[opendtv] Analysis: Cisco Gives Convergence a Push
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 21 Nov 2005 06:58:02 -0500
http://www.broadcastingcable.com/article/CA6285532.html?&display=Features&referral=SUPP
Cisco Gives Convergence a Push
Scientific-Atlanta deal provides video piece of "quadruple play"
By John M. Higgins -- Broadcasting & Cable, 11/21/2005
Since cable systems are starting to look more and more like computer
networks, Cisco wants a bigger piece of the action. Last week, the
giant networking company showed how badly it wants to play, ponying
up nearly $7 billion to do it.
Cisco on Friday cut a deal to buy Scientific-Atlanta (S-A), one of
the largest technology suppliers to the cable industry. S-A
shareholders will collect $6.9 billion, or $43 per share, from San
Jose, Calif.-based Cisco, which has long been a major player in
computer networking, helping telecom and general businesses keep
their PCs, servers and mainframes talking to each other.
Two forces drew Cisco into the cable-TV industry. First, the cable
set-top is increasingly resembling a PC, morphing from a relatively
dumb box used to change channels into small computers that integrate
video-on-demand (VOD), hard drives for digital video recording, and
even DVD burners.
At the same time, TV is pushing its way onto computer networks.
Disney CEO Bob Iger rocked the industry when he allowed video iPod
users to start downloading episodes of ABC's best product, Desperate
Housewives and Lost. Telcos Verizon and SBC are building video
systems based on the same protocols as the Internet. Just last week,
NBC Universal agreed to sell Universal movies over World Media's
peer-to-peer online service, and Warner Bros. teamed with AOL to
offer old TV series.
Network executives see Internet video deals as a potential threat to
their advertising business. Cable operators fret that consumers will
be able to dump video service and watch HBO online.
Cisco executives see the world through a telecom prism. Delivering
fat, live video through computer networks is a much bigger job than
helping companies transmit e-mail, Web pages and phone traffic.
When it comes to building networks, says Cisco Senior VP Mike Volpi,
"the bandwidth-dominant application-which clearly is video-often is
the one that dictates how networks are built over the long term." And
Cisco wants to be there not just with the right gear but with the
expertise of handling the massive amounts of digital video cable that
operators pump through their systems each moment. S-A offers the kind
of expertise Cisco needs.
S-A has for decades been one of the two manufacturers dominating the
market for cable equipment. Set-top boxes are the most visible part
of that game, accounting for 60% of S-A's revenues.
The less visible part of Scientific-Atlanta's business-about 40% of
sales-is the cable system itself, including the headend that takes
video from satellites, and all the gear necessary for Internet
traffic and phone calls.
In some ways, S-A is the opposite of Cisco. A cable system is a
relatively closed network. Encryption has for years been a highly
proprietary technology. Outside companies generally have difficulty
designing new equipment that works on existing cable systems. That is
why S-A executives take pride in that their expertise in "system
integration".
But that's changing. Encryption systems that keep people from
stealing cable are becoming more open. Operators are switching to the
same Internet Protocol used for Web traffic, phone calls and, more
important, telephone companies' own new video systems.
Cable is a promising but relatively small market for Cisco. The
networking company generates $24 billion in annual sales. S-A
generates about $1.3 billion. Cable operators spend about $10 billion
on equipment each year. That's a fraction of the multibillion-dollar
market for conventional computer-networking gear. Cisco CEO John
Chambers notes that a single telephone company spends more each year
than the entire cable industry.
So why is Cisco stepping up for this deal? Partly because it wants to
be a player in every layer of the communications business. Chambers
notes that the company already supplies operators with gear for
Internet and telephone service, but not much for video.
"Video is emerging as a key element in the service provider
'quadruple-play' bundle encompassing consumer entertainment,
communications and online services In fact, video may be the most
critical element in this bundle for ensuring consumer differentiation
and loyalty, or stickiness if you will, to service providers. The
opportunity for Cisco is to dramatically reduce the complexity of
converging data, voice, and video over IP in both a fixed and mobile
environment, which is at the core of our expertise."
Ken Kerschbaumer contributed to this report
E-mail comments to jhiggins@xxxxxxxxxxxxxxxx
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