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Being Acquired After A Failed Attempt At Moving From Analog To Digital

Being Acquired After A Failed Attempt At Moving From Analog To Digital

Redbox kiosk inside a McDonalds. (Photo by George Frey/Getty Images)

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After posting adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) of -$15 million in 2021, down from $114 million in 2020 and the outlook for 2022 not looking positive, Redbox is being sold for a song to Chicken Soup for the Soul, the owner of Crackle in a $375 million deal.

Management made an unsuccessful attempt to switch from renting DVDs via kiosks to delivering up on-demand content. Now, the struggling company is selling out in an all-stock transaction to a company who has successfully cracked the code of launching online video services.

It’s been a long journey for Redbox Automatic Retailer, LLC, which was founded in 2002 by McDonalds. They sold 47% of the company to Coinstar for $32 million in 2005, which later raised its stake to 56% via the exercise of options. Then, in 2009, Coinstar parent-company Outerwall bought the remaining 44% stake from McDonalds for $167 million.

It was taken private by Apollo Global Management

APO
in 2016 when Apollo agreed to pay $1.6 billion for Outerwall or $52/share, a 51% premium over where the stock was trading prior to the M&A announcement. Apollo is still a shareholder in Redbox.

Early on, the company was capitalizing on the DVD boom by becoming a cheap and convenient alternative to DVD rental stores by installing Kiosks (it now has about 38,000) in retail stores and renting DVDs out at a low-price point. This was considered a win-win by many retailers, as it brought movie-seeking customers into grocery stores and other retail outlets.

However, as DVD sales and rentals plummeted, the company struggled to reinvent itself as a VO

VO
D platform. It now has 40 million customers in its loyalty program. These are a mix of customers of Redbox Kiosk, those watching its Free Live TV platform which carries 130 digital channels, TVOD (Transactional video-on-demand, basically pay-per-view (PPV) over the Internet) and PVOD ((Premium video-on-demand) which is similar to TVOD but in an earlier window after theatrical release).

Despite all of this expansion into new forms of viewing movies and TV shows online, it reported a loss in 2021 of $141 million on $289 million in revenue, which fell almost in half from $546 million in 2020.

Flash forward to 2022, and Redbox went public again last October via a merger with a special purpose acquisition vehicle (SPAC) called Seaport Global at a valuation of almost $700 million.
It is now being acquired by Chicken Soup for the Soul in a deal where shareholders will do a stock-swap into the publicly traded company at a ratio of .078 CSSE shares per 1 RDBX share, valuing the equity at about $50 million, with Chicken Soup also assuming about $325 million in debt.
Redbox shareholders will only own 23.5% of the combined company after the merger closes. CSSE said it expected the acquisition to be accretive next year, with $40 million in cost synergies and expects to end the year with a run-rate of more than $500 million in revenue and $100-$150 million in adjusted EBITDA.
Shareholders weren’t buying it as a positive move, however, with CSSE falling 10.9% from $7.92 to $7.14 on 5/11 and RDBX shares falling 34.7% from 5.60 to $3.66 the same day.
The merger is an Advertising video-on-demand (AVOD) play, with management at Chicken Soup for the Soul saying the combined companies will have one of the largest independent ad-supported VOD platforms. “Today marks a transformative moment for Chicken Soup for the Soul Entertainment and an inflection point for the ad-supported streaming industry,” Chicken Soup for the Soul Entertainment chairman and CEO William J. Rouhana Jr. said in a press release. “Our acquisition of Redbox will accelerate the scaling of our business as it combines complementary teams and services to create the streaming industry’s premier independent AVOD,” he said.
The merger agreement brings a sad ending to what was once thought to be a high-growth VOD provider targeting low-income customers with VOD (it’s fastest growing partner to put kiosks in has been Dollar Stores).
At the Redbox Investor meeting last year, management appeared fairly bullish on the future.
It was kicked off by Galen Smith, who has been the CEO since 2016 when Apollo Global Management took it private. Before that he was at Outerwall, which owned Redbox, for a number of years in a variety of positions.
At the time, the company was just in the process of merging with SPAC Seaport Global at a valuation of $693 million, at the time viewed as a low 3.6x multiple of projected 2022 adjusted EBITDA of $193 million, which, in hindsight, is likely to turn out to be extremely optimistic. Actual EBITDA came in at -$15 million in 2021 and the outlook for 2022 is not positive.
The projections were based on converting its 39 million loyalty club members into VOD users, and Galen Smith said the digital transformation was already under way and the kiosk business would continue to grow.
Jason Kwong, Chief Strategy and Digital Officer chimed in with, “So, as Galen’s already referenced, our strategy is not just a plan for a digital future. This is something we’re already executing on today. The TVOD service or Redbox On Demand, we launched a little over three years ago at the end of 2017. We’re seeing that business grow nicely. We launched a Free Live TV, the FAST channel service, in February of last year. The free on demand – the ad supported on demand component – we launched in December of last year. And then the premium SVOD channels, giving customers the options to subscribe to premium third-party channels, that’s coming in Q2 of next year.”
As far as VOD goes, Kwong said, “We have an 86% customer satisfaction score on transactional video on demand, and a 90% repeat usage score. Again, they’re going to come back. On the ad supported side, which launched last year as a minimum viable product, 84% customer satisfaction score with 89% repeat usage score, indicating that they will return to use the product again.”
He also noted that competing SVOD services have a cost-per-acquisition (CPA) of $100-$200 per customer while at Redbox it only costs them $8 to acquire a customer. Despite these bullish metrics, at the end of the day the company was just unable to offset the rapidly declining kiosk revenue by new revenue streams. This is something that newspapers, magazines and other traditional media businesses have struggled with for more than a decade.

