Digital Media

Networking giant Cisco Systems announced another acquisition this week. This time the company said it will buy the set-top division of a Chinese digital cable technology company.

Late Monday, Cisco said it would pay a total of about $44.5 million for the set-top unit of DVN. It will pay $17.5 million upfront, and the remaining $27 million will be paid over four years, based on the unit achieving sales milestones.

The deal is expected to close in the first half of next year, and it is subject to the approval of regulators and DVN shareholders.

Cisco is also partnering with the rest of DVN to provide joint customers with expanded services.

The DVN unit being acquired makes products that connect digital signals to televisions. Cisco already makes and sells set-top boxes for customers around the world through its Scientific Atlanta division.

Cisco sees a big opportunity in the Chinese cable market, which it says is the largest in the world with 160 million subscribers and with an additional 200 million subscribers expected to become customers in the next few years.

China is in the process of moving its cable subscribers to digital. The government has mandated that all cable be digital by 2015, Cisco said. Today only about a third of Chinese cable customers are using digital cable.

This is the fourth acquisition that Cisco has announced since the beginning of October. The company has spent about $6.2 billion in total during this shopping spree.

Eos-based Paramore.net

Warner Music Group announced Wednesday that it has expanded its partnership with Cisco Systems, using the tech giant's software platform to power more Web sites for its artists.

Warner Music is the first and only company that has said it is using Cisco's Eos social media software platform. Cisco announced the platform and hosted service in January.

The service, called Eos, allows media and entertainment companies to create, manage, and grow online communities. Through Eos, Cisco has compiled technology tools and slapped on an easy-to-use interface to make building and customizing Web sites easy. But most importantly, it's bundled into the software technology that will allow media companies to build interactive Web sites so that fans can connect with musicians, TV shows, movies, or whatever brands they want to promote.

Initially, Warner Music Group used the platform to develop Web sites for two artists, Laura Izibor and reggae singer Sean Paul. On Wednesday, it announced it has expanded that relationship to include sites for other artists, such as Paramore, R&B singer Trey Songz, rock band Halestorm, and a redesigned site for Sean Paul. By the end of the year, Warner Music Group has committed to creating 12 additional artist Web sites using Eos, including sites for "American Idol" alum Jason Castro, R&B singer Estelle, and hip-hop artist Lupe Fiasco.

With Eos, Cisco has essentially created a template for building and designing Web sites. Michael Nash, executive vice president of digital strategy and business development for Warner Music, said that Eos allows the company to develop a Web site five times faster than it could on another platform. And a strong online presence is something that Warner Music executives hope will lead to new revenue streams for its artists' content.

Edgar Bronfman, chief executive at Warner Music, noted the importance of using the Web to reach out to fans and music consumers.

"We clearly see the entertainment industry in a phase of tremendous transition," Bronfman said during a press conference Wednesday.

Cisco CEO John Chambers said that he believes Cisco's Eos platform could "change the music industry forever."

"When you look back five years from now, you'll see that what Warner Music is doing will change the industry, and others will follow in its footsteps," he said.

But Eos is more than just a platform for creating new Web sites. The software also allows media companies, such as Warner Media, to collect and analyze data about their users. For example, data can be used to identify "influencers," or people within the fan community who generate comments or traffic on the site. Data about these types of individuals could be culled to develop new features. Or data could be collected about certain users' behaviors to create more tailored content or marketing opportunities.

"We are still in the early stage of figuring out how to use this data," Dan Scheinman, the Cisco executive behind Eos, said in a phone interview after the press conference. "And much of what can be done with the data will be based on Warner's privacy policies."

Nash emphasized that the company is committed to protecting individual fans' privacy, but he noted the usefulness of this data for improving the site and finding new ways to monetize content.

Bronfman said that using other social-networking sites along with new, rich fan sites could help breathe new life into the industry, which has been hit hard by declining CD sales and piracy. And he sees the platform creating a vehicle for new business models. For example, he noted that the rock band Paramore has been offering a special box set on its Web site that has outsold the band's regular album 13 to 1. He said that other revenue streams could be added as well, such as backstage tickets or presale tickets that allow fans to come to rehearsals. Ultimately, he said it will be up to each band to decide how they use their site.

