Redbox DVD Kiosks Poised for ‘Renewed Growth’: Chicken Soup CEO

Other ad-supported VOD services “have already learned that building an ad sales engine isn’t easy,” said Chicken Soup for the Soul Entertainment CEO William Rouhana on a Q2 earnings call Thursday. Disney+ and Netflix “will learn that soon,” he said.

Chicken Soup’s vision for the “strategic importance of AVOD amid changing consumer viewing habits is now a growing reality,” said Rouhana. As can be seen from slowing subscriber growth for premium VOD services, plus the ongoing cord-cutting trend, “consumers are adapting to getting smarter about their subscriptions and content choices, and they are looking for value in addition to quality content,” he said. “AVOD solves all these needs in a way that legacy or subscription services cannot quite reach.”

Chicken Soup’s $375 million Redbox buy (see 2205110051), which closed Thursday, is a “transformative deal” that speeds “our scale-up strategy by as much as three years,” said Rouhana. Chicken Soup and Redbox are “a truly unique fit,” he said. “The combination creates a fully formed entertainment asset for the streaming era that we don’t think you can find anywhere else.”

The Redbox DVD kiosk business “is starting to show renewed growth as the theatrical release market slowly comes back to life,” said Rouhana. “An improving kiosk business is important in the early days of this acquisition, as it provides a valuable source of cash flow for the company to fund growth of our digital businesses.”

Chicken Soup estimates there will be three dozen current theatrical releases that will reach Redbox DVD kiosks in the fourth quarter, said Rouhana. “It’s a big number, it’s a big difference, and there is a consistent relationship between theatrical releases hitting the kiosks and rentals going up.” Each time there's a “meaningful theatrical release” that enters the DVD marketplace, there’s “a major uptick in rentals for that week and the week following,” he said. “We’re not dreaming this up. This is the pattern that we see. It’s in the numbers.”

With Redbox’s content pipeline now under Chicken Soup’s control, “we are adjusting our content strategy from a focus on building more pipeline to optimizing the pace of rights monetization,” said Rouhana. “We now have the flexibility to spread out our content investment without sacrificing our robust schedule. Programming cost is one of several profitability levers we have, and now we have the ability to manage this one well.”

The company will be “sharing more soon” on its Redbox integration plans, said Rouhana. Redbox over time will emerge as Chicken Soup’s “flagship consumer-facing brand in the U.S., where it has strong brand equity,” he said. “We are in the early stages of creating a singular Redbox app” that will house “all of our streaming networks and be distributed as yet another touch point for our networks and content,” he said.

The Redbox deal’s $375 million price tag was “a very low-cost acquisition for us,” said Rouhana. “We were able to restructure Redbox’s debt in a way that provides us additional near-term liquidity, extends maturities, eliminates covenants and provides flexibility. In short, we are in a good capital position to achieve our plans with all the cash flow benefits I’ve just outlined.”

There’s an opportunity for Chicken Soup “to do more” acquisitions, said Rouhana. “We have a real chance to continue to grow this business in a meaningful way, into a real serious media company,” he said. “AVOD is our North Star.”