Chicken Soup for the Soul Entertainment (AP Photo/Richard Drew)

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Video Streaming Services Take To An Ad-supported Business Model

Video Streaming Services Take To An Ad-supported Business Model

Video streaming platforms in India with paid subscribers may introduce advertising-led plans to attract more users, after US streaming platform Netflix hinted at a such a model for cheaper plans last week.

While Amazon Prime Video launched its free service miniTV last May within the Android app featuring a library of web series and comedy sketches, others are offering older films or a few episodes of popular shows for free, or tying up for branded content that isn’t behind paywall.

Media experts said a freemium strategy helps provide an incentive to users sitting on the fence to subscribe, and is also a big monetization opportunity for the platform with the digital advertising market expected to grow 35-40% per year.

Though Amazon’s miniTV is different from the paid Prime Video platform and available within the Amazon shopping app for Android devices, most other platforms host free offerings alongside paid ones within one service.

“Subscriptions can never be sufficient for any service to grow in India, be it news, digital media or television and the advertising business is very significant around the world, contributing 66-75% of revenue depending on market,” said Chanpreet Arora, head- AVoD (Voot), Viacom18 Digital Ventures. AVoD refers to advertising-led video on demand services. Voot has launched two new free shows this month to reach out specifically to male audiences across metros and tier-one and tier-two cities. The idea behind unpaid content is to build reach and engagement, which can then convert into brand loyalty, with 10-20% of users eventually subscribing, Arora said.

Manish Kalra, chief business officer, ZEE5 India said the platform’s AVoD library provides viewers with an avenue to sample upcoming SVoD (subscription-led video) launches besides an opportunity to consume content before they get aired on television if the streaming service is owned by a broadcaster. “Besides showcasing content, it familiarizes the user to the platform and makes them more amenable to opt in for the paid service later,” Kalra said.

The AVoD library offers more than 70 live news channels across languages, episodic content currently on air on TV as well as archival shows for free, besides 2,000-plus free movies across languages. There is also additional content created around broadcast shows like behind-the-scenes, shoulder content, gamification and contests to engage the TV-viewing audience, Kalra said.

Free app offerings encourage frequent visits and increase time spent on the app, which eventually leads to a habit of visiting the app on a regular basis, said Ajit Thakur, CEO of Telugu streaming service aha. “When looking for entertainment, the app finally becomes a prominent part of one’s consideration set. Simultaneously, free app offerings lead to users eventually discovering premium or paid content and paying for it,” said Thakur whose platform offers yesteryears’ movies and the first episodes of some of its non-fiction series for free.

Divya Dixit, senior vice-president, marketing and revenue at ALTBalaji said the platform that partnered with advertising-led service MX Player for its reality show LockUpp, is open to other partnerships that will help it reach the masses. “There is a long-term strategy in the offing for AVoD business on ALTBalaji where we can explore various formats in both fiction and non-fiction space. We wish to have a prominent presence in this segment to further reach and audience base,” Dixit said.

The platform already offers over 33 original shows, multiple music and motivational videos, celebrity cricket properties for free on its platform.

