Don’t Count Quibi Out

How the new streaming subscription service can survive a disappointing launch

Quibi CEO Meg Whitman speaks about the short-form video streaming service at the 2020 Consumer Electronics Show (CES) in Las Vegas, Nevada. Photo: Robyn Beck/Getty Images

When Quibi finally launched a few weeks ago, I wrote a piece about the finer details of the platform that skeptics seemed to ignore altogether. The catalyst for writing that piece was a frustration that journalists, venture capitalists, and many others seemed to be dismissing Quibi both offhandedly and with a seemingly personal joy in what they knew would be the company’s eventual failure.

Six weeks after launch, Quibi has a reported 3.5 million downloads and 1.3 million active users. But it quickly fell in rankings in the app store, none of the launch content has reached the cultural zeitgeist, and in a feisty interview with the New York Times last week, founder Jeffrey Katzenberg complained that the number of users did not meet expectations, saying, “It’s not up to what we wanted. It’s not close to what we wanted.” So, were the skeptics right? Is Quibi dead on arrival?

The criticism that I saw before Quibi’s launch seemed to me to come down to two factors: First, as Eric Lu, the co-founder of Kapwing, tweeted recently, it’s easy to criticize new things. Most new things fail, and you’ll never be ridiculed for thinking that something new won’t succeed.

Second, much of the criticism is coming from Silicon Valley tech types, who viewed raising $1.75 billion before launching a product and getting customer feedback as asinine. For technology companies, it most likely is! (See: Magic Leap.) However, as Nathan Baschez and Adam Keesling explain in a recent piece with the headlineQuibi Will Be a Multi-Billion Dollar Company,” “Quibi isn’t a tech startup. It’s a media business. And that turns out to be an important distinction.

You can see the difference in public opinions on Quibi’s capital raise based on whether the individual is in the tech industry or someone with expertise in the media industry:

Matthew Ball, the former head of strategy for Amazon Studios, contends that you can criticize the idea of Quibi, but not the capital spent to build out the content pipeline. If you believed in the idea (as Quibi’s team undoubtedly does), the only way to launch was to raise and spend hundreds of millions of dollars. Baschez and Keesling agree in their piece, explaining, “Why would they raise so much money at such a high valuation? For a very good reason: Hollywood talent is expensive, and the entire premise of their strategy rests on it. They literally couldn’t have started the company on much less.”

The beginning of the end?

After two years and hundreds of millions of dollars spent in the ramp-up to launching a new subscription video-on-demand (SVOD) service led by two of the most seasoned and successful tech and media executives, does the underwhelming launch mean the inevitable demise of Quibi? I don’t think so.

As Ball has noted, there seemed to be an expectation that because of the amount of capital raised, Quibi should have instantly found product-market fit on the day it launched — but that historically hasn’t happened for new media formats and consumer behaviors.

In some ways, lower-than-anticipated initial adoption is actually a blessing for the company.

For reference, in the first quarter of 2007, when Netflix streaming — then known as “Instant Watch” — first became available, the company only added 481,000 net new subscribers. Obviously this is not an apples to apples comparison, but it does provide color for the 3.5 million month-one downloads for Quibi. Katzenberg also shared that 80% of users who start a piece of content finish it, which is an encouraging engagement metric.

Quibi launched with a 90-day free trial for users who signed up before the end of April, and the percentage of users who convert to subscribers after their free trial ends will be enlightening. In some ways, lower-than-anticipated initial adoption is actually a blessing for the company. One of the most important metrics in subscription businesses is churn, or the percentage of subscribers who unsubscribe on a monthly basis. As media analyst Rich Greenfield has said, “Churn is the killer of new subscription video services.” Churned users are unlikely to return, and the cost to acquire new customers to replace them is likely to be higher, as paid advertising picks the low-hanging fruit first, metaphorically speaking. If Quibi’s launch experience and consumer proposition is subpar, exposing millions of users to a product that hasn’t yet found product-market fit is like trying to fill a leaky bucket — an awful waste of money. Working from a lower initial customer base allows Quibi to use data, customer feedback, and product iteration to improve the experience, before spending to acquire new customers.

This is exactly what Quibi is doing. Although it was intended to be watched exclusively on smartphones while outside of one’s home, the company received feedback from users that they wanted to be able to watch the content on their TVs. (After all, the app launched during a global pandemic when everyone is stuck inside.) Within weeks, Quibi announced that the functionality to cast content to TVs would be added in the next month, a relatively quick product improvement. The app also didn’t allow sharing content to social media platforms like Twitter, Instagram, TikTok, Facebook, and Reddit at launch, but they are also in the process of remedying this gap, which should lead to increased earned media and organic customer acquisition.

