Cisco Wants To Buy News Corp’s TV Software Maker NDS For $5 Billion

Cisco (NSDQ: CSCO) says it wants to buy News Corp.’s TV set-top box software maker NDS Group for $5 billion to improve its own offering and grow its profile in China and India.

Both companies’ boards have approved the deal. But the interesting part is: why does News Corp. (NSDQ: NWS) which co-owns NDS together with Permira, want rid of the software which powers its BSkyB (NYSE: BSY) and DirecTV (NYSE: DTV) PVR boxes, as well as Canal Plus’?

$5 billion in cash may be one reason, something which could provide a welcome dividend to worried News Corp shareholders.

But a big shift is also about to happen in TV distribution and reception, and it means less of a role for old-line set-top boxes and the satellite and cable infrastructure above and behind them.

BSkyB will this summer unbundle its own-brand pay-TV channels from satellite, offering them to direct subscribers via connected TVs, game consoles, tablets and other devices, all through landline internet. It has also acquired an out-of-home WiFi network so subscribers can watch mobile TV in cafes. And it recently invested in Zeebox, a social TV app startup that can change TV channels from iOS.

Much of this would radically change the importance of the conventional box under the TV, even if the market is nevertheless currently replete with dedicated internet TV boxes vying for market share, before the majority of TVs sold have such features integrated.

In emerging markets, where Cisco wants to take NDS, broadband networks are less established. And the change won’t happen overnight in the west either. Cisco says many NDS clients have five-year contracts. Cisco’s announcement does not say whether DirecTV and BSkyB have committed to renew with NDS.

In 2008, a California judge dismissed a claim from rival Echostar (NSDQ: SATS) that NDS hired computer hackers to crack its TV access card’s encryption. Last September, the claims resurfaced in a case filed by disgruntled News Corp shareholders, who claimed the company had sat on information about the EchoStar case.

NDS’ main assets are its VideoGuard DRM software and MediaHighway, middleware used to deliver EPG and PVR on set-top boxes. The company also has its own over-the-top TV product called Infinite TV.

Cisco wants to ally NDS with its Videoscape multi-screen viewing platform, though the company will remain independent. CEO John Chambers (via release): “Our strategy has always been driven by customer need and on capturing market transitions. Our acquisition of NDS fits squarely into this strategy, enabling content and service providers to deliver new video solutions that leverage the cloud and drive new monetisation opportunities and service differentiation.”

Cisco has previously snapped up the Tandberg TV distribution provider.