Three Headwinds Facing Quibi and How It Fails to Address Them
Quibi is not doing well. Despite ambitious goals to achieve 7.4 million monthly subscribers by the end of 2020, leadership now projects a dismal 2 million. Only about 8% of users converted to paying customers at the end of the free trial. We might attribute this to the extremely crowded field of streaming services, but compare Quibi’s debut to the wildly successful launch of Disney+ last fall, which now has more than 28 million subscribers.
In case you are not plugged into the world of new streaming platforms, Quibi is a short form premium video service featuring a completely original lineup of shows with episodes of 15 mins or less in length. Its value proposition is to deliver quick, easy to watch, and premium short-form content to mobile devices which can be consumed anywhere.
In analyzing its failure, we’ll discuss three headwinds against new streaming services in 2020. Then, we’ll do a brief analysis on a few of Quibi’s product and marketing choices that have contributed to its poor performance, in the context of these headwinds.
Headwind #1: Building a New Audience from Scratch
The subscription model for streaming platforms is a compelling one: huge upfront fixed costs in software and content development are offset by the fact that variable costs to providing service to new subscribers are almost zero, so any subscriptions beyond the breakeven point is pure profit.
The fundamental problem for any subscription streaming service lies in finding and retaining a robust audience past the free trial stage. Let’s examine two competitors which have managed to avoid this problem, and one competitor that has not.
Winner: Netflix
Netflix famously began as mail-only DvD rental service, though the pivotal insight that streaming would be the future of video entertainment allowed it to have first-mover advantage. The impetus to then create original content stemmed from the fear that relying on third-party licensed content would not be tenable once the original licensers realized they could make more money by retaining exclusive rights for their own streaming platforms, rather than licensing them out to a competitor.
Back in the day, Netflix was not trying to gather a completely new paying audience, but rather, maintain and convert a preexisting one in the context of rapidly changing technological capabilities and market conditions. As the first mover, Netflix inherited its old audience, introducing them, and eventually the rest of us, to a revolutionary way of consuming entertainment.
Winner: Disney+
Disney+ made a splashy debut in the fall of 2019 as the latest legacy brand to enter streaming. Disney — and others like HBO — made the correct conclusion that Netflix had evolved past a mere distributor of their property to become a competitor in their own right; licensing content to a competitor obviously makes no sense.
As a result of Disney’s legacy content and recent acquisitions, Disney+ could capitalize on the fact that they owned exclusive rights to highly in-demand content that they could withhold from other streaming platforms. Disney bet correctly that this catalogue of iconic properties in combination with a commitment to developing exclusive content for streaming would entice subscribers to stay on past the free trial.
Loser: YouTube Premium
One might think that, like Netflix, YouTube Premium could have taken advantage of the vast YouTube user base to quickly convert a large base of premium users. However, YouTube Premium suffered precisely because it would have to compete with a free version of its product, which already offered an almost infinite universe of free content. Marginal quality of life improvements and high production value but artistically mediocre premium content would not be enough to attract and keep an audience. YouTube as a brand fundamentally offers a different value proposition than YouTube Premium, and this mismatch is likely the underlying issue for YouTube Premium’s poor performance.
We might conclude from these examples that the only way to solve the problem of finding and retaining an audience is to inherit a preexisting audience, whether that be from a previous distribution strategy or from owning in-demand legacy content. The truth is, no streaming service in recent memory has launched standalone with original, never-before-seen content. It is for this reason that finding traction with the average viewer, who typically prefer to stick with what they know, is incredibly difficult.
Headwind 2: The Domination of YouTube and TikTok in Short-Form
The current queens of short-form content are YouTube and TikTok. The vast, vast universe of YouTube ranges from personal vlogs to cooking tutorials; the amateur to the professional; micro-niches to the mainstream. Its all-encompassing reach cannot be overstated and it captures a dominating share of entertainment consumption.
TikTok is the rising star in the short-form arena as the spiritual successor to Vine, specializing in sharp and high-impact videos of one minute or less. TikTok takes the YouTube recommendation algorithm and makes it the central experience of the app in the form of the For You Page, which provides an endless scroll of curated videos based on its knowledge of a user’s preferences. Its popularity among younger users has grown exponentially, and kids who might have previously dreamed of Hollywood now dream of TikTok stardom.
Viewers in the mood to watch something short and quick have these two options competing for their attention. A brand new short-form streaming service would have to prove that its content was valuable and unique enough that viewers could not find it on YouTube. It would also have to prove its content was hip and trendy enough to capture their attention from TikTok.
Headwind #3: Premium Competition from Netflix et al. in a COVID-19 World
For obvious reasons, the COVID-19 pandemic has been a huge boon for streaming. It might seem strange, then, to put this as a headwind for a new-launched premium streaming service instead of a positive condition.
There has been a demonstrable change in the way that people consume media when placed on lockdown — people increasingly prioritize consuming media that can occupy the now massive amounts of free time they have. Fortunately, the age of peak television is defined by a never-ending stream of debuts or re-introductions of engrossing TV shows, and these shows have conquered our collective attention. An obvious recent example is Tiger King and the impact it had, and continues to have, on the cultural conversation. Another is the addition of Avatar: The Last Airbender to Netflix, which sparked a surge of renewed interest and buzz about the show among Gen Z and Millennials who grew up watching the show in the mid 2000s.
