In a major strategic shift, HBO will license the technology underpinning the standalone streaming service it plans to offer in 2015. The company has killed a project called "Maui” that would build the new streaming service in-house, according to an internal memo (see below).
Rather than build the technology internally , the company has struck a deal to use an external technology offering from MLB Advanced, according to sources familiar with the situation. MLB Advanced already provides white-label streaming technology for clients like WWE Network, but HBO will likely be its largest client. It's unclear what this means for the future of HBO Go, the company's existing streaming service for cable subscribers.
HBO hopes to launch the new standalone streaming service in line with the Game of Thrones season premiere in April.
Moving HBO's new streaming service to an external platform is a blow to Otto Berkes, the chief technology officer of HBO. Since becoming HBO's CTO in 2012, Berkes has brought in a number of his ex-colleagues from Microsoft and set up a large office in Seattle with 55 engineers, laying off a number of longtime employees in New York. The Seattle office, which is rumored to cost HBO as much as $100 million per year, has been the source of internal squabbling at the company. Insiders accused Berkes of building “a Napoleonic empire” within HBO.
From a recent Glassdoor review:
The once great group, now called Digital Products, has been in decline since about 2012. Change had been desperately needed, but change we got is toxic and lacking unity, direction and clarity. Culture is now unfriendly and full of back stabbing done with a smile.
Earlier this year, HBO Go suffered several embarrassing outages during episodes of Game of Thrones and True Detective. According to sources, Berkes had known about a “memory leak” for nine months but decided it was a “non-issue." That leak eventually led to the HBO Go outages. Internally, some accused Berkes of using the outages as a way to ask for more money to invest in his Seattle engineering team. He got the investment, but HBO executives have not been pleased with what he's delivered. Berkes delayed product launches and was unable to deliver on upgrades. "If you look at what [HBO Go] is today versus two years ago, he hasn't really done anything," one source said.
As chatter about HBO's standalone streaming service became more serious, HBO chose an external technology provider because, according to one source, "they realized he couldn’t pull it off."
The MLB Advanced Media deal has fueled speculation that Berkes could be fired or demoted as early as this week. HBO declined to comment on Berkes' future at the company. [Update: Berkes has resigned.] A spokesperson provided the following statement to Fortune:
Maui 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.
HBO is expected to make a strong statement that it is a media company, not a technology company, one source said. The company does not want to be seen as chasing after Netflix (nflx), which has led the TV industry’s push into online streaming. (Notably, Netflix was able to publish entire seasons of House of Cards and Orange is the New Black without any outages.) Netflix has always been a technology company trying to dethrone HBO. With the rise of cord-cutting, investors have pushed HBO to be more like Netflix. Taking HBO's standalone streaming service away from Berkes' internal team is a “direct antithetical response to Netflix,” one source said.
HBO is a subsidiary of Time Warner Inc. (twx).
Here is the memo, sent by Mark Thomas, SVP of Technology Program Management, and Drew Angeloff, SVP, Digital Products:
HBO executive management has made a decision to pursue an external solution for the product that was being built by the Maui team. This decision was not made lightly, and was based on an assessment of risk and scope of the product needed to meet HBO¹s short term business needs for April 2015. This was not a judgment of the team¹s work quality or deliverables but rather a bet that an existing streaming service could deliver the needed product faster and at lower risk than Maui.
This means that effective today the Maui project is cancelled.
Canceling a project is unpleasant, especially when the target is in sight and tantalizingly close. Drew and I have often discussed the excellent work done by the team on Maui - The Maui team was hitting deliverables ahead of schedule and at a high level of quality. Maui's timeframe caused us to make concessions both in scope and culture. We look forward to returning to teams defining scope, and consumer experiences without forced top down scheduling.
The larger technology team now has three core missions.
1. Our top priority: Fully support the work needed to enable the external solution for April. To begin this work we have asked a small forward group to engage and assess with the external partner and get to a detailed statement of work as quickly as possible. Once that SoW is complete we will staff to meet our deliverables.
2. A large portion of Maui's effort can be repurposed for HBO GO, a top priority for HBO. We will continue to make HBO GO the best global capable streaming service available. This means that we redouble and focus our efforts, first for the April timeframe with our scale and robustness goals for Game of Thrones, and second with our longer term plan to deploy Hurley, and a suite of Hadron clients as quickly as possible. We will also fold as much as possible of the good work done for Maui into HBO GO where we can.
3. We will continue our efforts around interactive and other future looking areas on a case by case basis the same way we do today.
Maui was a way to get us into market faster with a less than perfect solution - the external partner will take that burden allowing us to focus on the forward looking technologies we are creating for HBO GO.
Mark and Drew