Expect More IPTV M&A
The Cisco/Scientific-Atlanta deal can be seen as an affirmation of vendors' belief that carriers want an end-to-end IPTV solution where all hardware and software elements are closely integrated and provided by one accountable entity: one neck to choke, in industry parlance. (See Will IPTV Bloom in 2006?.)
“In mature markets carriers tend to look for best-of-breed solutions,” Cisco VP Mike Volpi said while discussing the merger on a conference call Friday. “But video is not a mature market yet, and carriers are looking for an end-to-end solution.”
Yet true end-to-end IPTV solutions remain hard to come by. Most of the players in the space, like Microsoft Corp. (Nasdaq: MSFT) and Alcatel (NYSE: ALA; Paris: CGEP:PA), depend upon partnerships to fill gaps in their “end-to-end” solutions.
Heavy Reading IPTV analyst Rick Thompson suggests the Cisco acquisition of Scientific-Atlanta may accelerate consolidation in the space as incumbent vendors seek to fill those gaps.
Why? Thompson suggests that it's the clear statement Cisco is making about the IPTV market itself: “Video, specifically IPTV -- telco video -- has been a combination of market hype and initial execution in 2005. This acquisition tends to stamp a lot of this hype with a certificate of reality.”
Until today, the large gear makers for the most part have chosen to partner with makers of IPTV middleware, which is considered to be the central nervous system of IPTV distribution. Alcatel dropped its own IPTV middleware product in favor of a tight partnership with Microsoft and its middleware product. Siemens AG (NYSE: SI; Frankfurt: SIE) acquired the middleware company Myrio. (See Siemens Boasts IPTV Success.)
Others, meanwhile, are fostering co-marketing and co-integration relationships resulting from existing or potential mutual customer deals. Sources say examples of this include the Nortel Networks Ltd. (NYSE/Toronto: NT) engagement with Minerva Networks Inc. and the Lucent Technologies Inc. (NYSE: LU) engagement with Orca Interactive Ltd..
Thompson feels the Cisco/Scientific-Atlanta deal may open the doors to new types of these pairings. And the first of them, he believes, may be acquisitions of video on demand (VOD) server vendors.
“VOD vendors, specifically for IPTV, have a very network-centric view of the video storage and distribution problem,” Thompson says. "Intelligent content distribution algorithms will be an important requirement as these IP video networks grow."
The VOD server crowd includes such names as Entone Technologies Inc., Kasenna Inc., and BitBand. (See BitBand Deploys VOD , PCCW Deploys Entone for VOD, and Kasenna Wins Cavalier Deal.)
“VOD services also have a high value as compared to broadcast/multicast services and will be the differentiating video services going forward, not to mention much of the reason for deploying an IP-based architecture that can better handle an expected increase in unicast VOD traffic,” Thompson says.
Thompson believes Cisco’s acquisition of a content processing and video headend player is a move that might be repeated by other incumbent vendors. Prominent players in the headend space include Tut Systems Inc. (Nasdaq: TUTS), Tandberg Television, and SkyStream Networks Inc.
Thompson also points to conditional access and digital rights management (DRM) companies as attractive acquisition targets in the near term. (See Verimatrix Tackles Video Piracy and Widevine Wins TVN Contract.)
— Mark Sullivan, Reporter, Light Reading