Jeffrey Katzenberg's $1 Billion Bet on Shortform Video Comes Into Focus
Together with former HP CEO Meg Whitman, Katzenberg has raised $1 billion in funding from all the major Hollywood studios, China's Alibaba and lead investor Madrone Capital.
Jeffrey Katzenberg's billion-dollar bet on the future of entertainment is starting to come into focus.
The mogul's WndrCo has closed its first, $1 billion funding round for streaming video startup NewTV, and, as expected, there are several Hollywood backers, including 21st Century Fox, Disney, NBCUniversal, Sony Pictures Entertainment, Warner Media, Viacom, eOne, ITV, Lionsgate and MGM. Madrone Capital led the round, which also included participation from Alibaba, Goldman Sachs, JPMorgan Chase and Liberty Global. The valuation of the company was not disclosed.
Katzenberg has spent the better part of the last year and a half pitching Hollywood on his plan to turn bite-size content into a big business and how he would need $2 billion to do it. Now — seated at NewTV's Hollywood office on Aug. 6 alongside Meg Whitman, the former HP CEO who agreed to lead the venture earlier this year — he says he's feeling confident that the money he's raised will be enough to get the project off the ground by the end of 2019. "Once Meg came on board, we actually built out a bottoms-up business plan," says the longtime executive, who left DreamWorks Animation after its $3.8 billion sale to NBCUniversal. "The billion-dollar number is more than enough capital to get us to launch and then a comfortable beyond."
Now that the money is in the bank, Katzenberg is sharing concrete details about the venture. It will be a mobile-first subscription video offering that will focus on premium original programming delivered in short, 10-minute chunks, and it will be aimed at audiences in the 25-to-30 age range. It will also feature multiple price points, with one higher-priced option that doesn't include advertising and a lower-priced tier that has limited ads. One thing it won't be is named NewTV: Whitman says a new name, along with a senior leadership team, will be announced in the fall.
Katzenberg has been contemplating the shortform video space for several years. Before he left DWA, he had planned to build a premium video service, dubbed Made for Mobile, with AwesomenessTV, which his company majority owned. Though the project was waylaid by the DWA sale, the idea stayed with him. "We've only been watching quality streaming video for five years," he says. "That's how new it is." The opportunity, as he sees it, is to give all the people already watching shortform video on their phones a more premium experience. "We don't have to get a new device. We don't have to ask them to change their habits," he adds.
Katzenberg spent much of last year fundraising and meeting with content producers about the project, but he didn't find his business partner until November, when Whitman announced she would step down from her post at HP after six years. "The ink on the paper was barely dry, and Jeffrey called," she recalls. It was an unexpected move for the longtime tech executive, who had worked for Disney briefly in the 1990s. But she says she saw an opportunity as media and entertainment grapple with declining pay TV subscriptions and the rise in streaming. "I've been in business where wind is in your face. I've been in business where wind is at your back," she says. "This is one of the ones where wind is at your back." Together, Katzenberg and Whitman have completed their first round of funding, though they are expected to raise more once an initial product is up and running.
"When Jeffrey started talking to me about his company over a year ago, he said, 'I'm going to get all of the studios together.' I just said 'Good luck,' because that seemed like an impossible order," notes UTA CEO Jeremy Zimmer. "But Jeffrey has an amazing way of getting things done."
There will be hurdles, of course. Few streaming services built specifically around shortform video have taken off. Offerings from Comcast, Verizon and Fullscreen have all been shuttered over the last year after failing to attract big enough audiences, a trend that has caused many observers to question whether there is an audience for Web videos outside of the cheaply produced user-generated fare that proliferates on YouTube and Facebook. But Katzenberg and Whitman insist that NewTV will look and feel different than other products. "We are not shortform. We're a new form," says Katzenberg, likening the product to the early days of HBO original programming, when its slogan was "We're not TV. We're HBO."
It is also an incredibly crowded market for streaming video services today, dominated by Netflix and its $8 billion content war chest. By next year, several new entrants, including Disney's family-friendly service, Apple and maybe even Walmart, will further up the competition for content. Whitman responds by calling NewTV "a completely different use case. This is on-the-go, mobile viewing for high-quality content that's delivered in these bite-size formats." She sees NewTV's biggest competition as coming from other mobile-first entertainment like casual gaming, adding, "You probably spend three or four hours a day on your mobile phone. What are you spending it doing?"
BTIG media analyst Rich Greenfield acknowledges the challenges but notes that NewTV's edge might be its ability to drive people to its product with must-see programming. "A lot of people, when they think of mobile content, they think of YouTube or low-quality Snapchat shows," he says. "None of them have that House of Cards moment yet."
Katzenberg and Whitman seem to recognize that opportunity, too. Whitman says that the "vast majority" of the funding raised will go toward building up NewTV's content offerings and then, post launch, marketing the service to prospective subscribers. Katzenberg, meanwhile, notes that NewTV's programming will span scripted, unscripted, reality and news. "It really cuts across the things people are doing every day," he adds.
While creatives will be asked to produce a different kind of programming than they are used to, veteran producer Mark Burnett, who also serves as chairman of worldwide television at NewTV investor MGM, says it won't feel much different than writing for TV's act breaks. "Every time you go to a commercial break, you have to create a hook that would make the viewer stay around through commercials," he says. "It's a very similar logic here. At the end of every 10 to 12 minutes, there's a hook. You can't wait to see what happens in the next episode."
Another way that NewTV can lure top talent is through attractive deals. Zimmer says producers will own their shows after the NewTV window ends and will have the ability to package multiple episodes into a more traditional television length to sell internationally. "The good news is there will be financing available that's adequate for people to make something really special," he says. "The idea that you get to experiment with a new form while at the same time have the resources and compensation that people are used to earning makes it a pretty exciting proposition."