Shifting into an unfamiliar and potentially costly market in which Intel lacks experience and relationships, Erik Huggers, vice president and general manager of Intel Media, said he is negotiating with content providers.
He said hundreds of Intel employees and their families are already testing a set-top box the company will sell as part of the service.
Intel's move puts it into competition with heavyweights like Apple, Amazon and Google that believe the $100 billion cable television ecosystem is ripe for change.
The chipmaker plans to offer consumers smaller bundles of content than those currently offered by cable operators, Erik Huggers, vice president and general manager of Intel Media, told the AllThingsDigital "Dive into Media" conference on Tuesday.
Asked if Intel has inked any content deals, Huggers said he is working with providers and is confident Intel will have a compelling product to launch this year.
"We have been working for (the past) year to set up Intel media, a new group focused on developing an Internet platform," Huggers said. "It's not a value play, it's a quality play where we'll create a superior experience for the end user."
Intel has struggled to get its virtual television service off the ground due to unwillingness on the part of major media content providers to let the company unbundle and license specific networks and shows at a discount to what cable and satellite partners pay, according to sources.
Silicon Valley has been taking aim at the U.S. cable television market - dominated by major distributors such as Comcast and DirecTV Group and program makers like Walt Disney Co and Time Warner Inc. Technology companies see opportunities due to reasons ranging from shifting viewer habits to mounting programming costs.
A step beyond
Intel's plan, if successful, would go further than products currently offered by Apple, Amazon and Netflix by offering live programming as well as on-demand content.
"There is an opportunity to offer a bundle that can be curated by the consumer, an opportunity to create smarter bundles," Huggers said.
Intel's set-top-box will also have a camera that could be used to automatically steer content and ads toward specific users.
"There's a scenario where the TV recognizes that it's you and says 'Hey, I know what you like. I know what you want to watch', versus the environment we're in today where the TV literally is not interested in you at all," Huggers told Reuters In an interview.
Some media executives are skeptical that Intel will be able to convince content providers to agree to terms that are attractive enough to make its service viable. That view was shared by Bernard Gershon, head of digital consultancy GershonMedia and a former Disney senior vice president for strategic planning who helped develop Disney's online strategy.
"The chance that Intel launches is zero," Gershon, who speaks with media and digital executives, told Reuters at the conference. "They haven't cut any deals with any content companies, and they are not offering something that differentiates itself enough on service or price to get the deals done."
Analysts see Intel's leap into Internet television, along with its growing focus on smartphones and tablets, as a way to diversify beyond the slowing PC market.
"The question you have to ask with Intel is, Is anything they do big enough to move the needle?" said Stacy Rasgon, an analyst at Sanford Bernstein. "You're not going to make or break the company on something like this."
Huggers said in the interview that Intel employees are testing the device's user interface, sound and picture quality and other features.
"We're actively testing it in the field with employees. It's not the final product, but it's certainly functional," he said.
Industry insiders have said Apple may unveil a TV-based device that has the potential to shake up the cozy television content and distribution industry the way the iPod and iPhone disrupted music and mobile content.
Sources say Apple, which already sells a $99 set top box called Apple TV that streams Netflix and other content, has opened discussions with providers but it is unclear how much headway it has made, despite its reputation as a tough negotiator.
Huggers previously worked at Microsoft and the BBC, where in 2007 he launched iPlayer, an online service letting viewers catch up with programs they missed on regular television.
"The model we envision is a model where live television and catch-up television live in the same paradigm," Huggers said.
Intel's shares closed up 0.76 percent, at $21.19.
© Thomson Reuters 2013