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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

Assignment 2: Case Study

Why Platforms Fail: A case study of Quibi

Introduction

It has been said that we are living in the “golden age of streaming” (Hodjat, 2020). In 2019,

the subscription-based video on demand (SVOD) market had over 640 million paid users

worldwide (Statista, n.d.). That number is expected to surpass 900 million by the end of 2020

and reach 1.3 billion by 2025 (Statista, 2020). At the centre of this exponential growth, ushered

in by rapid innovation and changing customer demands, is the platform economy. A cohort of

over-the-top (OTT) SVOD platforms such as Netflix, largely credited as the lead technological

disruptor in this space, Amazon Prime Video and Hulu have made large catalogues of high-

quality content available for consumers. Generating close to US$50 billion in revenue in 2019,

and projected to hit US$97 billion by 2025 (Digital TV Research, 2020), the OTT SVOD

market has revolutionised the entertainment industry.

This proliferation of SVOD platforms has threatened traditional players, such as cable and

broadcast TV providers. In a phenomenon referred to as cord-cutting, consumers are

substituting pay-TV subscriptions with SVOD platforms due to their increased affordability

and convenience (Prince & Greenstein, 2017). Not to be left behind, several major media and

entertainment players have developed their own platforms. Disney+, NBCUniversal’s Peacock,

Apple TV+, WarnerMedia’s HBO Max, ViacomCBS’s CBS All Access are just some

examples of traditional players diversifying or hybridising their offerings. For consumers, this

has been a boon. They benefit from seemingly-endless choice, lower prices, multi-device

functionality, and ad-free viewing ("The $650bn binge", 2019; Shon, Shin, Hwang & Lee,

2020). The platforms, however, are caught in a streaming war, competing for eyeballs in a

crowded market.

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

Amid this intense competition, there is a need for platforms to stand out. Differentiation can

occur through business model, such as SVOD, ad-supported video on demand (AVOD),

transactional video on demand (TVOD); programming utilising original content, exclusivity

deals and/or licensing; pricing model; or consumer-centric innovation like, for example,

Netflix’s SVOD model once was (Pennington, 2019; von Emster, 2019). Although the success

of platforms like Netflix and Hulu have been widely discussed across academia and media,

there is limited discussion about the platforms that do not survive. Quibi is one such example.

Having raised US$1.75 billion in funding, the platform made a high-profile launch in April

2020 only to announce its shutdown in October 2020. Despite its novel concept, Quibi has been

dubbed a cautionary tale for platform businesses (Aten, 2020) and its failure calls for further

analysis. Adopting a case study approach of Quibi, this research seeks to answer the question

of why some SVOD platforms fail. This paper will begin with an overview of the research

method. Next, key concepts in the field of platform economics will be discussed. The case of

Quibi will then be introduced followed by an analysis of the factors behind its failure. Finally,

concluding remarks will be presented.

Methodology

This research seeks to identify the factors behind Quibi’s failure within the real-world context.

Hence, a case study method has been deemed most appropriate. As described by Yin, “A case

study is an empirical inquiry that investigates a contemporary phenomenon within its real-life

context, especially when the boundaries between phenomenon and context are not clearly

evident” (as cited in VanWynsberghe & Khan, 2007, p. 81). A case study also allows for

flexibility in the data collection and research process (Veal & Burton, 2014). Given that Quibi’s

situation has played out in the recent past, there is limited scholarly material on the case.

However, due to its high-profile nature, it was covered extensively in the media. Therefore, to

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

undertake this qualitative research, the case will be based on an analysis of academic literature

on platform economics, newspaper and magazine articles, press releases and company reports.

Literature Review

Fundamentals of Platforms

The rapid development of SVOD platforms has concurrently led to innovation in business

models as well. Netflix is largely credited as the pioneer of the subscription-based model

which, at the time of its launch in 1999, was catering to its DVD-by-mail service (McDonald

& Smith-Rowsey, 2016). The rationale was simple: it allowed customers to rent DVDs without

facing any late fees (McDonald & Smith-Rowsey, 2016). It wasn’t until 2007 that Netflix

introduced its online streaming platform for films. Around the same time is when it developed

the now-famous recommendations algorithm and began licensing TV programs as well

(McDonald & Smith-Rowsey, 2016). In this way, it created a mechanism to connect film and

TV producers with audiences over the internet, gradually transforming into the platform that

we recognise today.

