Katzenberg’s Big Ask: $2 Billion for Short-Form Video Project
Katzenberg’s Big Ask: $2 Billion for Short-Form Video
Project
By ANDREW ROSS SORKIN OCT. 2, 2017
When Mark Zuckerberg founded Facebook and went looking
for investors, his so-called first round of financing was for $1 million. When
Travis Kalanick sought financing for Uber, he persuaded investors to ante up
$1.25 million. Reed Hastings of Netflix raised $2.2 million.
Jeffrey Katzenberg’s idea of fund-raising is on a very
different scale.
Mr. Katzenberg, the longtime Hollywood executive and
co-founder of DreamWorks Animation, is trying to raise $2 billion for his new
television start-up. That is likely to be the largest first round of financing
in history for a digital media company that, at least at the moment, is only a
concept swirling around in his head.
The huge price tag has not stopped virtually every large
media and technology company — Apple, CBS, Disney, Google, Spotify and Verizon
among them — from taking meetings with Mr. Katzenberg. And several Wall Street
private equity firms are circling. The Hollywood parlor game of who is going to
invest first has already begun. He is looking for big checks.
Mr. Katzenberg, 66, is convinced that his new product,
called New TV, can upend the format of television for mobile devices. He wants
to create the next-generation version of HBO or Netflix, purpose-built for
viewing on phones and tablets with short-form content of premium quality —
think of “Game of Thrones” as if each episode had a narrative arc of 10
minutes.
He wants to create big, expensive productions at a cost
of $100,000 a minute. (For the sake of comparison, a highly produced minute of
programming on YouTube might cost $10,000.) And he wants to attract A-list
talent both in front of and behind the camera. That’s one reason the financing
ask is so high: Hollywood heavyweights cannot be convinced to do 10-minute
video snippets unless they are paid what they are accustomed to being paid.
Mr. Katzenberg’s hunch about the way a huge swath of
consumers will watch television in the future is, in all likelihood, right. The
number of teenagers and young adults who have their nose pressed to their
mobile devices watching video content is startling. Globally, 72 percent of all
video is viewed on a mobile device, according to Ooyala, a video platform
provider.
The question is whether his idea is ahead of its time.
And whether he can find the right business model to support such expensive
programing.
Mr. Katzenberg is a realist. “We need $2 billion. That’s
a high bar,” he said. And he acknowledges that the financial details still need
to be worked out. It’s daunting. He needs to build an instant library of
content — and a big one.
Mr. Katzenberg’s gamble is being taken seriously because
of his long history of success and his provocative thesis about the current
television model. “The design and the architecture of the storytelling fit the
business paradigm, not the other way around,” he explained, suggesting that
shows were made in the format of a half-hour or an hour for business reasons
and do not make sense in the world of mobile devices and streaming.
He also took a shot at all the advertising on network
programs. “I would actually make the argument that one of the challenges for
network TV has been that they’ve actually busted the form by asking people to
watch 19 minutes of commercial time inside of 60 minutes,” he said. “Thirty-two
percent of your watch time is watching commercials.”
Instead, Mr. Katzenberg is hoping to create a premium
network that will probably rely on a combination of subscription fees and
advertising — à la Spotify. He does not believe he will put television
companies out of business; in fact, he needs them as partners and believes they
can live side by side.
But Mr. Katzenberg does not want to simply create a
studio that specializes in short-form storytelling; he wants to create a
platform for it. He is hoping that many of the big television networks both
invest and produce content for the service.
“This is literally a true moment in time here in which
we’re going to create a new form, a new format, a new platform, new content and
we’re going to supply that content and we’re going to let them,” Mr. Katzenberg
said of the big networks, “grab what ultimately will be the biggest value here
by owning the platform.”
Mr. Katzenberg last year sold DreamWorks Animation to
Comcast for $3.8 billion. He said that one of the greatest revelations for him
over the last year as he developed the idea for his company, called WndrCo, was
that “content” was not the holy grail.
“We’ve all grown up with this idea that content is king,”
he said, explaining his rationale for trying to create a new service rather
than simply creating the content itself. “And I realized, it actually isn’t.
Content is the king maker, it’s not the king. The king is the platform. HBO is
the king. Netflix is the king. Spotify is the king.”
When I mentioned to Mr. Katzenberg that well-heeled competitors
like Apple and Facebook are getting into the television business and may seek
to innovate the form, he was unfazed.
“This idea that Apple and Facebook and YouTube are now
coming into Hollywood with these billions of dollars and are in fact going to
change the enterprise of television is actually wrong,” he said. “They’re not
doing anything new or different or unique. It simply broadens the offering and
it may broaden the destinations that you can go to, but in fact that
fragmentation at some point is going to implode.”
Mr. Katzenberg believes he is offering something that
will start the next leg of growth in the industry.
Executives who have seen Mr. Katzenberg’s plan, including
Robert A. Iger, the chief executive of Disney, and Leslie Moonves of CBS, have
expressed enthusiasm for the project.
Still, there are skeptics. Several media executives
pointed to Nielsen data showing that traditional television still accounts for
the bulk of the video viewing among people over 18 years old in the United
States. (The country is far behind other nations in video mobile viewing.)
And of course there is the question of what kind of
content consumers want to watch on a phone. So far, most short-form content has
been relatively cheap to produce, because of lower production quality, and
customers have willingly watched it. Who’s to say they are craving HBO-level
production quality? And many viewers are happy to watch Netflix on a mobile
device and press pause on their favorite show or movie and return to it later.
But Mr. Katzenberg says that to think about it like that
is backward. There is always an opportunity to create a premium product, he
said, and there will be “a pretty meaningful subset of people who would
actually pay for it.”
To Mr. Katzenberg, the idea is too obvious not to pursue.
“You have an installed base of one and a half billion people who watch 45
minutes of video on a smartphone every day,” he said. “So this is where I say
to you, ‘They’re drinking water. We’re going to give it to them in a bottle.’”
A version of this article appears in print on October 3,
2017, on Page B1 of the New York edition with the headline: Katzenberg’s Big
Ask: $2 Billion For a Short-Form Video Project.
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