Thursday, 12 November 2020

Quibi Leaders’ $1.7 Billion Failure Is a Story of Self-Sabotage

quote [ Jeffrey Katzenberg and Meg Whitman are phenomenally successful businesspeople with precisely the wrong instincts for a streaming service. ]

I don't where I've been streaming but I've been alright

Reveal
The view from Meg Whitman’s wraparound private terrace was dazzling. In 2018, three months after she stepped down as chief executive officer of Hewlett Packard Enterprise Co., Whitman moved to Los Angeles, into a sprawling, $6.5 million condo on the 24th floor of West Hollywood’s Sierra Towers. The apartment had only two bedrooms but offered lots of other indulgences—floor-to-ceiling skyline views, a home theater, a quarry’s worth of kitchen marble—as well as a patina of Hollywood glamor. Whitman could say she lived in a building whose residents have included Sandra Bullock, Elton John, David Geffen, Evander Holyfield, and Cher. And there was still a chance of running into Adam Sandler in the lobby.

Whitman, one of Silicon Valley’s most powerful women, had moved to L.A. to work with people like that. She’d been recruited a year earlier by Jeffrey Katzenberg, the Hollywood megaproducer who co-founded DreamWorks Animation, who was betting that the future of entertainment was short-form videos with old-school studio production values. Whitman was to be the CEO of a streaming service with episodic programming that aimed to wow a generation raised on YouTube.

But the service, called Quibi, premiered this past spring to crickets and jeers. Over the summer, Whitman talked her team through a retooling plan and acted as though she planned to remain in L.A. for a good, long while. But in early August, less than two years after she bought the Sierra Towers condo, she put it back on the market.

Her staffers noticed. Several circulated the real estate listing, spurring a wave of quiet searches for employment elsewhere. More than one marks that as the beginning of the end for Quibi. “When your CEO puts their L.A. home up for sale less than two years after buying it, that’s when you know the writing is on the wall,” says one former Quibi employee, who, like most of the 24 current and former staffers interviewed for this story, spoke on condition of anonymity to protect future job prospects.

Toward the end of October, Quibi’s seventh month in the crowded streaming market, Whitman and Katzenberg assembled their employees on a video call to tell them the company would be shutting down around Dec. 1. A misty-eyed, apologetic Katzenberg encouraged employees to comfort themselves by playing the song Get Back Up Again from the DreamWorks movie Trolls.

Quibi had long been mocked for its hodgepodge programming lineup and inscrutable name (short for “quick bites”). But insiders say its downfall can also be traced to the co-founders’ stubborn management, faulty instincts, difficulty promoting their products on social media, and initial smartphone-only approach, which proved ill-suited to people’s viewing habits during a pandemic. And the company did little to seek out the up-and-coming talent that has proven successful on YouTube, instead relying on classic Hollywood formulas served up by pricey established producers and stars, some of whom became its critics. “Quibi took everything that is Hollywood and nothing of what was truly a startup, with its top-down model, OG [old guard] deals, dick swinging, and star f---ing,” says Evan Shapiro, who’s produced or created more than 150 shows, including one for Quibi—Let’s Go, Atsuko!, adapted from a popular podcast. “Take the worst parts of Hollywood, bake it into a phone, and that’s what you got,” he says.

Quibi declined to comment for this story, instead referring questions about the current and former employees’ criticisms to an open letter to employees, investors, and partners that Katzenberg and Whitman published last month. In the letter, the co-founders said Quibi’s failure likely resulted from one of two problems: “because the idea itself wasn’t strong enough to justify a standalone service or because of our timing.”
Jeffrey Katzenberg
Katzenberg
Photographer: Taylor Jewell/Invision

Katzenberg, one of Hollywood’s biggest and most influential donors to the Democratic Party, made an odd pairing with Whitman, who once ran for California’s governorship as a Republican. Their sales pitch to viewers was similarly counterintuitive: shows of Netflix- or Hulu-level quality, broken into chunks of 10 minutes or less, to appeal to 25- to 35-year-olds on the go. Yet the duo’s reputations and confidence attracted more than $1.7 billion from investors including Disney, 21st Century Fox, NBCUniversal, Sony Pictures, Viacom, and Alibaba, many of which were developing their own streaming services. (Disclaimer: Bloomberg Businessweek’s parent, Bloomberg LP, recently debuted its own streaming-news service.) With that kind of money on hand, much of Katzenberg’s A-list network proved receptive, too. Over fancy meals around L.A., he won over the likes of director Antoine Fuqua and comedian Chris Rock. “If it can be on YouTube, it can’t be on Quibi,” he often said, according to people familiar with the matter.