The traditional Netflix model is best described as a reseller platform, acting as “an intermediary

which buys products or services from independent suppliers and resells them to consumers

(possibly with some re-design), and whose products or services sold to consumers exhibit

network effects” (Bacache-Beauvallet & Bourreau, 2020, p. 423). However, in 2013, with its

foray into original content production, Netflix was not just reselling content but creating it as

well. Therefore, we can think of it more as a two-sided platform in which “two sets of agents

interact through an intermediary or platform, and the decisions of each set of agents affects the

outcomes of the other set of agents, typically through an externality” (Rysman, 2009, p. 125).

Here, Netflix is the intermediary and the two agents are the producers of content and the

subscribers.

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

In the US, second to Netflix in terms of revenue and popularity is Hulu (Statista, 2019).

Launched in 2008 by a partnership between three of the largest studios – 21st Century Fox,

NBCUniversal, and Walt Disney Studios – it now has over 36 million subscribers (Smith &

Telang, 2019; Sneider, 2020). Although available only in the US and Japan, its brand is well

known because of its critically-acclaimed and award-winning original productions. As Rysman

(2009) argues, it is possible for platforms within the same industry to adopt different strategies,

and that is what we see with Netflix and Hulu. Hulu operates dual business models. The first

is similar to that of Netflix: a two-sided platform that is ad-free and subscription-based. The

second is an ad-supported video on demand (AVOD) model. Here, in exchange for a cheaper

subscription, viewers pay with their attention by being exposed to different in-stream

advertising (Budzinski & Lindst?dt-Dreusicke, 2019).

Hulu’s AVOD model can be described as a multi-sided platform (MSP) where it enables “direct

interactions between two or more distinct sides, and each side is affiliated with the platform”

(Hagiu & Wright, 2015, p. 163). Further diversifications available on the platform are live TV

and add-ons from other networks. Therefore, the three sides interacting on Hulu are the content

producers, audiences, and advertisers. With MSPs (including two-sided platforms), each of the

distinct sides retains control over certain key terms of the interaction (Hagiu & Wright, 2015).

Some examples from the VOD world could be bundling, marketing, terms and conditions of

licenses, and nature and quality of the offerings. As the production houses retain ownership of

their catalogues, this is why it is common for SVOD catalogues to change frequently. The

affiliation occurs when each side makes platform-specific investments that enable their

interaction on the platform (Hagiu & Wright, 2015). The investment could be the users’

subscription fee, expenditure of resources (such as production costs), or an opportunity cost

(for example, exclusivity deals preventing a TV show from simultaneously airing on a different

platform).

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

Network Effects

A critical characteristic of MSPs is the presence of network effects or network externalities.

Cross-group network effects occur when the value of using the platform for a given agent

depends on the participation of agents in the other groups who use the platform (Bacache-

Beauvallet & Bourreau, 2020). For SVOD platforms, viewers benefit from having access to a

vast catalogue of film and TV to choose from and producers benefit from large viewership. As

advertisers and producers are affected positively from a platform’s growing subscriber base,

this is a positive network effect. Conversely, a negative network effect arises, for example,

when a user’s viewing experience is interrupted by advertisements. Due to the

interconnectedness of demand, a platform creating positive network effects seeks to kickstart

its positive feedback loop of growth (Monaco, n.d.). A platform can do this through a variety

of strategies such as reach a critical mass of subscribers (Hulu’s ad-supported was free for its

first three years); gaining the first-mover advantage (like Netflix did); securing deals with

major producers or networks; or create value through innovation, user-friendliness, or lower

prices.

The Long Tail

As mentioned above, subscribers value positively the number of titles available on any given

platform, and big hits are usually used to market the platform and attract viewers. However, a

key component of a platform’s expansion strategy – and Netflix is a pioneering example of this

too – is the theory of the long tail. Anderson (2004) posits that the market for non-commercial

or non-hit products may constitute a greater market share than that for blockbusters or hits. It

operates on the philosophy that “almost anything is worth offering on the off chance it will find

a buyer” (Anderson, 2004). This is the sum of back catalogues, niche genres, non-English-

language titles, and a variety of underserved markets. By going online, Anderson argues that

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

SVOD platforms like Netflix can aggregate dispersed audiences who are no longer limited by

geography and what local distributors/retailers can offer while covering costs.

At the outset, Hulu had a significant competitive advantage in that its investors were media

behemoths with decades worth of titles available for programming. However, in order to be

successful, a platform requires both – blockbusters to entice subscriptions and then the massive

library to set them apart (Anderson, 2004). And how a viewer travels down the long tail is

through the platform’s recommendations system. While audiences benefit from the ease of

access, joy of discovery, enjoyment and satisfaction, for production houses, this is a cost-

efficient way to market titles, allowing smaller or independent work to find viewers. A prime

example of this is the TV show You. The series premiered in 2018 on Lifetime to viewership

of about 650,000 (Koblin, 2019). At the brink of cancellation, it began streaming on Netflix.