Quibi’s leadership had always planned on making data-driven decisions post-launch, with Katzenberg commenting in an interview last June, “Until day one, every decision that we make around content will be driven by instinct. Minutes after we launch, everything will be driven by data.” CEO Meg Whitman has doubled down on this philosophy, stating in a recent interview with Deadline, “We now have a chance to hone in on what we’re doing. We’re learning something new every day.”

Image: New York Times

Unfortunate timing

Quibi was in the unenviable position of launching a mobile-focused product at the beginning of a global pandemic keeping people in their homes. The company’s core value proposition, which it spent years building a product for, was undoubtedly damaged by the pandemic. At launch, Katzenberg and Whitman had hoped that consumers would have additional free time, and would be starving for fresh content — Quibi had a deep catalog of 45-plus shows at launch. That hasn’t turned out to be the case, and Katzenberg changed his tune in the New York Times interview, saying, “I attribute everything that has gone wrong to coronavirus. Everything. But we own it.”

This is an unflattering quote from an executive, seemingly passing off all responsibility for an underwhelming launch. However, the comment could also be interpreted as providing cover for his team in an attempt to keep spirits high as they continue to build, iterate, and find product-market fit. Quibi has already reportedly revised its first-year projections, which had expected 7 million subscribers and $250 million in subscriber revenue. Anyone who has experienced “revised projections” or underwhelming product launches knows the importance of maintaining morale and focus within a company.

In hindsight, Quibi’s best move may have been to delay its launch a few months until every other streaming service was out of fresh content due to production shutdowns. Launching in July, August, or September may have given Quibi the advantage of having the deepest catalog of new, original content, along with more people beginning to leave their homes on a regular basis. Of course, hindsight is 20/20. Interestingly, although Quibi quickly dropped out of the top 10 downloaded apps on the App Store, it hasn’t plummeted as far as most people think. This could in part be due to the company’s partnership with T-Mobile, which is giving some subscribers a free year of the service.

Image: Matthew Ball

What Quibi must do now

Going forward, Quibi must execute on three dimensions in order to survive, which in this case means raising more capital from investors in six to 12 months. First, it must continue to leverage data to improve the user experience, add new features and functionality, and find the content that is most unique and compelling to consumers. Second, it must show progress on KPIs like engagement, conversion, and retention. Finally, the company has to find a way to change the narrative of the brand. Nearly all media coverage of Quibi has been negative, and partially because of this, even consumers who are interested in some of the content on the app seem to entirely shun the thought of downloading it.

Image: Reddit

One interesting component for Quibi is that it becomes a better proposition on a weekly basis, since all of its content is new and not available anywhere else. While it launched with around 50 shows, Quibi releases more new content (both new shows and episodes) each week, along with adding new features. So a subscriber who joins in June will almost definitely find the product experience better than someone who joined at launch. More than that, like Netflix, Quibi is continually learning which shows to surface to new users to best ensure they get hooked.

It is, and always has been, easy to be skeptical of Quibi.

For many of Quibi’s investors, who are the very Hollywood studios creating content for the company, the bar for investing more capital is likely lower than you think. For them, investing more capital in Quibi is taking money from one pocket and putting it in the other. Even if Quibi doesn’t ultimately IPO or get acquired for huge returns for its backers, the capital invested in Quibi is used to license content from these very studios, and due to the company’s licensing agreements, they ultimately end up with the rights to that content in perpetuity. As long as Quibi is able to show positive trends over the first year in market, it will likely be able to continue raising capital.

Whitman has said as much about her timeline for assessing the feasibility of Quibi, noting, “We’re still new at this and it’s the unknown unknowns that we’re trying to figure out. I’m very focused on ‘where are we after a year?’

It is, and always has been, easy to be skeptical of Quibi. Perhaps it’s even easier now that the product has had an underwhelming launch, even according to its founder. But I wouldn’t count it out just yet. Quibi is quickly iterating on product with feedback from users, has strategic investors who are likely to continue funding the company, and has a management team with deep experience leading through difficult times. There’s no such thing as an overnight success, and Quibi is just the latest proof of that.

Writing about entrepreneurship, media, tech, life. Currently associate director @ The Garage, former VC in SF and media strategy in LA.

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