Motorola Beats Cisco to VOD-Server Acquisition Punch

Beating Cisco to the punch with an acquisition of a television- and video-on-demand (VOD) server company, Motorola today announced the acquisition of Broadbus Technologies Inc. for an undisclosed sum.

Cisco and Motorola both were said to be shopping for such an acquisition, but Motorola has made the first move, going from reactive to proactive mode in the adversarial relationship between the two rivals in the realm of content-delivery infrastructure for cable networks.

Despite Motorola’s reluctance to specify what it paid for Broadbus, an earlier report in Private Equity Week (PE Week) pegged the price at $186 million in cash. Motorola says the deal will close in September.

Broadbus is a considered a significant player in the television-on-demand market. Broadbus’ customers include cable providers Adelphia, Charter Communications, Comcast, Rogers Cable, and Time Warner Cable. The company had considered pursuing an IPO in 2007 or 2008, but it must have decided, given the uncertainty associated with long-term market conditions, that it was better to take the bird in hand than to wait for one to materialize on the public markets.

PE Week reported that Cisco – along with Intel – attempted to get involved in Broadbus’ early venture-capital rounds, but was rebuffed. Lately, Cisco is said to have turned its acquisitive attentions to Arroyo Video Solutions, which probably will come cheaper than Massachusetts-based Broadbus and is based in Pleasanton, not far from Cisco’s San Jose headquarters.

Broadbus raised $57 million in VC funding since its inception in 1999. The company has 130 employees, with offices in Beijing and Slough, England, as well as its Boxborough, Mass. home base. Toward the end of last year, Broadbus claimed to have more than 50 revenue-generating, commercial deployments of its VOD servers worldwide, passing more 10 million homes. At the time of the acquisition, it claimed 60 worldwide deployments.

Now the focus turns to Cisco, which is expected to respond imminently with a tit-for-tat acquisition of Arroyo. Analysts quoted recently in an article published by Cable Digital News see Arroyo as a logical target for Cisco. The company primarily is a software concern that runs its code on industry-standard hardware. It has Time Warner, Comcast, and Charter Communications among its stable of cable-industry customers.

Since Cisco already is well stocked with hardware, both its own and the infrastructure in acquired through its $7 billion purchase of Scientific-Atlanta, the consensus is that it would prefer to add video-on-demand software to its product portfolio instead of hardware.

More important, Cisco is seen to have an acute need for a VOD server. It doesn’t have one now, and it knows one will be required to serve the burgeoning market of cable MSOs and other broadband service providers looking to deploy IPTV. Heretofore a niche market, VOD servers are gaining increasing favor with both cable operators and telcos worldwide, particularly as the latter wake up to an “IP bundle deficit” in comparison to the MSOs.

Market watchers say further acquisitions in the VOD-server market are likely.  There are two publicly traded players, SeaChange International and Concurrent, recognized as early market leaders, and they are followed by smaller vendors that include Arroyo, Broadbus, Harmonic, Kasenna, and Entone, among others.

That’s considered to be at least a few too many players. Fujitsu, Nortel, and Alcatel (though the latter has its hands full at the moment preparing for its muddle of equals with Lucent) have been mentioned as potential buyers of VOD-server players, and defensive mergers between existing players are possible.

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