

Importantly, Intel had reached agreement on basic deal terms with most of the country's biggest media companies, said people familiar with the matter. No formal deals had been signed, but the companies had hammered out the structure, pricing, contact length -- typically two to four years -- and other terms that would allow live TV anywhere, on demand content, and catch-up viewing, the people said. Intel had enough media companies close to signing deals that it would have launched by the end of 2013, had it not slowed negotiations to explore the sale of Intel Media, they said.

Verizon can keep the terms Intel has reached or negotiate its own content deals, people familiar with the matter said. However, it's likely it will at least try to reach its own terms as it already has relationships with the content companies through its Fios business.

Intel Media's brief history
Intel Media, led by former BBC executive Erik Huggers, got approval and funding for its TV business two years ago from then-CEO Paul Otellini. The team at the time thought it would take two years to reach content deals with companies such as CBS (which also owns CNET) and Viacom, putting OnCue in line for a late 2013 launch.

Intel knew it had some big hurdles to overcome to reach deals with media companies. That included showing it could reliably deliver high-quality video over the Internet without requiring too much bandwidth. Another was getting Nielsen to count content delivered through Intel's service, something that's key for media companies when it comes to advertising. And Intel also had to convince content providers to work with it at the risk of angering their other partners.

Erik Huggers, head of Intel Media, speaks at the AllThingsD media conference in February. Screenshot by Shara Tibken/CNET

Time Warner Cable and other cable TV providers have pressured channel owners to shun pacts with Intel and other Internet-based TV providers. Many included provisions in their contracts that forbade the content companies from licensing content to new entrants or limited the use of digital content. Larger media companies such as CBS (see this post on the CBS-Time Warner dispute) had enough power to change those terms when negotiations came around, but smaller companies dependent on traditional cable for distribution faced bigger concerns about blowback.

Early in 2013, Intel believed it had overcome many of the hurdles preventing content makers from signing onto its service. Huggers announced the upcoming TV service onstageat a tech conference in February. In the following months, the team continued negotiating deals, getting many closer to final terms. By the summer, some of the media companies had started moving content onto Intel's service in preparation for a fall launch, sources told CNET.

At the same time, Intel started conducting closed trials of OnCuewith its employees in several markets on the West Coast. At its peak, about 3,500 employees tested the service in Arizona, California, Oregon, and Chicago.

Then new CEO Krzanich, who took over in May, started getting up to speed on the business. He ultimately decided that Intel should focus on its core chip operations and find a partner to help shoulder the risk for OnCue. The team reached out to possible partners but soon had a flood of interest once its plans became public, people familiar with the matter said. Everyone from Samsung to AT&T looked at the business, those people said.

Intel quickly determined that selling its TV assets outright made more sense, those people said. Verizon became the successful buyer largely because its vision for the business matched that of Intel, people familiar with the matter said. Talks between the two companies started several months ago, with the CEOs of both companies discussing the possible deal, one person said.

"Intel Media's over-the-top TV products are truly innovative and under Verizon's ownership have the potential to change how people interact with content," Krzanich said in a statement Tuesday. "The critical factor in gaining efficient access to content is based on your ability to scale quickly in subscribers and end users, which is why selling these assets to Verizon makes perfect sense, with its millions of Fios network and wireless customers."

Facing the work ahead
Even though Intel showed Web TV could happen, Verizon and others in the market still have a lot of work to do.

It's unclear what Intel had to promise to secure its content deals and whether Verizon or others are willing to make the same guarantees. Intel certainly would have paid a premium over what Verizon, Time Warner Cable, and other companies pay for content, and its proposals also included guarantees for a minimum number of subscribers.

"I believe the content companies did entertain the possibility of doing business with them, but Intel was given very unfavorable terms," IHS analyst Erik Brannon said. "They didn't want to rock the boat."

Verizon will have to figure out if it's willing to pay those high rates or if it needs to reach new agreements or modify its current pacts. If Verizon starts over with negotiations, it could be many months or even years before its service could launch. However, Verizon has a strong history with its Fios business and has more negotiating heft than Intel.

It also will have to decide the best way to offer the service and figure out a rollout plan. Verizon could use the service to transform its Fios offering, or it could set up a true TV anywhere service that allows it to broaden its footprint in the video market. The latter is more likely. Verizon has a "very ambitious, aggressive" approach to the video market, one person familiar with the matter said. /p>

Verizon said in a press release Tuesday that it will deliver video over both its Fios fiber-optic home broadband service and its 4G wireless network service.

Most of Intel Media's 350 employees will head to Verizon. However, they will remain based in Silicon Valley and will be run by the group's current management team.

No matter what shape the service takes, it's now up to Verizon to ultimately determine the fate of Intel's TV business and to do it soon. Comcast, Sony, and all other rivals eyeing the market sure won't be waiting around for Verizon to figure it out.

Joan Solsman contributed to this report.

Updated at 7:15 a.m. PT with additional information, including comments from Intel and Verizon CEOs.