UPDATED at 3:30PM PT with official statements. Quibi, the mobile streaming service launched amid great fanfare and nearly $2 billion in start-up capital by Jeffrey Katzenberg and Meg Whitman, is officially shutting down.
Katzenberg and CEO Whitman held a video call with investors this afternoon to explain their decision to wind down the short-form video service after little more than six months. That meeting was followed by one with staff to share the news. The management team is exploring options including selling content — it has 100 shows — or the entire service should a buyer emerge. (Attempts to shop it thus far have not gained traction.)
Including what’s owed to creditors, it’s said about $350 million will be left from the roughly $1.8 billion in capital that was raised from a group of media companies, venture firms, investment banks and individual backers.
The process of bringing Quibi to a close is expected to take several months, with subscribers receiving notifications in the near future.
In an open letter to “employees, investors and partners” posted online, Katzenberg and Whitman wrote, “Quibi was a big idea and there was no one who wanted to make a success of it more than we did. Our failure was not for lack of trying; we’ve considered and exhausted every option available to us.”
The service launched in April just as COVID-19 was starting to upend the world. Its meltdown has set tongues wagging in the ultra-competitive Hollywood and tech trenches, as Quibi ranks among the priciest misfires of any entertainment-related startup.
Its failure will put about 200 employees out of work, punctuating an already grueling time for the entertainment sector. Questions will swirl around the fate of its roster of “quick bite” programming from A-list creators like Steven Spielberg, Guillermo del Toro and Antoine Fuqua and also which investors will take the steepest losses.
Quibi backers include such Hollywood players as Disney, eOne, Fox, ITV, Lionsgate, MGM, NBCUniversal, Sony Pictures, Viacom, and WarnerMedia. Technology investors include e-commerce giant Alibaba. Strategic partner investors include Goldman Sachs, JPMorgan Chase, Liberty Global and Madrone Capital, the last of which led the round. The BBC also invested.
“Quibi was founded to create the next generation of storytelling,” Katzenberg said in a press release. “We have assembled a world-class creative and engineering team that has created an original platform fueled by groundbreaking technology and IP, enabling consumers to view premium content in a whole new way. The world has changed dramatically since Quibi launched and our standalone business model is no longer viable. I am deeply grateful to our employees, investors, talent, studio partners and advertisers for their partnership in bringing Quibi to millions of mobile devices.”
Whitman reiterated her prior assertions that the company had adequate capital to continue operating for several more months. Instead, she said, “we made the difficult decision to wind down the business, return cash to our shareholders, and say goodbye to our talented colleagues with grace.“ She added, “We continue to believe that there is an attractive market for premium, short-form content. Over the coming months we will be working hard to find buyers for these valuable assets who can leverage them to their full potential.”
While many household names got involved in shows like Dummy with Anna Kendrick or a remake of The Fugitive with Kiefer Sutherland, plus custom teamings with ESPN and 60 Minutes, no show truly entered the cultural zeitgeist. A creative high point may have been last month’s Creative Arts Emmys, where #FreeRayshawn won two prizes.
Quibi’s launch was surely complicated by the coronavirus, which all but invalidated its on-the-go concept, but it also arrived at a hectic moment for the overall streaming marketplace. Four other billion-dollar subscription services from Apple, Disney, WarnerMedia and NBCUniversal have hit the market since last November, all trying to close the gap with Netflix, the longtime market leader.
The start-up spent lavishly on promotion, buying multiple TV ad slots on the Super Bowl and the Oscars last February on the heels of a splashy presentation in Las Vegas at CES. After a pullback in the spring, the company revved up the marketing engines again over the summer, buying more TV and digital spots, with more of a focus on individual shows than on introducing customers to the platform. According to ad tracking firm iSpot, the company spent $63.7 million on TV ads in 2020.
The return on that investment never fully materialized, however. In its first 90 days, during a free trial period, the streaming app was downloaded 5.6 million times, the company said last month. Only a small percentage of those downloads converted to subscribers paying $5 a month or $8 for an ad-free version. (One third-party estimate put the conversion rate at just 8%, but Quibi vigorously disputed that number.)
Executive turnover also dogged the company. Marketing chief Megan Imbres, a Netflix veteran, left two weeks after the April launch. Some skeptics questioned the decision not to provide a smart-TV app, leaving mobile as the only way to view Quibi’s 5-to-10-minute episodes, as opposed to YouTube, which has experienced strong growth in the home in recent years. Plans to develop a living room app were fast-tracked in the spring, and just this week distribution deals were set with Apple TV and Google.
Among other unresolved issues, Quibi is still partially embroiled in crossfire legal action with Eko, the Elliot Management-backed interactive video company, over potential patent infringement over its Turnstyle interface. Kicked off by initial filings by Quibi in late March, the case is understood not to have played a role in the company’s decision to pull the plug.
