Author adds: Corey Martin
(Photo by Chris DELMAS / AFP) (Photo by CHRIS DELMAS / AFP via Getty Images)
AFP through Getty Images
Quibi (short for “Quick Bites”), the short-lived experiment preceded by Hollywood legend Jeffrey Katzenberg and Hewlett Packard
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Investors included Goldman Sachs
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JPM
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From Jeffrey Katzenberg’s open letter to Quibi employees, investors, and partners:
“Our aim when we launched Quibi was to create a new category of shorts for mobile devices. While the conditions were not right for Quibi to succeed as an independent company, our team achieved much of what we set out to do, and we are extremely proud of the innovation we have achieved, both in terms of original work. content and the underlying technology platform. In the coming months, we will be working hard to find customers for these valuable assets that can bring them to their full potential. ”
Roku is the buyer, and the deal includes distribution rights for the 100 or so Quibi shows, including some like “The Now,” The Farrelly Brothers which will appear on Roku. Quibi’s “daily news displays” and proprietary technology, such as its “turnstile” system, are not included.
It looks like a brilliant strategic build for Roku, which will impress big names like Idris Elba, Kevin Hart, Liam Hemsworth, and Anna Kendrick in an effort to attract new users to the reported stable. of 60 plus million. Roku is heavily ad-driven, and Roku aims to sell much of it to accompany the new short form shows on the “Roku Channel.”
Now to the contracts. Quibi had a unique contract model in that it owned the content of the short form for seven years but, after two years, creators were able to buy longer versions of their entertainment properties for other customers. The agreement clearly prevents Roku from merging short form content into longer form properties.
To that end, Quibi’s business model was flawed in the sense that it did not actually own any content on its platform, but instead “rented it” by entering into licensing agreements with content creators who granted Quibi the exclusive right to broadcast content for a period of time, after which the rights to return other distribution arrangements returned to the content owners.
By developing and producing original content it would have enabled Quibi to compile a library of content that, in the event of the bankruptcy or dissolution of the industry, would have acquired some smelting value. The process of developing, clarifying and producing original content takes several years and, therefore, takes time. There is nothing “quick” about it. So, perhaps in an effort to launch its service quickly, Quibi distributed most of the $ 1.75 billion in increased third-party capital to the license fees associated with the types of license agreements described above.
As a result, when it expired, Quibi did not have an abundance of hard assets on its balance sheet. Despite the huge writing represented by the $ 1.75 billion raised by Quibi and the (less than) $ 100 million paid by Roku for the rights to Quibi’s content, Quibi did not own the content. it was broadcast on its platform and there was no big lever for demanding more money than it received from Roku. In connection with the contract between Quibi and Roku, the contracts between Quibi and the creators will be assigned to Roku. Apparently, the licensing agreements between Quibi and Roku contained assignment provisions that allowed (on certain circumstances, including the sale or breach of Quibi) to allow the permitted agreements to be assigned to an individual. third party acquisition.
Each individual creator who has entered into a licensing agreement with Quibi looks at the Quibi-Roku contract in a different way, however, a number of creators may be happy that the content available for consumption on Roku, which was clearly a more viable platform than Quibi. Some creators might see Roku as a “downgrade,” but they may not say so publicly since Roku’s platform now provides a viewing platform and the have the opportunity to continue to accelerate into new contracts.
The sudden, frightening collapse of Quibi can be attributed to the pandemic, a confusion of scene choices, or a combination of factors.
Katzenberg went on to say “Quibi was a great idea and there was no one who wanted to succeed more than we did. Our tape was not for lack of effort; we have considered and eliminated all available options. “
The good news is that Katzenberg, Whitman, and the investors will be fine. No one can blame them for introducing a novel idea that met with bad news. Hollywood needs viewers like those who are willing to introduce new platforms for a plethora of great content. The better news is that the parties involved will learn from their mistakes as they move on to the next campaign.
Corey Martin, Managing Partner and Chair of the Leisure Finance Department at Granderson Des Rochers LLP, handling complex corporate commercial issues for companies and talent in the media, tech and entertainment industries. His areas of expertise include unions and benefits, private equity and corporate finance.