Jeffrey Katzenberg and Meg Whitman struggle with their startup — and each other

Near the beginning of her run as chief executive of Quibi, a new entrant into the streaming-video wars, Meg Whitman threatened to quit.

The Silicon Valley veteran worried her working relationship with founder and Hollywood bigwig Jeffrey Katzenberg had worsened to the point that it put the company’s future in jeopardy, according to people familiar with her concerns.

So, in May 2018, she laid out a list of problems to Mr. Katzenberg: He had been dictatorial, treating her like one of his underlings. He interrupted employees, including her, in meetings. His interactions at the company had often been belittling and demeaning. He had a tendency to micromanage. He wasn’t letting her be a true CEO.

Mr. Katzenberg took her concerns seriously and the two struck a deal that gave Ms. Whitman more independence at the company, the people said.

WHAT IS QUIBI? 

Now, the at-times uneasy partnership between Mr. Katzenberg and Ms. Whitman faces its biggest test, as Quibi Holdings LLC, which launched its streaming app in April, fights for relevance in a crowded field with its formula of movies and shows in short chapters. Its success hinges, in part, on whether the duo at the top can overcome their sometimes clashing styles and leverage their more than 80 years of combined business experience.

The problems for them to tackle are piling up: missed subscriber targets, disappointed advertisers, a patent lawsuit from a well-capitalized foe, deep-pocketed companies launching competing products and a global pandemic that has made Quibi’s main selling point—on-the-go viewing—out of step with the times.

“Meg and Jeffrey have formed a strong partnership built on trust and authenticity,” a Quibi spokeswoman said in a statement. “Jeffrey personally recruited Meg to be the CEO and employee number one, and both have widely acknowledged that Quibi exists only because of their combined decades of experience from Silicon Valley and Hollywood—and their highly complementary strengths.” The spokeswoman added, “any new founder-CEO partnership has to find its footing, and they did that over two years ago. They are good friends and admire and respect one another.”

Almost all major media giants are searching for the right formula for streaming as television programming and movies migrate rapidly online. Quibi entered the market with big financial commitments from advertisers, enviable access to cash and two brand-name corporate leaders from the worlds of movies and technology. Its promise of a new storytelling format and Quibi’s deep pockets proved irresistible for many stars. The vision was to create short programs, 10 minutes or less, that people could watch on the go.

QUIBI STAFFERS FACING LAYOFFS, PAYCUTS

Mr. Katzenberg, 69 years old, and Ms. Whitman, 63, have contrasting leadership styles and areas of expertise, according to people who have worked with them. Mr. Katzenberg is a veteran Hollywood executive who ran Disney’s movie business—shepherding classics like “The Little Mermaid” and “Aladdin”—and co-founded the DreamWorks SKG studio. He is a freewheeling conversationalist and workaholic who doesn’t always stick to the script in meetings. He delves into the minutiae of content decisions.

Ms. Whitman came to Quibi, founded in 2018, with years of experience atop major tech companies. She grew eBay Inc. from a startup of about 30 employees to an e-commerce goliath of more than 15,000, and as Hewlett Packard’s CEO led the spinoff of its consumer-products division from its enterprise business. She is more deliberate in meetings, and more likely to zero in on the details of a mobile app’s functionality than she is to give feedback on a show to a producer.

At its current pace, Quibi will sign up fewer than two million paying subscribers by the end of the app’s first year, a person familiar with its operations said, well under its original target of 7.4 million. Quibi’s app download numbers have been falling in recent weeks, according to analytics firm Sensor Tower. Daily downloads peaked at 379,000 on its April 6 launch day but didn’t exceed 20,000 on any day in the first week of June, according to Sensor Tower.

As of June 7, Quibi’s app had been downloaded about 3.8 million times, according to Sensor Tower. Quibi said its internal figures show the app has been downloaded five million times. Not all downloads result in customer sign-ups. By the end of May, more than 1.5 million users had signed up for Quibi, many of whom were on a free trial, The Wall Street Journal reported. The company is pacing behind its initial projections for user sign-ups, according to a person familiar with the matter.

A Quibi executive said it is unclear how many paid subscribers the company will have by the end of the year because it has only collected one full month of subscriber data. The company said the decreasing downloads were caused in part by its decision to reduce its marketing in light of protests sweeping across the U.S. following the killing of George Floyd.

In 2018, when tensions flared after Ms. Whitman started working at Quibi, she told Mr. Katzenberg she was used to calling the shots as a veteran CEO and needed more freedom, the people familiar with her concerns said.

She noted Mr. Katzenberg’s redeeming qualities—his creative acumen, salesmanship and prodigious work ethic—but suggested that if they couldn’t come up with a solution for her concerns, she could leave the company and he could find a more junior executive who would be willing to take explicit directions from him.

In the early going, fundraising was the priority. Mr. Katzenberg and Ms. Whitman opened their Rolodexes and courted major movie studios in Hollywood, plus financial investors. The resulting $1 billion funding round in August 2018 made Quibi one of the most well-capitalized media startups ever and gave it instant credibility. In total it has raised $1.75 billion.

The executives wanted a name that captured the company’s strategy. Mr. Katzenberg was initially partial to “Omakase,” a term used to describe high-quality sushi selected by the chef. Ms. Whitman wasn’t in favor. The two agreed to set it aside.

The company hired a brand-strategy firm, Siegel+Gale, which helped come up with the name Quibi—short for “quick bites.”