For Cisco, the move into providing a managed service for creating and maintaining Web sites is a huge leap from its traditional business of building routers and switches to shuttle packets around the Internet. Some critics of the company believe that Cisco, which is also diversifying into other areas such as consumer electronics, is spreading itself too thin. And a new corporate structure of creating development councils to create and usher in new businesses has been met with criticism from some journalists and bloggers who question whether all this collaboration is really effective.

But Scheinman said that the new corporate structure has allowed his division of 60 individuals to develop and grow much like a start-up.

"Sure some people are saying, 'Where's the revenue?'" he said. "But I think there is an understanding from John (Chambers) and others in the council that this has the potential to be big. And I think the new structure has created a place where people can work together and collaborate. Our core business is building networks, and this corporate structure allows us to tie everything together into something that realizes a much bigger vision."

Chambers himself said during the press conference that the music industry is valued at $1.3 trillion. Exactly how much of that money can end up in Cisco's coffers is unknown, but he believes the Eos platform could help grow the market, ultimately creating more opportunity for Cisco. And the more content that is shuttling across the Internet as people download and listen to music or check fan pages, the better things are for Cisco because all that traffic ultimately creates a need for more of Cisco's core products.

(Credit: Pure Digital)

Updated 7:46 AM PT with comments from executives at Cisco and Pure Digital.

Cisco Systems, the world's largest maker of switches and routers that power the Internet, has taken another step toward becoming a major player in the consumer electronics market.

On Thursday the company announced it has acquired Pure Digital Technologies, the maker of the popular Flip Video camcorders. Cisco will pay about $590 million in stock for the company and will also provide about $15 million in retention-based equity as incentives to PureDigital employees, the company said in a statement.

Pure Digital started selling its consumer-friendly mini camcorder in May 2007. The device, which is a little bigger than a deck of cards and has a built-in USB connection, was designed to provide an easy and simple way to take video and upload it to the Internet, especially to popular sharing sites like YouTube and MySpace.

The device, which costs between $100 and $229, depending on the version purchased, has built-in memory storage to take up to 30 minutes or 60 minutes of video. The integrated software also makes the device easy to upload video to PCs or Macs. The product line has grown and now includes the Flip MinoHD, a small high-definition camera. Pure Digital says it has sold more than 2 million total Flip video units since the product first went on sale.

Correction: An earlier version of this story misstated that technology from the Five Across acquisition was the foundation for the new Eos service. It is not.

LAS VEGAS --Two years after it first started courting big media companies, Cisco Systems will finally launch a new product to help these companies harness the power of social networking and connect their brands to fans.

On Wednesday, Cisco will kick off the Consumer Electronics Show here by announcing Eos, a hosted software platform that allows media and entertainment companies to create, manage and grow online communities. Through Eos Cisco has compiled technology tools and slapped on an easy to use interface to make building and customizing Web sites easy. But most importantly, it's bundled into the software, technology that will allow media companies to build interactive Web sites so that fans can connect with musicians, TV shows, movies, or whatever brand a media company wants to promote.

Cisco first began looking for ways to help big media companies late in 2006, when it created the Media Solutions business unit. The idea was to develop and market products to digital media content owners. In February last year, the company bought a startup called Five Across, which developed social networking software.

Dan Scheinman, the Cisco executive behind Eos, believes that the new software platform addresses one of the biggest problems that media companies face today.

"The reality is that media is so disrupted by digital technology," he said. "Fans are looking for ways to connect to their favorite artists or TV shows and they are seeking out communities, but the media companies have been slow to provide this for them. Eos is centered around community and allows fans to participate."

The service provides tools that allow media companies to create blogs, live chats, message boards, rating and ranking systems.

Scheinman believes that social networking is the most important way for marketers and big media companies to reach consumers. Consumers are using sites such as YouTube and Facebook to share media, like videos, music and pictures. He also believes that media companies can combat piracy by offering fans an interactive experience through their own branded Web sites.

"In many ways digital destroys the value proposition for media," Scheinman said. "Other people can rip off the content and monetize it, aggregate it, and take pennies for it."