Redbox, the last bastion of DVD rentals through its ubiquitous storefront kiosks, is selling to Chicken Soup for the Soul Entertainment for about $375 million in stock and debt.
But fear not, video rental Luddites. The throwback Redbox vending machines at Jewel, Walgreens and other stores are expected to keep dispensing DVDs for years to come.
The deal, announced Wednesday, includes about $50 million in Chicken Soup stock and the assumption of $325 million in Redbox debt, a legacy of steep DVD rental declines during the COVID-19 pandemic and slow progress for its digital streaming service. The combined company is looking to gain share against 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 revenues fall by nearly half last year to about $288 million, as a dearth of new movie releases dried up DVD rentals. Losses mounted and last month Redbox announced it had laid off 150 employees, or more than 10% of its workforce.
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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, a large content library and expanded streaming platforms. Chicken Soup for the Soul owns and operates a variety of ad-supported streaming services including Crackle, Popcornflix and its namesake 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, which the new owner plans to keep in service for years to come.
“The kiosk business, as it rebounds with theatrical releases, is going to generate a ton of cash flow,” William Rouhana, chairman and CEO of Chicken Soup for the Soul Entertainment, said during an investor call Wednesday
While Rouhana said the company’s future is digital, it may take “10 to 20 years for people to finally leave the DVDs,” with Redbox the last national rental option.
Galen Smith, CEO of Redbox, said Wednesday the company has been “investing in transforming Redbox for the digital age,” but touted the ongoing value proposition of its legacy kiosks, which accounted for about 88% of its revenue last year.
“The kiosks still have tremendous reach and power for consumers looking for the ultimate value,” Smith said. “For $2 or less per night, consumers get access to the newest and latest theatrical releases. That’s a third of the cost of digital options.”
Founded in 2002 by hamburger giant McDonald’s as a vehicle to drive traffic to its restaurants, Redbox installed its first fully automated DVD rental kiosks in 2004. In 2005, Bellevue, Washington-based Outerwall invested in Redbox, helping it expand into retail locations. 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 about $1.6 billion, installing Smith as CEO.
Smith has spent the last six years dealing with declining DVD rentals and trying to coax Redbox customers into the digital age.
Rolled out 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 became mainstream, relegating many DVD players to the attic. Blockbuster announced it was closing its corporate stores in 2013, while a dwindling number of retailers continued to cater to digital holdouts.
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.
While broadband residential service penetration exceeds 90% of occupied households, according to research published this month by S&P Global Market Intelligence, millions of Americans still don’t have the digital capability 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 U.S. last year. Beyond technological hurdles, he expects a “gradual reduction” in DVD business over decades, as the last of the “slow adopters” finally turn to streaming to rent movies.
“This is just like any other thing,” Rouhana said. “It takes time for people to change their habits and migrate to new things.”