Earlier this week, Dish Network (NASDAQ: DISH ) acquired the rights to stream Disney content over the Internet through a bundled IPTV service. This deal may allow the satellite TV provider to ditch the dish and send video streams over the Internet instead. The next day, Verizon (NYSE: VZ ) announced it was in talks to bring live TV streaming to mobile devices.
As these pay-TV providers look to outdo cable behemoth Comcast (NASDAQ: CMCSA ) , there's one company that's poised to capitalize on the shifting landscape to Internet-delivered TV. Arris Group (NASDAQ: ARRS ) is a leading provider of set-top boxes and video gateways. The company acquired Motorola Home from Google last year, placing it strategically at the forefront of set-top box technology, but will face competition from networking giant Cisco Systems (NASDAQ: CSCO ) .
The IPTV revolution is coming
Most cable companies have the capabilities to deliver live video streams over the Internet, but the content providers haven't given them the go-ahead. With the Disney deal with Dish Network, it opens the doors for further agreements between content providers and cable companies.
Verizon is particularly interested in the space, having made several key acquisitions to facilitate Internet-delivered content. Most notably, the company acquired OnCue from Intel in January, a service built from the ground up to support IPTV.
Comcast, too, has been shifting more of its content to the cloud. Its X1 platform -- for which Arris rolled out the XG1 set-top box last quarter -- takes full advantage of video streaming capabilities. The cable TV giant still faces physical limitations of its cable wire though. That's likely part of the impetus behind its potential acquisition of Time Warner Cable -- the physical territory.
IPTV has a couple advantages for cable providers. First, it involves a switch mechanism that allows video providers to send only the content requested instead of every signal all the time. This frees up bandwidth and reduces the cost of having to expand bandwidth.
Second, it allows for a company to deliver video service anywhere there's Internet access. Thus, cable companies are no longer confined by physical limitations of fiber optic lines or cable wire, nor are they encumbered by the cost and physical limitations of satellite dish installations.
Why Arris will dominate the competition
Arris already has relationships with the biggest pay-TV providers. That alone isn't enough for it to dominate the future of set-top boxes, but it's a strong start.
As mentioned, it makes the XG1 box for Comcast. Moreover, Comcast owns a 7.7% stake in Arris. Additionally, the company makes set-top boxes for Verizon's FiOS, and it recently inked a deal with Echostar, Dish Network's sister company, to license Sling technology -- the technology behind Dish's controversial Hopper.
Arris, however, is positioned perfectly for the move to IPTV. Before acquiring Motorola Home, the company specialized in networking and data delivery. With the newly acquire set-top unit, Arris' focus has shifted primarily to video. IPTV is at the confluence of both domains.
A key to IPTV will be connecting every Internet-enabled device in a household as well as set-top boxes to an entertainment hub. On Arris' fourth quarter earnings call, Larry Robinson, President of Arris' Consumer Premise Equipment Division, noted that he sees "gateways becoming more and more present in the marketplace," and "the portfolio that we have, I think, positions us well to help operators through that multi-year migration."
The company will face competition from Cisco, however, which may be able to leverage its networking technology to provide cable operators with an entertainment hub and grow its set-top box business. The company's medianet technology integrates its networking and set-top box equipment for IPTV delivery. Additionally, it recently partnered with CableLabs to provide a lab for cable operators to test IP video.
Arris' advantage, however, is that it's biggest focus is on video delivery whereas Cisco is involved in a multitude of networking solutions.
The revolution will be televised
Arris is well positioned to take advantage of the shift in video delivery by cable companies. As more deals like the one between Dish Network and Disney materialize, the shift to multiscreen IPTV experiences lends itself well to Arris' strengths. Considering its current relationships with the biggest pay-TV providers and its focus on video delivery, Arris will likely lead the industry in providing IPTV solutions over the next few years.
The $2.2 trillion war for your living room begins now
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.