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Re: [STB] Cisco thinking of getting out of the set-top box busin
A blog item on the Light Reading Cable site this morning, on the implications of Cisco's deal to acquire NDS:
Cisco's Video Game-Changer
By Jeff Baumgartner, Light Reading Cable - March 16, 2012
"Cisco Systems Inc. is trying to change the rules of the game.
Its $5 billion play for NDS Ltd., announced Thursday, would accelerate the deployment of Videoscape and boost Cisco's expansion into international markets -- if Cisco can pull it off (expect some serious opposition to emerge).
After giving it some thought, here's a breakdown of the deal's implications and how it might alter the domestic and international pay-TV markets.
Bolstering the U.S. duopoly
With NDS entering the mix, Cisco's half of the U.S. cable video security (notice, I did not say set-top box) duopoly it shares with Motorola Mobility Inc. would be significantly strengthened, particularly as MSOs advance their TV Everywhere strategies. The PowerKEY conditional access system Cisco got in the Scientific Atlanta Inc. deal gave Cisco a lock on a chunk of the U.S. cable video encryption market, but the addition of NDS would give it a software-based approach and digital rights management (DRM) components that extend beyond traditional QAM cable boxes and into IP-connected gateways, tablets, smartphones, PCs, TVs and other devices that service providers will support as they apply much more focus on delivering subscription video services to a variety of screen types. Without NDS, Cisco doesnt have an answer for this new market dynamic.
On the flip side, NDS's downloadable security approach gave MSOs such as Cablevision Systems Corp. a wedge to split up the duopoly and create a potential new security option: It had been rumored that Time Warner Cable Inc. was among some larger operators that had given NDS a close look. But the threat of being unseated by NDS is gone if NDS is in Cisco's hands. If you're an MSO that's been trying to break Cisco's grip on conditional access, is this deal a good thing?
The set-top box
As the key functions of the set-top get integrated into those devices, now would be a great time for Cisco to sell that low-margin component, despite the company's insistence that it's "committed" to the box business. I still think it will remain committed to supplying and designing boxes ... until it's not. And that will be when it finds a willing buyer.
In the U.S, Samsung Corp. is doing some serious competitive damage by applying price pressure on everyone. Why not sell it to them? Samsung clearly wants that business and can live with the margins. And it's good at consumer electronics. Cisco, despite many valiant attempts, simply is not.
Perhaps Cisco will take a cue from NDS -- which has done just fine integrating its software onto boxes from more than 50 manufacturers without owning the hardware. The business is changing. So change.
The Motorola situation
The deal should give Google further cause to sell Motorola Mobility Inc.'s cable business, and not just the set-top box part of it. Google probably won't put the kind of focus on that business that will be required to be successful long-term. MSOs should be hoping that Google sells it to someone that won't let Cisco and NDS run away with the market and hide.
Cisco designed its own user interface for Videoscape, but the interactive program guide has never been Cisco's strong suit. NDS has Snowflake, an increasingly popular cloud-based interface that extends a common feel across set-tops, tablets and smartphones -- the sort of thing operators want for their TV Everywhere offerings. NDS is already making hay with it internationally, but Cisco, if it successfully integrated it into Videoscape, would be positioned to put pressure on products such as Rovi Corp. 's TotalGuide.
Expanding in the U.S. and beyond
The deal would give Cisco some important, new U.S. accounts, such as DirecTV Group Inc., and shore up its position at Cablevision Systems Corp. and Cox Communications Inc., where NDS has made serious inroads.
But NDS would also boost Cisco's international service provider business. For example, it would put Cisco in the catbird seat at Liberty Global Inc., where NDS has been a key integration partner for the ambitious Horizon gateway project. Cisco would also find itself slotted in at BSkyB Ltd. And those are just two high-profile examples. On the other end, the deal would also extend Cisco a bridge to emerging markets such as China and India, where NDS already has a solid base of customers.
Those are just a few areas of impact that I see as I get my head around this deal."
FierceCable interviewed Kip Compton, CTO of Cisco's Video and Collaboration Group, about the NDS deal and the future of its set-top business:
Kip Compton: Cisco's NDS deal will boost MSOs' connected TV plans
FierceCable - March 16, 2012
"Hours after Cisco announced a $5 billion deal to acquire NDS, FierceCable caught up Thursday with Kip Compton, CTO of Cisco's Video and Collaboration Group. While Compton says the NDS deal will help operators using Cisco's Videoscape software platform deliver programming to connected TVs and other devices, he insists cable set-tops won't go away any time soon.
FierceCable: Does Cisco see NDS as way to deliver subscription video content to connected TVs?
KC: That's absolutely part of it. We're living in this duality right now where service providers want to deliver to the consumers' devices, which may be smart or connected TVs, as well as tablets, PCs, mobile phones and so forth, but still have large installed bases of set-top boxes that they also need to bring into that service mix. So NDS's software solutions enable us to help service providers deliver content and services to set-tops they already have, set-tops they may buy as well as this class of devices that consumers may buy--either the connected TV or something else. We think the ability to do that in a consistent way with a single architecture and a consistent user experience is really valuable and really important going forward.
FC: There's a lot of speculation that Cisco is looking to exit the set-top business. Will Cisco continue to make set-tops, or at least outsource the production of set-tops?
