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Quibi Squandered $2BN On Its Vision For “TV In Your Pocket”: Here’s How It All Went Horribly Wrong

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Quibi Squandered $2BN On Its Vision For “TV In Your Pocket”: Here’s How It All Went Horribly Wrong

Tyler Durden

Mon, 07/06/2020 – 21:20

Like many of our readers, we first learned about Quibi last spring, when Meg Whitman, the former CEO of HP Enterprise, started doing the rounds on CNBC, sitting first for a lengthy interview with David Faber, then for a longer interview alongside Jeffrey Katzenberg, the former Walt Disney Studios chairman and Dreamworks co-founder who was now the husband in this odd couple.

Together, they delivered their jargon-laden pitch: a “TV in your pocket” focusing on “white space” “short-form” “bites” bringing together “the best of Hollywood and the best of Silicon Valley.” Whitman’s description of Quibi – pronounced “Quibby” – was equal parts glib and startlingly short-sighted. Did these two billionaire boomers really think they knew the secret cheat code to crack the mobile-streaming market, and earn a seat at an increasingly crowded table? Just because Americans are watching ten times as much streaming video on their smartphones as they were in 2012? We just weren’t buying it.

At times, Whitman sounded so out of touch, we couldn’t help but chuckle. Just minutes into her first solo interview, she revealed that the name “Quibi” is a portmanteau of “Quick Bites” – “as you probably guessed”. It was then that we knew this would be a supremely entertaining corporate trainwreck. And like the blind leading the blind, Whitman and Katzenberg, both of whom staked a tremendous amount of capital on the venture, were taking their buddies along for the ride.

[youtube https://www.youtube.com/watch?v=rrFSs2vPp34]

When the entire world shut down in March because of the coronavirus, just as Quibi was coming to market, we marveled at the timing: maybe Quibi wouldn’t crash and burn quite as quickly as we expected. But then the first leaked subscriber numbers hit. And they were really, really bad.

Despite an unprecedented marketing blitz featuring a procession of beloved celebrities, from Chance the Rapper, to Chrissy Teigen and beyond, the app had managed to rack up just 1.3 million subscribers, not even 1% of Netflix’s total subscriber base.

Apparently, Quibi had been so hyper-focused on the ‘TV in your pocket’ concept, that they built an app that was designed exclusively for mobile viewing. When they first tried to download Quibi, millions found that it simply didn’t have the functionality to play on a TV or laptop. And while watching a video on your phone might be ideal on the subway, it makes binge-watching content almost impossible.

And that, we realized, was Quibi’s biggest blunder: that Whitman and Katzenberg were somehow so focused on the “mobile” concept that they completely forgot about how millennials’ favorite activity is to snuggle up with a tub of Ben and Jerries and watch 10 episodes of “Friends” over the course of a Saturday afternoon. And at $4.99 for the ad-supported version, Quibi was basically just a crappier, more expensive version of YouTube, with an extremely limited library of (albeit premium) content that nobody really even wanted to watch.

Now, executives and employees are abandoning ship, and Whitman and Katzenberg are trying to navigate a turn-around starting with making the product more “binge-able”. But on Monday morning, New York Magazine delivered something we had long been waiting for: a long-form inside look at how “Quibi” came to be.

And boy did NY Mag deliver.

In order to establish immediate legitimacy in Hollywood in accordance with the stature of its founders, Quibi started paying the talent gobs of money – “$100,000 a minute”, one insider quipped. Producers were being paid production costs plus 20% to take the risk on an unproven platform. Katzenberg reckoned that if he poured a billion dollars into the content, the viewers would come –  the old “Field of Dreams” approach.

One comedian who went in for a pitch described Quibi’s lavish officers and the ‘cockiness’ of the team: everybody was acting like they had a guaranteed hit in hand.

“I can honestly say I’ve never been in such a cocky pitch environment,” Gairdner recalls. “I would describe the atmosphere as almost Wolf of Wall Street, not in terms of actual debauchery, but it’s an incredibly nice office that just goes and goes. They had two lobbies; you went in and checked in at a nice, big lobby, then you were moved to another lobby. There’s massive jars of expensive, nice-seeming candy everywhere. It’s sleek and modern, and you see hundreds of people passing by. And there’s this energy of people who really believe they’ve got the next big thing.”

Quibi was to launch in the spring of 2020 with 50 original shows, and another 125 were to be rolled out by the end of the first year. Recognizing the risk of making something for an unproven platform, Katzenberg typically offered to pay producers’ costs plus 20 percent. “People on Quibi have $100,000 a minute to make content,” Katzenberg tells me. “That doesn’t exist on other platforms.” Producers who went into meetings with him skeptical walked out thinking he might be onto something. “He pitched me at Nate ’n Al’s, and my eyes lit up,” recalls Jason Blum, whose horror-focused Blumhouse Productions was behind Paranormal Activity, The Purge, and Get Out. Blum signed on to make Wolves and Villagers and, later, two other series.

And for a brief moment after the app launched on April 6, it looked like Quibi might have landed. It peaked at No. 3 most popular in the Apple app store before beginning a descent that has landed it at around No. 300 most popular. There are ad-supported version of bejeweled with more downloads than Quibi.