Several current and former Quibi employees say Katzenberg built himself a punishing schedule. In the weeks after Quibi went live, he’d rise by 3:30 each morning, work out while reading the news from 5 a.m. to 7 a.m., and conduct as many as 20 FaceTime meetings a day, turning most any interaction along the way into an impromptu meeting about the company. He divided show ideas into three categories: the titular “quick bites” (short, one-off videos), “daily essentials” (news programs), and “lighthouse” shows (projects involving A-listers).

The latter ate up most of the budget. According to a Quibi pitch deck seen by Bloomberg Businessweek, lighthouse shows generally cost $20,000 to $125,000 a minute, compared with roughly $10,000 a minute for daily essentials. Fuqua’s series, #FreeRayshawn, which stars Laurence Fishburne and Stephan James, cost $15 million for 15 episodes of 10 minutes each, a competitive budget for today’s streaming services. Netflix Inc.’s Stranger Things costs $6 million to $8 million for episodes that typically run for 45 minutes to an hour, and Disney+ is expected to spend as much as $25 million an episode on Marvel shows such as Hawkeye and WandaVision. But in another respect, Quibi sweetened the deals far beyond what other streaming services were willing to offer. Two years in, creators would be free to edit their Quibi shows together into an extended work and sell the longer version somewhere else. After seven years the company’s rights to the short-form versions would expire.

Katzenberg also applied his decades of development experience, something current and former employees say was part of the problem. The 69-year-old former wunderkind often insisted that he weigh in on everything from casting to wardrobe to graphic design, frequently via FaceTime with printouts of his notes next to him. He invested aggressively in somewhat out-there series with recognizable names attached, such as Most Dangerous Game, starring Liam Hemsworth and Christoph Waltz; Dummy, starring Anna Kendrick; and Thanks a Million, a giveaway reality show produced by Jennifer Lopez. To narrate voiceover for Fierce Queens, a wildlife program produced by BBC Studios, Quibi paid Reese Witherspoon $6 million. (Her husband, Jim Toth, was Quibi’s head of content acquisitions.)

The overall results, in the view of some Quibi employees in the target demographic, were underwhelming. “I won’t necessarily care if there’s a ‘star’ in a show as long as it looks good and my friends recommend it,” one of them says. “YouTube is full of unknown names who get billions of views. Why wouldn’t we recruit a few of them and bring their established viewership to us?” Staffers say pitches centered on online “influencers” were sometimes shot down, then revived with Hollywood actors attached.

Katzenberg bet on Whitman, who lacked startup experience, to legitimize Quibi as a tech startup. Whitman hired experienced lieutenants, luring Chief Technology Officer Rob Post away from Hulu and head of product Tricia Lee from Sony. She and Katzenberg also brokered a deal to bundle a year of Quibi with T-Mobile’s unlimited wireless plans. The Quibi app’s most impressive technical feature, called Turnstyle, switched footage of a show seamlessly between high-end vertical and horizontal versions of a given shot depending on how the users were holding their phones. The Quibi team achieved this the old-fashioned way, by making their creative teams frame every shot for both aspect ratios.

But Whitman, too, had trouble dealing with Katzenberg, current and former employees say. One month in, four of them say, she threatened to quit because he wouldn’t stop interrupting her and micromanaging her staff. Their mutual solution, according to three people familiar with the matter, was to interact as rarely as possible.

As Quibi prepared for its April 6 premiere, Whitman and Katzenberg agreed on at least one key point: The videos should be available only on smartphones, not TVs. Current and former employees say that in March, with Covid-19 spreading across the U.S., the co-founders met for several hours to debate delaying the rollout, but decided against it. Instead, they canceled a swanky launch party and extended the service’s free trial period from 14 days to 90.

When Quibi debuted, its app was the third-most-downloaded free app in Apple Inc.’s App Store. (Once the free trials expired, users had to pay $4.99 to $7.99 a month to stream Quibi’s roughly 50 titles.) But within two weeks, Quibi dropped off the charts, and fewer than 100,000 users paid to subscribe once their trial periods ended, according to current and former employees. The lineup simply didn’t have a must-watch show, and the app initially wouldn’t let viewers take screenshots to post on social media, making it all the tougher to generate buzz.

Investors say Quibi executives downplayed the scale of its problems. “The company painted a relatively positive picture to us that things are going well,” says Anis Uzzaman, general partner and founder of Pegasus Tech Ventures, which invested $35 million in Quibi. “They admitted [subscriber growth] was not as good as expected because of the coronavirus, but said it wasn’t bad and that growth was happening.”

Weeks after Quibi’s disappointing premiere, Katzenberg and Whitman hired marketing consultants to rethink their strategy, according to three people familiar with the matter. Then, these people say, the co-founders ignored key recommendations, including to pick a show to heavily promote, like Netflix did back in 2013 with House of Cards. They did, however, make Quibi videos easier to share on social media and added AirPlay and Chromecast support to allow TV viewing over Wi-Fi. The product team struggled, though, to develop apps for Apple TV, Android TV, and Amazon Fire TV all at once.

