To take on Netflix, Hulu and YouTube with a first-rate streaming video service, HBO came to Seattle two years ago and assembled a team of engineers with experience building global entertainment services.
The ambitious mission and glamorous brand helped the company recruit a team largely drawn from Microsoft.
Under the guidance of Otto Berkes, a founder of the Xbox team who led HBO’s technology work from its New York headquarters, the Seattle office grew to 90 people working near Facebook’s engineering office downtown.
But now the fate of the Seattle office is in limbo after executives in New York abruptly changed direction and decided to outsource HBO’s streaming service, rather than build its own platform.
The about-face was revealed today by Fortune magazine – another Time Warner property – that quoted anonymous sources critical of the project and its progress.
Berkes then announced his resignation.
In a statement released by the company, Berkes said he moved to New York “for the opportunity to build something truly transformative for HBO’s business and the media industry.” The decision to use a partner to stream its content “is a change in direction from what I planned with HBO and the approach will not utilize my overall capabilities.”
A few hours later Drew Angeloff, the HBO senior vice president managing the team in Seattle, also resigned. Angeloff is also a Microsoft veteran.
HBO indicated that it plans to keep the Seattle office intact although it’s unclear how long the team will stick around, now that its founder is leaving and its primary project is being scuttled. There’s no shortage of jobs for such people in Seattle, where online media giants such as Apple, Amazon.com, Hulu, Google, Valve and Microsoft are all competing for talent.
In Seattle, HBO builds applications such as those used on game consoles and devices like Google’s Chromecast to stream the HBO Go service that’s offered to cable and satellite subscribers. It’s also working on interactive media projects.
The key project was building a standalone, streaming media platform that could be used not just by HBO but potentially other channels in the Time Warner conglomerate, enabling it to broadcast directly to consumers via the Internet.
“The mission was to build a world-class video streaming platform … we were well on that path and that changed,” Berkes said. “We had made an incredible amount of progress in a short time.”
Berkes left Microsoft after trying to push the company toward mobile, touchscreen computing devices, a direction that was eventually validated by the success of Apple’s iPad. He joined HBO in 2011 and was promoted to chief technology officer in 2012, the year the company established the Seattle office.
The previous chief executive of HBO, Eric Kessler, said at the time that Berkes‘ experience “helped elevate HBO’s technological agility, enabling us to meet the growing needs of our subscribers in an era of constantly emerging new media platforms.”
Berkes joined HBO in the midst of the broad transition toward digital distribution that all old media companies have struggled with over the last decade. Like others, HBO was looking for a new way forward, exploring new distribution options and hoping to use new technology to build a more direct relationship with its audience.
A new generation of consumers, meanwhile, has grown accustomed to Netflix-style access to video and is anxious for providers such as HBO to stream directly to their TV sets and mobile devices without requiring cable service bundles. Such solutions are known in the industry as “over the top” – as opposed to content delivery through the cable.
HBO’s standalone streaming platform was on track to launch in late 2016 or early 2017 but the schedule changed dramatically in October, as Time Warner was asserting its earnings potential after rejecting an $80 billion takeover bid by Rupert Murdoch over the summer.
At a Time Warner investor event in October, HBO Chief Executive Richard Plepler made a splash by announcing that a streaming service would be available in 2015, enabling people to subscribe to HBO without a cable or satellite TV package.
That precipitated an internal debate over whether the platform could be rushed ahead and released a year ahead of schedule, or whether HBO should instead hand off its content to an outside streaming video provider. It pitted a team of West Coast technologists trying to build a full-blown platform that could power the company through the coming decade against longtime members of the East Coast media establishment wanting a quicker solution and accustomed to distribution partnerships.
The latter won out. As disclosed in the Fortune report and meetings with employees today, HBO has killed the in-house streaming project – code-named “Maui.” Going forward, HBO content will be streamed by New York-based MLB Advanced, the digital media arm of Major League Baseball, which also streams non-baseball content such as World Cup soccer matches.
Berkes may have telegraphed his concerns on his personal blog, where he wrote a post in October about the pitfalls of “vendor soup,” or using a mix of vendors to build complex software solutions. It ostensibly discussed the problems facing Healthcare.gov.
“No matter how competent the vendors may be, you can’t create an accountable, coherent and high-functioning software development organization with vendor soup,” he wrote. “Vendor soup is a tempting shortcut that looks great on a PowerPoint presentation to management. But who’s in charge when the countless things that can go wrong so easily in the software world … do go wrong?”
This complexity may have been too much for HBO executives who mostly wanted to get streaming, ideally in time for the next “Game of Thrones” season that begins in April.
“One of the big things to remember with HBO – they are primarily a content company,” said Glenn Hower, a research analyst at Parks Associates. “They’ve obviously been very successful with HBO GO but ultimately they’re a content provider and a programmer and I think they have the potential to overreach themselves if they keep trying to reinvent the streaming wheel.”
HBO declined to make executives available for interviews but it released a statement:
“Project Maul was one of several options on the table to accomplish the undertaking of offering a standalone HBO product for next year. It is not uncommon to use outside resources in this type of project. This in no way impacts our plans and we’re excited to bring an over the top HBO product to market next year.”
Time Warner Chief Executive Jeff Bewkes is particularly excited about the opportunity. Speaking at a conference in New York today, he said the HBO streaming service would be aimed not just at the 10 million homes that have broadband but no cable TV, but also the 70 million basic cable and satellite subscribers who don’t get HBO, according to Broadcasting & Cable.
Outsourcing to MLB Advanced will get there sooner but it will flush years of work building valuable expertise and intellectual property.
“The big question is, can the platform that MLB is providing scale effectively with what they want to do,” Hower said. “I imagine it probably will be able to – this is a decision they certainly didn’t come on lightly.”