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Motorola, Cisco Buyouts Vex VOD Market

The wheeling and dealing in the cable video-on-demand (VOD) market may have only just begun. Now that Motorola Inc. (NYSE: MOT) and Cisco Systems Inc. (Nasdaq: CSCO) are preparing to take the plunge into the market by buying hot startups, market analysts, investors and other industry sources are buzzing about who the next takeover targets will be.

Most of the fresh speculation is focused on the two current VOD market leaders, SeaChange International Inc. (Nasdaq: SEAC) and Concurrent Computer Corp. (Nasdaq: CCUR), because of both their visibility and their vulnerability. In the most widely discussed scenarios, sources see Comcast Corp. scooping up SeaChange and Arris Group taking out Concurrent.

Representatives of all four companies either decline comment on the purported deals or dismiss them as groundless rumors. SeaChange and Concurrent executives also contend that their companies feel no urgency to sell out because they are still strong, big, and diversified enough to stand on their own.

"I don't think it really changes anything competitively for us because the same two companies are there," says Yvette Kanouff, SVP and chief strategy officer for Acton, MA-based SeaChange. "I don't see that as threatening."

Concurrent and SeaChange officials agree, though, that more VOD deals will likely take place as cable operators and telcos place more emphasis on the on-demand business and increasingly seek integrated, end-to-end solutions from larger equipment providers.

"The fact that Motorola and Cisco are willing to spend money is really a validation of the space," says Tim Dodge, VOD marketing director for Concurrent. "There probably will be more consolidation in the space."

Despite some recent struggles, SeaChange and Concurrent have ruled the on-demand market for years, combining for the lion's share of cable system deployments and VOD streams. In the latest market rankings by Kagan Research, for instance, SeaChange accounted for about 1.3 million VOD deployed streams while Concurrent accounted for nearly 1 million streams.

But the two publicly traded companies will soon find themselves dwarfed in size by two much smaller rivals when Motorola closes its planned $186 million purchase of Broadbus Technologies Inc. and Cisco Systems Inc. consummates its planned $92 million buyout of Arroyo Video Solutions Inc. Motorola and Cisco aim to wrap up their back-to-back summer purchases by the end of October.

"It's almost like the market has flipped upside down in a matter of a month," says Kip Compton, senior director of video and IPTV development for Cisco. "The small guys will suddenly be the big guys."

Indeed, analysts say competitive pressure is already mounting on SeaChange and Concurrent to make some kind of move. Facing the prospect of competing directly against Cisco and Motorola, the two VOD players must weigh bulking up through their own acquisitions, merging their operations together or selling out to such bigger telecom equipment providers or MSOs as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Nortel Networks Ltd. , Siemens AG (NYSE: SI; Frankfurt: SIE), Alcatel (NYSE: ALA; Paris: CGEP:PA), Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), Ciena Corp. (NYSE: CIEN), and Arris Group Inc. (Nasdaq: ARRS).

"What are those mid-sized players going to do?" asks Sterling Perrin, a senior analyst with Heavy Reading, who recently completed a major report on the cable industry's next-generation video plans. "There'll be market pressure, I'm sure, for them to get bigger or even merge together."

A pact that SeaChange recently signed with one of its biggest cable customers, Comcast, has only fanned the takeover speculation flames. In an eye-opening filing with the Securities and Exchange Commission early last month, SeaChange disclosed that Comcast has committed to purchasing at least $45 million in VOD products and services from the vendor through the end of next year, including the roughly $8.7 million in goods that the MSO has already bought this year, along with two one-year options through 2009.

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handd 12/5/2012 | 3:42:24 AM
re: Motorola, Cisco Buyouts Vex VOD Market The issue for Arris is, what do they do after VOIP. Somewhat like Scientific Atlanta had to decide in their space. Buy or be bought. ARRS and it's stockholders would be better off being bought instead of trying to compete with Moto and Cisco if being large is important.

Seachange is already the VOD vendor for Verizon.
Is Cablevision interested in Arroyo for it's technology or because they are not selling to Telco.

