Mergers & acquisitions

Will Cisco Make an IPTV Middleware Move?

Cisco Systems Inc. (Nasdaq: CSCO) is making a serious run at building an end-to-end IPTV solution for carriers, and several sources feel an IPTV middleware platform may be next on the networking giant's shopping list. Several recent deals involving Cisco seem to indicate that middleware is a missing piece in its IPTV arsenal. (See IPTV MiddleWARs: Far From Over.)

Cisco’s acquisition of the VOD player Arroyo Video Solutions Inc. , announced Tuesday, is one indicator of its plans. (See Cisco Snatches VOD Vendor Arroyo.) VOD (video on demand) is an increasingly popular part of commercial video services, so some say Cisco's move is another incremental step toward piecing together an end-to-end IPTV distribution system of its own.

Another meaningful strategic move by Cisco is its investment in the video content management company Widevine Technologies Inc. , announced in April. The digital rights management (DRM) piece is of central importance to video distribution because it protects the content and controls its monetization. Seattle-based Widevine has strong ties to the Hollywood content community and has emerged as one of the leading content management players in the IPTV space. (See Cisco Fertilizes Widevine.)

“When you start getting into the DRM integration with the middleware, that’s when it starts getting really interesting,” says Heavy Reading senior analyst Rick Thompson. That integration would give Cisco a way to manage video rights and security from the headend all the way to the set-top box in the subscriber’s living room.

Widevine CEO Brian Baker declined comment for this story.

IPTV middleware has been called the central nervous system of the IPTV distribution system. It is the software brain that orchestrates the interaction of network elements from the headend through to the set-top box.

“The large incumbents are all putting together an end-to-end IPTV story,” Thompson says. “Cisco and Alcatel are the two main ones.”

Thompson points to several good reasons for Cisco to own a middleware product.

With an IPTV middleware platform of its own, Cisco could in time pose a credible threat to the Microsoft Corp. (Nasdaq: MSFT) / Alcatel (NYSE: ALA; Paris: CGEP:PA) IPTV partnership. Microsoft and Alcatel have virtually run the table on large telcos hoping to come out of the gates quickly with mass-market video services. (See Microsoft Wins IPTV Deal at DT.)

“It’s not critical to have middleware as part of that solution, but there are some advantages when it comes to integration, especially if you are acquiring the set-top boxes,” Thompson says. “If you can control the integration time needed to make all the pieces of the food chain work together, you can control the time needed for the carrier customer to turn up profitable services."

Thompson points out that IPTV middleware is not the most profit-rich piece of the IPTV distribution chain. But once installed, it can “pull through” sales of more expensive items like encoders and VOD servers, not to mention Cisco's own networking gear.

Several sources report hearing the "Cisco middleware" rumor. “I would not be surprised at all if that’s the case,” says Harmonic Inc. (Nasdaq: HLIT) VP of solutions and strategy Nimrod Ben-Natan. “One of the key arguments we’ve heard from Cisco is that they want to be a big player in IPTV.

“They acquired Scientific-Atlanta, but after about two months they realized they had a lot going on in cable but had very little going on in the IPTV space.” Ben-Natan points out that the only major telco TV deployment in which Scientific-Atlanta Inc. is engaged is AT&T Inc. (NYSE: T). “So I wouldn’t be surprised if they are going after an additional component,” he says.

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olsen 12/5/2012 | 3:43:38 AM
re: Will Cisco Make an IPTV Middleware Move? Really?
No word on the Oslo Stock Exchange.
Must be a leakage.
thenight62 12/5/2012 | 3:43:38 AM
re: Will Cisco Make an IPTV Middleware Move? You heard it here first. They're next for Cisco.
Mark Sullivan 12/5/2012 | 3:43:37 AM
re: Will Cisco Make an IPTV Middleware Move? Don't be coy; tell us more. Why is it a good fit for Cisco?
desiEngineer 12/5/2012 | 3:43:36 AM
re: Will Cisco Make an IPTV Middleware Move? Interesting that you have a Thomson & Thompson (with a p as in psychology) in your article. First I thought it was Thomson SA, the French company that also does STBs, but then I realized that LR had the incisive detective minds of the twins from Tintin undergirding HeavyReading.

