Broadband Cable Association of Pennsylvania

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March 16, 2012

Cisco Systems Inc. showed a renewed eagerness to deliver video content to cable set-top boxes and other new devices, striking a deal to acquire video-software specialist NDS Group Ltd. for $4 billion. NDS's software helps power cable and satellite-TV providers, which use it to run digital video recorders and set-top boxes, while also deploying it to deliver video content to a range of different devices.

The technology's real appeal is tied to future video-delivery methods, which could be important should the now-ubiquitous cable boxes fall out of favor among consumers. "You could view this as a way for Cisco to hedge their bet," said analyst Zeus Kerravala, founder of ZK Research. Cisco has sold set-top boxes since its 2005 acquisition of Scientific Atlanta, but has been under pressure from some investors to get out of the business, whose profitability has lagged compared with other segments.

A deeper threat lurks, however. A number of big Silicon Valley companies are working on devices that connect TV sets to the Internet, potentially bypassing decades worth of cable-TV infrastructure. Apple Inc., which already offers an accessory device called Apple TV, is working on its own line of Internet-equipped TVs, people briefed on the matter say. Intel Corp., which has been trying to get its chips into set-top boxes and TVs, is also trying to line up content for its own service that would deliver video over the Internet, according to people familiar with the matter.

And Google Inc. is trying to gain traction with an effort called Google TV based on its Android software. The Internet giant is also poised to buy Motorola Mobility Holdings Inc., also a big maker of set-top boxes. Cisco Chief Executive John Chambers said the networking giant won't compete with those companies and instead will target content producers and cable operators, pitching the NDS software as a way to get shows on a variety of screens. "It doesn't matter if it's Android, Apple or anyone else's device," he said. ISI Group analyst Brian Marshall said that because the market for consuming programming across devices is so new and companies with ambitions in the space haven't shown their hands yet, it's best to think of them as competitors. "Everyone is fighting for the same pie," Mr. Marshall said.

Cisco entered exclusive talks to buy the company about three weeks ago, people familiar with the deal said. The purchase price values NDS at about $4 billion and Cisco will assume about $1 billion in debt, they said. NDS, based in Staines, on the outskirts of London, was taken private in 2009 in a deal that valued it at $3.6 billion. It is currently owned by Permira Advisers LLP and News Corp., which is also owns The Wall Street Journal. NDS filed for an initial public offering in December. It reported revenue of $957 million in the fiscal year ended June 30 and income of $252 million, according to a regulatory filing.

The deal is Cisco's first big acquisition in more than two years. Historically one of Silicon Valley's most active buyers, Cisco has focused more recently on acquiring start-ups and small companies. Of late, the company has been backtracking from an effort to expand into 30 new businesses, instead narrowing its focus to a few businesses, including video. For Cisco, the NDS deal is also an opportunity to use some of its overseas cash. The company had more than $46 billion in cash at the end of January, but only a small amount is in the U.S. Mr. Chambers has been among the most vocal advocates of a tax holiday that would allow U.S. businesses to repatriate cash without having to pay much tax. Absent that, he has said that Cisco is likely to spend it overseas. In the interview Thursday, Mr. Chambers said that Cisco would have acquired NDS regardless of where the smaller company was based. He also said that Cisco was prepared to spend as much $5 billion more on acquisitions over the next year. Wall Street Journal

Amazon Prime viewers got a nice surprise on Wednesday, after the online retailer announced that it had struck a deal with Discovery Communications for the rights to stream popular TV shows such as "Dirty Jobs" and "Say Yes to the Dress." The deal is just the latest in the company's efforts to bulk up its offerings to compete against Netflix, and the addition of 3,000 Discovery titles brings Amazon's total count up to 17,000, according to Amazon's release.

Amazon Prime costs $79 a year and gives users unlimited access to instant video, plus free and discounted shipping. "With the addition of this great content from Discovery Communications, Prime customers now have more than 17,000 titles to choose from when watching Prime Instant Video," Amazon's director of video content, Brad Beale, touted in a statement. "That's in addition to the more than 120,000 titles that are offered to all customers for purchase or rent on Amazon Instant Video." Netflix, which doesn't release the number of titles it offers, is said to have around 13,855 titles, according to a report from VentureBeat. The streaming video space is getting more crowded and more accessible. Walmart recently announced that it would be offering customers the chance to convert their regular DVDs to digital copies through its Vudu service. Washington Post

State legislators yesterday approved the controversial voter-ID bill which requires voters to present photo identification. Philadelphia City Council today passed a resolution sponsored by Councilwoman Cindy Bass condemning the actions of the State Senate. The resolution was approved 15-2 with nay votes from two of the three Republican Councilmen Brian O'Neill and David Oh. O'Neill said he did not support the voter-ID bill, but "condemning this is a little strong...too strong for me." He added that Council depends on state lawmakers for "a lot and need to have a good relationship." Bass described the bill as "a terrible piece of legislation." "It's been a waste of taxpayer dollars, a waste of our legislators time," Bass said. "I don't believe this is what we asked when we send folks to Harrisburg. I look forward to it being thrown out in the Commonwealth of Pennsylvania ... so let the lawsuits begin." philly.com

Former U.S. Sen. Arlen Specter was in the air in 2008 when the Republican nominee for president, U.S. Sen. John McCain, revealed Alaska Gov. Sarah Palin as his pick for vice president. "Who?" Specter recalls asking when his flight landed. A few months later, Specter rode with McCain and Palin on the "Straight Talk Express" bus to introduce them at a Delaware County rally. Specter writes in his new book - "Life Among the Cannibals: A Political Career, a Tea Party Uprising and the End of Governing as We Know It" - that Palin "sat silent" while he urged McCain to support a policy she opposed on embryonic stem-cell research. "Still she was a total charmer, very friendly" Specter writes. "The few things she said were intelligent. We were sitting virtually knee-to-knee in the cramped bus, and she radiated sensuality. Her skirt rode up above the knees - not exactly short, but close." Steamy stuff.

Former state Rep. Sam Rohrer, a tea-party favorite with a record of challenging the Republican Party leadership, has some competition suddenly for the role of outsider in the GOP primary-election race for the U.S. Senate. A state party-backed ballot challenge against David Christian, a Bucks County business consultant, was dropped this week after paperwork was filed to fix some issues with nominating petitions. Christian, who had lashed out at the challenge as "shameful" and as "strong-arm tactics," told us the challenge cost his campaign crucial time and money. "I don't know how I became the anti-establishment candidate in Pennsylvania," he said. "It threw my campaign off track. It's hard to raise money when your horse is not running."

The party, at Gov. Corbett's urging, endorsed Malvern venture capitalist Steve Welch in January, a move Rohrer denounced as an effort to "suppress the will of Republican voters." So the GOP primary will be a five-man field, with Harrisburg attorney Marc Scaringi and Armstrong County coal-company owner Tom Smith also on the ballot. They have a lot of ground to cover to get voters to know them. A Public Policy Polling survey released Wednesday put "undecided" in a strong 48 percent lead for the Republican primary. The poll also shows Rohrer and Smith are best-known, with three out of four voters saying they had not heard of them. About 83 percent have not heard of the three other candidates. The poll shows that U.S. Sen. Bob Casey Jr. holds a lead on all the Republican candidates, ranging from 15 percent (on Rohrer) to 20 percent (on Scaringi and Welch).

Quotable: "I don't know how you can make anybody watch, because you just have to close your eyes." - Gov. Corbett, speaking to reporters this week about legislation he supports that would force women in Pennsylvania to have an ultrasound before an abortion. Philadelphia Daily News

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