By Andrew Ladbrook

Pay-TV vendors received another major shock this week as Cisco, one of the foremost providers of telecoms infrastructure, bought NDS, a leading middleware and CAS provider.

This is not the first time the market has been severely disrupted in recent months, and it follows hot on the heels of Google’s recently completed acquisition of set-top-box vendor Motorola. The Cisco-NDS deal is almost of the same magnitude.

Although the announcement of the purchase is a bolt out of the blue, on reflection it makes a great deal of strategic sense for Cisco. And it is perhaps surprising and rather damning that the analyst community failed to foresee the move.

Since the first release of its VNI traffic forecast, Cisco has been predicting the rapid growth, and subsequent dominance, of video on the internet, and has long been advising anyone who would listen that IP video was the future.

And Cisco has very aggressively followed its own advice and has been investing in an attempt to become a major player in the video-provider market.

Last year Cisco launched Videoscape, a multiscreen video platform that can deliver video on both managed and OTT networks. But unlike similar platforms, Cisco provides all the equipment as well, including STBs and routers. But despite Cisco’s aggressive pushing of the service, it so far has only one customer, Canadian operator Telus.

Informa Telecoms & Media believes that Cisco’s purchase of NDS is an attempt to accelerate its move into the video market, especially outside its North American base.

NDS’ position as a leading middleware provider gives Cisco the last piece of the puzzle it needs to offer operators a truly compelling video platform. Although revenue-wise NDS’ CAS expertise is the big prize, its middleware assets are a huge strategic gain for Cisco. In Snowflake, NDS has purchased a market-leading middleware platform.

The NDS purchase also gives Cisco a relationship with many big players that it has traditionally ignored. Among the most significant is leading satellite player BSkyB, which has a long-standing association with NDS because of the 49 per cent stake News Corp. holds in the company.

As these players begin the long transition to offering truly multiscreen services, they will need new back-ends to make sure they can deliver. Cisco can use NDS’ existing relationships to upsell the rest of its Videoscape platform and potentially many other services.

But it is not just Cisco that benefits from this purchase. NDS also receives something it has long lacked: a hardware platform. For much of its life, NDS has integrated its middleware with that of many different hardware vendors. And to remain an important player in the market, Cisco will ensure that it continues to do so. But now NDS can offer not only highly innovative middleware, but potentially leading hardware as well.

The bundling of such a product would be attractive to many pay-TV providers looking to refresh their aging STBs and user interfaces in the light of competition from OTT players.

The impact on the wider market has yet to be seen. But Informa believes that Cisco’s purchase of NDS can be beneficial to both companies because it provides them with expertise in areas where it has historically been lacking.

What’s more, there are few instances where there is a crossover of clients, although the potential is great. But this does not mean that Informa believes the acquisition is purely positive.

NDS has a reputation for innovation and leading the market. All that is good about NDS could be lost within the larger Cisco organization. Such a situation is not without precedent, and Cisco must be wary of this development.

As for the wider market, Informa believes that further consolidation is likely as other players look to offer a completely vertically integrated video platform.

Many of NDS’ rivals, including Nagra, are likely targets for larger players along the value chain. And although they are now in a weaker position relative to NDS, as the company takes time to become integrated into the larger Cisco machine, they have the opportunity to snatch NDS’ innovation crown.