Note: This article has been updated with reactions from Quibi's founders.
The streaming wars — or perhaps the COVID-19 pandemic, or both — have claimed another high-profile business victim.
Quibi -- the six-month-old, short-form video streaming platform founded by Hollywood mogul Jeffrey Katzenberg and Meg Whitman with $1.75 billion in backing from the likes of Google, The Walt Disney Company, NBCUniversal, WarnerMedia, Alibaba and Madrone Capital Partners -- is shutting down, according to The Information and a subsequent confirmation by The Wall Street Journal.
The closure, which the founders essentially admit was a decision not to throw good money after bad, is "a stunning end to Katzenberg’s hopes of creating a new category of video entertainment, short programs of a few minutes in length that could be watched on the go," sums up The Information, which reports that Quibi scheduled calls with investors and employees on Wednesday afternoon to deliver the news.
Far from its ambitious goal of attracting 7.4 million subscribers between its April launch and the end of this year, the streaming service reportedly has just 400,000 to 500,000.
Soon after the launch, Katzenberg blamed the low consumer uptake entirely on the COVID-19 pandemic's effect of keeping people in their homes, instead of out and about, when short videos would be likely to be consumed.
"Quibi will shut down with about $850 million of cash still in its coffers, although it also owes several hundred millions," according to The Information. "It could not be learned how much money would be left for shareholders. The investors will lose money, although those in the two early rounds, the A and the B — which includes Alibaba, Goldman, Google, Katzenberg’s holding company WndrCo and several media companies — will lose less than those in the C round."
Katzenberg and Whitman also personally invested $5.5 million and $10.5 million, respectively, in the A round.
In a followup article, The Informationreported that on Wednesday afternoon, Quibi told investors that after paying its outstanding bills, it would have only about $350 million left to return to shareholders.
"There was no question that keeping us going was not going to have a different outcome, it was just going to spend a whole lot more money without any value to show for it,” Katzenberg told Deadline on Wednesday in his first interview after the decision to shut down Quibi. “So, out of respect for these people that put up this extraordinary amount of capital to do it, that’s irresponsible and we both felt we shouldn’t do it.”
Added Whitman: "We tried a lot of different things over the summer, whether it was payment-less free trial, 90-day free trial, 14-day free trial. We changed marketing around entirely to be more title marketing than platform marketing, which we made a lot of changes and we also you know, tried a completely different business model in Australia. And ultimately none of it really changed the fundamental answer, that we needed more capital and we needed more capital relatively soon. And so I would say it’s just been a journey for Jeffrey and I as we’ve looked very clear-eyed at the data and said what’s the right thing to do"...
As reported last month in Digital News Daily, Quibi in August tried rolling out a free, ad-supported tier in Australia and New Zealand. In addition, it reduced the price of its ad-free subscription tier in those markets, from $12.99 AUD to $6.99 AUD (or about $9 to $5 U.S.). At the time, the company said it was assessing the viability of various business models on a market-by-market basis.
In the U.S., Quibi was charging $4.99 per month for its ad-supported version and $7.99 for its ad-free version. But many of its initial subscribers were generated through free-trial offers, which tend to have high falloff rates at expiration.
In recent weeks, Katzenberg had been shopping the entire startup -- and sometimes just its programming -- to major tech and entertainment companies, but obstacles including Quibi's lack of ownership of programming rights proved insurmountable.
Major advertisers including PepsiCo, Yum Brands, Taco Bell, Anheuser-Busch and Walmart committed a combined $150 million to Quibi’s launch. But according to reports, post-launch, some advertisers asked to defer payments due to pandemic-related ad budget reductions and concerns about Quibi’s viewership performance.
In addition, Quibi is enmeshed in a patent lawsuit brought by tech company Eko, with backing from activist investor activist hedge fund Elliott Management Corp., over the Turnstyle technology that enabled a video's viewing mode to shift to horizontal or vertical, depending on how a mobile device is held.