Quibi CEO: Shutting Down Was Most Honorable Choice

CNBC Exclusive: CNBC Transcript: Quibi’s Jeffrey Katzenberg and Meg Whitman speak With CNBC’s “Squawk Alley” today on shutting down operations.

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Q3 2020 hedge fund letters, conferences and more

WHEN: Today, Thursday, October 22nd

Michael Mauboussin’s 10 Attributes of Great Investors [Pt.1]

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkIn 2016, Michael J. Mauboussin completed his 30th year on Wall Street. The analyst, who was working at Credit Suisse at the time, decided to celebrate by reflecting on the ten attributes of great investors he had observed over the previous three decades. He published his ideas in a report in August 2016. I've summarised Read More


WHERE: CNBC’s “Squawk Alley”

Following is the unofficial transcript of a CNBC TV EXCLUSIVE interview with Quibi’s Founder Jeffrey Katzenberg and CEO Meg Whitman on CNBC’s “Squawk Alley” (M-F, 11AM-12PM ET). Following is a link to video on CNBC.com:

Quibi CEO: Shutting down operations was most honorable choice for shareholders

 

JULIA BOORSTIN: Thanks, Carl. Well Quibi is shutting down six months after launching its short form streaming service, Quibi founder and chairman Jeffrey Katzenberg and CEO Meg Whitman and join us now in the historic bed on a new type of content, and its shuttering just six months after launch is a dramatic failure for this Jeffrey and Meg, you did come on CNBC to announce the company's launch and we appreciate you joining us now to talk about this decision, Meg, I want to start with you Why did you decide shutting down Quibi now, rather than at the first times have problems with adoption or rather than waiting continue to try for longer.

MEG WHITMAN: Well, first of all we're glad to be back we did the launch Quibi with you. Julia and we're glad to be back today. So we are over the summer, we had a very successful launch and over the summer we started to see a slowdown in our momentum, and we tried many different things, many different products and packaging models we changed our marketing we changed this, the app around many different times, but it was clear that, for whatever reason, this was not going to be as successful as Jeffrey and I had hoped, and so we took stock of where we were and we said the best thing to do. The honorable thing to do is to return money to shareholders. When we knew this was not going to have a path forward as a viable standalone business. So we feel like we've made the right decision a very difficult decision but the right one for shareholders.

BOORSTIN: Certainly, that's just been very hard for both of you you both put your own money in. You also have personal relationships with many of the people that you went to to invest in Quibi Jeffrey Of course, you have long standing relationships with all of the media giants that you brought on as an investor in Quibi, how are you handling this Jeffrey in terms of the bet that you've got all these companies that you've known for so long to make on your on your startup.

JEFFREY KATZENBERG:  Well thanks Julie I you know in the end I think we can do what we can do is, own it. You know we are so appreciative of the opportunity to go pursue this really, really big idea. For sure, you know there was risk involved in it but I think all of us expected a much better outcome a much bigger outcome from this and, you know, to our investors who are studio partners, you know, we are grateful thankful for them, giving us opportunity and letting us do it and in the end I think what you know as Meg said, at this point, when we have seen that it does not have a good future forward on the best thing we can do is return as much money to them as we can and take care of our employees in the best way possible.

BOORSTIN: Now I want to get in into this idea of returning money to investors later but first I really want to understand what you think went wrong here Meg You said you had a very strong launch, but the reality is is even though many people downloaded the app when it came to converting those people to being paying subscribers. That was much more challenging. I've seen some reports that less than 10% of people who did a free trial converted to paying and I'm wondering if you can help me identify what you think really went wrong here because we have really seen other short form mobile content thrive. During COVID whether it's snap that reported a 50% increase in time spent watching shows or TikTok growing rapidly. Jeffrey Do you think it was the subscription model that was really so problematic.

KATZENBERG: Listen, I think it's a convergence of a number of things Julia So, yes, we had a new, a new product. We asked people to pay for it before they actually understood what it was. I think we thought there would be easier adoption by people to it. I think that the environment that we found ourselves in as you've heard us say many times this was designed for on the go in between at a moment of time in which no one was on the go, they're still not on the go and so our product market fit was wrong and been somewhere between the idea being less than perfect, which we, we own and the environment we found ourselves in is where the fail has come, how much is you know what, when each of those are in that equation. I'm not sure any of us are ever going to know but it didn't work. Now, having said that, I got a content that was made is something you know that we're quite proud of and I think has been actually really, really well received. I'm sorry.

CARL QUINTANILLA: No, no Jeffrey I actually was going to reference something you now famously told the times, back in the spring and that was I attribute everything that's gone wrong to coronavirus everything. Would you temper that statement now.

