Bill Rouhana, CEO Of Crackle Parent Chicken Soup For The Soul, On Netflix And Disney+ Ad Tiers, How Roku “Missed The Point” And Why His Acquisition Of Redbox “Scared The Daylights Out Of Wall Street”

EXCLUSIVE: Bill Rouhana, CEO of Chicken Soup for the Soul Entertainment, will wait as long as it takes — years even — for the right M&A transaction to come together. Two elements must fall into place, in his words: “industrial logic” and “financial excellence.”

As a result of that approach, which runs counter to the kind of swashbuckling that has made (or more often lost) fortunes in the media business, Rouhana is also used to being second-guessed.

Patient and painstaking dealmaking has defined the streaming company since before its initial public offering in 2017. By gradually adding Crackle, Screen Media, 1091 Pictures, Sonar Entertainment and other assets to the portfolio, through a series of deals engineered to involve little in the way of up-front cost cash payment, CSSE has steadily become the largest player in ad-supported streaming that is not owned by a major tech or media entity. Now, though, comes perhaps the biggest round of second-guessing to face the company: In August, it closed a $375 million deal to acquire Redbox, the firm known for its bright red, disc-dispensing kiosks. If Chicken Soup was all about streaming, what did it want with a company still rooted in physical media and tied to — gasp! — brick-and-mortar retail, especially when most of the deal price was Redbox debt that would be taken on by its new parent?

Related Story

Netflix Searches For Italian "Anti-Heroes" As It Launches Mental Hospital Drama 'Everything Calls For Salvation' — MIA Market

“The headline number of $300 million in debt scared the daylights out of Wall Street in a way that was totally understandable but not really right when you understood the details,” Rouhana concedes in an interview in the company’s Midtown Manhattan offices. “So, the knee-jerk reaction was, ‘What are you doing?!’ But the more refined and thoughtful reaction was, ‘Well, wait a minute now. If you are actually right about this and if, in fact, instead of having 13 theatrical releases hit your Redboxes in the third quarter, you have 32 or 37 in the fourth quarter, and your revenue is commensurate with that, oh my goodness, that’s a great business. That’s a fantastic, free-cash-flowing business that makes a lot of money for you and we’ve undervalued your company.’”

Redbox also brought with its some 41 million members of its loyalty program, with data to be mined for future streaming and production plans. Rouhana said he had first made overtures to Redbox more than two years ago, before the company agreed to be acquired (at a lofty price) and taken public through a SPAC transaction. Covid then brought the company to its knees, especially with no new movie releases hitting kiosks, so the debt-laden company wound up selling for about $175 million less than Rouhana had initially offered. The companies also agreed to restructure Redbox’s debt, pushing maturities out five years, and securing an $80 million line of credit for working capital. On top of $40 million in merger-related cost savings, the company expects to end 2022 with a run rate of $500 million in annual revenue and between $100 million and $150 million operating profit.

Wall Street remains a bit circumspect. Like a host of companies punished during a major rethink of streaming’s economics, Chicken Soup for the Soul Entertainment (yes, an offshoot of the wildly successful self-help book publisher, which also has a sizable pet food business) has not had a great year on the Nasdaq. Its shares closed Wednesday at $6.25, less than half their level at the start of the year. Summer gains after the Redbox deal was announced, which boosted the stock to nearly $15, have evaporated.

There are a few champions on the Street, however. Eric Wold, an analyst with B Riley, last month added the company to the firm’s “25 picks of ’22,” a list of stocks across all sectors seen as having the most upside for investors. He rates the company’s shares a “buy,” with a 12-month price target of $26. Investors, Wold believes, “under-appreciate the digital advertising growth opportunity” for CSSE. The analyst also sees the Redbox deal as transformative, given that the kiosk company had made significant strides in transactional VOD, free ad-supported television (or FAST) and other areas where CSSE had not had a presence. Once again, Rouhana reminds: industrial logic.

“We know what people like to rent at the kiosk, we know what people like to buy on TVOD, FAST, AVOD,” Rouhana says. “If we can knit that together in a way that’s value-added for our viewers and learn how to serve them a home page that’s filled with stuff that’s in the categories they’ve shown they like, then we might have done something of great value.”

