Quibi’s misaligned incentives

I 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.

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