• by Thom Forbes , January 22, 2014

In the digital wake of Verizon buying “the remains of” Intel Media and its OnCue CloudTV platform yesterday with the intent of launching “next-generation video services,” the Wall Street Journalreports that Amazon is considering a new online pay-TV service and has talked to at least three major media companies about licensing their channels.

“Amazon is still in the early stages of discussions…and it isn't clear it will move forward, the people familiar with the matter said,” write Amol Sharma, Shalini Ramachandran and Don Clark. 

But Amazon says it isn’t happening.

“After initially declining to comment, Amazon said in a statement late Tuesday, ‘We continue to build selection for Prime Instant Video and create original shows at Amazon Studios, but we are not planning to license television channels or offer a pay-TV service,” the WSJ reports. 

“To be sure, Amazon meeting with content rights holders about such a service is a far cry from cutting deals — indeed, it's to be expected given the state of the industry,” observes CNET’s Joan E. Solsman. “All the big names in technology are talking with all the big names in media, industry insiders have told CNET. Google is said to be exploring a similar service, as is Apple.”

Analysts were intrigued by the prospect even as Amazon works on a business model for such as service, as the sources tell the WSJ they are doing. Pointing out that the online retailer has set “a precedent of…pricing stuff roughly at cost in order to sell other stuff," Janney Capital Markets analyst Tony Wible suggests that Amazon might “offer an online-TV service ‘at cost’ and make its money selling merchandise through the TV set.”

Amazon also has reportedly been working on a set-top box similar to Roku that would that stream video, as Bloomberg Businessweek’s Brad Stone first reported last April, but the product failed to materialize for the 2013 holiday shopping season. 

If the new pay-TV initiative were to emerge, it could be bundled into Amazon's Prime Instant Video service or offered as a standalone package, Engadget’s Joseph Volpe points out. Whichever, “what's certain is that Amazon would need to price the service competitively so as to stand out amongst its competition — a somewhat daunting task considering existing carriage agreements.”

Those media companies, in other words, are not themselves given to pricing their goods at cost.

Verizon, meanwhile, is planning to buy the intellectual property and assets of Intel Media, “which developed a solution to offer channels over the Internet to screens of different sizes, from smartphones to big-screen TVs,” for undisclosed terms, Brian X. Chen, Quentin Hardy and Bill Carter report in the New York Times. 

Insiders say Verizon will shell out as much as $500 million, Financial Times’ Paul Taylor reports. 

“Verizon, which already has agreements with television providers for its over five million FiOS subscribers, could be in a stronger position to get cable channel providers on board with its plans than Intel,” SNL Kagan analyst Ian Olgeirson tells the Times’ reporters. “But he said Verizon would still have the challenge of offering a video package that distinguishes itself from the big cable companies” though they obviously could bundle it with wireless service. 

USA Today’s John Shinal pegs the deal to a ruling by a federal appeals court last week that Internet service providers no longer have to treat all Web traffic equally.

“Telecom and Internet service providers have long complained that neutrality rules let Netflix and other video content providers clog their broadband pipes for free,” Shinal writes. “Verizon sued to overturn the rules in 2011, and the court ruling last week was a big win for the telecom services industry.”

They can now “charge Netflix, Hulu, Google's YouTube unit and other Web video sites to use their high-speed networks” — even as they “expand their own digital entertainment offerings,” he points out.

“The important thing here is that what Verizon is trying to do is to add on more features and technology to differentiate FiOS from the rest of the pack of paid TV services — in this case helping with search and discovery, interactivity and multiscreen services,” writes TechCrunch’s Ingrid Lunden.

“This transaction provides us with the capabilities to build a powerful, capitally efficient engine for future growth and innovation,” Verizon CEO Lowell McAdam said in a statement. “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.” 

Interesting phrase, “capitally efficient engine.” It’s not one you’d hear out of Jeff Bezos' mouth, one suspects, whether or not those reported talks with media moguls ever lead to a substantiated venture into online pay TV.