Within four weeks, it had reached about 40 million households (Koblin, 2019), became a viral

sensation, and is now on track to premiere its third season.

Case Study: Quibi

Introduction

Everything about Quibi created a buzz. It was the brainchild of Walt Disney Studios ex-

chairman and DreamWorks co-founder Jeffrey Katzenberg. It quickly brought on board as

CEO Meg Whitman, the ex-CEO of Hewlett Packard and a Silicon Valley veteran. It raised

US$1.75 billion from a range of influential investors from media (including Disney, 21st

Century Fox, NBCUniversal and Sony Pictures), tech (Alibaba Group), and finance (such as

Goldman Sachs and JPMorgan Chase) (Spangler, 2018). A long list of Hollywood stars and A-

list directors including Reese Witherspoon, LeBron James, Sophie Turner, Steven Spielberg,

Guillermo del Toro and Catherine Hardwicke had signed on to create content (Feldman, 2020).

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

Meant to do for serialised storytelling what podcasts did for radio (Shieber, 2018), Quibi was

poised to disrupt the streaming market.

Deriving its name from “quick bites”, the platform was a designed as a mobile-only SVOD

platform featuring full-length television productions released in bite-sized episodes of 10

minutes or less. Its competitive advantage was twofold: it would bring Netflix- or Hulu-quality

content to a YouTube-style short-form style, and all its content would be optimised for mobile

viewing (Feldman, 2020). Its technology would be built to move seamlessly between portrait

and landscape modes (Feldman, 2020). The programming was divided into three categories:

daily essentials (news), quick bites (short, one-off videos), and lighthouse shows (featuring

Hollywood big-names) (Feldman, 2020). Despite being extremely well funded, helmed by

industry veterans, and viewed positively by the production market, Quibi shows signs of

struggle from the time of its launch. Its downfall can be traced to several managerial and

operational decisions.

Failure to launch the right side

A crucial aspect of launching any platform business is carefully determining which side of the

platform to emphasise and when (Van Alstyne, Parker & Choudary, 2016). Sometimes the

focus is on attracting consumers, sometimes it’s producers over consumers, and sometimes

both sides require equal attention (Van Alstyne et al., 2016). For SVOD platforms, the KPI of

utmost importance is the number of subscribers. Both Netflix and Hulu spent years investing

in customer acquisition by leveraging a variety of strategies such as free or trial-based

subscriptions, licensing deals for enticing programming, etc. It was only once this consumer

base was built that they began producing any original content. Unfortunately for Quibi, because

of its mobile-only format, the entire content library needed to be built from the ground up.

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

Not only was Quibi starting from scratch, but Katzenberg was determined to have an entire

slate of top-tier programming. Historically, short-form programming had budgets to the tune

of US$1,000 per minute (Peterson, 2020). Quibi’s budget, however, was primarily allocated

towards producers. The daily essentials cost between US$5,000 to US$10,000 per minute, the

quick bites between US$20,000 to US$50,000 per minute, and the lighthouse projects up to

US$125,000 per minute (Carman, 2020; Peterson, 2020). At about US$7.5 million per episode,

Quibi’s programming budget was on par with established players like Netflix’s Stranger Things

(US$6 million – US$8 million) or an early episode of HBO’s Game of Thrones even before its

launch (Carman, 2020; Peterson, 2020). Further, none of the content was tested – a staple

practice for big-budget Hollywood productions – to gauge if the target market saw value in it.

Missing Long Tail

In order to respond to cord-cutting behaviour, several legacy networks have introduced

platforms of their own. Earlier this year, NBCUniversal launched Peacock. Its primary strategy

was to capitalise on the lucrative streaming market by relying on its long-tail back catalogue.

This included several hit titles and fan favourites that were previously hosted on competing

platforms like Netflix and Hulu. As Anderson argues, the internet-enabled market is a “market

of multitudes” (Kornfeld, 2018), and major networks are at a significant advantage.

NBCUniversal would also be able to leverage limited exclusivity windows wherein titles could

stream exclusively on Peacock for a certain period of time before moving to another platform.

In Quibi’s case, all content was custom-made to comply with the portrait-to-landscape

functionality. Therefore, there was no existing library to leverage and all content was unique

to the platform. To lure partners, Quibi offered deals where intellectual property rights for

original content would revert to the production company after seven years, and all content could

be repackaged into long-form and redistributed after two years (Shieber, 2018). Quibi intended

on preparing 5,000 unique pieces of content by launch (Shieber, 2018) with almost US$500

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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

million earmarked to create it (Patel, 2018). Ultimately, this was an expensive endeavour for a

platform with no proof of concept.

