Big news today as Cisco announces its intention to acquire NDS for $5bn. Both company boards have approved the deal which is expected to close during 2H 2012. NDS is currently owned by News Corp and Permira.

Cisco made headlines last year for most of the wrong reasons, including famously pulling out of most of its consumer-facing businesses such as the Flip camcorder. Acquiring NDS puts it firmly back on the acquisitions radar, and confirms what John Chambers told me during our analyst roundtable at the 2012 CES: “the consumer still remains a key element in Cisco’s strategy”. Cisco supports service providers who support consumers, and NDS fits nicely into that positioning. According to Chambers during the financial analyst call today, NDS’s strength in software is exactly what Cisco’s customers have been looking for.

NDS helped create the pay TV industry. Originally developed out of the News Corp organisation, its smart card technology was a critical element in the development of Sky in the UK, and from that base it expanded into many pay TV operators around the world. Along the way it expanded into interactive (now more fashionably known as smart TV middleware and many other components of the television technology chain. And while the company’s charismatic leader, Abe Peled, used to make great play of the longevity and importance of the smart card/set-top box model, his company nevertheless has been preparing the way for the OTT/connected TV era. The fact that News Corp is willing to sell NDS is another sign (after Sky recently announced its own independent OTT service) that media companies see their subscription businesses as less reliant on the television set-top box, instead moving towards a multi-device, software and network based model.

If anyone doubted Cisco’s seriousness about the consumer video space (rumours about the future of its Scientific Atlanta business regularly resurface), this acquisition confirms it still intends to play a critical role in television’s transformation over the coming years. Assuming that the transaction goes ahead and NDS can be successfully integrated, NDS’s operator relationships, R&D strength and technology visions should help Cisco’s service provider and media customers make better sense of the value chain disruptions which lie ahead.

David Mercer