Quibi Holdings LLC is shutting down a mere six months after launching its streaming service, a crash landing for a once highflying startup that attracted some of the biggest names in Hollywood and had looked to revolutionize how people consume entertainment.
The streaming service, which served up shows in 5- to 10-minute “chapters” formatted to fit a smartphone screen, has been plagued with problems since its April debut, facing lower-than-expected viewership and
a lawsuit from a well-capitalized foe.
“Our failure was not for lack of trying,” founder Jeffrey Katzenberg and Chief Executive Meg Whitman said in an open letter to employees and investors. “We’ve considered and exhausted every option available to us.”
Mr. Katzenberg and Ms. Whitman decided to shut down the company in an effort to return as much capital to investors as possible instead of trying to prolong the life of the company and risk losing more money, according to people familiar with the matter.
Employees will be laid off and will be paid a severance, the people said, and Quibi will explore selling the rights to some of its content to other media and technology companies.
The decision marks a disappointing turn of events for Mr. Katzenberg, a former
Walt Disney Co. executive and DreamWorks co-founder who pitched the streaming service as a revolutionary new entrant to the video-streaming wars.
Quibi was designed for people who consume entertainment in short increments on their smartphones, but
the coronavirus pandemic forced would-be subscribers away from
the kinds of on-the-go situations Quibi executives envisioned for its users. Quibi eventually allowed subscribers to watch its shows on their televisions.
Even before the Covid-19 crisis, Quibi had its share of skeptics in the media world, because consumers already had free options for short-form video, such as
Alphabet Inc.’s YouTube. Quibi’s bet was that it could charge subscriptions by creating higher-end content, and it paid handsomely to develop that programming. Some Quibi executives believed the venture could have been a success, if not for the pandemic, with better execution,
pointing to the rise of TikTok, people close to the company said. Some of them believed, for example, that Quibi could pivot to what is known as a freemium model, offering some content free while making customers pay for the top programming.
Quibi, which cost $4.99 a month, also had to compete
with a growing number of rivals, with launches of Walt Disney’s Disney+,
Apple Inc.’s Apple TV+,
AT&T Inc.’s HBO Max and
Comcast Corp.’s Peacock all occurring in the past year.
In Wednesday’s letter, Mr. Katzenberg and Ms. Whitman said there were “one or two reasons” for Quibi’s failure: The idea behind Quibi either “wasn’t strong enough to justify a stand-alone streaming service” or the service’s launch in the middle of a pandemic was particularly ill-timed.
“Unfortunately, we will never know, but we suspect it’s been a combination of the two,” they said.
Much of Hollywood was doubtful Quibi would succeed but was willing to sell content to the service. Some large media companies, including AT&T’s WarnerMedia and ViacomCBS Inc., agreed to invest in the platform. Overall, Quibi raised about $1.75 billion from high-profile investors which also included Disney and Comcast’s NBCUniversal.
In a conference call with investors earlier Wednesday, Mr. Katzenberg said the company decided to return $350 million in capital rather than pursue a new strategy that could have attracted additional subscribers but would have required a hefty investment, according to a person familiar with the call.
The company spent aggressively to develop its content. Its lineup of star-studded programming included a court show featuring Chrissy Teigen, a romantic comedy with Anna Kendrick and an action thriller starring Christoph Waltz and Liam Hemsworth.
Quibi has drawn on the deep Hollywood connections of Mr. Katzenberg, who ran Disney’s movie business, co-founded DreamWorks SKG and led its animation spinoff DreamWorks Animation SKG Inc., the studio behind “Shrek” and “Kung Fu Panda.”
The streaming service attracted blue-chip advertisers including
PepsiCo Inc.,
Walmart Inc. and
Anheuser-Busch InBev SA, securing about $150 million in ad revenue in the run-up to its launch. Those deals came under strain earlier this year amid lower-than-expected viewership for Quibi’s shows, prompting advertisers to defer their payments.
In recent weeks, Quibi hired a restructuring firm, AlixPartners LLP, to evaluate its options, the people said. It recommended the options to the board of directors this week, laying out a list that included shutting the company down.
AlixPartners didn’t respond to a request for comment. The firm previously handled the bankruptcy of Enron Corp.,
General Motors Co. and Kmart.
The Information earlier reported that Mr. Katzenberg told people in the media industry he might have to shut down the company.
The decision to hire AlixPartners came after
starting a process to sell the company, The Wall Street Journal reported. Quibi pitched suitors including NBCUniversal on a sale, according to people familiar with the matter, but would-be buyers were put off by the fact that Quibi doesn’t own many of the shows it puts on its platform.
NBCUniversal declined to comment.
Quibi is also fighting a legal battle with interactive-video company Eko, which claims Quibi is violating its patents and has stolen trade secrets. Hedge fund Elliott Management Corp. is financing the patent lawsuit.
The fight centers on a key feature of Quibi’s app that
plays different videos for users depending on whether they are holding their phone horizontally or vertically. Quibi has denied infringing on Eko’s patents or stealing trade secrets.
—Alexander Gladstone contributed to this article.
