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Quibi

Short-form streaming platform
Startup Cemetery
GENERAL INFORMATION
Category:
Entertainment
Country:
United States
Started:
2018
BUSINESS FAILURE
Outcome:
Shut Down
Cause:
Multiple Reasons
Closed:
2020
FOUNDERS & EMPLOYEES
Number of Founders:
1
Name of Founders:
Jeffrey Katzenberg
Number of Employees:
250-500
FUNDING
Number of Funding Rounds:
2
Total Funding Amount:
$1.8B
Number of Investors:
14

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Why were close to $2B in the bank and a team full of industry veterans not enough to make the mobile streaming service a success?

What was Quibi?

In short, Quibi was Netflix for your phone. For $5 with ads or $8 without ads per month, you got access to a library of video content specifically made to be watched on mobile devices - mostly fictional series, but also news shows and recaps called daily essentials as well as reality shows, etc.

The two main unique selling points of the service were that the content could be watched both in landscape and in portrait mode and that the episodes were short enough (from 5 to 15 minutes) to be watched while on the move - e.g. when commuting by train, waiting in a line, etc. The premise of the streaming service was that the existing solutions were not convenient to watch on mobile phones while on the go, which left a hole in the market.

The name Quibi derived from Quick Bites, the name that the service gave to these short ~10-minute episodes.

Could Quibi have succeeded?

Quibi has been in the crosshairs of tech journalists and analysts and saw a lot of negative reception and even ridicule, so it’s easy to go with the flow and assume it was doomed from its very inception.

Yet, some of the biggest players in the entertainment industry were certain enough in the app’s eventual success to invest almost $2B in it.

With enough money in the bank and a team with a proven track record (and powerful connections) in the entertainment business, Quibi’s failure was not as obvious in its inception as most online articles would have you believe.


Founder and executive team

The founder of Quibi, Jeffrey Katzenberg, was the former chairman of Disney (1984 to 1994) during the animation renaissance - a period in which Disney created some of its biggest hits like The Little Mermaid, The Lion King, Aladdin, and Beauty and the Beast. Later on, he became the co-founder and CEO of Dreamworks, which produced successes like Shrek, Madagascar, and How to Train Your Dragon, successfully competing with Disney’s animations on the big screen.

Needless to say, Katzenberg is familiar with producing successful entertainment content, so he seemed like the perfect guy to head a new content-on-demand service similar to Netflix.

Moreover, the CEO of Quibi, Meg Whitman, used to be the CEO of eBay and Hewlett Packard and is a board member of Dropbox and Procter & Gamble.

Funding

One of the biggest benefits an experienced founding team brings to the table is powerful connections, and Katzenberg managed to leverage his name and network to raise the incredible $1B in 2018, before the service launched, followed by an additional $750M. His investors included Disney, 21st Century Fox, NBCUniversal, Sony Pictures, Time Warner, Lionsgate, MGM, Goldman Sachs, JPMorgan Chase, and Alibaba Group: undoubtedly, one of the most impressive investor lineups you’ll ever encounter.

Considering that Quibi is in competition with Netflix (despite claiming otherwise), that it has the same business model, and that Netflix is famous for spending billions annually on original content, having enough capital was a prerequisite for Quibi in order to compete successfully. Thanks to its enormous success at fundraising, Quibi managed to invest around $1B in original content extremely rapidly to build up its library.

Nonetheless, all of this proved not to be enough for the new streaming platform.

Why did Quibi fail and shut down?

1) Coronavirus

"I attribute everything that has gone wrong to coronavirus" (source).

This line by Katzenberg is commonly quoted when Quibi’s failure is discussed, even though later on he walked back on his statement and said “Simply to blame it on COVID is not fair, and not something either of us (Whitman and him) want to do” (source).

The pandemic was the obvious, easy excuse that allowed the executive team to save face. People’s routine changed, and the train and subway commutes and queues in shops that Quibi was counting on became much rarer.

Yet, TikTok usage was growing during the pandemic, and presumably, TikTok relies on mobile usage just as much as Quibi. This is a clear indicator that people didn’t entirely stop using their phones in favor of their TVs and PCs because of COVID, and even though the Coronavirus might have made Quibi’s life more complicated, it’s obviously not the sole reason for the app’s failure.

2) Content

If you are searching for a single major reason for the app’s failure, it is content.

After all, it’s a video-on-demand service, and if people find value in it depends entirely on the content it provides - its quality and scope.

Simply calling the shows bad is too subjective, but the consensus seems to strongly point in that direction.

Quibi was mass-buying all content that it could get its hands on because it needed to build a large enough library to compete with other streaming services. Naturally, needing a lot of content fast means you can’t have extremely high standards: “If we have a show that’s going to be a huge hit, you pitch to Netflix, HBO. If it doesn’t get traction, you pitch to Quibi” (source).

Going after projects that Netflix and HBO rejected, however, has another implication - these projects were not created with Quibi’s short-form format in mind. The service bought feature-length movies, and chopped them into pieces to make a “series”. Naturally, this approach doesn’t give great results, and could easily turn an OK movie into a frustrating watching experience.

That said, the fact that there was a lot of bad content on the platform wouldn’t be that much of a problem if there was one amazing show that was a must-watch. Streaming services need a killer show just as much as platforms need a killer app.

Quibi’s competition is well aware of this - when Game of Thrones was on its last episodes, HBO made a huge effort to advertise its other content because it realized very well that a lot of people were subscribed just to watch Game of Thrones. Thankfully for HBO, they had another big hit, Chernobyl, very shortly after the conclusion of Game of Thrones.