Whereas YouTube and TikTok compete in the format axis (short-form), Netflix et al. compete on the quality axis (premium). Netflix et al. dominate premium streaming entertainment, and without some sort of viral cultural moment, it is difficult for any new entrants to build the credibility for bingeable entertainment that the others already enjoy. It will be even harder when that service has an exclusive focus on short-form, which has inherent tradeoffs with depth, substance, and length.
What does this mean for Quibi?
Without a built-in competitive edge to solve the issue of finding an audience and capturing market share from the competition, it would take a significant shift in our cultural and economic circumstances for there to be room for a service like Quibi. With the hindsight of witnessing Quibi’s launch, I would even argue that no matter how incredible Quibi’s content was, it would have been almost impossible to overcome these circumstances. But let’s examine the Quibi product and product marketing strategy and if/how it actually attempts to address these concerns.
Feature #1: 15 Minute Cap on Episodes
Quibi’s choice to cap show episodes at 15 minutes puts it in direct competition against both YouTube and Netflix, and unfortunately, it fails to measure up against both platforms.
Quibi fails against YouTube on the price front — if a viewer is looking for quick and dirty entertainment, why would it choose to pay for Quibi when YouTube has a greater breadth and depth of content? If they are looking for media to mindlessly scroll through, TikTok is the way to go. YouTube and TikTok also benefit from a two-way relationship between viewers and creators, something Quibi cannot not match as a product of Hollywood, adding another dimension to the value of YouTube/TikTok content.
Quibi fails against Netflix et al. on depth of substance. If you are looking to sit down to watch TV and turn on some premium Hollywood entertainment, you think first to your Netflix queue, or barring that, the backlog of shows you promised your friends you would watch. If you have exhausted Netflix, you’ve still got Hulu, or perhaps Amazon Prime Video. Short shows like those on Quibi are not conducive to an engrossing viewing experience.
Feature #2: Celebrity Overload
I am highly skeptical of the marketing strategy of luring in audiences with A-list celebrities, and my strongest evidence for this skepticism is that animated movies with A-list voiceovers don’t necessarily perform better than those without. Most moviegoers don’t realize or don’t care that Anna Kendrick is voicing a titular troll in the Trolls movie — they’re at the theater because their kid is obsessed with a colorful trailer they saw online.
Similarly, I think Quibi’s excess of star-power in its debut lineup did very little to solve any of the headwinds listed above:
1. Even the most popular actors don’t have huge fanbases that religiously follow their careers, meaning Quibi was already advertising to a niche with this move.
2. Watching a movie with Angelina Jolie is a low stakes activity. Signing up for a whole streaming subscription to watch a single movie with Angelina Jolie requires a whole lot more commitment.
3. Due to the nature of Quibi, one can finish a show involving their favorite actor in a couple of hours, more or less. It’s unlikely they would also have the same level of loyalty for the other random stars on the platform. Two hours of content is not enough time to sell someone on the value of continuing to pay for the whole service, unless they put in the effort to explore the platform, and furthermore, find value in what they consume.
Ultimately, celebrities were not a strong differentiating factor for Quibi.
Feature #3: Mobile Only
Among the more questionable choices of the quibi product is its insistence on the mobile experience. Quibi lives on mobile and mobile only, similar to TikTok. But it’s pretty clear why TikTok only lives on mobile — it’s designed around infinite scroll and it desires active user engagement in the form of likes and comments, which is more inconvenient on a TV or computer. In contrast, Quibi is supposed to be premium entertainment, which people tend to like to watch in groups. One would expect to be able to enjoy a Sophie Turner led drama together with a spouse or roommate projected on a TV screen. Quibi denies users this capability, presumably to focus on developing a more individual Quibi experience. Unfortunately, this approach is at odds with the way people consume entertainment.
Feature #4: No Screenshots
This quirk of Quibi might seem inconsequential, but the implications are massive for an engine of viral growth that shows can benefit from: memes. The quickest way to find a huge audience for any show is to have a few dedicated early-adopters disseminate a series of viral memes through Facebook, Instagram, or reddit. I think once again of Tiger King, specifically the Carole Baskin conspiracy. Another is Baby Yoda from The Mandalorian. I am certain that Baby Yoda-related merchandise was one of the top Christmas gifts of 2019. Memes create inside jokes that everyone wants to be in on, and they have the ability to supercharge mainstream interest for a show.
Banning screenshots prevents this sort of organic growth from happening by shutting down meme production. On a more basic level, it prevents effective discussion among friends who are watching the same show — conversations sparked from screenshots of shocking or funny moments are impossible, which is at odds with how people communicate these days about their favorite shows.
While I am of the opinion that the concept of Quibi was doomed at conception, it is still painful to see the almost 1.8 billion dollars in funding it received utilized so poorly. Quibi clearly fails to achieve any sort of product-market fit, which is paramount as a late entrant in the rapidly maturing market of streaming. Until Quibi can figure out how to properly address the three headwinds mentioned above and finally kickstart an effective growth engine, we will likely see stagnation or even decline. Perhaps Netflix could consider a mercy-killing acquisition.
