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May 26, 2020, 7:52 p.m. EDT

Big advertisers already seek new terms with Quibi

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By Benjamin Mullin

Streaming service Quibi is beginning to feel the pinch of its lackluster performance since launching last month, as major advertisers seek to defer payments and the company looks to cut costs, according to people familiar with the situation.

The advertisers, which include PepsiCo Inc., Yum Brands Inc.'s Taco Bell, Anheuser-Busch InBev SA and Walmart Inc., have asked for the changes because of concerns about the service's low viewership or the impact of the coronavirus pandemic on their businesses, one of the people said.

Quibi, which was founded by Hollywood mogul Jeffrey Katzenberg, struck ad deals valued at $150 million in the run-up to its April 6 launch, selling 10 blue-chip marketers on the prospect of a mobile-first ad platform featuring short-form movies and television shows.

As of last week, Quibi had been installed by users about 4.2 million times, and the company had signed up 1.5 million users to a free 90-day trial, some of the people said. Quibi was initially targeting about seven million paying subscribers in its first year and planning to have 16 million customers in three years.

"We deeply value the commitments our advertising partners have made and are working in close partnership with them to learn and help them be successful on the platform," Nicole McCormack, Quibi's head of advertising partnerships, said in a statement.

A Walmart spokesman said the retailer is still an advertiser for Quibi but declined to discuss the details of its deal. Representatives for PepsiCo and Anheuser-Busch declined to comment. A Taco Bell spokesman had no immediate comment.

Many of the biggest players in streaming, including Netflix Inc. and Amazon.com Inc., have enjoyed surging viewership during the coronavirus crisis, as homebound consumers watch more programming. Launching a new service during the pandemic brings special challenges, from building a brand to creating new content while production is largely shut down in Hollywood. AT&T Inc.'s HBO Max, which launches Wednesday, will add to an increasingly crowded field.

Mr. Katzenberg told The Wall Street Journal earlier this month that launching during the pandemic has been challenging, but that he didn't regret it.

During an all-hands meeting last week, Quibi executives said the Covid-19 crisis wasn't the only factor that has hampered the launch, a person familiar with the meeting said. An overreliance on scripted programming, a pool of inactive users and lower-than-hoped enthusiasm from some viewers all have affected the launch, the executives said at the meeting.

Mr. Katzenberg was asked in the question-and-answer session how Quibi is "changing the narrative" around its launch, the person familiar with the meeting said. Mr. Katzenberg told staffers that product changes and quality content would help the company distinguish itself.

The company continues to launch new shows. Earlier this week, Quibi introduced a series about "Kirby Jenner," a performance artist who pretends to be related to the Kardashian/Jenner family of entrepreneurs and reality stars.

In response to another question, Quibi Chief Executive Meg Whitman said Quibi was taking a number of steps to reduce costs, including delaying or postponing hiring, not backfilling positions and minimizing the number of contractors the company takes on.

"We feel like that will get us through," Ms. Whitman said at the meeting, according to the person familiar with it. "But everyone needs to really think about, are we spending money like it's our own?"

Ms. Whitman echoed those thoughts in a statement, saying that Quibi employees are "wise stewards of our resources."

Quibi has raised $1.75 billion from major movie studios, tech companies and wealthy individuals. It is betting users will pay at least $4.99 a month to watch movies and TV shows in "quick bite" chapters that are shorter than 10 minutes in length.

As part of agreements with some of its advertisers, Quibi guaranteed it would deliver a certain number of ad views over a certain period, some of the people familiar with the situation said. Lower-than-expected viewership has fueled worries that Quibi won't be able to meet those guarantees and will have to give additional ad time to make up for the shortfall, one of the people said.

Some advertisers have requested that their payments be spread out over a longer period, one of the people said. "They're not even coming close to hitting their numbers," said another person familiar with the ad deals.

Quibi has discussed the matter with its ad partners, one of the people said. "In the advertising business, the relationship often trumps the letter of the contract," one of the people familiar with the situation said. "This is a long-term business."

Write to Benjamin Mullin at Benjamin.Mullin@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

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