Cable's Google Shield
Google (Nasdaq: GOOG)'s proposed acquisition of Motorola Mobility LLC may let the folks from Mountain View, Calif., into cable's digital video henhouse, but a deal Comcast Corp. (Nasdaq: CMCSA, CMCSK) struck with Moto more than five years ago prevents Google -- or anyone else, really -- from taking it over. (See Cover Sheet: Google to Acquire Moto Mobility.)
In March 2005, Comcast and Motorola inked a "broader strategic relationship" that involved a $1 billion set-top purchase order, but more importantly called for the formation of two conditional access joint ventures: Combined Conditional Access Development (CCAD) and Conditional Access Licensing (CCAL).
CCAD focuses on next-gen conditional access technologies, such as a downloadable video security. CAL gave Comcast a non-exclusive license for MediaCipher, Moto's conditional access technology. Comcast manages CAL and can license MediaCipher to other MSOs and set-top vendors.
A cable industry source familiar with the agreements says the deal also gave Comcast a controlling stake in the Motorola Digital Access Controller (DAC), the command-and-control element for Motorola-based cable headends. The DAC allows set-top boxes to register themselves on the network and, when you really boil it down, represents the "brain" of cable's Motorola-based networks.
If the deal gets done, Google would certainly own Moto's set-top box business and the devices themselves, but it would not be able to commandeer the bulk of U.S. cable TV networks. Comcast has already cleaved out control of that important piece.
"The one thing Google can't control is [the] controller. If that was in Google's hands right now, I think [the cable industry] might be a lot more worried," the cable source said. The 2005 deal "prevents [the DAC] from being sold out from underneath us."
"Comcast has been good at putting up a wall 'for the just in case,'" says another industry source who's familiar with CCAD/CAL.
But to be clear, there doesn't appear to be a rampant belief that Google, which has butted heads with cable now and then and has been viewed as a disruptor to cable's pay-TV business, would attempt to seize cable's Moto-based networks. But safeguards are in place.
"I think if Google is smart, they'll recognize that the cable guys are not their enemy," a cable exec says. "Establishing a peace of sorts with service providers in general is probably a good thing for Google, not a bad thing."
The 2005 deal is certainly good for Comcast, which has about 80 percent of its footprint based on Motorola's digital video platform, according to an estimate issued Friday by Sanford C. Bernstein & Co. Inc. Analyst Craig Moffett. What about the other cable operators that rely heavily on Moto?
They should be protected, too, so long as they don't mind obtaining the DAC licenses through Comcast.
And this is all tied to the legacy, QAM-based Motorola video platform. Google's better chance to make a difference -- and perhaps exert more influence on cable's video future -- will more likely come as MSOs migrate to IP-based video platforms.
Much of that speculation has centered on the idea of porting Android to the cable set-top box -- an idea that some high-ranking cable industry leaders and engineers are already warming to. (See Will Google Be Good for Cable? and Will Google Droid Up the Set-Top Box? )
— Jeff Baumgartner, Site Editor, Light Reading Cable