Cisco video exit demonstrates the dangers of diversification

Cisco has announced it will sell its Service Provider Video Software Solutions (SPVSS) business to a company backed by private equity firm Permira, the company it bought it from in the first place.

The new company will command a relatively broad portfolio consisting of Cisco’s Infinite Video Platform, cloud digital video recording, video processing, video security, video middleware, and services groups. Abe Peled, former Cisco video executive and adviser to the Permira Funds, will head up the new company focused on developing and delivering video solutions for the Pay-TV industry. Cisco will retain the video and media technology related to its core business in networking, multi-cloud, security, data, and collaboration.

“This is a unique opportunity to lead and shape the video industry during its transition with the flexibility as a private company,” said Peled. “The new company will have the scale, technology innovation, and world-class team to deliver outstanding go-to-market execution, customer engagement, and new end-user experiences.

“Cisco has built a profitable business in the video space with innovations to capitalize on IP distribution and cloud-based services. These combined assets provide a significant new opportunity for the new company. I am thrilled to be working again in this area with Permira who is committed to innovation and support for our Pay-TV customers, and look forward to the ongoing working relationship with Cisco in support of our mutual customers.”

In offloading this business unit, Cisco follows Ericsson out the media emergency exit. Both these companies looked towards video and media as a means to reinvent themselves in the digital economy, and both are looking quite sheepish in this segment now. Having purchased NDS from Permira in 2012, the video business has slumped, with revenues declining from 2014 onwards.

This is the danger of diversification. To dominate a new segment you realistically have to be first there (or one of the first), with some financial clout. Unfortunately, not all predictions of fortunes come true. Sometimes it works, the companies who bet big on AI are in the money, but sometimes it doesn’t. Diversification is a gamble; Cisco, along with Ericsson, lost out here.

“It is a reflection of the challenging landscape,” said Paolo Pescatore of CCS Insight. “There are too many solution providers chasing too few dollars. Bottom line, many of these solutions providers have diversified and now need to focus on core areas. Despite this, the media and telecoms industries are closer than ever. There will be more casualties due to further disruption. This represents an opportunity for other providers who still focus on connectivity and delivery of video over the Internet.”

While this closes a dark-chapter in the Cisco story, Permira will be rubbing its hands together gleefully. The Cisco media business was built on the $5 billion acquisition of Israeli firm NDS from Rupert Murdoch’s News Corporation and Permira. Should the firm be able to turn around fortunes, this is the sort of story which private equity executives dream of. That said, it will not be an easy task.

Customers of this division are traditional cable and satellite TV providers. The technology in question is used to send content to television set-top boxes, digital-video recorders and mobile phones, though a changing landscape and content consumption habits contributed to the poor performance of this business. Some serious investment will be needed to make this area relevant once again.