Now, the company appears to have set a land speed record for going from launch to the butt of late-night jokes.

That Quibi managed to spend ungodly amounts of money for high-gloss Hollywood content with A-list talent only to end up without a discernible hit has inspired a substantial amount of Schadenfreude. Jimmy Kimmel, hosting a virtual version of Disney-ABC’s annual upfront, said, “Here I am, standing here like a fucking fool with nobody watching. I feel like every show on Quibi right now.” Gairdner, who walked out of Quibi without a deal (“It was just clear that if we didn’t have a celebrity attached, they weren’t interested”), unveiled a satirical website called Swippi, in which longer videos are arbitrarily broken up into short chunks, sometimes in the middle of a scene. “We realized people want to take Swift Sips of content,” he says dryly.

Another detail: the ground-breaking “technology” that Whitman spoke of is the app’s “Turnstyle” technology, which allows users seemlessly flip their phone from vertical to horizontal and back without compromising the viewing experience. It’s arguably better than Netflix’s landscape technology.

During her initial round of interviews on CNBC, Whitman alluded to an affinity for the novelist Dan Brown.

Before Quibi even had a name, Katzenberg was singing the gospel of chapterized stories for your cell phone. “I believe there is going to be an enterprise ten years from now that will be as big as the television business is today,” he told a conference crowd in early 2017. He viewed the success of Dan Brown’s The Da Vinci Code, with its 105 chapters, as validation of the thesis that consumers want entertainment in small chunks. He believed that, despite most shortform video sites’ reliance on user-generated content, every medium has room for a premium offering. And he considered the TV streamers to be playing a different game altogether than what he was envisioning.

If anyone in Hollywood could conjure something new purely through force of will, it was Katzenberg, who, though he’s approaching 70, remains a not-so-young man in a hurry. An NYU dropout, he studied gambling for a time in order to run a club in the city, and he learned how to count cards well enough that he was banned from several Las Vegas casinos. He eventually landed a job as Barry Diller’s assistant at Paramount, where the patronizing nickname bestowed on him by Diller and Michael Eisner was “Golden Retriever.”

After recruiting Whitman, Katzenberg set about winning over “investors” to back his vision with an interesting scheme: for every dollar invested in Quibi by a major studio, Quibi would commit to spending on dollars.

Because NewTV’s point was to charge for content, it had to start out by raising an enormous amount of money in order to afford content worth charging for. In August 2018, just five months after Whitman’s arrival, Katzenberg announced that NewTV had raised $1 billion. (It would eventually amass a total of $1.75 billion.) Its biggest investors included Madrone Capital, an investment vehicle for the Walmart Waltons, and Alibaba, the Amazon of China. But the most important investors were those Katzenberg had brought aboard: every major studio, from Disney to Viacom to Comcast-Universal to 21st Century Fox to Sony. “People doubted that we’d ever be able to pull all the entertainment companies into one boat at one time to support the new venture,” he says. “In the 100-year history of Hollywood, that never happened.”

Without their support, NewTV would be locked out from all the best talent, who tend to have exclusive deals with studios, and from intellectual property like Reno 911! and Punk’d (another show Quibi rebooted), both of which are owned by ViacomCBS. Katzenberg was able to make hay of the studios’ involvement, too, as a show of industry support for his start-up, even though the investments were relatively small — “in the $20 million range,” a studio executive says.

From the studios’ perspective, the investment provided schmuck insurance in the event that NewTV took off, and perhaps most important, according to two studio veterans, the deals came with assurances that NewTV would spend an equal amount on services and products provided by the investor. This is known as “round-tripping.” If Disney invested $20 million, NewTV would commit to spending $20 million on content and production supplied by Disney. There was really nothing for the studios to lose. (“Many of them asked that Quibi reciprocate their level of investment,” a Quibi executive says. “Quibi did not agree to that.”)

Unsurprisingly, the name “Quibi” was an invention of Whitman and Katzenberg after they discovered that their first choice, “NewTV”, was taken.

The investments helped secure a slate of A-list directors and producers for the launch of the app, which was no longer called NewTV. (It turned out — whoops — that there was already a company named NewTV.) The new name was Quibi. Katzenberg had originally wanted to call it Omakase, after the sushi tasting menus he enjoyed at least once a week at Nobu Malibu. “That would have really won over Wisconsin,” a former insider notes. Ultimately, Quibi won the day. “They never asked staff to weigh in on it,” this person says. “People on staff thought it was cringey and would ask, ‘Is it too late to change it?’ Meg loved it.” Though arguably no sillier-sounding than Hulu, Quibi would be roundly mocked by people who thought it sounded like a “quinoa-based doggy snack” or “the cry of an attacking Ewok.”

Six months before launch, Whitman and Katzenberg had seen their relationships wither to the point where they were no longer on speaking terms. The two would frequently get into fights over Katzenberg dipping into areas that weren’t “his purview”.