Lack of critical mass

For SVOD platforms, value is created at scale. When Hulu launched in 2008, its AVOD option

was available for free. Over the next nine years, it gradually transitioned users towards paid

subscriptions, first offering an option with limited ads in 2010 and then an ad-free version in

2015 (Jarvey, 2016). It was only in 2016 that it went subscription-only. Hulu further

incentivised its paid subscriptions with free trials and exclusive marquee shows, documentaries

and originals. This is typical of platforms to subsidise one side of the market (viewers), which

creates positive network effects that create demand on the other side of the market (producers

and advertisers). A mistake that some new platforms make is to emphasise revenue generation

rather than first attracting a critical mass of users (Van Alstyne et al., 2016), and that is true of

Quibi.

Given the high programming costs, there was signification pressure to generate revenue in

order to sustain production. The best-case scenario was to attract 70 million subscribers in five

years and 11 million in the worst case (Patel, 2018). The original launch strategy was to include

just a 14-day free trial. In light of the pandemic, Katzenberg and Whitman decided to increase

that to 90 days (Mangalindan, 2020). Early figures showed promise as 1.7 million users

downloaded the app within the first week (Mangalindan, 2020). However, almost immediately,

the situation began to collapse. By the end of May, downloads had only reached 4 million, of

which just 30% were daily active users (Spangler, 2020). This drop-off was extremely

concerning because users were still within their trial period. By September, Quibi had managed

to convert just 400,000 viewers to paid subscribers, far behind its 7.4 million target for 2020

(Spangler, 2020).

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Katzenberg largely attributed Quibi’s failure to COVID-19-related lockdown (Foley, 2020).

Designed for long commutes and an on-the-go lifestyle, this use-case was made redundant as

people were made to stay at home. However, analysts point to a key misstep: mobile was the

sole mode of delivery. After initially remaining adamant about the mobile-only approach,

Katzenberg later backtracked and rushed to develop support for Apple TV, Android TV, and

Amazon Fire TV, by which point it was too late (Mangalindan, 2020; Spangler, 2020). Quibi

was also entering a crowded market at a time when people’s disposable income was waning.

Given the choice, people would be more likely to go with a well-recognised brand like Netflix.

Indeed, Netflix witnessed a surge during lockdown, gaining 26 million subscribers in the first

half of the year alone (Alexander, 2020). Finally, the programming never lived up to the hype.

The target demographic, Millennials and Gen Z, never embraced the platform as hoped.

Majority of the content received lukewarm to negative reviews and viewers did not find value

in the format.

Conclusion

Over the past decade, the streaming industry as emerged as extremely lucrative, generating

almost US$50 billion in worldwide revenue in 2019. Internet-based SVOD platforms have been

the catalyst for this trend, and it was reported that over US$100 billion was invested in content

just in the past year ("The $650bn binge", 2019). Following the success of disruptors like

Netflix and Hulu, traditional networks too have entered the market with their own SVOD

offerings. This has created an increasingly crowded, forcing companies to innovate through

business model, programming or technology in order to stand out. However, the success of

platforms like Netflix is so exceptional that it’s easy to overlook how difficult and expensive

they can be to build. What we see today is the culmination of a decade’s worth of strategy,

keen analysis of consumer needs, and gradual growth.

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Platforms facilitate transactions between two or more sides of the market and seek to create

value for each group involved. Launched in April 2020, Quibi was an SVOD platform that

sought to create value for consumers by delivering top-quality programming in bite-sized

episodes straight to their mobiles. Despite raising US$1.75 billion in funding, and signing on

an extensive roster of Hollywood A-listers, the platform announced it was no longer viable

after just six months. This can be attributed to three acute shortcomings. Firstly, Quibi

disproportionately focused on developing its production side before its launch. Quibi’s

programming budget was anywhere between 5 and 125 times the industry standard at a time

when it should have invested in customer acquisition. Secondly, because Quibi had developed

mobile-specific technology, brand-new content had to be created for the platform. It was as a

major disadvantage against competitors like Netflix, Hulu, and legacy networks that could

leverage the long tail of content, i.e., their decades-worth of back catalogues.

Finally, Quibi failed to garner critical mass. SVOD platforms use several strategies to create

value at scale. This could be through free services, enhancing the consumer experience, or

must-see programming. In spite of the heavy investment, Quibi’s programming failed to sustain

the attention of its target market, who instead shunned the brand and its lineup (Mangalindan,

2020). These factors are not exclusive to Quibi but are some of the primary reasons SVOD

platforms can fail. A key lesson to be learnt is that, despite bringing together the best of

entertainment and tech, not every billion-dollar-idea is worth a billion dollars.

AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)

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