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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.
2
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
3
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.
4
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
6
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
9
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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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)
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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AMGT90018_2020_SM2 Assignment 2: Case Study Varsha Ramesh (1043330)
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)
References
"The $650bn binge". (2019). The Economist, 433(9169). Retrieved from
https://www.economist.com/weeklyedition/2019-11-16
Alexander, J. (2020). Netflix adds another whopping 10 million subscribers, but warns
growth may slow. The Verge. Retrieved from
https://www.theverge.com/2020/7/16/21326434/netflix-second-quarter-earnings-tv-
shows-movies-originals-subscribers-adds-ted-sarandos
Anderson, C. (2004). The Long Tail. Wired. Retrieved from
https://www.wired.com/2004/10/tail/
Aten, J. (2020). Quibi Had Everything Going for It Until It Didn't. A Cautionary Tale for
Every Business. Inc. Magazine. Retrieved from https://www.inc.com/jason-
aten/quibi-had-everything-going-for-it-until-it-didnt-a-cautionary-tale-for-every-
business.html
Bacache-Beauvallet, M. & Bourreau, M. (2020). Platforms. In R. Towse & T. N. Hernandez
(Eds.), Handbook of cultural economics.
Budzinski, O. & Lindst?dt-Dreusicke, N. (2019). The New Media Economics of Video-on-
Demand Markets: Lessons for Competition Policy (Updated Version). Ilmenau
Economics Discussion Papers, 25(125). Retrieved from
https://ssrn.com/abstract=3276036
Carman, A. (2020). Quibi Versus the World. The Verge. Retrieved from
https://www.theverge.com/2020/1/8/21056315/quibi-ces-2020-launch-meg-whitman-
jeffrey-katzenberg-turnstyle-technology-shows-preview
Digital TV Research. (2020). Over-the-top (OTT) TV and video revenue worldwide from
2016 to 2025, by source. Retrieved from Statista
Feldman, D. (2020). Why 1.7 Million Downloads In One Week Is A Successful Launch For
Quibi. Forbes. Retrieved from
https://www.forbes.com/sites/danafeldman/2020/04/13/heres-why-17m-downloads-
its-first-week-was-a-successful-launch-for-quibi/?sh=3b7a9be636f9
Foley, S. (2020). Lessons from Quibi’s stuttering start. Financial Times. Retrieved from
https://www.ft.com/content/8207331c-8899-11ea-a109-483c62d17528
Hagiu, A. & Wright, J. (2015). Multi-sided platforms. International Journal of Industrial
Organization, 43, 162-174. doi:http://dx.doi.org/10.1016/j.ijindorg.2015.03.003
13
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.
2
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
3
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.
4
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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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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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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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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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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