Quibi CEO Meg Whitman breaks down the revenue model for the mobile-only video service and explains her pitch to advertisers

• Quibi, a mobile-streaming service that launches in April, plans to make money through both subscription and advertising revenue.
• Quibi CEO Meg Whitman broke down the company's revenue model for Business Insider.
• The company will sell subscriptions, as well as seconds-long pre-roll ads and branded-content placements.
• Quibi has attracted big name advertisers like P&G and Pepsi ahead of launch with the promise of millennial audiences, and advancing mobile entertainment and ad formats, Whitman said.
• Click here for more BI Prime stories.

Quibi will borrow a page from the playbooks of streamers like Hulu and CBS All Access when it launches in April with both a subscription tier that includes advertising, and a pricier version that's ad-free.

The mobile-streaming company, which The Information reported is seeking $1 billion in funding, on top of the $1 billion it already raised, plans to make money off its platform through subscription and advertising revenue.

Quibi CEO Meg Whitman broke down the company's revenue model for Business Insider.

"We're indifferent between those two models," Whitman said in an interview. "We'll see what the consumers want and we'll follow their lead."

Quibi will sell subscriptions and ads, including branded-content placements

Quibi's ad-supported subscription will cost $5 per month, and it's ad-free tier will be priced at $8.

The company is selling a few types of ads.

It will air one six-, 10-, or 15-second non-skippable pre-roll ad before each piece of content. All the videos on Quibi, which is short for "quick bite," will be 10 minutes or less.

Quibi will also have an area for branded content within its "daily essentials" section, which includes daily episodes of news and informational series. The ads in the branded-content area will stand alone, and could be around two- to four-minutes long, Whitman said.

She used Always' award-winning "Like a Girl" campaign as an example. A minutes-long commercial from the campaign could live within Quibi's branded-content section, where users could add it to their watchlists. Advertiser Always could also buy seconds-long pre-roll spots to direct people to the longer ad.

Whitman declined to reveal the percentage of revenue the company is targeting from subscriptions and advertising.

She said she expects to know which subscription type consumers are more drawn to within two to three months of launch.

Hulu, which also sells ad-free and ad-supported subscriptions, said in May that 70% of its 82 million viewers - measured in total viewers rather than subscriber accounts - are on an ad-supported plan.

Analysts at Bernstein estimated about 60% of the $2.9 billion Hulu generated in revenue during the second half of 2019 came from subscriptions, and 36% came from advertising. The rest came from licensing originals to distributors outside of the US. Hulu sells both on-demand and live-TV subscriptions.

Quibi landed top advertisers like P&G and Pepsi with the allure of millennials, and advancing mobile entertainment

Quibi said it has already secured advertising deals with brands including Anheuser-Busch, Discover, General Mills, Google, Procter & Gamble, Pepsi, Progressive, Taco Bell, T-Mobile, and Walmart.

As of June, the company had booked $100 million in advertising revenue, Whitman told The Wall Street Journal.

Whitman told Business Insider that Quibi landed top advertisers with the allure of millennial audiences in a brand-safe environment, and advancing mobile entertainment and ad formats.

"They also believe that the next big revolution in entertainment really should be on the mobile phone, so the idea about creating and commissioning shows uniquely designed for mobile is super interesting to them," Whitman said of advertisers.

At the Consumer Electronics Show in Las Vegas, Nevada on Wednesday, Quibi and Pepsi will show off two commercials created with Quibi's "turnstyle" technology, which allows users to move between portrait and landscape orientations as they hold their smartphones.

"We have allowed and, in fact, encouraged our advertisers to make advertising with this new technology," Whitman said.

She said Quibi is also working with advertisers to create other new ad formats.

Quibi is taking a different approach to monetizing the content on its streaming platform

While all of the programming on Quibi will be designed specifically for the platform, the company won't own the rights to the content.

Quibi will exclusively license the short-form programming for seven years, after which time the rights will revert back to the producers, Variety's Joe Otterson previously reported. After two years, producers will reportedly be able to repackage the content into longer-form versions and sell them globally.

It's the antithesis of the approach streaming services like Netflix are taking. Netflix has moved toward self-producing and owning the content on its platform where possible.

"There are two ways to make money in this service: one is by owning the content, and one is by owning the platform," Whitman said. "We've made a decision that it's best for an ecosystem, for the creators, to own their own content and we will own the platform profit pool. This was a very strategic decision."

Still, library content has been fruitful for other media companies like NBCUniversal and WarnerMedia, which have commanded hefty fees to air reruns of shows like "The Office," "Friends," and "Seinfeld," years after those shows went off the air.

Quibi hopes that, if it proves the premise that people will pay to watch short, mobile-forward stories in their spare time, the company will be in a prime position to re-license the popular content on its platform when current deals expire.

"I hope that the highest hurdle that Quibi has to hit is the re-licensing of blockbuster, successful content seven years from now," Quibi founder Jeffrey Katzenberg said. "That'll be a good problem."