Redbox, the latest bastion of DVD rental through its ubiquitous kiosks in stores, sells Chicken Soup for the Soul Entertainment for about $ 375 million in stock and debt.
But fear not, Luddites video rental. Redbox vending machines in Jewel, Walgreens and other stores are expected to release DVDs for years to come.
The deal, announced Wednesday, includes about $ 50 million in chicken soup and a $ 325 million Redbox debt assumption, a legacy of a sharp decline in DVD rental during the COVID-19 pandemic and slow progress for digital streaming service. The combined company is looking to get a share compared to video-on-demand giants like Netflix, Amazon Prime and Disney Plus, with lower service prices.
Oakbrook Terrace’s Redbox, which went public in October through a special acquisition company, fell nearly half last year to about $ 288 million as a shortage of new films stopped DVD rental. Losses were rising, and last month Redbox announced it had laid off 150 employees, or more than 10% of its workforce.
The deal, which is expected to close in the second half of 2022, gives access to “Chicken Soup for the Soul” to 40 million Redbox members, a large content library and enhanced streaming platforms. Chicken Soup for the Soul owns and operates a variety of advertising-supported streaming services, including Crackle, Popcornflix and the eponymous brand.
Chicken Soup also acquires about 38,000 Redbox DVD rental kiosks at Walmart, Walgreens and other stores across the U.S., including dozens in the Chicago area that the new owner plans to keep in operation for years to come.
“The kiosk business, which is being revived with theatrical releases, will generate a lot of cash flow,” said William Rouhani, chairman and CEO of Chicken Soup for the Soul Entertainment, during a call from investors on Wednesday.
While Rouhana said the company’s future is digital, it could take “10-20 years before people finally leave the DVD”, and Redbox was the last major national retailer.
Galen Smith, CEO of Redbox, said Wednesday that the company is “investing in transforming Redbox for the digital age”, but is advertising a valuable offering from its old stalls, which accounted for about 88% of its revenue last year.
“Kiosks still have huge coverage and capacity for consumers looking for the highest value,” Smith said. “For $ 2 or less per night, consumers get access to the latest and greatest movies. That’s a third of the cost of digital options. “
Founded in 2002 by hamburger giant McDonald’s to drive traffic to restaurants, Redbox installed its first fully automated DVD kiosks in 2004. In 2005, Outerwall of Bellevue, Washington, invested in Redbox, which helped it expand into outlets. Outerwall, formerly known as Coinstar, completed its acquisition of Redbox in 2009.
In 2016, the investment company Apollo Global Management agreed buy a parent company that struggles Redbox and Coinstar are worth about $ 1.6 billion, recognizing Smith as CEO.
For the past six years, Smith has devoted himself to reducing DVD rental and trying to convince Redbox customers into the digital age.
Released in December 2017, Redbox On Demand offers a large catalog of movies and TV shows, including new releases, for a two-day broadcast without a subscription. The company also offers an eclectic range of free live TV shows such as “Cops” and “Family Hostility”.
The model of physical video rental has virtually disappeared in recent years, when the online streaming service has become massive, pushing many DVD players to the attic. Blockbuster announced it was closing its corporate stores in 2013, while fewer retailers continued to cater to digital deterrence.
Last year, Family Video, a video rental network in suburban Chicago, closed its storescalling it discontinued 42 years later, leaving Redbox the last major seller.
While broadband penetration in residential homes exceeds 90% of occupied households, according to a study published this month by S&P Global Market Intelligence, millions of Americans still do not have the digital ability to broadcast movies and TV shows.
Rouhani said it may be premature to write an obituary for DVD rental, noting that 3 million DVD players were purchased in the U.S. last year. Aside from technological hurdles, he expects the DVD business to “gradually shrink” over decades as the latest of the “slow users” finally move to streaming for movie rental.
“It’s like any other thing,” Rouhani said. “People need time to change their habits and move on to something new.”