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Chinese Video Giant iQIYI Makes No-Cash Offer for Quibi Content (Exclusive)
A term sheet obtained by TheWrap proposes a no-fee deal with the giant China-based platform
The Chinese online video giant iQIYI has made a no-cash offer to license content from Jeffrey Katzenberg’s failed short-form streaming service Quibi, TheWrap has learned.
But Quibi declined the unsolicited proposal, according to an individual with knowledge of the company. In addition, a Quibi spokesperson said the streamer — set to shut down operations on Dec. 1 — has engaged the boutique investment bank LionTree as an adviser to gather “information from all interested parties and evaluating a number of incoming proposals.”
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According to a term sheet dated this month and addressed to Katzenberg, Gong Yu, the founder and CEO of iQIYI, has proposed a joint venture involving Quibi, iQIYI and a small group of Hong Kong dealmakers called Team Thrives.
The iQIYI/Team Thrives group “would enter into a proposed strategic collaboration with Quibi for businesses across Asia (including Australasia)…. to exclusively license all of its entire content library to the JVCO [joint venture company] for purposes of sole use in Asia,” according to the term sheet.
However, in a highly unusual stipulation, the deal would initially involve no cash payments at all. The term sheet explains: “The principal target market for the JVCO is Greater China, whereby content in mainland China will have to be approved by the government. At this point, JVCO will not know what can and cannot be approved and thus cannot pay any amount upfront for this licensing arrangement.”
It continues: “Therefore, the proposal is the Quibi to provide the above-mentioned license to JVCO for no upfront cost and in return for a future profit share if the JVCO generates any potential income from this licensed content.”
The term sheet also provides for a potentially broader deal for iQIYI to use the Quibi platform and technology throughout Asia, also for no initial payment to Quibi: “Team Thrives and iQIYI are open to have a discussion on the possibility of Quibi providing its platform of applications and suite of products for use in Asia at no cost as part of the proposed content package deal.”
A rep for iQIYI did not immediately respond to a request for comment.
iQIYI is one of the largest online video sites in the world, with over 500 million monthly active users and 100 million paying subscribers. The Beijing-based company, launched by Yu in 2010 and traded on NASDAQ since a $2.25 billion IPO in two years ago, recently made a foray into vertical video but has struggled in recent months.
In the second quarter of 2020, iQIYI reported a $181 million loss (RMB 1.3 billion) on $1 billion in revenue. The operating loss margin was 17%, compared to an operating loss margin of 26% in the same period in 2019.
The scramble for an Asian deal comes as Katzenberg and Quibi CEO Meg Whitman have announced they were shutting down the upstart streaming service on Dec. 1, admitting they were unable to attract an audience since a high-profile April launch that would make the business viable.
In announcing its closure, Quibi also said it would continue working to find a buyer or buyers for its technology assets and content — which it tried to distinguish from competitors by presenting in short 10-minute episodes delivered primarily over mobile devices.
But buyers in Hollywood said that no one in the American industry was interested in the short-form content, which would have to be stitched back together into longer episodes to make sense for traditional platforms.
The shutdown is a searing admission of failure by the ambitious Katzenberg, who raised $2 billion from investors and attracted content deals with top Hollywood talent including Steven Spielberg, Jennifer Lopez, Kevin Hart and LeBron James for short-form storytelling aimed at a generation addicted to their cellphones.
Since its April launch, though, Quibi has badly underperformed in an attempt to woo paying subscribers in the ultra-competitive streaming space that has grown in the last year with new entrants from Apple, Disney, WarnerMedia and NBCUniversal. CBS All Access is also rebranding as Paramount+ early next year.
Quibi, which also had to launch amid the pandemic, never gained any traction with consumers — even those stuck at home during the pandemic seeking entertainment options. Instead, free apps like TikTok have taken off as the platform of choice for teens. Out of 910,000 people who downloaded Quibi in the three days following its April 6 launch, only 72,000 users converted to paying subscriptions, Sensor Tower reported in July.