For Video-on-Demand, It's Showtime
This technology, also called digital rights management, will help service providers provide premium content over multiple channels by getting the content creators to loosen their grip. If the service providers can prove that content will be secured, they can more easily and inexpensively provide entertainment to their consumers.
NDS' system, dubbed VideoGuard, allows total control over content, including redistribution rights and number of plays. VideoGuard also offers pay-TV protection, called "conditional access," through which companies can control subscription and pay-per-view services. It is very possible that television networks will increasingly go to a pay-per-view model if advertisers desert them. You are already seeing this from DVD sales of popular television programs such as Lost and 24. As people become more comfortable with the idea of paying for television -- and not having to watch commercials -- this area could become big.
NDS' technology also works with its own DVR product, XTV, allowing downloaded content to be kept in its original, protected and encrypted format. This ability is not offered by any other company, and it enables customers to download programs but only pay for them when viewed.
So if you're not sure what movie you want to watch tonight, no big deal -- download a bunch for free while only paying for the one you view. VideoGuard will also protect content as it moves to mobile phones, computers and portable media players.From an investment perspective, NDS is a profitable, high-return business that is expanding its subscriber base rapidly (up 14% in 2006) and moving into emerging markets, with recent acquisitions in India and Israel. The company is sitting on $500 million in cash, eyeing acquisitions up to $100 million in value and looking to grow in the mobile and broadband areas. My target for NDS in 12 months is $64 and $82 in 24 months, which would be up 32% and 70% from the current quote. I like it a lot; tune in now. At the time of publication, Markman owned shares of NDS Group, although positions may change at any time.
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