Quibi’s future – Premium Video is expensive to produce

Quibi launched in the US a few weeks ago. They plan to bring premium video production quality to a small vertical screen. The concept is very interesting. Unfortunately, due to the current COVID-19 situation, more people might prefer to watch it on the TV screen.

Quibi is right. There is a huge gap in the production cost depending on the quality of video. I did an analysis to compare the different formats. The data are not super accurate but should tell a good story directionally.

The data show that $100K per minute is the low end of the premium video production cost. However, $100K is still 100 times higher than the YouTube product cost. Plus, the video production cost is significantly higher than that for other media formats. If we assume that it takes longer than one hour to read a book or magazine, then, on a per-minute basis, the gap is even bigger.

The only exception might be games. The average game development cost is getting close to $100M. This number is very similar to that of a typical blockbuster movie made in Hollywood. Of course, the average gamer spends a much longer time per game title as compared to movies.

As technology (e.g., VR, AR, 4K, etc.) continues to evolve, I believe that the premium video production cost will only increase. I also predict that, to reduce the risk to the media business, the price of popular IP will continue to increase as well. As a result, the production cost for premium video will get even higher. It will eliminate many small players and accelerate industry consolidation.

To stay in the business, each player must invest tons of cash. Interestingly, each major player in the video space relies on a very different source of revenue. Netflix is mainly subscription-based. Hulu is advertising plus subscription. YouTube is pretty much advertising. AT&T and Comcast also have telecom businesses. Google (YouTube) clearly has the deepest pocket but their investment into original content is very limited.

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