NDS has made a name of itself in the video space by combining a software platform with services to deliver differentiated video offerings to service providers. These offerings let subscribers view, search and navigate digital content on any device. The end goal is to help content providers securely deliver and monetize video.

The NDS acquisition ties in with Cisco's Videoscape, a platform that spans the cloud , the network and end-user clients and is a key part of its overall video strategy. Cisco is betting its $5 billion investment will expand its reach into new emerging markets, such as China and India, where NDS has an established customer footprint.

"Our strategy has always been driven by customer need and on capturing market transitions," said John Chambers, chairman and CEO of Cisco. "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 monetization opportunities and service differentiation."

Cisco's Video Pillar

Cisco said the NDS acquisition reflects its increased strategic focus on video, one of its five foundational priorities. It also demonstrates Cisco's "build, buy and partner" strategy to grow through combination of organic innovation, targeted acquisitions and strategic partnering.

"This has all the earmarks of a great acquisition for Cisco," said Zeus Kerravala, principal analyst at ZK Research. "Cisco is trying to enable more customization of content out of the network whereas Apple is trying to do it more through equity. This complements what consumer electronics manufacturers are doing without Cisco having to get into the space."

Kerravala sees the NDS purchase as a strong move for Cisco. NDS is known as an open, standards-based platform, he said, and will further Cisco's steps to become more open and standards-based with its video offerings so third-party developers can get on board.

"Video is the future. So video is by far the biggest driver of network traffic and will continue to grow. Cisco wants to keep its hands in that pie. Doing this through a network solution with service provider partners is really the absolute best way they can do that," Kerravala said. "Cisco has shown that they are not going to be an effective consumer electronics company, so why be something you are not? This is evidence that Cisco is getting back into what it's good at."

Integrating NDS

When the deal closes in the second half of 2012, NDS and its 5,000 employees will join the Cisco Service Provider Video Technology Group (SPVTG), led by senior vice president and general manager Jesper Andersen. Dr. Abe Peled, NDS executive chairman, will be named senior vice president and chief strategist for Cisco's Video & Collaboration Group, of which SPVTG is a part.

"A key component of NDS's success has been our open software and services model, working with a wide range of set-top box manufacturers to enable greater choice for our customers," Peled said. "Following this acquisition this strategy will continue and expand the choice of hardware solutions available to service providers worldwide."