Cisco Systems, the massive vendor of IP routing, switching and transmission gear, acquired Scientific-Atlanta today for $6.9 billion in cash, a move that gives Cisco an immediate presence in the video delivery market.
“This completes a large part of our quadruple play of data, voice, video and mobility services,” said John Chambers, Cisco Systems president and CEO. “Video may be the most critical element in a bundle of services in terms of customer stickiness.” He says Cisco hopes to reduce the complexity of bringing those services together over one network.
Cisco has eyed the video market for a number of years, but many traditional video content and distribution companies have been hesitant to rely on its line of gear that helps move content as packets of data. Adi Kishore, Yankee Group Media and Entertainment analyst, says, “Companies need to understand the MSO and the MSO culture. And while Cisco has made some interesting forays into the video side of the business, it has still been struggling to create a gold-standard level of credibility. When someone thinks video expertise, Cisco doesn’t pop to mind. But S-A are monsters in the video business.”
Scientific-Atlanta set-top boxes represent a gateway directly into the home. But that's just part of the attraction for Cisco. Scientific-Atlanta’s back-end infrastructure products manage large amounts of video and data that pass through the cable plant. Thus, Cisco will have a natural place for its IP routers and gear to sit.
“We’ve been looking for the assets that Scientific-Atlanta provides for a while now and this is a dream come true,” says Jeff Spagnola, Cisco VP, service provider marketing. “This actually bolsters the value proposition of each of us.”
The deal is expected to close in about two months, after which Scientific-Atlanta will operate as a division within Cisco’s Routing and Service Provider Technology Group. That company is headed up by Cisco Senior VP Mike Volpi. Scientific Atlantic Chairman and CEO Jim McDonald will report to Volpi.
Josh Bernoff, Forrester Research vice president, says Scientific-Atlanta will benefit greatly. Cisco can help the company sell more back-end infrastructure gear and push them into retail markets. “This may accelerate the IP transition in cable,” he says. “But I have two rules for the cable industry: first, cable goes slow. And even if you know rule one, they go slower than you think. But Cisco has been know to innovate and show a market what is possible, and that has given them pretty incredible growth and marketshare. And with cable moving in the direction of IP it will be a lot easier for Cisco to get into a cable system if it’s Scientific-Atlanta that is telling the MSO what they need.”