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How to blow $1.75 billion in six months
The embattled short-video streaming app announced its demise yesterday, just six months after its debut. But investors who poured $1.75 billion into the start-up may take less of a financial hit than it first appears.
“The world has changed dramatically since Quibi launched, and our stand-alone business model is no longer viable,” Jeffrey Katzenberg, the company’s founder, told employees. For weeks, he has blamed the pandemic, which reduced demand for a service meant to be watched on the go.
Analysts blamed the belief that people would pay to watch five-minute shows on their phones. The company also faced a patent-infringement lawsuit that is being financed by the hedge fund Elliott Management.
A last-minute sales effort failed. Companies — reportedly including Apple and Facebook — were deterred by the fact that Quibi doesn’t own many of the shows on its platform. Advisers from AlixPartners presented the board with options, including shutting down. (Mr. Katzenberg told investors that Quibi would return $350 million in capital.)
Damage to some investors may be less than expected. The company’s backers included most of the big studios, Goldman Sachs, JPMorgan Chase, Google, Alibaba and the billionaire Carlos Slim. But many entertainment companies produced content in round-trip deals, in which studios invested in Quibi — and then got money back to produce content. This may be why Hollywood didn’t join the public criticism. (That said, Mr. Katzenberg and Quibi’s C.E.O., Meg Whitman, are expected to lose millions.)
Today’s DealBook newsletter was written by Andrew Ross Sorkin and Lauren Hirsch in New York, Ephrat Livni in Washington, and Michael J. de la Merced and Jason Karaian in London.
HERE’S WHAT’S HAPPENING
Leon Black’s ties to Jeffrey Epstein have made some Apollo investors uneasy. A retirement fund for teachers in Pennsylvania said that it wouldn’t make any new investments in Apollo’s funds, after The Times reported that Mr. Black, its C.E.O., had paid at least $50 million to Mr. Epstein, a convicted sex offender. (Apollo says that Mr. Epstein never did any work for the firm.) The pension consulting firm Cambridge Associates is reportedly weighing whether to stop recommending the firm.
Wall Street donors keep their distance from President Trump. Previous supporters like Steve Schwarzman of Blackstone, Steve Cohen of Point72, Stephen Feinberg of Cerberus, Henry Kravis of KKR and Paul Singer of Elliott haven’t donated to the president’s campaign since at least January, CNBC reports. Efforts to attract smaller donations have burned cash, costing 75 cents for every dollar raised in the past three months.
Here’s the latest on the stimulus talks: They’re still deadlocked.
The maker of OxyContin pleads guilty to criminal charges for opioid sales. Purdue Pharma’s settlement, which includes $8.3 billion in penalties, will end a Justice Department investigation. The agreement could lead to the resolution of thousands of other lawsuits, though it doesn’t preclude criminal charges against company executives or founding family members.
Two-thirds of companies say that most employees can work effectively remotely. A third expect to permanently reduce their office footprint, according to a new survey by S&P Global Market Intelligence.
The trials of big tech and government
One issue in the Justice Department’s antitrust suit against Google is resolved. We now know who is presiding over the case: Judge Amit Mehta, an Obama appointee, who faced a major antitrust case shortly after being seated in 2015.
Judge Mehta blocked a merger between Sysco and US Foods, the country’s two largest food distributors, and the companies abandoned the deal. There was no appeal, which antitrust experts say reflects the judge’s sound reasoning in the case.
The choice of judge is crucial. They make every decision, from pretrial questions to the ultimate ruling. But in big cases like the one against Google, managing public perceptions and maintaining the court’s reputation are also important, Paula Hannaford-Agor, a director at the National Center for State Courts’ project on high-profile cases, told DealBook.
Judge Thomas Jackson, who presided over the U.S. government’s antitrust case against Microsoft in the late 1990s, made little secret of his impatience with the company and gave embargoed media interviews displaying his distaste before ordering a breakup. The appeals court noted the indiscretion in overturning the decision.
You may recognize Judge Mehta’s name. He ruled that President Trump couldn’t block a subpoena from a House committee seeking his financial records. The Supreme Court decided the case in July, with other presidential tax matters. Now it’s back in Judge Mehta’s court.
As for the Google suit, the company says consumers are happy and that its deals with other companies help make products affordable. But the top investigator, Deputy Attorney General Jeffrey Rosen, who represented Netscape in the Microsoft case, tells The Times’s Cecilia Kang, “the monopolist almost always says that.”
Is antitrust law up to the job? Some say existing laws don’t work for digital business models. But economists and legal experts increasingly argue that more radical change is needed. They propose a specialist regulator that would focus on tech companies.
Big Tech’s “professional opponents” have been making their case for years. These lawyers, academics, and former corporate insiders supplied the arguments and data that suggest modern tools can be used to perpetuate old-fashioned antitrust abuses. They’re eager to see how their arguments hold up in the Google case. At any rate, Times Opinion’s Tim Wu writes, “the lawsuit has a significance greater than itself: It is a reminder that even the most powerful private companies must reckon with the still greater power of the people.”
