Why Quibi failed? - Lessons learned and what will happen with the $1.75B investment

Transcript

0:00 Speaker A: Hi, I'm Sander and today I want to discuss with you why quibi failed. Speaker A: After two years of development and six months being in the market with 1.75 billion invested into the business, they decided to shut down. Speaker A: In this video I want to explore with you what are the learnings that we can take away and do better than Quibi did. Speaker A: And also at the end of the video, see what's going to happen with that 1.75 billion investment. Speaker A: But first let's dig into the proposition. Speaker A: Quibi was promising to bring together the technology of Silicon Valley with the creativity of Hollywood and with their co founders, Meg Whitman bringing the ebay and Hewlett Packard Enterprise knowledge and Jeffrey Katzmer bringing The Disney and DreamWorks knowledge of having run some of the largest enterprises in creativity.

0:42 Speaker A: And today they're going to build Quibi, which is Quick Bites. Speaker A: But let's hear firsthand of what they set off to do from Meg Whitman,. Speaker B: Which is we are trying to bring together the best of Silicon Valley and the best of Hollywood and we are creating the first entertainment platform that makes every moment of your day extraordinary. Speaker B: And I'll talk about that in a minute. Speaker B: But we are creating a platform that brings together quick bite content.

1:07 Speaker B: So less than 10 minutes, as you said, created by Hollywood's top talent and combining that with a technology platform that makes viewing short form video on your mobile extraordinary, engaging and doing some things. Speaker B: Today, watching on video on your mobile is great, but it can be a lot better. Speaker A: While that was a lot of words and not very clear to me, I tried to simplify down to you here. Speaker A: Quibi would be focusing on mobile first, meaning the content that's less than 10 minutes.

1:35 Speaker A: That's their premise where they're starting off with they want to bring that premium content, meaning the top talent from Hollywood onto that platform and they want to marry that with technology to create unique, extraordinary experiences. Speaker A: So let's dive into each one of them soon to see how they set out to do that and whether they succeeded or not. Speaker A: And to do that, as we mentioned, they raised 1.75 billion from some of the biggest studios. Speaker A: Almost every studio was in it with their talent.

2:02 Speaker A: And they got also the big banks like Goldman Sachs and JP Morgan to invest in it in order to reach 7 million users in the first year and 250 million in revenue, which they were far from doing. Speaker A: But let's dive into the premises. Speaker A: Number one is mobile. Speaker A: They thought that there's a big shift happening in the type of content that's out there, moving from two hour movie theaters to 20 minutes on TV to now less than 10 minutes on mobile.

2:27 Speaker A: But I don't think that's the right way to look at it. Speaker A: Yes, there was a shift in format from movie theaters to tv and that format shift is still there and that's still relevant. Speaker A: While I don't think that that is truly relevant on mobile, and here's why. Speaker A: Because movie theaters were defined by the director deciding what's going to be shown on those theaters and how much time they're going to spend there on tv. Speaker A: That was decided by some of the biggest TV leaders in those companies on what's going to be on the schedule, what they're going to invest in or not.

2:57 Speaker A: While mobile phone is not limited by those distribution channels, it's only limited by the Internet, which is infinite. Speaker A: And the discovery is not defined by schedules, but it's defined by algorithms. Speaker A: And that's a fundamentally different way of thinking about it. Speaker A: It's not about the length, it's about the distribution and access, who controls the experience. Speaker A: So while on moving from scarcity to less scarcity to now complete abundance, on movie theaters, you might only have choice of between 20 movies and what to see.

3:28 Speaker A: On cable channels, you might have more than 100 channels to choose from. Speaker A: But now on the Internet, that's abundant. Speaker A: There's infinite supply. Speaker A: On YouTube, there's 500 hours of content uploaded every minute, and there are many other platforms, and together we're talking about tens of thousands of hours uploaded every minute. Speaker A: And people love that. Speaker A: Movie theaters attendance has gone down from when they launched in the early 20th century to now less than 10% of the population visiting it annually.

