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Jeffrey Katzenberg and Meg Whitman's $1-billion bet: Bring Hollywood quality to digital video

Jeffrey Katzenberg and Meg Whitman's $1-billion bet: Bring Hollywood quality to digital video
NewTV Chief Executive Meg Whitman and founder Jeffrey Katzenberg. (WndrCo.)

The executives behind digital video start-up NewTV — Jeffrey Katzenberg and Meg Whitman — are two of the biggest players in the entertainment and tech industries.

He co-founded DreamWorks Animation after overseeing some of Walt Disney Co.’s greatest animated hits. She grew EBay into an e-commerce giant and ran Hewlett-Packard for years.

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Together, they’re making one of the biggest gambles to hit Hollywood in recent years: bring blockbuster production value to the notoriously low-budget online video space — and get millions of people to pay for it.

Digital upstarts have struggled to find a viable business model despite the huge audience for “snackable” videos. But NewTV got a big confidence boost Monday, disclosing $1 billion in funding to produce and distribute short videos for mobile devices.

Their backers include all the major film and TV studios — such as Walt Disney Co., Warner Media and 21st Century Fox, which plan to create original content for the planned subscription service. Indie studios, including Lionsgate, have signed on as well.

The funding round, led by Madrone Capital Partners in Menlo Park, Calif., also includes the likes of Goldman Sachs Group Inc., JPMorgan Chase & Co. and Jack Ma’s Chinese e-commerce giant Alibaba Group.

It’s an extraordinary sum for a start-up that hasn’t announced any shows or launched an app. However, Katzenberg and Whitman need a hefty war chest to make their offering stand out as companies such as Netflix, Apple and Amazon.com spend billions to woo established directors, writers, actors and producers.

The company’s videos are expected to cost $100,000 a minute to produce, about 30 times what most producers drop on bite-sized videos consumed on smartphones. NewTV will distribute comedies, dramas, reality TV programs and other shows licensed from the studios.

The shows, delivered in 10-minute episodes, will be available on a subscription-based app that is expected to launch during the holiday season of next year. Whitman and Katzenberg said getting the studios on board was essential to get the kinds of shows that would help attract paying users.

“We are creating an entirely new platform that will enable very-high-quality, on-the-go mobile viewing in a way that has not been done before," Whitman said in an interview at the company’s temporary Hollywood office. “We knew that to get the very best access to talent, we needed to have the studios as investors.”

Dozens of start-ups have built audiences by spending about $3,000 a minute on short videos that appeal to young viewers who spend an estimated 4 to 5 hours a day on their mobile devices.

Besides NewTV, investment in the digital video market has cooled in the last year as companies struggle to make money. Verizon recently shut down its once-promising go90 streaming service. Fullscreen last year ended its subscription video service less than two years after its launch.

Though Facebook, Snapchat and other platforms are investing in short-form videos, none have tried to capture that audience with studio-quality production funding. That is both the risk and the potential reward for NewTV, analysts say.

“The big opportunity is that no one has ever tried to create true, high-quality, premium TV for a mobile-first millennial audience,” said Peter Csathy, founder of digital media consultancy Creatv Media. “The downside is that it's damn expensive to produce, and no one’s found a business model that comes close to being able to rationalize the numbers involved.”

Katzenberg, founder of NewTV, is undeterred. He said the goal is to get people to watch NewTV’s programming in what he called “in-between times” — when people are on the train, in line for coffee or waiting in a doctor’s office. Those times, he said, are generally 10 minutes or less. NewTV can appeal to people by making content that fits more conveniently into people’s busy schedules, he said.

NewTV, the first big venture to emerge from Katzenberg’s investment company WndrCo., aims to do with short online video what HBO did for television: get people to pay a subscription by offering the content people can’t get from free channels. Aimed at viewers ages 25 to 30, the app will have a lower-priced tier that includes ads and a higher-priced ad-free version. The executives did not say what it would charge.

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“If you can watch it on Snapchat or Instagram or Facebook, you will not see it on NewTV,” Katzenberg said. “We're admiring what's happening in short-form video ... but that's not what we're doing.”

Katzenberg emphasized that NewTV is not competing with Netflix, Apple or Amazon, which are building audiences by creating more traditional long-form shows and movies.

Disney is preparing to launch its own streaming service, which will offer original shows based on the “Star Wars,” Pixar and Marvel properties. Yet that didn’t stop the Burbank entertainment giant from investing in NewTV.

"Technology continues to open up new avenues for great storytelling,” Disney CEO Bob Iger said in a statement. “We're pleased to be part of this promising venture that will serve audiences with high-quality, short-form content designed especially for mobile viewing.”

Katzenberg and Whitman come from different worlds in many respects, including politics. Whitman ran for California governor as a Republican in 2010, while Katzenberg is famous for supporting Democratic causes and candidates.

This odd couple bring a formidable management team to the venture, analysts say.

Whitman, 62, built a long track record in the tech industry before Katzenberg selected her to run NewTV as its CEO.

Most recently, she ran information technology giant Hewlett Packard Enterprise Co. until she stepped down early this year. During her stint, she oversaw the corporate breakup of computer giant HP Inc. and its enterprise business. Her appointment to the head of HP in 2011 followed her unsuccessful gubernatorial bid. Before her tenure at HP, Whitman served as president and CEO of EBay, increasing sales from $5.7 million to $8 billion in 10 years.

Whitman, whose net worth is estimated at $3.2 billion by Forbes, sat on the board of DreamWorks Animation for years and brings deep Silicon Valley relationships to the entertainment business. She also previously worked at Walt Disney and Hasbro.

For Katzenberg, 67, NewTV is the latest move in a long career in Hollywood.

At DreamWorks Animation, he oversaw the creation of popular animated franchises such as “Shrek,” “Kung Fu Panda” and “Madagascar.” Pushing into digital media, DreamWorks Animation also bought YouTube network AwesomenessTV for $33 million in 2013 and makes shows for Netflix. (AwesomenessTV sold to Viacom last month).

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Katzenberg has an estimated net worth of more than $1 billion, according to the Los Angeles Business Journal. He earned a payout of roughly $400 million when he sold DreamWorks Animation to Comcast Corp. in 2016 for $3.8 billion.

NewTV plans to hire as many as 300 people in the next 18 months and is preparing to move into a two-floor corporate space in a sprawling office complex in Hollywood. It currently has fewer than 10 employees.

It’s unclear how much content NewTV will release. When asked how many hours of video NewTV would commission, Katzenberg jokingly responded, “a lot.” That’s where the studios come in, Whitman said.

“No single studio could create this amount of content,” Whitman said. “That’s why we need all the studios rowing the boat in the same direction.”

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