While Quibi pushed back repeatedly on reports of turmoil and layoffs, the company never disputed the reality that its performance out of the gate fell below expectations. At an online keynote appearance in June at SeriesFest, Katzenberg conceded things had not gone according to plan. Still, he characterized the soft initial numbers as “almost a beta” launch phase, allowing the startup to regroup. “I’m quite optimistic that this use case is going to work,” the founder said. “People are loving this.”
The effects of COVID-19 will always be debated when it comes to sizing up Quibi’s short run. But viewing at home on mobile devices did not diminish during shelter-in-place, according to researcher Bruce Leichtman, as has been borne out in recent numbers from TikTok, Snapchat and YouTube.
“Quibi was based on a sound premise,” Leichtman said. But its “challenge in building an active subscriber base goes well beyond the fact that it was designed specifically for mobile phone viewing at a time when people were spending much more time at home. It is also a reminder that regardless of experienced leadership and strong financial backing, no streaming video business model is a gimme, particularly one that includes consumers paying to subscribe where there is a plethora of free alternatives.”
Ed Laczynski, CEO of Zype, a digital video infrastructure company that works with content producers and aggregators, predicts “there will be a lot of business school studies of this.” He said an experimental, curious, learning-based approach is key. “Experimenting more, early on, with technology, getting more feedback from the market.” He added, “Just because Netflix makes it looks easy doesn’t mean it is easy.”
While apps for the living room finally came into the picture in recent days, the pivot was too late. It’s possible that connected TV could have offered a meaningful extension of Quibi as it found its footing. Platforms like Apple TV and Roku “have an appetite for premium content that is searchable and real,” Laczynski said. They could also have approached free, ad-supported streaming outlets like Xumo, Pluto, or even NBCU’s Peacock. “These platforms can leverage large audiences relatively cheaply. It could have been teased early to see how things performed.”
Another executive in the space said the simple problem was a lack of hits. “No one seemed to find a show they fell in love with,” the person told Deadline. “They needed at least two big hits to generate at least enough of an audience. They needed anchor tenants. And I wish for their sake they would have gotten them.”
Here is the full letter from Katzenberg and Whitman to “to the employees, investors, and partners who believed in Quibi and made this business possible:”
We started with the idea to create the next generation of storytelling and because of you, we were able to create and deliver the best version of what we imagined Quibi to be. So it is with an incredibly heavy heart that today we are announcing that we are winding down the business and looking to sell its content and technology assets.
Quibi was a big idea and there was no one who wanted to make a success of it more than we did. Our failure was not for lack of trying; we’ve considered and exhausted every option available to us.
While the result was not what any of us wanted, we did accomplish a number of things and we are very proud of what the talented Quibi team has built with the blood, sweat, and tears that they poured into this business over these past two years.
We opened the door to the most creative and imaginative minds in Hollywood to innovate from script to screen and the result was content that exceeded our expectations. We challenged engineers to build a mobile platform that enabled a new form of storytelling — and they delivered a groundbreaking and delightful service. And we were joined by ten of the most important advertisers in the world who enthusiastically embraced new ways for their brands to tell their stories.
With the dedication and commitment of our employees and the support we received from our investors and partners, we created a new form of mobile-first premium storytelling.
And yet, Quibi is not succeeding. Likely for one of two reasons: because the idea itself wasn’t strong enough to justify a standalone streaming service or because of our timing.
Unfortunately, we will never know but we suspect it’s been a combination of the two. The circumstances of launching during a pandemic is something we could have never imagined but other businesses have faced these unprecedented challenges and have found their way through it. We were not able to do so.
Which brings us to this moment. As entrepreneurs our instinct is to always pivot, to leave no stone unturned — especially when there is some cash runway left — but we feel that we’ve exhausted all our options. As a result we have reluctantly come to the difficult decision to wind down the business, return cash to our shareholders, and say goodbye to our colleagues with grace. We want you to know we did not give up on this idea without a fight.
Our goal when we launched Quibi was to create a new category of short-form entertainment for mobile devices. Although the circumstances were not right for Quibi to succeed as a standalone company, our team achieved much of what we set out to accomplish, and we are tremendously proud of the award-winning and innovative work that we have produced, both in terms of original content and the underlying technology platform. Over the coming months we will be working hard to find buyers for these valuable assets who can leverage them to their full potential.
We want you to know that we got up every day and genuinely loved coming to work with the most remarkable and passionate team that we have ever assembled. We will be forever proud of the extraordinary partnership we were able to forge between the best of Hollywood and Silicon Valley.
All that is left now is to offer a profound apology for disappointing you and, ultimately, for letting you down. We cannot thank you enough for being there with us, and for us, every step of the way.
Jeffrey Katzenberg and Meg Whitman
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