By September, Quibi’s user base had crept to about 400,000, putting it far behind the company’s internal projections of 7.4 million viewers by the end of 2020. That same month, Whitman and Katzenberg considered raising more money or selling the company. They pitched Apple Senior Vice President Eddy Cue, Facebook app chief Fidji Simo, WarnerMedia CEO Jason Kilar, and NBCUniversal, none of whom bit on either option, according to people familiar with the meetings. With $350 million left, the co-founders abruptly decided to shut down the service. “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,” they wrote in their open letter to employees, investors, and partners. Ahead of the Dec. 1 shutdown, some Quibi staffers have decamped for employers like Netflix, Apple, and Sony Pictures Television.

The shutdown decision blindsided creative teams whose shows Quibi had recently picked up or renewed for a second season. Hours before the co-founders’ announcement, series creator Mike Catherwood was emailing back and forth with a Quibi executive about Rudy, an animated series he was developing for the service about a former prison inmate starting a new life with his family. Catherwood’s team has already written two 10-minute scripts, and he’s stuck hoping he can find the show a new home. “I just know that I want to keep moving forward, and I want to make sure that this show finds the light of day somewhere else,” says Catherwood. Several former employees say Quibi will be working with legal and financial advisors over the next several months to sell its assets, including the rights to its shows.

Whitman is an early contender for several cabinet-level positions in President-elect Joe Biden’s administration, according to three people familiar with the matter. Weeks after she put her L.A. condo up for sale, the former Republican gubernatorial candidate appeared during the Democratic National Convention to endorse Biden on national TV. “For me, the choice is simple,” Whitman said. “I’m with Joe.”

It’s unclear what Katzenberg will do next, but the producer seems less likely to leave the entertainment industry behind. “One might wonder why sailing off into the sunset on a boat in the Caribbean isn’t an option for Jeffrey,” says Shapiro, the producer of Let’s Go, Atsuko! “But I don’t get the sense he’ll want this to be the last chapter of his storied career.”

Update: Following publication of this story, Quibi spokesperson Gina Stikes disputed that Whitman and Katzenberg had difficulty working together, that executives downplayed problems to investors, and that consultants suggested focusing Quibi marketing on fewer shows. She also said Reese Witherspoon made less than $1 million for narrating Fierce Queens and stressed that Jim Toth wasn’t involved in the deal. Bloomberg Businessweek stands by its reporting.
[SFW] [business] [+1 Interesting]
[by ScoobySnacks@12:57pmGMT]

Comments

TimmoW said @ 2:02pm GMT on 12th Nov
Huh. I hadn't even heard of this until it failed. I am on YouTube, Netflix, Crave, Disney+, and I torrent lots of content. I'm on Reddit, I've been perusing SE for fucking ever now, and I even spend time on 4chan. I'm basically from the internet.

Perhaps they had an issue actually getting the word out? Pretty rare that something like this comes and goes without even popping up on my radar until after it's done.
Silent said @ 2:06pm GMT on 12th Nov
I've got to say, I don't see the appeal in 10 minute episodes, it just feels like a gimmick that doesn't work.
For an extended story, 10 minutes doesn't feel like it would be long enough for me to get hooked, or to have any real ongoing development.

It sounds like they tried creating a product there wasn't a real market-need for, and threw money away time and again.
cb361 said @ 5:23pm GMT on 12th Nov
I signed up for their free trial, to watch a documentary about an American chef seeking out obscure pasta shapes in rural Italy. I suppose the "one pasta shape per 10 minutes" worked okay, but I would rather have had them all in one long episode, and on a bigger screen. The format made it a bit of an oddity. And I wouldn't have paid for it. And I wasn't tempted by anything else on offer.
Silent said @ 10:59pm GMT on 12th Nov
I recently found out that the pasta hoops are an actual pasta shape, and not just a tinned heinz creation.
My world, shook.
avid said @ 8:21pm GMT on 13th Nov
The problem with Quibi is that it fails the "what's your unfair advantage?" test. During non-COVID times, there absolutely could be a market for 10 minute videos. It's called YouTube. Nothing about Quibi prevents a competitor like Netflix or YouTube from making a similar product with much better support and an existing customer base.

That said, I've enjoyed the new Reno 911 episodes (that show pares down to 10 minutes very easily), Dummy (comedy with Anna Kendrick), Sex Next Door (mini documentary series), and Shape of Pasta (documentary about pasta-obsessed chef traveling in Italy).

Many of those would be worth spending $8 on, were it not for the fact that they can't be streamed to your TV, but are instead trapped on your phone or tablet.
hellboy said @ 5:35am GMT on 14th Nov
It was a stupid fucking idea and I'm glad it failed.

Giving Whitman a cabinet position would also be stupid, but sadly not surprising.

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