4/24/2012 -- Two of Cisco Systems Inc.'s all-time biggest acquisitions haven't involved core networking technologies. Cisco famously ponied up almost $7 billion for the former Scientific Atlanta back in 2005, for example. And just last month, it paid a cool $5 billion for NDS Group Ltd., a provider of video and video content security software.

What gives?

The Scientific Atlanta brand was known far and wide prior to its acquisition by Cisco. It gave Cisco highly-visible primacy of place in the then-emerging digital home, thanks to Scientific Atlanta's ubiquity in the set top box (STB) market.

NDS Software, on the other hand, isn't as well known, outside of specialty circles.

And yet at $5 billion, it's Cisco's biggest bet in years.

Heck, NDS is Cisco's biggest cash outlay since the Scientific Atlanta deal, which it notched almost seven years ago. If that isn't enough, NDS is Cisco's fourth-biggest acquisition ever. Over the last two decades, Cisco has pulled the trigger on 12 multi-billion dollar acquisitions. So that's saying something.

But NDS could be worth every penny, argues Ron Westfall, an analyst specializing in digital media infrastructure with consultancy Current Analysis Inc.

"[NDS] could complement and accelerate the delivery of Cisco's Videoscape platform, which enables service providers and media companies to deliver next-generation entertainment experiences," writes Westfall, in a Current Analysis "CurrentCompete" research publication. "It could also broaden Cisco's opportunities in the service provider market, expanding its reach into emerging markets such as China and India, where NDS has an established customer footprint."

For one thing, Westfall notes, NDS has proven technology: its content and service security software, its video platforms, and – last but not least – its systems integration assets are all best of breed. Going forward, Cisco expects to incorporate all of these assets into VideoScape. "NDS products, such as VideoGuard CA and VideoGuard Connect DRM, are already deployed on over 155 million devices, and they will likely fit elegantly into the Videoscape portfolio," Westfall writes.

"The move can enable Cisco to drive a greater range of operator efforts to integrate and manage multi-screen technologies that blend broadcast, VoD, and over-the-top … services under a single service package," he continues.

Nor is Cisco just buying new technology: many existing NDS customers are signed to long-term contracts. "Cisco also realizes a new stable revenue stream since a significant portion of NDS' content security, professional services, and software platform revenues are recurring, due in large part to the average duration of NDS contracts lasting around five years," he notes, stressing that all won't be sweetness and light for Cisco, because it "faces a notable integration challenge, since NDS commands over 5,200 employees distributed in all regions as well as a new, robust international satellite pay-TV channel, where Cisco's experience is limited."

Was NDS worth $5 billion? The more appropriate question might be: was NDS worth $5 billion *to Cisco*? According to Westfall, the networking giant needed to do something. In this respect, acquiring NDS could be viewed as the technology equivalent of trading for Lebron James: the kind of move that confers world-class competitiveness.

"Cisco … needed to acquire NDS to bolster the software and content security component of the Videoscape platform and portfolio," he argues. "NDS video software solutions, such as the MediaHighway STB software/XTV DVR, NDS Dynamic Advanced Advertising, NDS Unified Headend/Service Delivery Platform, OTT/Internet TV, and NDS EPG/Snowflake products, reinforce Cisco's ability to drive operator multi-screen integration efforts in areas such as UI design and high-quality video experience across multiple devices and put more marketing and development emphasis on the software dimension of Videoscape."
-- By Stephen Swoyer