Its acquisition of struggling Redbox Entertainment fit like interlocking pieces of a jigsaw puzzle with Chicken Soup for the Soul’s various streaming-video holdings, said CSS Chairman and CEO Bill Rouhana hours after the two companies announced a $375 million all-stock deal that leverages the largely complementary offerings of each.
“They built their transactional video business, their PVOD business, their FAST TV business with 130 FAST channels,” said Rouhana of Redbox in an exclusive interview for Next TV. “That's a perfect fit for what we do with our multiple AVOD networks — Crackle, Chicken Soup for the Soul, PopcornFlix — with our content library with just over 8,000 movies and TV shows that we own and 24,000 television shows and14,000 films that we have AVOD rights to. (We have) a huge sales force that sells AVOD ads, they don't have what we do. We were going to spend tens of millions on the tech they've already developed, they were going to spend tens of millions on the tech we developed.”
Both companies also have modest original programming plans that now will be combined, one of several ways Rouhana expects the companies can operate more efficiently combined.
“What we're gonna do, we'll make 25 (originals) instead of 37, which is what we would have made between the two of us,” Rouhana said. “That will save about $30 million of capital by doing that, but accomplish the same goal that we had. So yes, we will keep doing it, but in a much more cost effective way for the two companies.”
The deal even provides more inventory on Redbox channels for a CSS ad-sales team that has oversold its own channels each of the past five quarters.
“We've been sold out,” Rouhana said. “So having these extra places to put our ads is of great value to us. We don't really need a bunch more salespeople, what we need is a bunch more viewers.”
CSS is buying Redbox for $50 million in cash and the assumption of $325 million in debt, in a transaction expected to close within two to three months. Rouhana owns the parent Chicken Soup for the Soul, which is majority owner of the video company; investment giant Apollo Global Management is majority owner of Redbox, eliminating any likelihood of hiccups in shareholder approvals of the two public companies.
The deal itself should appeal to shareholders especially of the battered Redbox, which now becomes part of a combined operation whose revenues should top $500 million next year.
Raging inflation and the growing possibility of a recession should make the companies’ combined offerings even more appealing, providing what Rouhana called “a value-conscious, premium entertainment opportunity, (with) the chance to give people access to great entertainment in a reasonable, economical way. I think that's more and more important with inflation. (The services) appeal ultimately to a consumer who wants to find inexpensive access to great content.”
The Redbox streaming app likely will soon feature the CSS networks alongside its own FAST channels, its Premium VOD sales, and its ability to reserve physical DVDs at a local Redbox rental kiosk.
The merged companies will be able to realize significant corporate savings even before the deal closes, though Rouhana said layoffs are unlikely, especially given the challenges the rapidly growing CSS has faced in filling positions over the past year.
Earlier this year, Redbox CEO Galen Smith laid off 150 people, roughly 10% of his company, as it took on debt to manage a sharp downturn in its business caused by pandemic-related changes in customer behavior. Rouhana said he expects those problems to ease as life, and movie-watching habits, return to something closer to normal.
“That is a very strong cash-flowing business when it's normal,” Rouhana said. “The last couple of years, with no theatrical releases to speak of, it was losing money. Now it's breaking even because Galen has done such a good job resizing it. But as there are more theatrical releases, I'd expect that this (segment) will go up dramatically. Now that (big theatrical releases are) starting to come again, I believe that's going to be very, very big positive for that business.”
Otherwise, the several streaming services are likely to remain separate brands for some time to come.
“Given how fractionalized the industry is, how many AVODs there are, how many SVODs there are, how many of these choices (consumers have), we need to be available to consumers in a lot of different places with a number of different brands in order to get the most opportunity to attract viewers,” Rouhana said. The various services are now available on around 40 platforms.
Even in taking on Redbox’s debt, which was recently secured to help the struggling company get through, Rouhana said his company was able to restructure the debt to provide considerably more flexibility, with a five-year term, $80 million in revolving credit, and 2.5 years before any debt covenants kick in.
“So we built into the debt structure real financial flexibility, so that we have the time for the rebound to occur, time for the synergies to be implemented, and I think, really way more than enough time, frankly, to turn this into a major business,” Rouhana said.
The kiosks, touted by Redbox as one of its competitive differentiators, appeal to Rouhana too, and for several reasons, he said.
For one, the 38,000 kiosks function as physical, interactive promotional billboards for Redbox offerings at Walmarts, drug and grocery stores and similar locations across the country. It’s a different kind of distribution network, but also one that generates mounds of data about the preferences of its 40 million customers.
For good measure, the company’s kiosk repair and maintenance teams also generate income as contract service providers to other kiosk-operating companies such as Amazon and ecoATM.
The deal comes amid what’s been a very good week for proponents of ad-supported streaming: Netflix and Disney+ both have disclosed plans to launch an ad-supported services by year end, while Fox’s quarterly earnings were boosted by big jumps in ad revenue at Tubi. Even Apple, while keeping TV+ generally ad free, is restructuring its Services executive ranks to focus more on the advertising opportunities generated by its forays in live sports and beyond.
And though ad-supported streaming operations networks may trail heavily funded subscription services for now, Rouhana said they’re catching up quickly, as consumers look for bargains in a weakening economy and overcrowded streaming market.
“I thought this was inevitable for a long time,” Rouhana said. “No matter who you are, you are going to be watching ads on your page or a free service. We just don't know why people would want to pay to watch the ads when they can watch for free.”
David Bloom of Words & Deeds Media is a Santa Monica, Calif.-based writer, podcaster, and consultant focused on the transformative collision of technology, media and entertainment. Bloom is a senior contributor to numerous publications, and producer/host of the Bloom in Tech podcast. He has taught digital media at USC School of Cinematic Arts, and guest lectures regularly at numerous other universities. Bloom formerly worked for Variety, Deadline, Red Herring, and the Los Angeles Daily News, among other publications; was VP of corporate communications at MGM; and was associate dean and chief communications officer at the USC Marshall School of Business. Bloom graduated with honors from the University of Missouri School of Journalism.
The smarter way to stay on top of the streaming and OTT industry. Sign up below.
Thank you for signing up to Next TV. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.