Redbox, the last bastion of DVD rentals via its ubiquitous kiosks, is selling Chicken Soup for the Soul Entertainment for around $375 million in stock and debt.
But never fear, Luddites video rental. Redbox vending machines at Jewel, Walgreens and other stores are expected to continue dispensing DVDs for years to come.
The deal, announced Wednesday, includes approximately $50 million in Chicken Soup stock and the assumption of $325 million in Redbox debt, a legacy of the sharp decline in DVD rentals during the COVID-19 pandemic and of the slow progress of its digital streaming service. The combined company is looking to gain market share from video-on-demand giants such as Netflix, Amazon Prime and Disney Plus with lower-cost services.
Oakbrook Terrace-based Redbox, which went public in October through a special-purpose acquisition company, saw its revenue nearly halve last year to around $288 million as the shortage of new movie releases has dried up DVD rentals. Losses mounted, and last month Redbox announced it had laid off 150 employees, more than 10% of its workforce.
The transaction, which is expected to close in the second half of 2022, gives Chicken Soup for the Soul access to 40 million Redbox members, an extensive content library and expansive streaming platforms. Chicken Soup for the Soul owns and operates a variety of ad-supported streaming services, including Crackle, Popcornflix and its eponymous brand.
Chicken Soup also acquires approximately 38,000 Redbox DVD rental kiosks at Walmart, Walgreens and other stores across the United States, including dozens in the Chicago area, which the new owner plans to keep operating for years. coming.
“The newsstand business, as it rebounds with theatrical releases, is going to generate a ton of cash flow,” William Rouhana, president and CEO of Chicken Soup for the Soul Entertainment, said on a call. to investors on Wednesday.
While Rouhana said the future of the business is digital, it may take “10 to 20 years for people to finally leave DVDs”, with Redbox being the last major rental option.
Galen Smith, CEO of Redbox, said Wednesday that the company is “investing in transforming Redbox for the digital age,” but touted the continued value proposition of its legacy kiosks, which accounted for about 88% of its revenue in the past. last year.
“Kiosks still have tremendous reach and power for consumers looking for the ultimate value,” Smith said. “For $2 or less per night, consumers have access to the latest theatrical releases. It’s a third of the cost of digital options.
Founded in 2002 by hamburger giant McDonald’s to drive traffic to its restaurants, Redbox installed its first fully automated DVD rental kiosks in 2004. In 2005, Bellevue, Wash.-based Outerwall invested in Redbox, helping it grow in POS. Outerwall, formerly known as Coinstar, completed its acquisition of Redbox in 2009.
In 2016, investment firm Apollo Global Management agreed to buy the struggling parent company of Redbox and Coinstar for around $1.6 billion, installing Smith as CEO.
Smith has spent the past six years dealing with declining DVD rentals and trying to bring Redbox customers into the digital age.
Launched in December 2017, Redbox On Demand offers a large catalog of movie and TV titles, including new releases, for two-day streaming, with no subscription required. The company also offers an eclectic assortment of free live TV shows such as “Cops” and “Family Feud.”
The physical video rental model has all but disappeared in recent years as online streaming services have become mainstream, relegating many DVD players to the attic. Blockbuster announced it was closing its corporate stores in 2013 as a dwindling number of retailers continued to respond to digital pushback.
Last year, Family Video, the suburban Chicago-based video rental chain, closed its stores, calling it quits after 42 years, leaving Redbox the last major retailer standing.
As residential broadband penetration exceeds 90% of occupied households, according to research released this month by S&P Global Market Intelligence, millions of Americans still lack the digital capacity to stream movies and TV shows.
Rouhana said it may be premature to write an obituary for DVD rentals, noting that 3 million DVD players were purchased in the United States last year. Beyond the technological hurdles, he expects a “gradual reduction” in the DVD business over decades as the last “slow adopters” finally turn to streaming to rent movies.
“It’s like anything else,” Rouhana said. “It takes time for people to change their habits and migrate to new things.”