Rouhana, who turned 70 this year, has spent his career in various areas of telecom, media and tech. With a foundation in entertainment and financial law, he helped develop new financing models for producers including Blake Edwards. He later founded and run Winstar Communications, which was an early leader in wireless broadband services but ended up in Chapter 11 bankruptcy protection. Ultimately, the company successfully sued Lucent Technologies for breaking a vendor financing agreement, winning a $244 million judgment.

That range of experiences has afforded Rouhana some hard-won wisdom, but has also appeared to only increase his willingness to zig when others zag. In an hour-long conversation and a later follow-up on Zoom, he spoke freely and analytically about the ad-supported streaming sector, which finally heated up years after CSSE was among its early stakeholders.

Roku, rival/distribution partner with a similarly established pedigree, is one major streaming entity that doesn’t appear to impress Rouhana much.

“The Roku guys, I feel like they’ve missed the point,” the exec says, by bankrolling a slate of original programming and embarking on a billion-dollar-a-year content spending spree. “They really need to develop the same things we’ve been building – distribution capabilities globally, the ability to work with other people to get funding, knowing how to get things done in tax-credit jurisdictions.”

Part of the uphill climb for everyone is the fragmentation of programming and the difficulty of discovering something to watch. “We took what used to be four [networks] and broke it into 20,000. … Where’s the audience? It’s all over the place,” he said. “We broke the industry up into too many pieces, and if you don’t approach the creation of original content as an exercise in monetizing content across all different media, you cannot get your money back, I don’t care who you are. There’s not enough audience.”

In the entire streaming realm, Rouhana said, “The only people I think who are speaking transparently are the Warner Bros Discovery people. They’ve admitted what everybody knows: You have to exploit programming in every way humanly possible in order to get your money back. And if you don’t, you’re going to lose money. And you can only do that for so long.” As Roku ponies up significant dollars for originals (though its has also reassured anxious investors it will curb that spending), “They need to look at it as a risk-mitigation strategy, not just a ‘programming for our networks’ strategy. They won’t get their money back. … They don’t have an economic model that’s going to make it valuable for them.”

Disney and Netflix throwing their hats into the ad-supported ring, meanwhile, has brought his company some unexpected benefits, Rouhana said. “When we first heard about them coming, I thought, ‘Oh great, it’s going to give us more validation, more advertisers are going to feel comfortable, and they’ll just keep coming.’ And that’s true,” the CEO said. “But here’s what also happened, and I hadn’t thought about it this way at the time: If you’re an advertiser now with Netflix or Disney or the others who are big, you don’t need to go as many places to find connected-TV ad opportunities. So, for the smaller AVOD guys, it has actually become a problem. Because they’re too small to go directly to advertisers now. They won’t get any time or attention. And what’s ended up happening is, a dozen-plus of them have come to us and asked us to sell their ads for them. We’ve become sort of an aggregator of mid-sized AVODs, bringing all of the inventory together to offer to advertisers in a much larger package. Therefore, they don’t have to talk to 12 guys.”

As streaming has boomed over the past couple of years, both in terms of viewing and investment, companies like Sony-owned Crunchyroll/Funimation, streaming pay-TV bundle provider Philo, Byron Allen’s Local Now and the family-programming-focused FrndlyTV are among those who have turned to Chicken Soup for help selling ads.

The fees involved in this burgeoning ad-rep business are not sky-high, but they add up. Like much of Chicken Soup’s domain, they contribute incrementally to the overall. The company today announced a deal with VIDAA USA, which makes the VIDAA platform on Hisense smart TVs, to add Crackle streaming services and a Crackle-branded remote control button. Hisense isn’t Samsung or Vizio, but it is a meaningful competitor in a growing smart-TV sector.

With all of this interest in CSSE, what’s to stop an ad or distribution relationship from progressing to a broader M&A transaction, given steady rumblings about consolidation likely to winnow down the number of streaming service owners? At its current market value of about $135 million, Chicken Soup for the Soul Entertainment would be digestible for a host of other potential suitors, and Rouhana says there has indeed been inbound interest.

“People have approached, but that’s been going on since we started,” he said.

Must Read Stories

Netflix Seeks Anti-Heroes; Italy’s Film Exports Double; ‘Gomorrah’ Writers Return

Amazon’s Head Of Originals, Asia Pacific, Talks Expansion & Competition

Trevor Noah Sets Date For His ‘Daily Show’ Exit – And It’s Not Too Far Off

Trial Erupts As Anthony Rapp Tells Court Spacey “Made Advances” On Others

Read More About:

Source: Read Full Article