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Katzenberg’s Big Ask: $2 Billion for Short-Form Video Project

Jeffrey Katzenberg
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Jeffrey Katzenberg

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.

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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.'"

(Disclosure: Comcast is parent of CNBC.com.)