“The shift to digital forms of currencies is inevitable.”
— Dan Schulman, the C.E.O. of PayPal, announcing that the payments giant will soon allow customers to use cryptocurrencies, sparking a surge in the price of bitcoin.
‘The guilt by association thing’
“Fairly or not, Palantir has come to be regarded as an enabler and prime beneficiary of Trump’s presidency,” Michael Steinberger writes for The Times Magazine, in a big new profile of the data-mining company’s chief, Alex Karp. What happens to Palantir if Mr. Trump loses?
Mr. Karp acknowledges the risks of Palantir’s perceived links to Mr. Trump, which he calls “the guilt by association thing.” This is particularly the case with Immigration and Customs Enforcement, which has been criticized for raids on undocumented immigrants and separations of families at the border. But he said that pulling out of those contracts would render him an unreliable partner for others who rely on his software, like soldiers: “Why would a war fighter believe you aren’t going to do the same thing to them when they’re in the middle of a battle?”
The C.E.O. says he’s a “progressive warrior.” He voted for Hillary Clinton (and is supporting Joe Biden this year), has a doctorate in social theory from Goethe University in Frankfurt and describes himself as a “racially amorphous, far-left Jewish kid who’s also dyslexic.” His personal politics and intellectual pedigree — staffers call him “Dr. Karp” — deflect some criticism of Palantir’s work, and stand in contrast to Palantir’s chairman, the billionaire investor Peter Thiel, an early Trump supporter.
Palantir has two overarching ambitions, and that’s what brought Mr. Karp and Mr. Thiel together. The first is to keep the U.S. safe from terrorism, and the second is to use technology to balance public safety and civil liberties. In an interview, Mr. Thiel laid out the company’s philosophy, which doesn’t fit neatly along a simple left-right political spectrum:
With a black marker, he drew a graph. At the end of one axis he wrote “Dick Cheney” and at the other end he wrote “A.C.L.U.” Cheney, he explained, represented “lots of security and no privacy” while the A.C.L.U. was “lots of privacy but little security.” Post 9/11, Thiel said, it seemed inevitable that the Cheney view would prevail. He then drew another axis, this one with “low-tech” at one end and “high-tech” at the other. “Low-tech” was a catchall for crude, highly intrusive technology. “High-tech,” he said, was more effective but also less invasive. Thiel’s fear was that we would end up with a combination of low-tech and Cheney, in which case civil liberties would likely be crushed.
The full magazine story is worth your time, a deep dive into the players behind one of Silicon Valley’s most distinctive companies. It includes a narrated audio version.
Senate bill would outlaw discrimination at banks
The Times’s Emily Flitter has reported about the racial profiling that many Black Americans face while banking. Now, Senate Democrats have introduced legislation they say closes a federal loophole that allows banks to get away with discrimination.
It’s hard for victims of racial profiling to win cases against banks. Courts have ruled that the 1964 Civil Rights Act prohibiting discrimination applies only to industries it specifically lists, like movie theaters, restaurants and hotels. The Senate bill says “all persons shall be entitled to the full and equal enjoyment of the goods, services, facilities, privileges and accommodations of financial institutions.” House Democrats plan introduce a complementary version of the bill.
“Democrats on the Senate Banking Committee have been keeping a close eye on the Trump administration’s various efforts to roll back anti-discrimination rules, but they weren’t focused on this loophole,” Emily tells DealBook. “It is an issue that is best known to the lawyers who handle cases for people who experience discrimination at bank branches.”
Lawyers aren’t sure the bill goes far enough. Emily reached out to Chezky Rodal, a lawyer in Florida who handles many cases brought by Black bank customers. Based on a summary, the bill might not help his clients, he said, because it doesn’t contain a “civil liability statute” that allows customers who have been wronged to seek damages. “I’m disappointed because I’ve seen so much over the last few months, so much lip service,” Mr. Rodal said. “We had the opportunity to do something real and we didn’t.”
THE SPEED READ
Paul Singer’s Elliott Management is moving its headquarters to Florida. (Bloomberg)
Why Wall Street is eager to plow money into electric-car start-ups with zero sales. (WSJ)
The European Union’s first batch of coronavirus bonds was heavily oversubscribed, a sign of demand for alternatives to U.S. Treasuries. (NYT)
Politics and policy
Iran and Russia obtained American voter registration data and are seeking to influence the election by sending threatening emails, U.S. officials said. (NYT)
Amtrak warned that it would have to lay off employees and halt infrastructure improvements if it did not receive $2.8 billion in emergency funds by December. (NYT)
Tesla reported its fifth straight quarterly profit, but analysts see indications that sales are slowing. (NYT)
Airbnb has hired Jony Ive, Apple’s former design chief, as a consultant on new products and services. (CNBC)
Best of the rest
Tens of thousands of furloughed flight attendants are wondering when — or if — they’ll fly again. (NYT).
Boeing is considering a new plane model. (WSJ)
Why “Rudy Giuliani” and “Borat” are being mentioned in the same sentence. (NYT)
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