3:55 Speaker A: And mobile itself as a device has taken over TV in 2018. Speaker A: So all of those shifts already happened way before Quibi was even talking about them. Speaker A: And I believe they happen for other reasons. Speaker A: They happen for choice and personalized experiences. Speaker A: It's moving from those controlled distribution to completely open distribution, rather than theaters and TV channels controlling what's going to go on their services to now completely open platforms.

4:21 Speaker A: And that is a big difference. Speaker A: While Quibi was producing three hours a day and Jeffrey Katzenberg deciding what's going to go on them, then on YouTube, there's more than 500 uploaded every minute and the algorithm decides what you're going to see. Speaker A: So it's much more personalized, it's complete abundance. Speaker A: There's content from 10 minutes to several hours that are equally popular on the platform. Speaker A: So I don't believe the differentiation is necessarily the length, but the differentiation is the different way of distributing.

4:48 Speaker A: There's completely openness on those platforms and discovery that's not defined by schedules, but it's defined by algorithms. Speaker A: So I do think that is the big miss and learning for them. Speaker A: Number two is bringing premium content, that premium talent onto those platforms, onto mobile, which they said wasn't there before. Speaker A: These are some of the top 10 shows that Quibi produced and arguably they are really good shows. Speaker A: But if you look at the IMDb ratings, that's not quite telling the same story.

5:16 Speaker A: The average ratings are way below seven. Speaker A: And if you put them in comparison to some of the largest distribution platforms or streaming platforms out there today, then Apple TV plus with 7.7 is leading the game, followed by Netflix average 7.6 and even Prime Video 7.4 for their top 10 shows. Speaker A: And Quibi is lagging behind at 6.7. Speaker A: IMDb rating for the top 10 shows, they're spending around 100,000aminute, while Netflix and Apple TV are spending 200,000, 250,000 every minute of production.

5:47 Speaker A: So there's a huge difference in popularity. Speaker A: And Apple TV and Netflix equally are seeing their viewership on mobile devices. Speaker A: They're over investing, of course, heavily, while quibi is investing 1.75 billion or almost 2 billion, then obviously Netflix and others are spending many, many times more than that. Speaker A: And consumers appreciate that. Speaker A: If you look at how much a consumer needs to pay to get a billion dollars worth of content, then on Quibi it's almost exactly the same as Hulu or in the realm of HBO where they're spending almost $5 to get $1 billion worth of content.

6:21 Speaker A: On Netflix and Apple TV plus and Amazon Prime Video, they're getting much better deal. Speaker A: They're getting so much more higher quality content for less of an investment into the streaming service. Speaker A: So it's priced pretty high and you're not getting that much of a value out of it. Speaker A: So there's a value proposition problem with right there. Speaker A: If you look at the Google search trends like did people actually care when Quibi came out then? Speaker A: They did not. Speaker A: If you compare them to Apple TV plus and Prime Video and hbo, it just had a little dent when it launched, but there was not really search volume in any meaningful size.

6:53 Speaker A: If you put that into perspective and add in Netflix and Disney plus, then Disney plus obviously had a massive peak, even higher interest than Netflix and has remained on a similar level while all the other services and if you put Quibi in that perspective, has had no interest from people, from users on Google search at all. Speaker A: And that has caused their Conversion to be very low. Speaker A: From 900,000 people who signed up, it's estimated that around 72,000 people only signed up to the paid version after their free trial.

7:22 Speaker A: The industry average here is around 15 to 25%. Speaker A: So that's a huge miss. Speaker A: And shows that there wasn't really a product market fit for Quibi and their viewers. Speaker A: And one of the reasons might be that they just didn't have enough volume of content. Speaker A: We already saw that before that they were charging more for less of a quality content, so the ratings were lower and they had less shows for the money that you pay. Speaker A: It's because they promised to launch at 175 shows in the first year, but they actually launched only with 50 shows.