Soumya Mukherjee, vice-president, revenue and strategy at Bengali language service Hoichoi said the service too is planning to introduce a freemium section which will have some content for free and short limited episodic new shows catering to a base which is reluctant to pay at this stage. “We have released two original shows in association with brands which represented their ethos yet were fictionalized to entertain our users. These are currently available for free on the platform so that more people watch them, realise the brand promise and discover Hoichoi as well,” Mukherjee said.

Usually, dated and less in-demand content is used to attract non-subscribers to the platform, in the hope that they will convert to view the quality content behind the paywall, said Neeraj Sharma, managing director – communications, media and technology, Accenture India. In keeping content free, the key deciding factor is that the cost of acquisition should be low. “Typically, ‘filler’ content, that is the type of content which viewers will not proactively search for, is made free,” Sharma said. “Offering free content is not very different from sampling strategies of any other consumer product category. However, one can achieve better success through ‘sachet’ offerings of premium content,” he added.

 

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Right bundling, pricing & premium content herald OTT era in India

Right bundling, pricing & premium content herald OTT era in India

SVOD subscriptions may also be affected by the bring-forward effect of Covid-19 as the currently accelerated growth rate may taper with the pandemic subsiding.Jehil Thakkar, Partner, Media and Entertainment Leader, Deloitte India, told IANS that the wide adoption of smartphones combined with cheap data as well as the diverse content available to address all tastes is one of the key factors that led to the growing adoption of OTT platforms in India.”Pricing too has been an influencer as low prices and some free options have always encouraged sampling and adoption in the country,” Thakkar said.According to experts, the market for providing video streaming services in India is highly fragmented with more than 40 streaming players vying for the customer’s wallet.Global streaming service providers such as Amazon, Disney-owned Hotstar and Netflix compete with domestic service providers such as Zee5, Voot, SonyLiv and MX Player), as well as a host of regional players.In a latest move, most major streaming players have launched mobile-centric plans targeting price-sensitive millennials and Gen Z customers.These plans also capitalise on low data rates ($0.09 per GB) and widespread smartphone user base (more than 600 million) in the country.Industry experts say that the demand for OTT streaming content based on geo-demography is on the rise, both within India and internationally from the considerable Indian diaspora.According to Gaurav Gandhi, Director & Country Manager, Amazon Prime Video India, one out of every five viewers for Indian Amazon Originals is from outside the country.In a recent blog, Gandhi said that the local language titles on Prime Video are viewed in over 4,000 cities and towns in India besides being watched in 170 countries.”Our Indian Amazon Originals enjoy incredible popularity both in the country and outside India International viewers already account for between 15 and 20 per cent of total audiences of these local language films,” he informed. .

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Airtel unveils Xstream Premium with 15 OTT services; eyes 20 mn paid users

Airtel unveils Xstream Premium with 15 OTT services; eyes 20 mn paid users

Telecom operator Bharti Airtel on Thursday announced a new video streaming service, Airtel Xstream Premium, that brings together content from 15 popular video apps, with single subscription at an introductory price of Rs 149 a month.

Airtel is eyeing 20 million new users for this paid offering, according to Adarsh Nair, CEO of Airtel Digital.

The Airtel Xstream Premium offering aggregates content from 15 Indian and global video OTTs in one app, the company said in a statement.

Customers will get access to a large catalogue of over 10,500 movies and shows as well as live channels from SonyLIV, ErosNow, Lionsgate Play, Hoichoi, ManoramaMax, Shemaroo, Ultra, HungamaPlay, EPICon, Docubay, DivoTV, Klikk, Nammaflix, Dollywood, Shorts TV on Airtel Xstream Premium.

Xstream Premium is a completely revamped version of its previous content offering that was free.

Users can access Airtel Xstream Premium across mobiles, tablets, laptops through the app or web, and on the TV through the Xstream set-top-box. For now, it will be available only to Airtel users.

It will offer a single app, single subscription, single sign-in, unified content search and Artificial Intelligence driven personalised curation for each user.

“All of this content is available exclusively to Airtel customers at… price of just Rs 149 per month,” the statement said.

According to Media Partners Asia, by 2025, India’s OTT (Over-The-Top) subscription market is expected to grow to USD 2 billion, from the current USD 500 million. A large proportion of new subscriptions are expected to come from users in smaller towns and cities.

“Airtel Xstream Premium is a game-changing innovation to democratise OTT content in India by solving the key challenges of content discovery, affordability and distribution.

“As a unified digital platform, it’s a win-win proposition for customers and OTT players alike as we begin an exciting journey to make digital entertainment mainstream in India,” Nair said.(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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