KATZENBERG: 100%. It's not fair to me it was a little bit of a, you know, you know just the clippy answer. You know a flippant answer at the time it but you know other companies have faced the challenge of COVID and they have managed to find a path forward and so. But in, so, you know, I think Megan I believe in you know owning our miss, and simply blaming it on COVID. You know I don't think is is fair and not something that either of us want to do. We're proud of the content that we made. You know, Emmy Award winning content in a very short period of time we're proud of the product and the engineering team and what they built, but in the end we did not get the acceptance of consumers and customers in a way in which we had to in order for this to be a successful business.

JON FORTT: Meg, I want to ask about cost of entry and the length of time that you got to play. Were you playing bad poker or is the ante just so high in content today that you had to fold earlier, Apple can afford to burn billions on original content and marketing so can Amazon and Netflix, Disney has a library, how much of a factor is that?

WHITMAN: Well, listen there's no question being a startup has challenges that that big companies don't have. But, and there's no question that we had to launch in a big way everyone understood the business case for Quibi and that it was going to take a lot of capital upfront because we had to make this very high quality content. We had to build an entirely new platform remember all the content was original because it was designed to be on the go and mobile. So we are we actually went right along with the business plan that we laid out at the beginning, but over the summer we saw that there were real challenges, you know as Julia said about acquiring and retaining those subscribers, and so that led us to look very carefully at the business and say Did we really see a future here. And, and we didn't but as Jeffrey said, Listen, we pioneered a whole new form of storytelling. The content is well loved. We've gotten great reviews from the app and maybe in a different time in a different place. This would have worked better. But Jeffrey and I are realists and we're mature executives and we really felt that this was the right thing to do for our investors the right thing to actually for our partners and folks that had really helped us build this business and we had a lot of believers, and we're grateful to all of them.

BOORSTIN: But Meg, you just made the point that you said the content had to be so expensive, had to be so high quality, and I remember getting the explanation for you about the opportunity and having really expensive content, as expensive as a show on HBO but designed for mobile devices. When you look at the success of lower cost content on Snap, or user-generated content on TikTok, and you think back at the premise, do you think that people maybe don't want as expensive content when it's on something as intimate as their phones?

WHITMAN: Well, that was the bet, Julia, that there was a white space which was this very high-quality content in its short-form for mobile. And whenever you try to create an entirely new category, which is what we did, sometimes it works and sometimes in this case it did not work, but we have a lot of confidence that that this was the right formula that we thought that there was an open white space in the marketplace, and we gave it our very best shot.

BOORSTIN: And now, if you were to be able to do things differently, would you have delayed the launch until after COVID, would you have maybe done an ad-supported non-subscription version, or would you have done less expensive content, you know, a permanent cost per content, half or a quarter of what you were spending? You had big stars, big name producers.

KATZENBERG: We do the sum of all of that, Julia.

BOORSTIN: Yeah, maybe a little of all of it.

KATZENBERG: All good ideas. Some of all of that.

WHITMAN: Well, we did test an AVOD version, we did test an AVOD version in Australia which had better results but not good enough for the results, not good enough results to keep on going. We, you know, I don't know that we would have done user-generated content because that marketplace is well-filled by some very strong and excellent competitors. So, lots of things we might have done differently with 2020, 2020 hindsight, but we gave it our all and as I said, we're incredibly proud of the employees and the creators who worked with us, and we accomplished a lot even though the business didn't actually succeed.

QUINTANILLA: Jeffrey, I'm curious your thoughts I mean, you guys have gotten so many, so much input from basically unwanted critics over the last six months but one of the things was the ability to screenshot, or essentially ride the coattails of social media, free media, in essence, and I wonder if you think that was a miscalculation and but more importantly, I wonder if you think those who are in the game, from here on out, need to think more about being maybe just a tad less proprietary on the things you're obviously spending a lot of money on.

KATZENBERG: Yeah listen, it’s a great question, and I think there's a lot of complexity around it that maybe people don't fully understand but you know, there's no screenshots on any premium content, not on Netflix, not on HBO, not on Hulu, not on Amazon. And the reason is because of if you can screenshot, share something and screen shoot it, you open up the copywrite of it. You don't have protection for that content and so, yeah, in the social media world where you've got user-generated content and all these wonderful things that are viral and go out there into the world that you are able to screenshot. So we actually ultimately did get to a place where you could do that, but it actually does have a lot of complexities around it, including ownership of the IP itself. But listen, it was a criticism we heard, it was one we pivoted quickly to try and tackle and, as I said, a lot of issues around it. It's not a simple yes or no.