KC: We're not exiting the set-top business. I don't know how much more simply or directly to answer the question. Our customers have told us ... it's going to be a long time. They're not going to show up at a customer's home and say, 'Sorry, you don't have a connected TV so you can't have our service.' There is absolutely a transformation, a shift happening, whether it's smart TVs or other devices, and we are empowering that as part of our Videoscape architecture and strategy since we announced it in early 2011, and NDS propels us much faster down that path. But we anticipate that for many years to come service providers will need set-top boxes because they're going to connect all of the consumers' devices, including existing television sets that don't necessarily have Internet or IP clients in them. They're going to connect all of those to their services."
An item on the FierceCable site this morning about a Financial Times analysis of the evolving set-top box market:
Set-top box future remains present concern
FierceCable - March 26, 2012
"Following last week's IPTV World Forum in London, the Financial Times offered an analysis of the evolving (or is it still dying?) set-top box market, and discussed the growing threat presented by Internet-connected TVs.
The concern about the future of set-top boxes will sound like nothing new to the cable TV industry, where set-tops have been seen for years as having a limited future potential amid the rise of Internet TVs, residential gateways and other offerings. Yet, the set-top box, while far different from the set-top box that sat atop your 19-inch living room TV 20 years ago, often can still be found in its accustomed spot.
In part, the new talk about the death of the set-top box is being inspired by rumors that companies like Cisco Systems and Google (which acquired Motorola's set-top box business) want out of the market. The Financial Times also points out that some set-top box vendors may not be so lucky as the market gets squeezed, though it is clear that companies like Amino are embracing the hybrid TV trend, while traditional set-top box giants like Pace fortify themselves with acquisition of technologies that will be increasingly important to keeping set-tops viable. The last line of the Financial Times story, in any case, should read like an affirmation for anyone in this sector.
- here's the Financial Times report (reg. req.)" »www.ft.com/intl/cms/s/0/cb93af76···qBFWIM3S
EDIT: Some excerpts from the Financial Times report:
"The potential concern for the TV set-top box makers at the [IPTV] convention was all around them, albeit in a wireless form: the internet.
As the variety of TV content available over the internet expands, the future market for makers of TV set-top boxes - such as Virgin Media's TiVo and Sky's Plus - has been called into question.
Why would a consumer pay for a subscription to use a set-top box when smart TVs allow direct access to internet content, known as over the top (OTT), for free?
The market is being squeezed as consumers shift to downloading TV programmes and videos over the internet from companies such as LoveFilm, Google and Netflix, whilst free content is available from services including the BBCs iPlayer, Channel Fours OnDemand and the ITV Player.
Furthermore, BBCs iPlayer on-demand TV service recently became available on all the UKs major gaming platforms, including Microsofts Xbox360.
The internet TV trend has been touted as a potential killer of set-top box makers, which include Yorkshire[England]-based Pace, the worlds biggest maker of TV set-top boxes by shipments, and Aim-traded Amino Technologies."
Set-top boxes are still the best way to improve functionality and ensure security, says Donald McGarva, the new chief executive of Amino.
Its still quite a youthful environment for these boxes and OTT its not going to be a binary outcome where one wins and the other loses.
Such confidence is echoed by Mike Pulli, chief executive of Pace: OTT is just another mechanism to deliver content. We see [internet TV] as a complementary service rather than a replacement service.
The other challenge facing set-top box manufacturers is the use of the cloud where content is accessed over the internet.
The OTT services might lack content but they have shown up pay-TV in terms of the user interface and experience, says Giles Cottle, principal analyst at Informa.
Moving to the cloud can enable operators to compete more effectively in these areas.
Consumers are demanding higher-quality content in various formats (TV, mobile, PC and tablet), and the latest set-top boxes such as those from Amino combine broadcast, on-demand and open internet services.
I dont have a crystal ball, I dont know what will happen in 20 years time, says Aminos Mr McGarva. But set-top boxes have been predicted to die many times now. So far, theyre still going strong.
In a recent interview with the The Atlanta Journal-Constitution, Cisco CEO John Chambers said that they still have a huge commitment to video:
Cisco wont drop video, says CEO
The Atlanta Journal-Constitution - March 24, 2012
"Six years after Cisco Systems bought Scientific Atlanta, high-tech giant Cisco says its metro Atlanta acquisition is critical to its efforts to profit off the rising tide of video streaming around the globe.
Cisco has a huge commitment to video, John Chambers, Ciscos longtime CEO and chairman, said in a telephone interview recently after talking to about 1,000 Cisco employees near its Lawrenceville operation, which designs set-top boxes and related devices for cable TV service. The devices are manufactured outside the U.S.
Chambers said video-related traffic is growing exponentially and is expected to account for 91 percent of Internet data flow within three years. Ciscos Lawrenceville unit will design much of the hardware and software that handles that traffic.
To play a central role in that growing business, Cisco has been reaching beyond the set-top box business into other software and hardware pieces of an ever-expanding range of cable, telephone and wireless networks. The goal: to supply many pieces of intelligent networks that allow people and businesses to view television and other types of video where ever they happen to be, whether in their homes, commuting or on vacation or business trips.
This isnt [about] set-top boxes. Its how you bring video into the home, into wherever, said Chambers. This is right now our sweet spot for where we want to go.
That is a very different message from what folks at the former Scientific Atlanta operation have been hearing in recent months.
Rumors have swirled that San Jose, Calif.-based Cisco may want to sell all or part of the operation, now called Ciscos Service Provider Video Technology Group. Several news stories recently speculated that Cisco wants to shed relatively slow-growing, less profitable businesses such as set-top boxes.
Cisco is currently the second-largest producer of the devices, which tune, decode and in some cases store cable TV shows for later viewing."