Cisco to Buy Video Software Firm NDS for $5 Billion

Cisco executives say the acquisition will bolster the company’s presence in the video market and add to the capabilities of its networking business.

Cisco Systems executives say their deal to buy NDS Group for $5 billion will not only make the company a larger player in the video communications space, but also is further proof that, in a world of cloud computing and ubiquitous connectivity, networks are key.

Cisco on March 15 announced its intent to by the British-based NDS, which offers set-top box software and services to a host of cable and satellite operators worldwide, including such companies as DirectTV, Cox Communications and Cablevision.

The move marks Cisco€™s most significant video-related acquisition since the company bought rival telepresence vendor Tandberg for $3.3 billion last year, and the largest since its bought cable set-top box maker Scientific-Atlanta for $6.9 billion in 2006.

It also comes less than a year after Cisco spent $99 million to buy BNI Video, a small Massachusetts firm that made video-delivery software for service providers.

The NDS deal also will give Cisco greater expertise in software and professional services, Cisco President and CEO John Chambers said during a Webcast discussion of the acquisition.

NDS, which earned $252 million on $1 billion in revenue in 2011, offers a variety of video software and security solutions aimed at enabling service providers and media companies to bring video to a host of devices beyond the traditional television, including PCs, smartphones and tablets. Its offerings dovetail with efforts Cisco has been making in the video space, particularly with its Videoscape offering, which was released in January 2011. Videoscape, which spans the network, cloud and consumer devices, is sold to service providers and enables consumers to find and watch pay television content on their choice of devices.

€œWhile clearly a substantial acquisition and major landmark in Cisco€™s history in its own right, today€™s acquisition is the latest in a series of milestones for Cisco€™s Videoscape strategy,€ Marthin De Beer, senior vice president of video and collaboration at Cisco, wrote in a post on Cisco€™s blog site. €œVideoscape is Cisco€™s vision and platform for the creation of new visual, mobile and social video entertainment experiences through the convergence of digital TV, online content, and social media and video communications applications.€

The NDS acquisition, which is expected to close in the second half of 2012, further illustrates the changing nature of video entertainment, where consumers are increasingly demanding to be able to access high-quality video wherever and whenever they want.

€œVideo will be the new voice,€ Chambers said. €œIt will be pervasive, on any device €¦ any time.€

Abe Peled, executive chairman of NDS and who will become senior vice president and chief strategist for Cisco's Video and Collaboration Group, agreed. He said, €œThe service provider business is currently undergoing tremendous change.€ Where once a few companies ruled the market with what Peled called a €œcozy€ relationship, there are now more competitors. This offers greater options for consumers and opportunities for vendors like Cisco.

And for Cisco, video is increasingly important. Video is among the five pillars that underpin Cisco€™s direction moving forward, Chambers said, noting that it will soon represent 90 percent of all Internet traffic. In addition, by 2015, Cisco is predicting there will be 15 billion connected devices in the world.

Cisco€™s De Beer said during the Webcast that adding NDS will significantly expand Cisco€™s reach in the market. Where the networking giant is now strong in established markets and in cable, NDS brings expertise in both cable and satellite, as well as a large presence in emerging markets. Both he and Peled also noted the strong user experience offered by NDS€™ Snowflake interface, which gives consumers a consistent experience across all devices.

NDS also brings a strong services business, particularly in systems integration, which Peled said accounted for 18 percent of the company€™s revenues last year.

Chambers noted that tying all this together are intelligent networks, which are enabling everything from cloud computing to the delivery of the video content.

Video and networking are two of the five business areas that Cisco is pursuing, as mapped out last year. Cisco in 2010 floundered after pushing into dozens of new markets, resulting in disappointing financial results and market share gains by rivals like Hewlett-Packard and Juniper Networks in the core switch and routing markets. Cisco reorganized its businesses and its hierarchy last year in response.

Until the deal closes, Cisco and NDS will operate as separate companies, according to Cisco. After the close, NDS€™ 5,000 or so employees will join Cisco€™s Service Provider Video Technology Group.