FORTT: Jeffrey, we've talked quite a bit about the demand side and how COVID affected that, how perhaps the model affected that. We haven't talked about supply and I wonder your thoughts in this environment about the oversupply perhaps of content, how that might have affected the willingness of some of the big players to buy Quibi, or the assets that you have available that you did have full rights to. Is there an oversupply of digital content? Is that something that investors should be aware of?

KATZENBERG: I don't, actually, I don't believe so, if anything, there's a shortage of supply right now because our industry has been shut down, you know, for eight months and is going to be continued to, you know, have to, you know, slowly regain into, you know, well into next year so there is a content supply challenge right now. I think, the only thing we have attempted to do today was actually to sell the entire company. And that is something that we did not have takers for. What we did have is real interest in our content, and our library, which is actually quite attractive, and that will be the next pivot, for, for us, which is to wind the company down, and to see if there is somebody who will value that, that library which is actually quite deep and quite rich and very unique and very valuable in the marketplace right now today.

BOORSTIN: But, so Jeffrey, when it comes to selling those assets and looking at the value of the library, Quibi is in a little bit of an unusual position because you actually licensed your shows for a certain number of years so tell me how you expect to be able to monetize those shows. Will you be returning them to the companies you licensed them from earlier? Would you be licensing them for the period of time that you had them? Seems a little bit more complicated than a typical owned asset.

KATZENBERG: Not really, Julia. If you think about, you know, today and anything of these companies that go out to a license content, it's no different. We have a seven-year license, which in the world we live in today is about one or two lifetimes in this. So, it's a very deep, very rich library. There's 28 movies. There's a pipeline of things that are coming, our alternative shows. And our expectation is that the offering of the Quibi content itself is actually going to find some interest and some buyers. Seven years is a long time.

BOORSTIN: And so, Jeffrey, as you look at the value of licensing those shows over the next several years and also potentially selling the technology – though you are in litigation right now over some of that underlying technology – how much money do you think you're going to be able to return to investors? You did raise nearly $2 billion. How much of that will you be able to return?

KATZENBERG: I’m going to punt that to Meg.

WHITMAN: So, you're right, we've raised $1.75 billion. And we know it's been reported that we'll have at least 350 million of cash at the end of wind down. But more importantly than that is in fact the monetization of the content assets that Jeffrey just described, and also, savings we think we can get on the wind down and sale of the other assets like the technology platform. So, we don't know what that will be worth it's really, you know, we'll see what the marketplace will bear, but we think there will be much more to return to shareholders than just the cash that has been reported.

BOORSTIN: And Meg, is the value of the underlying technology limited or mitigated by the fact that you're in this ongoing litigation with Echo, which is backed by Elliott?

WHITMAN: Yeah, we don't think so actually. We do think that we are on very firm ground with the IP and the patent that we have on what we call Turnstyle, which was the, you know, most innovative part about our mobile platform. And we think, honestly, that we have prevailed in court on a number of different motions to date and we think we will prevail in the end. And people will take a look at that. They'll get their own IP lawyers and I think they'll come out saying this is not a not a big deal. This is something that Quibi will win.

BOORSTIN: And Meg, I just want to get a final question to both you and Jeffrey about what's next for you after this very big and important chapter. You both have run various businesses. Meg, you've been CEO of different public companies. What is next for you? What's your next chapter? Does it include a cabinet position?

WHITMAN: Well, first of all we're going to be consumed for the next several months at least on shutting down Quibi in the best way we can, making sure we take care of all the employees and help them find jobs because they are an incredibly talented group of individuals. And then we've, you know, got to sell the content library and wind down as I said. So, we'll see what happens after that. I'm not sure I know what's up next.

BOORSTIN: And Jeffrey, this was a real passion project of yours, possibly your biggest disappointment in your very long and varied career. What's next for you? Will you continue investing at WndrCo, which is Quibi’s parent company? Can you imagine taking on investors again?

KATZENBERG: Well here's the thing, Julia, which is, you've known me for a very, very long time. Decades. And, you know, I have a bottomless well of need to win. This marks and hurts a lot. I'm very disappointed that, you know, we have disappointed our investors and our employees. And, you know, so for me, I’ve got to go get back up on that horse and, you know, go find the next mountain to charge up to. And it's the only thing I know how to do and I have a lot to prove.

BOORSTIN: Well, Jeffrey and Meg, we really appreciate you being so frank with us about what is obviously a very challenging moment in shutting down Quibi. Jeffrey Katzenberg, Meg Whitman, thank you both so much for joining us today.