The analyst have not discussed Seachange and Concurrent's hidden assets. SEAC has options to buy Casa Systems. CCUR's relationship to Novel's Linux kernel has a big upside. CCUR shares it's engineer's between Real Time and VOD making splitting difficult. Both have new servers in the works that should match or beat Broadbus and Arroyo.

As for short term. CCUR's officers were recently awarded more stock options at $1.35. That tells me there isn't any buyout offer on the table.
handd 12/5/2012 | 3:42:24 AM
re: Motorola, Cisco Buyouts Vex VOD Market Arris (ARRS) is cruising with VOIP sales and profits. It's not going to buy a VOD company that is losing money.

Concurrent (CCUR) is not a VOD company, it is a Real Time computer company that also sells VOD software with it's state-of-the-art Linux. The analysts are Cable vendor insiders and not Computer Software analysts.
The stockholders of CCUR would not allow a friendly takeover at such a discount suggested in this article.

Perhaps the analysts with insider knowledge report to the public what Broadbus and Arroyo revenue is. Sharing South Bend Indiana doesn't sound like a strong Comcast vendor to me.
Sterling Perrin 12/5/2012 | 3:42:24 AM
re: Motorola, Cisco Buyouts Vex VOD Market My point is that investors and financial analysts are going to but a lot of pressure on these mid-size players to merge or get bought up, but I don't know that the customers are actually asking for this to happen or that they benefit all that much.

In telco, it's clear that the large service providers will only do business with big vendors, but that hasn't been as big a driver in cable. Is there a clear advantage for an MSO in dealing with a bigger Arris, for example?
btierney 12/5/2012 | 3:42:21 AM
re: Motorola, Cisco Buyouts Vex VOD Market hidden assets? what does SEAC claim from revenue from Casa? What does Casa actually sell by the way? any customers? not just lab trials.

SEAC/CCUR both seem like old school companies that will die on the vine or get bought for chump change because they got arrogant, took customers for granted, under estimated the competition, kept a dinosaur management team..etc...

VZ + SEAC... ummm buy from a start up or a 100+ million public company? OK SEAC come on in...

but wait... Cisco and Moto are in the biz now... see ya SEAC...that's for educating us and being a lab rat...

Cape
alchemy 12/5/2012 | 3:42:21 AM
re: Motorola, Cisco Buyouts Vex VOD Market So the recommendation is for Arris to be more like Motorola? Or Cisco?

Arris now has the dominant MTA market share because they invested R&D money into their product line at a time where Motorola pushed R&D responsibilities to their silicon vendors. Sounds like smart, nimble management to me.

Arris bought Cadant on the cheap and turned it into the best of breed carrier-class DOCSIS 2.0 CMTS. Cisco was so threatened by it that they invented the whole modular CMTS concept to convince the MSOs to defer buying Arris gear. Guess what? You really can't make a modular CMTS carrier class and a point of failure will cause cable modems to resynch. That's not what you want in a data access network that is now carrying 911 traffic. Cisco still doesn't have a product and the MSOs have slowly figured out that the Modular CMTS wasn't a very good idea. The biggest MSO proponents are now back full time as Cisco employees. If I were buying a CMTS in 2006 or 2007, I know what I'd buy.

In Arris, I see an extremely well managed business. The cable part of Motorola can hardly be called that. MOT has a few years left milking their digital set top box cash cow and they'll likely spin the division off. Cisco achieves market share by flexing muscle, not by having the best product. Arris can do worse than be the competent #2 splitting market share with Cisco.

The question is what market Arris should be in next. Do they diversify away from cable? Do they stay in cable and migrate into the high margin software part of the business like device provisioning and back-office? Do they move into the video business? Do they move into the VoIP business beyond client devices? If you look at how they stole Cadant, one can imagine that they would love to repeat that tactic.

Concurrent just doesn't make sense to me. Sure, Arris could buy it cheap and they don't have much debt but the place only does $70 million in sales (declining) and loses $10 million/year. Arris would likely have to kill off the Real Time side of the business and hope they can manage the VOD business unit into profitability. There's probably several hundred million dollars of dillution and cash drain to make that happen. I think Arris would be much better off merging with somebody who is already profitable but hasn't yet done an IPO.
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