Cable Operators

Cisco Buying Arroyo for $92M

8/21/2006 5:00 PM Eastern

Cisco Systems said Monday that, as expected, it agreed to buy video-on-demand systems vendor Arroyo Video Solutions for $92 million in cash.

Cisco said it reached a definitive agreement to buy the four-year-old firm, which has received financial backing from Comcast Interactive Capital, Time Warner Investments, Matrix Partners, Foundation Capital and Dell Capital Management.

The deal should close by Oct. 31, in Cisco’s fiscal first quarter, Cisco said. Arroyo has said that its venture-capital investors put more than $25 million into the company in two funding rounds.

Arroyo customers include Comcast, Time Warner Cable and Charter Communications. Cablevision Systems plans to use Arroyo servers and software in a network-based digital-video-recorder trial that has been put on hold awaiting the outcome of lawsuits filed by programmers.

Kip Compton, the former Comcast executive who is now senior director of Internet-protocol-TV and video deployment at Cisco, said Cisco is looking beyond just deploying VOD systems, even though he described that as a growth area as cable companies add new services like the Cablevision NDVR scheme and Time Warner’s Start Over and Look Back network-based video services.

“There’s really a broadening happening, we believe,” Compton said in an interview. Beyond just VOD to the television, “service providers are asking us for the ability to deliver these services across multiple different devices,” he added. That includes video streamed to PCs via the Internet, video delivered to emerging new entertainment devices in the home and video over mobile phones.

Motorola executives made similar comments last month after agreeing to buy VOD-server vendor Broadbus Technologies for a reported $186 million (www.multichannel.com/article/CA6356023.html).

Compton said Cisco also liked Arroyo’s software-centered approach, which incorporates off-the-shelf hardware components, rather than custom-built gear. He added that Cisco also found that Arroyo’s approach could lead to rapid deployments by being “scalable,” and he described it as particularly resilient.

Arroyo’s system can withstand a server failure without even interrupting existing VOD sessions, Compton said.

Arroyo has 44 employees, all of whom have been offered jobs at Cisco, Compton said. He added that Arroyo’s team is also considered a big asset by Cisco. Arroyo’s founders -- former 3Com chief technology officer Paul Sherer and Novell cofounder Drew Major -- will join Cisco, the acquiring company said.

Arroyo will join the Cisco cable and video initiatives group, within the service-provider organization led by Michael Volpi.

Arroyo has already teamed up with Cisco-owned cable-equipment supplier Scientific Atlanta on service offerings. Cisco provides a range of network-centric services to cable companies, and with its $6.9 billion SA acquisition earlier this year, it signaled an intention to be a one-stop provider reaching all areas of the cable business.

September