EXCLUSIVE: As crucial movie rental revenue finally starts to return, Redbox and Crackle parent Chicken Soup for the Soul Entertainment is taking steps to tighten its corporate belt.
Chatter in media and entertainment circles has been growing louder as Chicken Soup’s stock has skidded to an all-time low, putting its market value at $55 million. It closed Tuesday at $2.60, half its level at the start of 2023 and well below its mark above $14 when the $375 million Redbox acquisition closed last August. The operating environment, of course, has been grueling for all media companies over the past year, with stocks falling across the board and most players in cutback mode.
Multiple sources familiar with management’s thinking indicated to Deadline that layoffs are not in the forecast for the company, which runs a number of ad-supported streaming businesses along with Redbox. In lieu of staff reductions, though, executive bonuses typically paid out in March have been deferred until the second quarter and select distribution deals for titles inherited in the Redbox deal have been renegotiated. The company also just lined up a $50 million infusion from a share purchase agreement as it seeks to shore up its financial resources.
In a recent town hall meeting, CEO Bill Rouhana delivered updates to staffers about the plans to defer executive bonuses. The other major austerity measure has been renegotiating individual distribution deals for select Redbox titles inherited in the acquisition. Prior to going public in late-2021 via a merger with special-purpose acquisition company Seaport Global, Redbox had been significantly ramping up its original production output. Whenever a new owner takes over — think, on a different budget level, Warner Bros Discovery — existing projects get rethought or sometimes even shelved, within the bounds of contractual obligation. Major multi-picture pacts like one signed by Redbox in 2020 with John Wick producer Basil Iwanyk are not understood to be affected by the pullback, sources said.
The company declined to comment on its recent activities, citing the federally mandated quiet period ahead of its fourth-quarter earnings report. CSSE will be one of the last companies to report results this earnings season, and has not yet specified when it will do so. SEC rules require numbers to be released within 90 days of the close of the previous quarter, meaning the company will have to step into the spotlight sometime before March 31.
As the moves are being undertaken, revenue from transactional rentals at Redbox has finally started to flow in again after the long struggle with Covid coupled with studio efforts to favor their own subscription streaming outlets. The company has seen a sharp uptick in revenue during February and March as major fourth-quarter theatrical titles like Black Panther: Wakanda Forever and Puss in Boots: The Last Wish entered the rental window. Specific revenue figures for films are typically not shared publicly, and most of the momentum will be hit the balance sheet in the current quarter, not the last one.
The total rental market in physical and digital is sizable, adding up to $6.3 billion in 2022, according to the Digital Entertainment Group. As with theatrical exhibition, the size of the overall release slate correlates directly with revenue. Expectations for 2023 are for a 20%-plus increase in box office, fueled by more releases on the schedule, and returns so far this year point to a significant comeback story taking shape.
Redbox, which operates 34,000 kiosks outside of retail locations like grocery and convenience stores, expects to have at least one major new release each week for the rest of 2023, a vast improvement over the Covid doldrums. Yet there has been a degree of uneasiness since the acquisition given that it was comprised almost entirely of the assumption of Redbox debt by Chicken Soup. While the decision to more than quadruple the company’s debt load unnerves many investors, as Rouhana himself acknowledged last fall in an interview with Deadline, there are no covenants coming due soon and the repayment of the debt won’t begin until 2024. The Federal Reserve’s aggressive ratcheting up of interest rates over the past year, which has contributed to bank failures and a slowdown of M&A across the economy, does not appear to pose a particular near-term threat to the company.
Nevertheless, as it plays a challenging hand, Chicken Soup last week disclosed it had entered into a $50 million share purchase agreement with Lincoln Park Capital Fund, a Chicago investment firm. The deal, known as a “backstop” financing arrangement, offers the company added flexibility as it looks for movie revenue to move the needle.
Eric Wold, an analyst with B. Riley, has long been bullish on Chicken Soup for the Soul shares, maintaining a 12-month price target of $26 for the stock. He told Deadline he remains upbeat about the company’s prospects, though he conceded that the price target might need to be reconsidered.
The stock “has been in a funk because it’s not like you’ve had amazing news” on rentals being touted in the manner of box office surprises like Cocaine Bear, Creed 3 and M3gan. While Redbox is “still in the unknown state,” like movie theaters, “I’m confident that it will rebound,” he added. In the pre-pandemic 2019, Wold said, Redbox was taking in $200 million a year in EBITDA. Its retail price point, with rentals starting at $2 a night, continues to be attractive to many consumers in inflationary times, when large swaths of the country don’t have pay-TV or broadband internet.
As the movie wheels have gradually started turning again, Chicken Soup has not made many public comments since Rouhana appeared January 11 at an investor conference hosted by Needham & Co. Asked there by Needham analyst Laura Martin about the thing he’s most excited about and most worried about in 2023, he mentioned the return of theatrical moviegoing as the former and “worrisome” increases in interest rates as the latter. When Martin asked him to pass along the best piece of advice he has ever gotten, he repeated a directive from his father. “Take the extra minute to do the thing right,” Rouhana said. “He said that to me so many times, I now say it to myself when I’m about to cut a corner of some sort.”