When it comes to media and entertainment, Jeffrey Katzenberg has had a golden touch, reviving Disney Studios in the 1980s and 1990s. He built an empire out of scratch with his Dreamworks Animation and mega-hit movies like Shrek and Madagascar.
Now the legendary producer may be facing his biggest challenge yet: turning a soon-to-launch, short-form entertainment platform known as Quibi into a household name while finding enough original content for his unusual mobile-first format.
Quibi, short for "quick bites," is slated to launch on April 6. To compel people to believe in his vision, Katzenberg and his team have been shelling out cash to get star power to come on board. According to people with knowledge of the deals, projects are getting payouts of $8 million to $15 million each. The company is offering five to 10 times more than Snapchat parent company Snap for the same projects, they added. Quibi did not respond to a request for comment.
Quibi projected last year it would spend $1.5 billion — two-thirds of which will go to programming — in the first year alone, The Information reported. Already the platform has signed deals for shows like Chrissy's Court, a Judge Judy-knockoff where Chrissy Teigen will preside over small claims court cases — and the decisions are reportedly legally binding. Other shows include reboots of MTV classics like Punk'd with host Chance the Rapper instead of Ashton Kutcher, as well as Die Hart, a scripted comedy with Kevin Hart starring as himself as he attempts to land a leading role as an action star.
"It takes enormously deep pockets and massive organizations that can run deep on content and distribution (to launch a streaming service)," Gartner senior director analyst Eric Schmidt said. "The question for a newcomer — and even a well-funded newcomer to the tune of $1 billion to $2 billion — is how do you not get trampled by the giants?"
It's hard to bet against a media executive with a track record like Katzenberg's. Quibi is also bolstered by Silicon Valley stalwart Meg Whitman, who previously served as president and CEO of HP.
Still, many short-form video services have also tried to break new ground with limited to no success.
Verizon launched go90 in October 2015, spent an estimated $1.2 billion, and shut it down in July 2018. Hulu executives Jason Kilar and Richard Tom launched Vessel in January 2015. It was acquired by Verizon in October 2016, and then shut down five days later.
Facebook spent up to $1 billion on original shows for Watch in its first year and reaches 720 million users monthly, but its success has been questioned by advertisers due to measurement issues, according to CNBC. YouTube attempted an ad-free original content service called YouTube Premium, which focuses more on the ad-free nature of the product rather than its exclusive shows. Snapchat Originals is still around, but content creators have grappled with whether the cost of production is worth the ad revenue they receive.
"Quibi can pitch it as this entirely new thing, and I get they have different technology and more powerful executives and more recognized people producing stuff and starring in them that can make them stand out," eMarketer analyst Ross Benes said. "But I think it's too convenient to dismiss (their challenges) just because they have Jeffrey Katzenberg."
You may have heard of Quibi thanks to its flashy multi-million-dollar Super Bowl or Oscar commercials. Those ads and the content they were promoting wouldn't be possible without the $1.75 billion Quibi has raised from such investors as Walt Disney Company, Walmart, Goldman Sachs, NBCUniversal, Sony Pictures, and WarnerMedia.
In an age of binge-watching, Quibi is betting people want bite-sized episodes of no longer than 10 minutes if it's the same quality as traditional television and movies. The company also believes people will be OK paying $4.99 a month for premium content with ads or $7.99 monthly to forgo the ads completely.
The platform, which will launch with 50 shows, is aiming to have 175 shows and 8,500 episodes in its first year. To stand out, Quibi has signed up top producers and talent like Steven Spielberg, Justin Bieber, Zac Efron, Antoine Fuqua, Lena Waithe, Tyra Banks, and Jennifer Lopez.
Spielberg's After Dark will be a horror show that will only be on the service after sunset. Claymation series Gloop World is helmed by Ricky and Morty co-creator Justin Roiland. Curtis "50 Cent" Jackson's next TV project will be Trill League, based on a graphic novel about a league of black superheroes.
Quibi's shows and movies will fall in two categories. Premium releases, like those mentioned above, are intended to get people to subscribe. Quibi is paying around $8 million to $15 million for these projects which equate to an hour to two hours of content, sources said. By contrast, the average American cable drama costs $3 million to $6 million per episode, which is about one hour of content.
