The writing was on the wall: Physical entertainment media has been in a slow death spiral for years. It started with the closures of video rental outlets. Stores selling pre-owned games are also losing out to digital media. The trend was abundantly evident over a decade ago, yet Chicken Soup for the Soul still went ahead and bought Redbox in 2022. Where did it expect to take the brand?
Redbox's parent company, Chicken Soup for the Soul Entertainment (CSSE), has filed for Chapter 11 bankruptcy protection. Deadline notes, the company notified employees of the legal action over the weekend, adding that it has applied for a debtor-in-possession loan. If the court approves the loan, it will ensure payroll funding for the upcoming week and reinstate medical benefits backdated to May 14, 2024. Chicken Soup promised to keep employees in the loop regarding the proceedings.
"Overnight we filed for Chapter 11 bankruptcy protection," the memo said. "In connection with the filing, we have applied for approval of a debtor in possession [DIP] loan. Upon court approval, we expect payroll to be funded early in the week and funding for this upcoming week's payroll to also be secured. We also expect to have the funds to reinstate medical benefits back to May 14, 2024 and going forward. We will provide regular updates."
Chicken Soup for the Soul Entertainment, famous for its eponymous books, has faced significant financial distress since acquiring Redbox in a debt-heavy $375 million deal in 2022. It was a doomed deal and a poor decision, considering the rise of video-on-demand services and the demise of video rental stores. The writing was already on the wall. The Hollywood studio pipeline's constriction due to dual strikes in 2023 only exacerbated the decline of physical disc kiosks.
Last week, Deadline reported that Redbox is already a week past due in paying its employees and suspended their medical benefits. Additionally, several vendors and filmmakers remain unpaid, and some are filing lawsuits against the company.
An SEC filing earlier this month revealed CSSE's net losses ballooned to $636.6 million in 2023 from $111.2 million in 2022. The filing also warned of potential bankruptcy without securing additional funding. The Redbox acquisition was the latest in a series of acquisitions following CSSE's 2017 IPO as a spinoff from the Chicken Soup self-help books. The company had also acquired streaming service Crackle from Sony, 1091 Pictures, Screen Media, and TV production company Sonar Entertainment, positioning itself as a major player in free, ad-supported streaming.
Despite initial success, with its stock reaching over $40 in 2021, the company struggled to come up with a plan to convert DVD renters to its free ad-supported streaming options in an already oversaturated market. Momentum faded as Wall Street scrutinized the business model and the complexities of integrating Redbox. Now, a Delaware bankruptcy court will decide the company's future and whether it can recover.
The media industry has seen several Chapter 11 filings in recent years, partly due to challenges exacerbated by Covid-19. Vice Media, Audacy, and Cineworld (Regal Cinemas) have also filed for bankruptcy, with Cineworld managing to continue operating post-bankruptcy.
Under Chapter 11, secured creditors, like banks, will be prioritized for repayment, followed by unsecured creditors, such as vendors. Unsecured creditors listed in CSSE's bankruptcy filing include Universal Studios, Sony Pictures, Lionsgate, Walmart, Vizio, Warner Bros, and Paramount Pictures. The company's total debt stands at $970 million.
Shareholders typically fare poorly in Chapter 11 cases, and CSSE's stock has already been in danger of delisting from Nasdaq. The stock closed at 19 cents per share on Friday, down 7%, giving the company a market value of just $6.3 million. As the court proceedings continue, the future of CSSE and its assets remains uncertain.
Redbox asks court for Chapter 11 bankruptcy protection and a DIP loan to cover payroll