When Quibi was preparing to move offices, “they had a huge fight when [the design consultant] took Jeffrey to see the new office without Meg knowing, because the new office was Meg’s purview,” says a person with firsthand knowledge of the company’s inner workings. (A Quibi executive denies that this happened.) Once Quibi had moved into the 49,000-square-foot space, “they carved up North and South Korea, and they drew a DMZ line each doesn’t cross.” Whitman sits on the third floor, Katzenberg on the fourth. “Katzenberg was in the content corner. Meg did everything else.” On occasion, Whitman would have to discourage Katzenberg from reaching out to people in departments she oversaw, with marketing being a particular flashpoint. “It was like, ‘Oh, Mom and Dad are fighting again,’ ” this source adds. (“We’ve formed a strong partnership based on strength and authenticity,” Whitman says. “We’re friends who admire and respect one another.”)

At some point during the process, somebody apparently challenged Katzenberg to explain why the world needed Quibi to break up content into “snackable” bits when it seemed consumers were already having an easy enough time doing that on their own. After this, Katzenberg set about trying to prove that Quibi was “different” by adding features that seemed to deliberately hamstring the product, like the fact that the initial iteration of Quibi couldn’t even be streamed to a TV.

To combat the idea that Quibi would be providing something that already existed, Katzenberg leaned into making Quibi seem different. To emphasize that this wasn’t just TV on your phone, he declared that Quibi wouldn’t even be available on your TV when the app launched. He also heavily hyped Turnstyle, and once Quibi was all in on this phone-only tech, the decision not to prioritize casting to TV was even harder to reconsider. In interviews, Katzenberg would adamantly emphasize Quibi’s novelty.

But the juiciest part of the New York Mag article came when the writer finally got around to the big question: what drove Katzenberg, and then Whitman, to believe that they had some special insight into the untapped desires of the millennial generation.

When pressed by the reporter on this topic, the two seemed at a loss.

People have wondered why Katzenberg and Whitman, in their late and early 60s, respectively, and not very active on social media, would believe they have uniquely penetrating insight into the unacknowledged desires of young people. When I ask Whitman what TV shows she watches, she responds, “I’m not sure I’d classify myself as an entertainment enthusiast.” But any particular shows she likes? “Grant,” she offered. “On the History Channel. It’s about President Grant.”

Katzenberg is on his phone all the time, but he is also among the moguls of his generation who have their emails printed out (and vertically folded, for some reason) by an assistant. In enthusing about what a show could mean for Quibi, Katzenberg would repeatedly invoke the same handful of musty touchstones — America’s Funniest Home Videos, Siskel and Ebert, and Jane Fonda’s exercise tapes. When Gal Gadot came to the offices and delivered an impassioned speech about wanting to elevate the voices of girls and women, Katzenberg wondered aloud whether she might become the new Jane Fonda and do a workout series for Quibi. (“Apparently, her face fell,” says a person briefed on the meeting.)

At a casting session this year, while watching a tape test for a Daily Essentials host who was a Black man with an Afro, Katzenberg said the man didn’t look “authoritative.” Content executive Shawna Thomas, an Emmy-winning journalist from Vice News and NBC, was used to the political incorrectness endemic to casting conversations, but as a discussion of the candidate’s hair went on and on, she felt increasingly uncomfortable and left the room to avoid becoming visibly upset. That evening, she and Katzenberg had a long phone chat in which she explained why she makes a point of wearing her hair in a natural style on TV — so that, say, a little Black girl watching MSNBC could see someone authoritative who didn’t conform to the predominant white American standard of beauty. Afterward, she felt Katzenberg had understood her. “The discussion was frank, honest, and positive and might not have gone as well at another company,” Thomas says.

Moreover, Quibi’s offices were stocked with young employees, but all of them knew that challenging the inherent biases of their two bosses was not a road to success. During an enterprise where even one well-placed dissenting voice might have averted a disaster – for instance, if somebody had just pointed out to Katzenberg that it makes no sense to deliberately cripple a product’s functionality just to try and stand out – maybe this whole disaster could have been averted. Or at least mitigated.

But the one line that everybody knew not to cross was, of course, the money: “You never dissented on that point,” recalled one employee, referring to the notion that millennials might not pay up for the product in numbers large enough to satisfy Whitman’s models. “Their fund-raise was predicated on a plan that showed revenue targets, so they could never unwind that.” By doing this, Katzenberg might have backed himself into a corner. When asked why Quibi didn’t try out a free ad-supported version, Katzenberg reportedly responded that “Literally,” he said, “you cannot do the math.”

In July, all of the subscribers who signed up for Quibi’s 90-day free trial will start being asked to pay for the content. In just a few weeks, the public might have a better idea of how many millennials are truly willing to pay up for Whitman’s vision.

And once that happens, well, let’s just say that one doesn’t need the discerning wit of Judge Chrissy Teigen to figure out what happens next.


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Tyler Durden

Zero Hedge's mission is to widen the scope of financial, economic and political information available to the professional investing public, to skeptically examine and, where necessary, attack the flaccid institution that financial journalism has become, to liberate oppressed knowledge, to provide analysis uninhibited by political constraint and to facilitate information's unending quest for freedom. Visit https://www.zerohedge.com

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