Quibi’s misaligned incentives

published an article yesterday about Quibi’s rough start, relative to the amount of capital raised and spent. I’m a big believer in the opportunity for mobile-native content formats so sad to see it. I highlighted four main issues I saw:

  1. Miscalculating the risk of launching during the COVID-19 lockdown.
  2. Undervaluing the central role of interactivity in mobile-native entertainment (and overvaluing short content lengths).
  3. Creating misaligned financial incentives with the wrong content partners.
  4. Launching Quibi like a movie instead of like a startup.

The misalignment of financial incentives is something that jumped out at me in particular. Quibi aimed to pioneer a new content format, but it turned to the biggest names in traditional film/TV to do so…the “incumbents” who have the least need to innovate and the greatest opportunity cost on their time.

Quibi’s deal terms to lure VIPs let them repurpose their content for traditional film/TV formats after 3 years. It reduced the risk of their time being wasted on a project for a startup that flops, but it also created a disincentive to innovate a new format. Producers want the ability to repurpose their content so naturally create a Quibi show that’s not that different from traditional TV.

Aligning incentives would have meant focusing the deal on financial upside for creating a hit in a new format. The biggest names in Hollywood probably wouldn’t have bought into that, but rising star creatives looking to make a name for themselves would have…and that’s the better group to turn to in taking risks and pouring time into experimentation.

It’s always a red flag when startup founders say they need big celebrities involved; it hints that the product isn’t differentiated and compelling enough to excite consumers on its own. Quibi seems to have way over-indexed on thinking VIPs were the key to helping its content stand out rather than using its funding to take more risks (and more time) in product/production innovation.

This was a section in today’s newsletter. You can subscribe here.

The decline of the theatrical window

(This was originally published as a section in today’s newsletter. Sign up here.)

The news: Universal Pictures animated film “Trolls World Tour” has earned $95m in its first 3 weeks on-demand, having skipped its theatrical release due to Covid-19. Universal said they will release more films direct to VOD as a result.

US and European cinema trade groups NATO and UNIC criticized Paramount. The CEOs of top cinema chains AMC and Cineworld (Regal) threatened to no longer carry Universal films in theaters if Universal proceeds. (Read more)

The takeaway:

  1. The shutting down of cinemas is forcing studios to take risks they needed to take anyway in releasing films on-demand. Positive results from this during Covid-19 will make it much more likely the practice continues (at least for same-day release with theaters) after.
  2. Direct-to-VOD release doesn’t need to generate more topline revenue than a box office release to be more profitable, since the studio is only getting half the box office earnings but 80% of VOD earnings.
  3. Threats by cinema chains are empty. They have no leverage to negotiate here. Already struggling, they need every dollar they can get to survive after this crisis. Even if blocking a studio’s films would hurt the studio over the year ahead and be an effective long-term strategy, cinemas can’t afford the short-term loss. It may even expose them to shareholder lawsuits.

Webinar on the state of kids media

I hosted a webinar on TechCrunch about the state of kids media amid the Covid-19 crisis. My guests were:

  • Craig Donato, chief business officer of Roblox, the $4 billion gaming platform that counts the majority of U.S. kids age 9-12 among its active users.
  • Nancy MacIntyre, co-founder and CEO of Fingerprint, the company behind Kidimo, a leading subscription video and gaming service for children.
  • Dylan Collins, co-founder and CEO of SuperAwesome, the London-based creator of “kid-safe” adtech and privacy tools.

Read the transcript or watch the video here on TechCrunch >>

Interview with Lightspeed’s Jeremy Liew about always-on media startups

I spoke with Jeremy Liew, general partner at Lightspeed Venture Partners and the first investor in Snapchat, about his interest in media startups whose content runs in the background while we do other primary tasks. Read our transcript on TechCrunch >>

My interview with Laura Martin of Needham & Company

I saw leading Wall St media analyst Laura Martin of Needham & Company debate the future of Netflix on stage at the Banff World Media Conference in June and caught up with her after to expand on her assessment of the streaming giant and the streaming video landscape more broadly. Check out the transcript of our conversation on TechCrunch >>

Wall St analyst Laura Martin on the fate of Netflix, breaking up Google, EU regulation, and a decade of more money for Hollywood

A guide to Virtual Beings

Last week in San Francisco, I spoke at the first Virtual Beings Summit (organized by Fable Studio CEO Edward Saatchi).

The term “virtual beings” gets used as a catch-all categorization of fictional personalities that humans can interact with. This ranges from activities like Amazon, Apple, Google, and Microsoft pouring resources into conversational AI technology to chip-maker Nvidia and game engines Unreal and Unity advancing real-time ray tracing for photorealistic graphics to VCs backng “virtual influencer” startups like Brud and Shadows.

There are really three separate fields getting conflated though:

  1. Virtual Companions
  2. Humanoid Character Creation
  3. Virtual Influencers

These can overlap — there are humanoid virtual influencers for example — but they represent separate challenges, separate business opportunities, and separate societal concerns. I’ve outlined an overview of at these fields and how they collectively comprise this concept of virtual beings… Read my article on TechCrunch >>

A guide to Virtual Beings and how they impact our world

Where top VCs are investing in media, entertainment, & gaming

In my TechCrunch column, I just posted long-form quotes from these 9 sharp VCs on their investment interests in the media, entertainment, & gaming space. If you’re an entrepreneur planning to raise money (or an investor curious what your peers are focused on), I suggested you give it a read.

Zwift & fitness-gaming’s superiority over interactive fitness videos

(This was originally a section of today’s Monetizing Media newsletter. Sign up here.)

Happy Sunday night, media friends. Great to see many of you over drinks in London and LA recently. Shout out to Hummingbird VC and Sinai VC for co-hosting those events. I’ll be at the Milken Conference this week so if you’re in town for it reach out.

Zwift: interactive fitness vs. fitness-gaming

I interviewed Zwift CEO/Founder Eric Min in TechCrunch, discussing the virtual cycling company’s product evolution, numerous potential revenue streams, and Olympic esports ambitions.

Interactive fitness startups are a hot trend right now, following Peloton’s mainstream breakthrough. As it’s preparing to IPO, other “Peloton for X” startups like Tonal, Mirror, and Hydrow are raising substantial sums. Scooter Braun and Rumble are teaming up for a boxing one called At Home 360.

These combine the upfront purchase of workout hardware with monthly subscriptions to access live-streamed or recorded workout videos. It’s a smart business because it taps into “content as a utility”…content that is framed as a providing concrete outcomes in areas where we are used to spending a lot of money (health, education). The hardware purchase creates a sunk cost bias that makes customers resistant to stop subscribing.

What Zwift is doing taps into what I consider a bigger, more defensible opportunity however: fitness-gaming. Cyclists can put their bike on a trainer at home (which makes it stay in place) and ride with other players inside a virtual course where their characters’ looks, movements, and power corresponds to their own.

Because users are represented as players within a social game, there is the benefit of network effects, opportunity for in-game commerce and an audience viewing the competition.

In Zwift’s case, it’s developing a full-force virtual cycling league that involved real like pro cyclists and that he aims to get included in the Olympics as a cycling event. (Read the interview here)