Quibi Gave Media Giants Lesson: Quick Bites Aren’t Sure Hits

(Bloomberg) -- Quibi Holdings LLC faced many challenges during its short life: a global pandemic, Netflix Inc.’s dominance in streaming, and a fickle consumer with lots of other viewing options.

But ultimately, the very premise of the startup -- that smartphone users wanted to see highly polished shows chopped up into short bits -- may have been its undoing. Though the company blamed Covid-19 for hastening its demise, Quibi’s short-form approach to video never caught on with viewers. And that didn’t seem likely to change once the pandemic ends.

“The pandemic gives them a good excuse for their failure, but I think the real problem was that the idea of episodic content in five-minute chunks isn’t what people are looking for on their smartphone: They want the six-second goofy dance move on TikTok or an influencer video on YouTube or Instagram,” said Jim Nail, an analyst at Forrester Research Inc.

Quibi, which took its name from “quick bites,” set out to give people short clips with big stars and high production values -- a typical episode might cost $100,000 a minute to produce. But that didn’t scratch an itch for consumers, Nail said. It didn’t help that the Quibi app couldn’t even be viewed on TVs when it first launched in April, making it less appealing to couch potatoes.

“When they want highly involving, high-production content, they want it on their TV screen in 30-minute or longer chunks where they can lose themselves in the story and escape from the craziness that is 2020,” Nail said.

Case Study

The lesson embedded in Quibi’s brief but flashy existence will likely be held up for years as an example of how hard it is to adapt old Hollywood thinking to the new world of entertainment. Jeffrey Katzenberg, a movie mogul who once chaired Walt Disney Studios and co-founded DreamWorks, wasn’t a man people considered wise to bet against. And a number of industry heavyweights, including Disney and WarnerMedia, opened their checkbooks to wager on Quibi’s success, plunking down a total of $1.8 billion over the past two years.

Investors didn’t necessarily expect Quibi to be a huge hit, but they didn’t want to look stupid if it somehow took off.

There was initial hope the pandemic may help the company. As the lockdown began, competing entertainment services, including Disney+ and Netflix, became more popular than ever. Bytedance Ltd.’s TikTok app, which lets users post their own short videos, could barely keep up with staffing needs as its use exploded among homebound teens.

No Viral Hits

When Quibi launched in April, the company suggested it could ride that same wave of success. Katzenberg predicted eight to 10 of its 175 first-year shows would go viral, drawing millions of people to the platform.

But none of Quibi’s shows caught fire. One handicap was the fact that users couldn’t initially screenshot programs to send them to their friends or make memes. Users who did like Quibi’s lineup quickly ran out of shows. The company planned fewer than 200 programs in its first year, compared with the thousands available on other similarly priced streaming services.

The company’s chief executive officer, former EBay Inc. head Meg Whitman, said Quibi would need about 12 million paying users “over time” to break even, but fewer than half a million people stuck around to pay for the app after a free trial expired. Even if the company had reached a onetime “worst-case” scenario of attracting 1.6 million subscribers in the first year, its expensive content would have depleted its cash reserves by next year.

“Each service needs compelling content to bring in new subscribers, and once they’re subscribing, lots of content to retain them,” said Naveen Sarma, a senior director at S&P Global Ratings. “Failing that, it needs a deep-pocketed parent who is willing to fund losses until the service creates enough content to attract enough customers. Quibi seems to have failed in all aspects.”

Picking Up the Pieces

All told, Quibi informed shareholders that it will have at least $350 million to return to them, or about 20% of what they paid in. That could rise if the company is able to sell its assets, including content licenses and proprietary technology. Quibi signed agreements with content creators to carry their shows exclusively for two years. When the app shuts down around Dec. 1, there should still be at least a year and half left on those agreements.

“At this time we do not know if the Quibi content will be available anywhere after our last day of service,” the company said on its website.

Still, a sale will be complicated. The technology underlying the app is the subject of a lawsuit. And previous attempts to sell the company to competitors, such as Apple Inc., were unsuccessful.

In reflecting on the company’s failure, Katzenberg and Whitman acknowledged in an open letter Wednesday that the pandemic alone probably wasn’t the culprit. Beyond poor timing, the idea behind Quibi may not have been strong enough “to justify a stand-alone streaming service.”

Katzenberg summed up his feelings Thursday morning in an interview on CNBC: “In the end, all we can do is own it.”

©2020 Bloomberg L.P.