"Thompson points to several good reasons ..."

"Thomson points out that IPTV middleware ..."

To be precise.

jcrawshaw 12/5/2012 | 3:43:35 AM
re: Will Cisco Make an IPTV Middleware Move? I don't think that Microsoft can really have a meaningful strategic partnership at the same time with two competing vendors like Alcatel and Cisco. At the same time, by acquiring Orca or Minerva, Cisco would be driving a wedge between itself and Microsoft which could see it lose business. It might be better to remain middleware agnostic for now while covertly developing SA's cable middleware and CA solution for the telco TV market.

By the way I don't think that Alcatel have completely scrapped their own middleware (OMP) and if the rumored problems with Microsoft's solution are true it may be time for Alcatel to offer OMP as a proven alternative.
jcrawshaw 12/5/2012 | 3:43:35 AM
re: Will Cisco Make an IPTV Middleware Move? Although I think Tandberg TV is a great company, having just bought Scientific Atlanta (encoders) and Arroyo (VOD) wouldn't TTV be highly duplicative for Cisco? TTV has a strong position in the satellite TV industry and with the Skystream acquisition they are well placed for IPTV but I think it would be difficult to integrate the TTV and SA businesses and people. If Cisco wants a bolt on to bolster its encoder business it should look at Tut Systems (currently suffering cash flow problems) or Modulus (if Motorola doesn't buy them first).
jes 12/5/2012 | 3:43:35 AM
re: Will Cisco Make an IPTV Middleware Move? I would say Cisco will think of a partnership with Microsoft... Don't forget Alactel had a decent middleware solution of there own and they scraped that for MSFT. See the difference - now with the power of MSFT, ALA is in all big telco accounts. May be for Cisco also, MSFT may be a good fit !

Isn't that sound like middleware also becoming like a Windows OS with 95% market share... MSFT is in a win-win situation !
trzwuip 12/5/2012 | 3:43:34 AM
re: Will Cisco Make an IPTV Middleware Move?
Welcome back, Cisco. Too bad about your written off Pixstream and Imagictv investments.

I think Espial is a great fit for Cisco.
LightWarrior 12/5/2012 | 3:43:34 AM
re: Will Cisco Make an IPTV Middleware Move? Good call on Espial. They are lesser known, but their IPTV middleware is widely deployed and the word is they are working with many of the leading TEMS and SIs already as an alternative to Microsoft. Minerva is widely deployed at Tier 2s and IOCs, but is based on older proprietary technology. Orca is also not open, and has performance issues that would keep it from scaling. Myrio is a decent product, but as you point out, already has a dance partner.

From what I am hearing, there are serious chinks in the Microsoft armor, and both TEMs and carriers are starting to get fed up. They are also realizing that an already mediocre IPTV business model (because of content licensing fees) is only made worse by doing a deal with the devil (Microsoft) who might bring decent apps and a good UI, but won't scale and whose lack of openness will give them little leverage to negotiate the best deals with the IPTV components in the MS ecosystem. Sounds familiar doesn't it? Can anyone say: "Windows"?
DCITDave 12/5/2012 | 3:43:33 AM
re: Will Cisco Make an IPTV Middleware Move? From the email bag, some additional context from cisco, re its relationship to microsoft...

"Microsoft TV and Cisco share the vision that Internet Protocol can improve entertainment and communications services while providing service providers with new revenue opportunities. To that end, Cisco, through its acquisitions of Scientific Atlanta and KiSS Technology, is part of the Microsoft TV IPTV Edition ecosystem, delivering advanced set-top boxes and the latest video encoding solutions to make IPTV a reality.

"Microsoft and Cisco are working together on a number of MicrosoftGÇÖs largest global deployments, featuring the Microsoft IPTV Edition software platform and Cisco set-top boxes and video headend equipment, with service providers including AT&T and Deutsche Telekom."

We now return you to your regularly scheduled message board...

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