Market Insight

HBO goes out-of-house

December 17, 2014  | Subscribers Only


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HBO will outsource the core backend platform of its yet-to-launch, standalone OTT service. The company has not signaled whether the decision to rely on a third party managed service provider – MLB Advanced Media– will impinge upon the running of its HBO Go or HBO Nordic streaming operations. In addition, the company has yet to announce the specific elements of the OTT backend that will be administered my MLB Advanced. HBO’s standalone service will launch in 2015.

Our Analysis:

While much of the discussion surrounding HBO’s move has centered on Otto Berkes – HBO’s CTO – purported departure, the more interesting aspect of HBO’s decision relates to the case for managed media services in the OTT space at-large.

Historically, the media industry has cleaved neatly into two camps. Large service providers – be they high-ARPU, tier 1 pay TV operators, or major broadcasting networks – have tended to espouse a design-it-and-build-it philosophy.  These providers have shown a real predilection for relying on their substantial engineering resources, and have tended to treat the pivot into the OTT space as an internal development project. Smaller service providers have tended to behave rather differently. Faced with the cost, risk, and technical complexity of building an OTT ecosystem, smaller operators and broadcasters have tended to outsource the OTT backend, in its entirety, to a third party service provider.

The industry is now in the midst of a major counter-swing. Across the spectrum – operators large or small; broadcasters national or international – many media firms are coalescing around a similar calculus. Provided that outsourcing is managed carefully and doesn’t run the risk of brand dilution, the opportunity cost of allocating huge amounts of capital to internal builds is likely better spent on content, or on developing specific elements of an OTT service – such as the UI – that demand attention and investment from the operator or channel.

Further, the demand for managed OTT media services has not taken place in a vacuum; the industry’s swing in the direction of services has occurred hand-in-hand with tremendous firm growth, and competition, in the vendor segment. Arguably, firm density in the OTT services space reached unsustainable levels, peaked, and has since touched-off a wave of consolidation and M&A. From a dense pool of competitors – among them thePlatform, Brightcove, Ooyala, Kaltura, Tvinci, Red Bee Media, Ericsson, Saffron Digital, and Kit Digital – the chips are beginning to fall into place. Over the past two years, Kaltura has acquired Tvinci, Ericsson has acquired Red Bee Media, Ooyala has been acquired by Telstra, and Kit Digital entered bankruptcy.

MLB Advanced Media (MLBAM) has to date operated in a niche. Charged with serving as Major League Baseball’s online media arm, MLBAM provides the OTT backend for the league’s MLB.tv service, as well as for ESPN’s WatchESPN and World Wrestling Entertainment’s WWE Network services. In this light, the HBO deal is significant. The deal represents, first and foremost, MLBAM’s venturing away from sports, and into the premium cable network segment at-large. Second, this pivot places MLBAM into direct competition with its aforementioned peers. Given the momentum and prestige associated with running a flagship HBO service, MLBAM will be well positioned to disrupt the competitive equilibrium that the services space is beginning to settle into.

 

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