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July 1, 2024
Can Chicken Soup for the Soul Entertainment Survive?
Chicken Soup for the Soul Entertainment (CSSE) has filed for Chapter 11 bankruptcy protection, grappling with financial pressures exacerbated by its acquisition of Redbox in 2022.
The company faces debts totaling around $970 million against assets of $414 million, owing substantial amounts to major entities like Universal Studios, Sony Pictures, Walgreens, and Walmart. Despite efforts to diversify into streaming services, the future of Redbox’s 27,000 kiosks nationwide remains uncertain. The publishing arm of CSSE, known for its enduring inspirational books, continues independently amidst the financial turbulence, having published over 300 titles since its inception, resonating with readers worldwide.
In response to the bankruptcy filing, which followed the company’s failure to pay its employees for a week and obtain financing, Chicken Soup for the Soul has sought a debtor-in-possession loan of up to $100 million to sustain operations during the bankruptcy proceedings. This loan aims to stabilize payroll obligations and reinstate medical benefits for employees.
Financial woes have mounted for Chicken Soup for the Soul, exacerbated by missed payroll and mounting debt. The company owed significant sums to creditors, including $46 million to U.S. Bank and over $9 million each to Sony and BBC Studios. Delinquent rent payments to Walgreens and Walmart have added to the company’s financial strain, culminating in the Chapter 11 filing in Delaware.
The company’s diversified portfolio, which includes not just Redbox but also streaming brands like Crackle and Popcornflix, aimed to adapt to changing viewer preferences. Despite efforts to pivot toward digital platforms, the company struggled to offset the decline in DVD rentals, further hampered by contractual disputes and delayed payments to Hollywood studios.
Once ubiquitous in front of grocery stores and pharmacies, Redbox’s DVD rental kiosks, currently numbering over 27,000 nationwide, were once a convenient way for movie buffs to pick up the latest releases. However, as digital downloads and streaming platforms gained traction, the appeal of physical DVDs waned. The company’s acquisition of Redbox in 2022, valued at $357 million in stock and debt, now appears to have been ill-timed, burdening CSSE with substantial financial obligations.
This acquisition resulted in impairment charges, contributing to substantial losses for Chicken Soup for the Soul Entertainment, rising from $20 million in Q3 2022 to $433 million in 2023. Legal disputes, including unpaid royalties to NBCUniversal, further compounded its troubles.
The company sought to pivot toward streaming, leveraging Redbox’s Free Live TV FAST service offering nearly 170 channels. Despite these efforts, CSSE’s stock plummeted, prompting NASDAQ to consider delisting due to prolonged trading below $1. Recently, shares saw a brief surge from 15 cents to 43 cents before declining to 26 cents, starkly down from highs of $42 in June 2021 and $1.84 a year ago.
Prior to its financial downturn, CSSE had pursued expansion, acquiring stakes in Indian production company Locomotive Global and the TV/film assets of Sonar Entertainment in 2021. These moves, along with the launch of Halcyon TV’s scripted division, underscored its ambitious growth strategy before encountering severe financial setbacks.
Founded originally in 1993 by motivational speakers Jack Canfield and Mark Victor Hansen, Chicken Soup for the Soul Entertainment gained fame through its inspirational book series. Titles like “From Lemons to Lemonade” resonated widely, offering uplifting stories tailored for diverse audiences. Despite this success in publishing — having sold over 500 million copies globally — the company’s foray into entertainment, specifically through Redbox, has hit turbulent waters.
Under the leadership of William J. Rouhana Jr., who became CEO in 2008, the company attempted expansions beyond its core publishing business. These ventures included an ill-fated line of soups and the establishment of an entertainment division in 2016, which aimed to capitalize on the multimedia landscape. However, these efforts failed to stem the financial losses that have plagued the company, culminating in a reported net income loss of $636 million in 2023 alone, per a filing with the U.S. Securities and Exchange Commission.
After filing for bankruptcy, CSSE replaced Rouhana with Bart M. Schwartz as CEO. Additionally, Schwartz is one of three new board members, along with Josh Mandel and Steven Goldsmith.
Discussion Questions
How can Chicken Soup for the Soul Entertainment strategically reposition its portfolio, including Redbox and streaming services, to regain financial stability amidst changing consumer preferences?
In what ways might Chicken Soup for the Soul leverage its strong brand equity from its inspirational books to navigate the competitive entertainment industry after recent financial setbacks?
What actionable steps should Chicken Soup for the Soul take to rebuild trust with creditors, stakeholders, and investors following its bankruptcy filing?
Poll
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Arnjah Dillard
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With nearly $1 billion in debt and just $400 million in assets, it is hardly surprising that CSSE filed for bankruptcy. The company financials are in such a state that it is not in the interests of lenders to cut a deal with the company or put forward refinancing options.
CSSE Purchasing Redbox was a mistake. Redbox is a dying format that becomes less and less relevant with each passing year. It is also an expensive operation as acquiring licenses to rent out movies is far from cheap. It seems that CSSE did not think any of this through before the purchase. I am afraid the company is very badly managed and it will not survive in its current form.
These are dated brands with little prospect of relevance. In this case, at least, bigger isn’t better.
There was absolutely nothing, I repeat n-o-t-h-i-n-g, in this piece to offer encouragment; ( “missed payroll”: these words in particular indicate they’ve long since passed the tipping point and are flailing about in icy waters). While I certainly don’t wish them ill, I’ll save my limited stock of active hoping for
countriescompanies that still seem to have a chance.In my opinion, Chicken Soup for the Soul Entertainment will have a difficult time surviving competition, changing trends, and the constant changes and alternations of consumer habits and entertainment-behavior.
Frankly, I’m surprised that Redbox still has a market at all. I’m not sure why. – Db
I am surprised as well, but always saw people in rural towns(my relatives live in a small town) and still use Redbox.
The strategy to diversify into DVD rental service to begin with seems like an odd choice. When companies take their eyes off of their base business it is a significant risk. Rather, an initiative such as leveraging the Chicken Soup brand and its books into content and licensing would have been a more natural extension. I could absolutely see more Hallmark like potential revenue streams.
The market for DVDs crashed a decade ago. Investing in a business that’s worth almost nothing made no sense in 2022, and yet here we are. There is no path forward in this business model, at least none that I can see.
The only winner in CSSE’s strategy was Redbox, cashing out at the top of the DVD rental bubble.
The acquisition is puzzling on many levels – 1) misaligned with the company’s brand and mission, 2) placed burdensome debt and licensing fees on the parent company and 3) was a move into a market rapidly shifting to significantly better funded streaming services.
CSSE’s leadership inability to recognize these clear and obvious dynamics is foreshadowing of their long term future in the absence of a successful bankruptcy, shedding Redbox and refocusing on their core offerings.
I completely agree with you. The acquisition of Redbox was indeed puzzling and seemed misaligned with CSSE’s brand and mission. The burdensome debt and licensing fees it introduced were significant challenges, especially given the market’s rapid shift towards better-funded streaming services. It’s clear that the leadership missed some critical dynamics in this decision. Moving forward, I believe shedding Redbox and refocusing on core offerings will be essential steps for CSSE to regain stability and align more closely with its original mission.
Given the streaming deals and channels haven’t shown much promise from a revenue bounce, there’s little upside in this business other than to remain focused on delivering good DVD kiosk service in only the rural outposts where broadband hasn’t yet been developed. But its doubtful there is enough profitable business upside only in those communities to make it all work. Too bad.
What is a DVD? It’s toast in the era of streaming, especially with more badnwidth coming to rural areas via Inflation Reduction Act infrastructure spending and Starlink.