Today, full pay TV service requires being in the service area of various cable TV or telecoms providers. An "over the top" service would allow Verizon to provide a TV package to customers outside of its service area.
"The entire TV market five years from now will be `over the top,'" Hallaren said. "Verizon is getting in fairly early here."
Intel started the division in 2011, luring digital executive Erik Huggers from the BBC to lead the team. The idea was that by generating demand for Web-delivered video, Intel would benefit when companies used its chips to build data centers and make set-top boxes.
But Intel would have faced a large expense to license channels from media companies and to get the service off the ground with marketing. Selling the unit was seen as preferable to operating at a loss in the initial start-up period. And the company would still benefit from data center demand even if the Web-delivered video service was operated by another company.
Verizon already has 5.3 million video customers and existing relationships with channel operators.
"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," said Intel CEO Brian Krzanich, in a statement.
Since becoming CEO last May, Krzanich has shied away from the TV business and focused the company on providing components for data centers and mobile devices.
The purchase was announced the same day Verizon reported fourth-quarter net income of $5.07 billion, or $1.76 per share, reversing a loss of $4.23 billion, or $1.48 a year ago, as revenue rose 3 percent to $31.07 billion.