Quibi never had a killer show. What this means is that it never had a real reason for people to subscribe.

3) Marketing

It seems that Quibi entirely missed the point that people subscribed to their streaming services because of the content, rather than the service itself. All of Quibi’s marketing efforts were focused on the platform and its uniqueness, rather than on its best shows.

Moreover, Quibi’s promotional efforts were more reminiscent of the ad campaigns of traditional brick and mortar businesses rather than the social-heavy, virality-based, low CAC campaigns of B2C tech startups.

A great example is the expensive Superbowl ad that Quibi launched before it was even available. 

Another is its Oscars ad. Both seemed to be driven by ego rather than by a good understanding of Quibi’s audience. The service was targeting millennials, yet the average Oscars viewer is in their 50s.

In unconfirmed market research after the two ads, 70 percent of respondents said they thought Quibi was a food-delivery service (source).

4) Features

Quibi’s failure to understand and connect to its target audience was just as apparent in its (lack of) features as it was in its marketing.

Quibi was a mobile app for content, yet for a long time, it didn’t allow users to easily take clips and screenshots that could be shared on social media. Quibi failed to understand that a large segment of their users wanted to turn what they were watching into content for their own social media and that these were their most important users who would actively bring more people to their service.

So, Quibi not only failed to actively advertise their content, but the service prevented the content from spreading naturally through virality.

The exclusive focus on mobile was a deliberate decision - Quibi didn’t want to compete directly with Netflix, it wanted to focus on its USP, which was short drama content for your phone. Yet, the decision backfired because the pandemic meant more people were stuck at home. Quibi introduced the ability to broadcast content to your TV, but this feature came too late to make a major difference.

Moreover, the focus on mobile meant that Quibi was actually competing directly for screen time with two other video-on-demand giants: TikTok and YouTube, which have the big benefit that they are free (later on, Quibi experimented with a free pricing tier in New Zealand, but the results weren’t good enough to give hope for the service).

Last but not least, the service’s major innovative feature, the ability to watch a show on your phone both horizontally and vertically, was also very problematic. It’s easy to argue that it is a gimmick and it’s questionable if it adds any real value. This is a problem because the feature requires anyone developing content for Quibi to develop it with both portrait and landscape in mind, adding a layer of complexity. Moreover, as we already mentioned, a lot of the content on the platform wasn’t created specifically for Quibi. This means that it wasn’t created with this feature in mind, and for a large chunk of the content portrait mode simply didn’t work as well as landscape.

5) Leadership Problems

In fact, it is quite apparent Quibi’s leadership was far removed from their audience and the tech world as a whole. When asked about her favorite show, Whitman said that she wasn’t sure she would call herself an entertainment enthusiast, but she liked Grant on The History Channel (source). It’s quite obvious she didn’t consume what she was selling - first, she didn’t give a Quibi show as an example, and second, she admitted not to consume too much entertainment content as a whole.

Being in their sixties, it’s obvious that the two company leaders were far removed from their target audience. The problem is that they didn’t seem to think so themselves. The same Vulture feature quotes a person with first-hand experience at the company: “Unless you agree with them, you’re a troublemaker. Meg believes she’s a marketing genius; Jeffrey believes he’s a content genius. So you end up in shitty jobs where you’re there to execute their vision, which no one else there believes in.”

As if this wasn’t a strong enough red flag, it seems the two leaders were in a clash themselves, as Whitman complained that Katzenberg was undermining her authority (source).

6) Lack of Problem Validation

The fact that the service came out of Hollywood rather than Silicon Valley was probably beneficial in terms of content but detrimental in terms of properly running an innovative startup.

Why do people need Quibi? Maybe if people have a few minutes to kill on their phone, they’d prefer watching video content on TikTok and YouTube rather than drama series.

Quibi never ran an MVP (minimum viable product) or any experimental public beta to try to test what kind of content and what kind of features resonated well with their target users.

The assumption that people would like to watch short drama series episodes when they had a few minutes to kill on their phone wasn’t validated. Because of this, Katzenberg and co. were essentially running a $2B dollar high-risk experiment. These kinds of experiments could have been run for much, much cheaper under the lean startup principles - an industry-standard in the startup world.

The biggest startup mistake is to build something nobody needs, and 34% of startups fail due to lack of product-market fit. It’s hard to argue that Quibi doesn’t fall into this category. It’s easy to imagine that chopping up a movie into 20 pieces doesn’t add any real value.

7) Overfunding

Overfunding was not the reason for Quibi’s failure, but it was the reason for the service to shut down.

A lot of startups would kill to have 500k people paying $5 or $8 per month for their service, but 500k subscribers with no indicators of growth are simply not enough to pay for a $2B investment.

By raising close to $2B before even launching, Quibi put itself in a position in which it would either become one of the major players on the streaming market, or it would be forced to shut down.

It’s plausible that there is a market niche for a mobile-first streaming service but it’s unlikely to be big enough to bring a company to the size of Netflix or HBO. By fundraising in a more conventional manner (pre-seed and seed for validation experiments, series A, B, C, etc. for scaling), Quibi might have become a profitable, albeit smaller streaming service. Equally importantly, it could have done it without burning close to $2B (most of which on content) along the way. 

The end of Quibi

All of the reasons listed above led to an inevitability - Quibi had no feasible path to success and had to shut down. In a letter to staff, investors, and other stakeholders, Katzenberg and Whitman said: “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 returned all remaining funding to investors, left around 250 employees looking for new opportunities, and is currently looking for buyers of its tech and content.

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