Monday, October 26, 2020
Oct. 26, 2020

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Quibi may be for sale. But what is it worth, and who would buy it?

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Quibi can’t catch a break, even after becoming a two-time Emmy-winner.

Less than six months after Jeffrey Katzenberg and Meg Whitman launched their short-form video streaming startup, the company’s drama “#FreeRayshawn” nabbed acting trophies for stars Laurence Fishburne and Jasmine Cephas Jones.

The accolades from the television academy apparently didn’t impress Emmys host Jimmy Kimmel. The ABC late-night comic quipped during the Sunday night broadcast that the newcomer had “10 Emmy nominations this year, including outstanding short form comedy or drama and dumbest thing to ever cost a billion dollars.”

Then, the next morning, the media, tech and entertainment industries were buzzing with reports that Quibi has engaged JPMorgan Chase & Co. to help the company review a range of strategic options, including a possible sale, according to two people familiar with the matter who were not authorized to comment. The Wall Street Journal first reported that Quibi was considering a sale.

Representatives for Quibi and JPMorgan declined to comment on the strategic review. Quibi said in a statement the company had “successfully launched a new business and pioneered a new form of storytelling and state-of-the-art platform.”

“Meg and Jeffrey are committed to continuing to build the business in the way that gives the greatest experience for customers, greatest value for shareholders and greatest opportunity for employees,” the statement read.

The Hollywood-based company is well funded. It raised $1.75 billion from investors, including all the major studios, Pegasus Tech Ventures, Alibaba Group and Goldman Sachs, to fund its push to make brief videos or “quick bites” for which people would pay at least $5 a month. The amount includes $750 million raised in March. Studios and other investors contacted by The Times declined to comment.

Executives have said the company is still in its infancy and that its launch was challenged by the pandemic.

But the move to potentially sell so soon after its April launch underscores the challenges Quibi has faced to achieve its goal of creating a game-changing subscription service for video series with 10-minute-or-less episodes, analysts said.

“The bottom line is, it feels like they’re in a difficult spot right now,” said Doug Clinton, New Jersey-based managing partner at investment firm Loup Ventures that invests in tech startups. “At some point the plan would’ve been to raise more capital based on their great numbers, and that obviously isn’t happening. They’re starting to think about Plan B.”

The question now is, who might buy Quibi, and what is it worth?

Analysts said Quibi could be a target for a legacy media company, such as NBCUniversal or ViacomCBS, looking to build its digital portfolio, though most media firms already have their own robust streaming platforms. Comcast Corp.-owned NBCUniversal recently launched Peacock, while ViacomCBS has Paramount+, for example.

A tech company like Apple or Amazon could also easily scoop up Quibi, adding to its own growing content arms. Mobile carriers like T-Mobile and Verizon could also see value in the app, which is designed specifically for millennials to watch on their phones. Some analysts also have floated the idea of YouTube or TikTok as buyers.

It’s unclear, though, what those companies would be willing to pay for Quibi.

Streaming services are typically valued based on how many subscribers they have, and Katzenberg has acknowledged uptake has been disappointing.

Quibi has not said how many people pay for its service, which costs $5 a month with ads and $8 commercial-free. But the company has not met viewership targets it set for advertisers.

The Convergence Research Group, a Victoria, British Columbia-based firm that tracks streaming services, estimated that Quibi has no more than 2 million active users.

Streaming services also are valued based on their brand name, their underlying technology and their library of content. Quibi’s brand has yet to catch fire in the entertainment industry.

Its much-touted “turnstyle” mobile video technology, which lets the image rotate depend on how users hold their devices, is subject to an intellectual property dispute from rival Eko. (Quibi has dismissed the claims as baseless, and in July a federal court judge denied Eko’s request for an preliminary injunction to block Quibi’s use of the disputed technology.) And its lineup of shows and movies has produced few hits so far, despite big spending on production and high-level talent.

Another complicating factor for Quibi’s sale prospects is the unusual structure of its talent deals, some analysts said. Quibi doesn’t own the content on its platform rather, it licenses it from the creators, a novel move that was meant to attract talent by giving creators more control over their intellectual property.

Creators retake control of their content after seven years, during which Quibi has the exclusive license. After just two years, however, creators can reframe their shows into longform and sell them elsewhere.

So what’s Quibi worth? Analysts have offered a range of estimates from $500 million to $1 billion, although valuing the privately held business is tricky because the company has not disclosed its finances.