7:50 Speaker A: So that could be the missing link in the premium side. Speaker A: And now moving on to the third section, technology. Speaker A: They promise two things to have mobile specific experiences that take into account the time of the day, touch, interface of the phone, the camera, the GPS that are going to unlock unique experiences on mobile. Speaker A: And then the second big thing was the turnstile video, using the accelerometer to turn your phone on two different directions to see different types of stories or at different angles of the same story.

8:18 Speaker A: They brought out the After Dark from Steven Spielberg on where they could actually only see a horror movie after it gets dark, which I think is a great idea. Speaker A: But again, it's not mobile specific. Speaker A: You could easily do that on connected tv. Speaker A: And many of the other sides are already captured and used by some of the other social platforms. Speaker A: Of course, interactive video AR content creation on Instagram as well as TikTok is very advanced. Speaker A: Those content creation tools that they're talking about taking into account GPS and touch and accelerometer, those are already built into some of the biggest platforms and creation tools.

8:51 Speaker A: So I'm not sure if they've used those platforms or they were not sure. Speaker A: But those mobile creation tools have been around for a while. Speaker A: Turnstile was something that wasn't really around before or not that widely available. Speaker A: And here's a demo of that from Quibi cto. Speaker C: Most of what I understand Corsetti to be flour and water, flour, water and olive oil, flour, water and salt.

9:17 Speaker C: But Gabriela has a very modern mindset. Speaker C: She understands life is life. Speaker A: While that is certainly interesting as a proposition, it came out very quickly that there is nothing new in it. Speaker A: An interactive video company who develops content and player technology called Echo has a technology called real time switching which they had available quite some time before Quibi was even talking about that.

9:46 Speaker A: And as it came out. Speaker A: The two Quibi employees were given access to Echo's proprietary technology when they were still at Snapchat before they left Quibi. Speaker A: And there's a massive multi billion dollar management company called Elliot who's now behind the court case and backing Echo to go against Quibi. Speaker A: So Quibi's got some big battles to fight to protect their technology. Speaker A: But as it clearly seems, there was really nothing new about it. Speaker A: They just popularized it without necessarily giving recognition to the technologies that were around before.

10:16 Speaker A: Another area that Quibiyo is famous for, that they're mobile only platform, meaning that there's no TV apps, there's no casting or airplay, and there's no sharing of its content on social media platforms. Speaker A: They quickly reversed that after they found out that users would love to share their shows and actually that would be beneficial for the platform to allow the youth that they were going after that target audience to actually talk about their shows on social media. Speaker A: They also reversed their plans and brought out the casting opportunities and were planning to bring out smart TV apps because they saw that people want to consume their content also in the living room, especially during the time that we were in the lockdown.

10:52 Speaker A: So that's why the technology side is not really that unique. Speaker A: A lot of those tools were around before that. Speaker A: We just were not that popular. Speaker A: But Quibi brought them to market. Speaker A: And if you look at the overall landscape where they say that technology and creativity have never been together, then this is also not the true story. Speaker A: I mean, Star wars was born from the Lucasfilm creativity side, together with the Industrial Light and Magic, who develops not just Star wars, but some of the biggest animations and special effects in the industry and some of the biggest AR and VR solutions in the industry.

11:27 Speaker A: So technology and creativity have always been together. Speaker A: And Lucasfilm is a great example of that. Speaker A: So again, this is. Speaker A: It was sold as a novelty and new, but not necessarily new in the industry. Speaker A: So Silicon Valley and Hollywood have been working together for quite some time before that as well. Speaker A: Now, what went wrong when Jeffrey Katzenberg in May was attributing everything to do with Coronavirus. Speaker A: Everything that he changed his tone in October when he said, now how much of this is impacted by Covid will always be unknown.

11:57 Speaker A: So clearly they're seeing that there are other factors that were involved. Speaker A: And one of those things is that mobile first experiences were around way before that. Speaker A: Content snacking was happening on YouTube already, where they're getting 70% of their viewership on or viewers using mobile phones and the mobile viewing sessions are around 60 minutes. Speaker A: That's very interesting. Speaker A: And actually that snacking was already happening way before they were around and YouTube was fulfilling that void even Netflix is getting with their premium shows.