Liam Hemsworth signed on to make “Most Dangerous Game,” a modern retelling of the short story about humans hunting humans. Anna Kendrick starred in “Dummy,” a surreal comedy about a woman who strikes up a friendship with her boyfriend’s sex doll. Kristen Bell, Jennifer Lopez and Karlie Kloss agreed to participate in “Thanks a Million,” a show where celebrities give someone $1 million, hoping to inspire the person to give to others.

MOBILE-ONLY QUIBI SEES MORE THAN 300,000 DOWNLOADS ON LAUNCH DAY: SENSOR TOWER

Quibi budgeted more than $350 million in spending for content in 2019, according to a document reviewed by The Wall Street Journal.

In late February, as the spread of the coronavirus was becoming a more pressing topic in corporate boardrooms, Mr. Katzenberg and Ms. Whitman decided to stick with their plan for an April 6 launch.

When the pandemic was in full swing a few weeks later, they decided not to scrap the launch, in part because the company had already bought ads to market the service. Quibi initially budgeted more than $120 million for marketing in the first half of 2020, including splashy TV ads at the Super Bowl and the Academy Awards, according to the document the Journal reviewed.

Mr. Katzenberg and Ms. Whitman carried out a public-relations blitz, setting high expectations in Hollywood and on Madison Avenue. The company didn’t hit its app-trial targets for the first month, and the content earned mixed reviews from critics.

Despite their initial detente, friction between the two executives has surfaced. Mr. Katzenberg, a high-octane pitchman, gave on-the-record interviews blaming the coronavirus pandemic for much of the company’s troubles. Ms. Whitman said privately the resulting coverage was disappointing, according to a person familiar with the matter.

In an all-hands meeting in May, held over videoconference, Ms. Whitman said she and Mr. Katzenberg would change the perception of Quibi’s launch by letting “other people speak for us,” such as talent on Quibi shows.

“Jeffrey and I have spoken a lot,” Ms. Whitman said in the meeting.

Now, they and other executives from the company are pulling back on media appearances.

One person familiar with Ms. Whitman’s thinking said the difficult launch has weighed on her, and that the streaming-entertainment business has been tougher than she thought.

A Quibi executive said Ms. Whitman has found the circumstances of the launch more difficult than expected because of the pandemic and the challenged economy but doesn’t find the video-streaming business harder than expected.

Wireless giant T-Mobile US Inc. agreed to market Quibi to its subscribers, a deal the streaming service was hoping would generate more than 500,000 subscribers, according to a person familiar with the agreement. That didn’t go as planned. The pandemic forced T-Mobile to close many of its retail locations, which Quibi executives said affected the wireless company’s ability to support Quibi’s launch.

T-Mobile declined to comment.

Mr. Katzenberg and Ms. Whitman soon faced a big problem with advertisers. They had secured $150 million in prelaunch commitments from companies including Progressive Corp., Procter & Gamble Co. and General Mills Inc. But some advertisers, including PepsiCo Inc., Yum Brands Inc.’s Taco Bell, Anheuser-Busch InBev SA and Walmart Inc., are seeking to renegotiate the terms of their agreements with Quibi because of concerns about low viewership or the impact of the coronavirus pandemic on their business.

PepsiCo, Walmart and Anheuser-Busch declined to comment. A spokesman for Yum Brands didn’t respond to a request for comment.

Megan Imbres, Quibi’s head of brand marketing, left the company in April, shortly after the launch. She declined to comment. Her departure followed the exits last year of the head of partnerships and advertising and a top programming executive.

A Quibi executive said its executive ranks have been stable, adding that the company has more than 250 employees.

QUIBI CEO MEG WHITMAN CALLS LAUNCH 'SLIGHTLY BELOW PAR'

Despite their disagreements, Mr. Katzenberg and Ms. Whitman can be playful in large staff meetings, according to people who have worked with them at Quibi. The two often refer to each other as “buddy” or “partner” and respect each other’s expertise, with Ms. Whitman deferring to Mr. Katzenberg on matters of content and Mr. Katzenberg deferring to Ms. Whitman on technical matters.

Mr. Katzenberg isn’t the sort of founder who recedes into the background. He has been deeply involved in staff meetings and discussions with advertisers and, given his creative background, he has set out to retool the Quibi programming so it is more appealing, people familiar with the situation said. Quibi’s scripted programming is proving more popular than its news and entertainment bulletins, but is generally far more expensive to produce, the people said.

Quibi has introduced new shows, including on May 24, a series about “Kirby Jenner, ” a performance artist who pretends to be related to the Kardashian/Jenner family of entrepreneurs and reality stars.

The scale of the financial challenge for Quibi will become clearer as free 90-day trials, which began in April, end.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

The company raised an additional $750 million earlier this year, but expenses have continued to mount. By the third quarter of 2020, Quibi estimated, it will have spent $1 billion. The company expects it will have to raise at least $200 million of additional funding by the second half of 2021.

Quibi is trying to conserve cash. Last month, the company estimated it would need to reduce its content and marketing budgets by a combined $300 million in its first year, one of the people said. A Quibi executive said that some of the spending reductions were a result of the coronavirus pandemic, which has shut down production in Hollywood.

Ms. Whitman is taking a 10% pay cut, and other senior executives at the company have agreed to do the same.

CLICK HERE TO READ MORE ON FOX BUSINESS