Ray Wang, principal analyst with Palo Alto-based Constellation Research Inc., estimates Quibi could sell for $1 billion with some money returned to investors.

“They built out some great original content, which is premium and great tech,” said Wang, who follows streaming tech startups. “But only attracting (an estimated) 1 million subscribers isn’t going to cut it when you need 40 to 50 million to count.”

Wedbush Securities media industry analyst Michael Pachter, who closely tracks companies in the streaming arena including Quibi, ballparked the company’s current value at $500 million.

“That would limit the universe to Apple, Amazon and AT&T/HBO Max,” Pachter said. “I don’t see anyone else spending that kind of money on a startup.”

Clinton said his rough estimate was that Quibi would be worth “something in the hundreds of millions at this point.”

In a statement, Quibi said it “is a private company and we have not provided analysts with internal metrics.” The company also disputed Pachter’s estimate, noting it had “significantly more” than $500 million in cash on hand.

In addition to an outright sale, Quibi is exploring other options. It may decide to raise additional funding by going public through a merger with a special purpose acquisition company (or SPAC) a way for companies to raise funds without going through the rigmarole of a traditional initial public offering. Companies through a SPAC can come to public markets faster and potentially raise more capital than through an IPO.

“Why is Quibi going down this path? Probably because they need the money and they may not necessarily be able to get another private round done,” said David Erickson, a senior fellow in finance at the Wharton School at the University of Pennsylvania.

SPACs have been around for more than 20 years but have become more popular in recent years. Companies that have been acquired by or merged with SPACs include Boston-based fantasy sports firm DraftKings Inc., drawing more attention to the space. Large institutions like Goldman Sachs over time entered the SPACs market, giving it a big validation, said Neil Danics, president of Toronto-based research service SPAC Analytics.

“The SPACs are no longer this niche, unusual product,” Danics said. “A lot of people understand it and understand the role that they play in bringing private companies public.”

Katzenberg, who declined to comment on this story, has blamed much of the company’s struggles on the COVID-19 pandemic. A big part of Quibi’s pitch was that its users were supposed to watch videos during “in-between” moments, like waiting for the bus or standing in line for coffee. Those activities were largely curbed by coronavirus closures.

While the health crisis undoubtedly contributed to Quibi’s troubles, the streaming service made other miscalculations, analysts said.

By the time Quibi launched last April, consumers already had a vast amount of streaming options, including platforms with much larger libraries like Netflix and Disney+. That made it critical for Quibi to launch with a lineup of breakout content.

“They’re a late entrant in a very, very competitive market with a ton of programming,” the Convergence Research Group President Brahm Eiley said. “At the end of the day, there wasn’t something that people were dying to sign up for.”

Whitman in June said Quibi does have “some hit shows in the context of Quibi.”

The streaming service renewed multiple shows, including the thriller “Most Dangerous Game,” reality cooking competition “Dishmantled” and prank show “Punk’d” hosted by Chance the Rapper. It recently added “Wireless,” a thriller executive produced by Academy Award-winning director Steven Soderbergh, that allows users to change their viewing perspective by moving their smartphones horizontally or vertically.

Quibi has also risen in the app rankings. As of Tuesday, it was ranked No. 74 for free iPhone apps in Apple’s App Store in the U.S. and No. 16 among free apps in the Google Play store, according to San Francisco-based mobile research firm Sensor Tower. That’s up from a ranking of below 200 in the App Store in the U.S. at the end of June.

“Category creation takes time and we knew it would take time,” Whitman told The Times in June.

Another challenge for Quibi is that the balance of power among celebrities is shifting rapidly from A-list movie and TV stars to Gen Z influencers. Quibi has built much of its programming around stars such as Chrissy Teigen and Liam Hemsworth.

Household-name actors who have traditionally been walled off from fans are now less of a draw for young, online consumers than YouTubers and TikTok stars who trade on their accessibility to followers.

Even well-known celebs are starting to adopt a more personal approach to online life to capitalize on their fame.

The mobile app Cameo lets users pay to ask celebrities to send personalized video messages including birthday wishes and graduation congratulations to their friends. People including rapper Snoop Dogg, magician Criss Angel and “Shark Tank” star Kevin O’Leary are on the platform, marking a major shift in the way celebrity works.

“The influencer is gaining power, and I think in some ways the traditional celebrity is losing power,” Clinton said. “You’d rather watch the six-minute show with the influencer on TikTok that you and your friends like to joke about. … It’s much more about the individuals than the gatekeepers.”

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