Katzenberg has admitted to creators the Quibi format isn't that different from writing for TV with half-hour or hour-long shows segmented with traditional ad breaks, one person with knowledge of several deals said. A lot of the projects pitched to Quibi are also pitched to other networks or social platforms, but edited to fit the platform's time constraints.
"It's inherently a risky proposition," Gartner's Schmidt said. "To launch another streaming service and say we're differentiated on the content side because of the content form isn't the worst idea, but it's not the best. I wouldn't put my 401k on short-form content."
The rest of the content will be made up of "daily essentials." These news or entertainment shows are intended to keep viewers coming back and will publish as often as five days a week. Most "daily essential" deals are structured as a three-month order with the potential to extend. A full-year payout ranges between $8 million to $12 million, the sources told Cheddar. Companies like TMZ, ESPN, Telemundo, 60 Minutes, BBC News, and NBC News have signed up to produce shorter versions of their usual content.
The big payouts are reflective of the unique content vacuum that Quibi must overcome.
"Netflix, Hulu, and Amazon Prime have a deep catalog of content you can exploit," said LightShed Partners partner Rich Greenfield. "There is no library for Quibi to leverage off of. They are spending a lot of money to build up essentially an army of content."
On top of the money, Quibi only requires a short exclusivity deal of two years, in contrast to deals with competitors like Netflix that require complete exclusivity. Quibi creators are free to resell the content to other services after their contract expires, which could include stringing episodes or chapters together to make a 30-minute or hour-long show. Some are also looking at Quibi as a way to pay for their ideas and build out a fanbase, sources noted, and others are seeing their Quibi shows as a proof-of-concept for more premium services like Netflix, HBO, or Amazon down the road, one person said.
"As far as financial prudence goes, you can make the case that a lot of these streaming companies are spending a lot more than they should," eMarketer's Benes said. "There's such a land grab for market share that people are being loose with their purse strings."
Competitive Streaming Landscape
Quibi has said it's not a competitor to more conventional viewing platforms like Netflix and Disney+, but the startup is jumping into a market that is already saturated with all sorts of video programming and other digital distractions.
In fact, according to a Nielsen survey from 2019, Americans spent 10.5 hours a day watching and interacting content on devices and televisions. Over 300 new scripted shows aired in the first half of 2019 alone, according to The Hollywood Reporter.
For Quibi to succeed, it will need to pull people away from an established platform like Netflix or convince people to give up another 10 minutes of their free time. Even that might be too much.
"There's a glut of content if you look at the overall number of new shows produced and the original shows being bankrolled by Amazon and Netflix," Gartner's Schmidt pointed out. "How do you get out there with original content that's differentiated? You look at consumers' shortening attention spans and how much more effective short-form ads are to long-form. But do those principles carry over to content consumption?"
Schmidt pointed to another challenge that a short-form provider like Quibi might face in grabbing even a small slice of consumers' time: "Do people want to make a decision about what they want to watch every 10 minutes instead of every hour?"
However, Quibi already has a clear plan to make money. The content deals do not include revenue split, meaning any money Quibi makes on advertising or subscriptions will go directly to the company. Quibi said it sold $150 million in ad inventory for its first year, a large sum for a new company but small compared to their massive spending.
Quibi will also have a partnership with T-Mobile at launch, which should pad its subscriber numbers from day one. It also is offering a free 90-day trial for people interested in checking out the service.
"They've got one of the most aggressive leaders in the mobile space in T-Mobile behind Quibi, likely to give it away at no cost to millions of subscribers," LightShed's Greenfield argued.
"Will Quibi be as big as Netflix?" Greenfield added. "No, I doubt it. But will Quibi have millions of subscribers? Why not? People want to stream, and people are spending their lives on their phones."
Still, many people are recognizing Quibi could burn through cash quickly, and its competitors have vast financial reserves. Disney doesn't expect a profit on Disney+ until 2024, but it can fund the losses from its box office and parks profits, as well as advertising and other revenue from its various divisions.
"It will come down to if people will actually watch it," eMarketer's Benes said. "You can have the best execs, you can have the best actors, but at some point you have to have people watch it and fork over money."