Wednesday, December 10, 2014, 12:02 PM ET|Posted by Will Richmond
Fortune broke the news yesterday that HBO has chosen to outsource the backend technology for its upcoming standalone OTT service to MLBAM, abandoning its own efforts to build the necessary technology. Just after the story broke, HBO's CTO Otto Berkes announced that he was leaving the company.
No question, MLBAM has a very strong technology solution, which it uses for its own streaming video offering, and it is used by other media companies as well. Still, it's hard not to see HBO's sudden shift as an early sign of the numerous challenges HBO has ahead of it in launching its OTT service (which is reportedly targeted for April, simultaneous with season 5 of "Game of Thrones").
Back in October, when HBO announced its OTT intentions (albeit vaguely), many saw it as having potential to take the wind out of Netflix's sails. In my "8 Initial Reactions," one of the things I noted was that HBO had a steep learning curve ahead of it, in areas including infrastructure, data, customer service and others that it had no prior expertise. Conversely, these are all capabilities that Netflix has mastered given its years of experience.
To be fair, these are also areas that MLBAM has also mastered and which will benefit HBO in the short-term. But the decision to outsource means that, at least for now, HBO has given up on developing these competencies internally. That's a big step back long-term, because part of competing against Netflix, and others, will require HBO to match features and also innovate to get ahead (especially if HBO OTT ends up costing twice as much per month as Netflix, which is highly likely).
The challenge with using any 3rd party platform as HBO has chosen to do is its individual priorities may not fully align with MLBAM's priorities or its resource allocation. For example, HBO may see something Netflix offers that it wants to match (or exceed), but MLBAM may not have similar requests from other customers and therefore it may not direct resources to develop it especially for HBO. In fact, HBO is in a somewhat unique situation as it attempts to balance the needs of its pay-TV partners. This will likely create new demands on MLBAM's solution.
By outsourcing, HBO has opted for faster time to market, but has given up some control and flexibility. Conversely, Netflix, as well as Hulu, Amazon and other OTT providers have their own in-house development teams, allowing them to be nimble and fully responsive to changing market conditions.
For HBO, it's an early sign of the many challenges the company needs to navigate in launching its OTT service. OTT is a totally different model than HBO's traditional approach of having pay-TV operators dealing with most of the operational backend.