12:25 Speaker A: A lot of their audience is coming from mobile, but ending up of connected tv. Speaker A: And that's another thing. Speaker A: If you're doing premium shows, that's a great way to look at it. Speaker A: It's like, yes, it might start the mobile, but it might end up on connected tv. Speaker A: So that's a key platform if they want to bring premium content is to be available across all of those platforms. Speaker A: And on technology side, while it was a big investment on Quibi's side of 1.75 billion in content, then if you compare that to someone like TikTok, then just in 2019, TikTok spent 1 billion on advertising alone to bring its creator tools out to the market and build increased abundance because their goal is to get as much content to your platform as possible so that algorithm can do the best job in surfacing them to humans, and that's going to make the platform best.

13:09 Speaker A: While Quibi, on the other hand, was trying to be the gatekeeper, trying to be the algorithm themselves to select the content that people want to view. Speaker A: That didn't work out that well for them. Speaker A: So what can we learn from them? Speaker A: Number one is the fundamental assumptions, infinite supply to scarcity. Speaker A: This is very important to understand, especially devices that fundamentally are enabled by the Internet and the Internet brings infinite supply.

13:35 Speaker A: That takes us to the gatekeepers versus algorithms. Speaker A: Gatekeepers are irrelevant on mobile devices. Speaker A: Gatekeepers are irrelevant on Internet connected devices because it's all driven by algorithms and personalized and something that mobile happened in 2010 already. Speaker A: I mean, Facebook was focusing on that and many of the largest social networks launched more than 10 years ago. Speaker A: So that's important. Speaker A: Ms. Speaker A: I think in overall Quibi's launch plan.

14:01 Speaker A: And the second thing is value proposition. Speaker A: There's limited production that they had in, so they brought out a pretty light product to the market. Speaker A: And then clearly the value proposition wasn't right because the ratings of the shows don't match the premium proposition that they have. Speaker A: And the product didn't have enough content that they promised to have 175 shows while they only had 50. Speaker A: And maybe also they didn't have enough time to find product market fit because it had to be this big bang and it was so heavily advertised across super bowl and some of the other biggest advertising sources to be this big industry changing event which it ended up not being.

14:37 Speaker A: And clearly there was also a leadership clash between the Silicon Valley Meg Whitman and the Hollywood Jeffrey Katzenberg on the creative side, which didn't end up working well. Speaker A: So I believe they got the fundamental assumptions right and the value proposition would have been stronger and they had a little more time to validate it in the market. Speaker A: It could have been something that we would all be watching now. Speaker A: But what's going to happen next? Speaker A: They said that the best case for Quibi as a service is to continue on somebody else's platform.

15:04 Speaker A: And they're looking for content buyers, especially as now many companies can't produce enough content so they can be the one solving it for many other streaming platforms. Speaker A: But as I promised, what's gonna happen with that 1.75 billion? Speaker A: There's actually nothing to lose for the investors as they had this smart round tripping deal in place that if Disney put in $20 million, then Nuke TV, which was later renamed Quibi, had to commit in spending all of that money on Disney Studio.

15:34 Speaker A: So If Disney put 20 million in, they knew that they're gonna get that money back straight away. Speaker A: So that 1.75 billion is actually nowhere lost. Speaker A: That money is already paid back to the investors in the type of content that they created. Speaker A: And if they could now sell that content to anybody else, they're still gonna make money. Speaker A: So I think financially it's not necessarily a flop at all. Speaker A: It's more of the business learnings that we're gonna get out of it. Speaker A: And the second side which is important to note is that Quibi actually doesn't own any of that content as a company.

16:01 Speaker A: The company is just licensing it for seven years, after which the rights go back to the content owners. Speaker A: So that's important to note as well with that investment. Speaker A: I hope you enjoyed this video. Speaker A: Goodbye Quibi. Speaker A: Thank you so much for watching and I hope you enjoyed it. Speaker A: If you did, please give it a thumbs up. Speaker A: That truly helps the channel subscribe. Speaker A: If you're interested in any more strategy and product related videos and I hope to see you next time.