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Some apparently didn’t get the memo, or research the classic case studies on competitive advantage. Chicken Soup for the Soul Entertainment (NASDAQ:CSSE), the parent company of Redbox, has filed for bankruptcy, with a bill of nearly $1B owed to hundreds of creditors, including Sony (SONY), Warner Bros (WBD), Walgreens (WBA) and Walmart (WMT). Besides a network of 24,000 DVD rental kiosks, CSSE had some TV and streaming assets that never took off, including ad-supported video-on-demand services like Crackle and Popcornflix.
Sound familiar? Blockbuster went bust back in 2010 after failing to adjust to structural changes within the movie industry. Management did not take the threat of subscription video-by-mail services from Netflix (NFLX) seriously, as well as the advent of video-on-demand, which would eventually trigger the streaming wars later that decade. Several high-profile businesses like Disney+ (DIS), Prime Video (AMZN), and Max (T) have been jockeying for market share in recent years, but one thing is clear – the era of the optical disc is long gone and it is not coming back anytime soon (with the exception of Blu-Ray, 4K, or nostalgic fans).
Bearing that in mind, Chicken Soup for the Soul Entertainment (CSSE), which has never turned a profit as a publicly traded company, scooped up Redbox in 2022, taking on an additional $325M in debt in the process. The acquisition was led by CEO and Chair Bill Rouhana, who previously founded and led Winstar Communications (which ended up being one of the notable telecom bankruptcies of the dot-com era). Many analysts on Seeking Alpha have been issuing warnings about Chicken Soup (CSSE) for years, like Hindenburg Research back in 2018, and Arie Investment, Bill Maurer and Chris DeMuth in 2022. CSSE shares tumbled 40% to $0.12 following the latest news on Monday, and are down again in premarket trading after plunging 83% over the past year.
No rewinding: Redbox Entertainment was a product of the SPAC boom, which was taken public by Apollo Global Management (APO) in 2021 via a merger with Seaport Global Acquisition. Within a year, the company was offloaded to Chicken Soup for the Soul Entertainment (CSSE) just as the SPAC bubble burst. “We were bringing assets that were helpful in terms of the debt, cleaning up the capital structure and access to new cash, and they were bringing these incredible assets, this bigger revenue business and the ability to generate a lot of cash flow,” Bill Rouhana, who has now been replaced, said at the time. “I’m happy that we broke through and got it right.”