Crackle owner Chicken Soup for the Soul Entertainment, an ad-supported video-on-demand streaming company, acquired Redbox Entertainment, the operator of 38,000 DVD rental kiosks, for $375 million, comprised of $50 million in Chicken Soup stock and the assumption of $325 million in Redbox’s debt. The company is betting on Redbox’s streaming offering to propel it forward in the overly saturated streaming market.
The all-stock transaction leaves Chicken Soup shareholders with 76.5% of the company and Redbox shareholders with 23.5%. Redbox’s majority owner, Apollo Global Management, will own approximately 15%. The transaction is expected to close in the second half of 2022.
The main goal of the acquisition is to better position both companies in the streaming landscape. In the deal announcement, Chicken Soup said the combination is expected to help its bottom line in 2023, with an expectation of cost synergies of more than $40 million. The company touted that the combination results in $500 million of revenue and $100 million to $150 million of adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) at the end of 2022.
A DVD rental dinosaur that was founded 20 years ago, Redbox has been riding the struggle bus for a while now, collapsing during COVID-19. In 2021, the company experienced $140.8 million in losses, had $289 million in sales (down from $546.2 million in 2020) and cash flow went negative to $15 million. In October 2021, it went public in a $693 million SPAC (special purpose acquisition company) merger with Seaport Global Acquisition Corp. While it hoped this was its saving grace, the company remained financially unstable, cutting almost 10% (150 out of 1,467 employees) of its workforce in April. In addition, Redbox’s post-SPAC merger shares depleted from $10 in October 2021 to below $2 recently.
William Rouhana Jr., chairman and chief executive officer of Chicken Soup for the Soul Entertainment, admitted that the acquisition will add significantly to Chicken Soup’s debt load.
So why is Chicken Soup cashing in on this “dinosaur” entertainment company?
He told Forbes, “I'm buying the dinosaur because the dinosaur comes with cash flow, and the dinosaur is gonna lay nice little dinosaur eggs called digital ad businesses with 40 million customers who already love the brand, with its TVOD (transactional video on demand) business and free TV business already in place… I don't think this is a dinosaur. I think this is the future.”
In addition, Chicken Soup for the Soul Entertainment mentioned how this opportunity could help the company distribute Screen Media titles (which the company owns) through Redbox kiosks. This morning, the company’s presentation stated that 90% of Americans live within five minutes of a kiosk, and the Redbox DVD business is expected to grow in the next one to two years as first-run films return to theaters.
“Today marks a transformative moment for Chicken Soup for the Soul Entertainment and an inflection point for the ad-supported streaming industry. Our acquisition of Redbox will accelerate the scaling of our business as it combines complementary teams and services to create the streaming industry’s premier independent AVOD… Together, we will build a fully developed AVOD and FAST streaming business: proven branded streaming services, formidable content, and production capabilities, and a strong AVOD and FAST ad sales operation,” Rouhana said in a statement.
Because of the debt load, Rouhana said there will be cost cuts and has structured the debt to be covenant-free for the first two years, with the option to avoid cash interest payments for the first year and a half. Additionally, the chairman and chief executive officer arranged for a new $80 million working capital credit line from New York City’s HPS Investment Partners for five years.
Chicken Soup for the Soul Entertainment has eight ad-supported video-on-demand and television streaming channels (Crackle, Popcornflix, Popcornflix Kids, Popcornflix Comedy, Truli, Frightpix, Espanolflix and Pivotshare), with 40 million monthly active users, specializing in lower budget offerings. The company acquired Hollywood’s Sonar Entertainment, Locomotive Global and 1091 Pictures last year, bringing its library to a total of 24,000 TV episodes and 14,500 films.
Meanwhile, Redbox has 40 million customers in its loyalty program (Redbox Perks), over 130 FAST digital channels on its Free Live TV platform, and a massive content library across TVOD and PVOD platforms, as well as multiple physical and digital distribution channels.
Galen Smith, chief executive officer of Redbox, said, “We believe that Chicken Soup for the Soul Entertainment is the ideal partner for Redbox. By joining forces, we will accelerate Redbox’s transition from a physical to a high-growth digital media company and be the only entertainment provider truly focused on value for consumers. This all-stock transaction provides Redbox stockholders with the opportunity to participate in the significant near- and long-term upside potential of a diversified and growing company with greater scale and resources... we will be well-positioned to deliver consumers a wealth of high-quality entertainment options.”