Sorry to bring up a story many have already seen and dismissed. This is very long, and I hope some have the patience to read through and understand it is not just about DVD’s dying.
As many of you might know, Redbox, or the company who owns it, Chicken Soup for the Soul Entertainment, filed for Chapter 11 bankruptcy last week.
A lot of people who see that might think ‘oh didn’t know either of those companies still exist’ or ‘well yeah DVDs are dead’ or ‘lol that’s a hilarious headline’.
While those and other less flattering comments have merit, the truth of the bankruptcy is more nuanced.
Maybe this belongs in a different sub, as much of this involves business details. However that’s the context I thought was missing in some of the discussions I’ve seen.
Some of this is hearsay, from people whose word I trust. Some are some assumptions, made to the best of my knowledge. It may not stand in a court of law, but I believe the bones of the story are solid, and if anyone has more definitive knowledge, please share it.
### Movies:
Sometime last year we stopped paying the studios the royalties they were due. Our CEO William Rouhana lied to them with varying degrees of efficacy, and over the following months, one by one each studio had us remove their titles. That is why there have not been new releases in the Redboxes.
We have been sued over unpaid royalties, and after agreeing to a payment plan, immediately default on the first payment. This has been fairly consistent with Mr. Rouhana’s modus operandi. Similarly with service providers; you might notice the website is down. That’s not actually related to the bankruptcy, and legally I think the filing is supposed to prevent that. But a company we haven’t paid in a long time finally decided to terminate service, and it brought down the house of cards.
https://www.theverge.com/2024/6/21/24183454/redbox-universal-missed-payment-17-million
To the smaller indie studios the company leveraged and have not paid, I apologize. One studio, after countless emails asking to be paid what they were owed so they could pay the filmmakers, said ‘It’s not much but it’s all they have’. That one really hurt.
If I have any advice, it would be to check if any company you ever plan to work with has ever had connections with anyone connected to Mr. Rouhana.
I do not know yet what will happen to the remaining boxes and DVD’s. That has not been the company’s priority during this bankruptcy, which is rather…
### Employees:
Employees have not been paid in a month. Supposedly, we will be next week. Insurance claims have been denied since May. The bankruptcy court agreed to a DIP loan to fund payroll and insurance.
https://deadline.com/2024/07/redbox-chicken-soup-for-the-soul-entertainment-bankruptcy-payroll-benefits-1236002049/
Interestingly, the company switched insurance providers from 2023 to 2024. Earlier this year, December 2023 claims were denied as we eventually found out that the company stopped paying the previous insurance provider after switching in the hopes that they’d… forget? Eventually that was resolved, in April. For insurance from December.
The new insurance provider in 2024 started denying claims in May. Based on the aggression of the denials, we’re wondering if they’ve ever been paid. Not exactly that I blame the insurance provider, but rather the company who deducted premiums from our paychecks, and pocketed that money. We were not informed in either case that coverage had been terminated, and people found out in June that their medical expenses in May were not covered. From my understanding, that’s somewhat illegal. Despite the DIP loan, there is no indication from the company when we’ll get it back, other than ‘promise eventually’.
We are supposedly getting backpay this week, with insurance to follow. As for layoffs, well, policy changed for 2024 to reduce or eliminate payouts for unused PTO and other costs to terminate an employee.
While I referred to ‘the company’, it’s mostly just one man and his close circle. It wasn’t always like this though, and there is a long story here. Much of it is murky, but I’ll try to present the facts in good faith. With the caveat that I will be biased against one person who has proven himself to always act in bad faith.
### Business:
While businessmen generally sit in their penthouses smoking cigars, even they realized at some point that the DVD industry was in decline.
By 2019 Redbox had long known a shift to digital was needed, but it was difficult with so much of the internal infrastructure based around the kiosks. They made the vast majority of the company’s revenue, were highly optimized and had a high profit margin. The digital division on the other hand had many starts and stops and was barely known, in no position to compete with the major platforms. Then the pandemic hit.
The disruption to the movie pipeline hit hard. Many movies were delayed (Top Gun 2 stands out) or went straight to digital, something the company was not prepared for. We could not compete with other digital platforms, and with limited DVD releases revenue slumped.
Coming out of the pandemic, the company was looking to rebound off new DVD releases and a larger focus on streaming. But no plan survives first contact with the enemy.
Around 2020 the company entered into talks with William Rouhana of Chicken Soup for the Soul. At the time Redbox was a private company owned by Apollo Global Management. Those talks continued into 2021, when Apollo decided to take Redbox public via a SPAC. That did not go so well, and in 2022 William Rouhana of Chicken Soup for the Soul was able to purchase Redbox at a discounted price.
https://variety.com/2024/digital/news/chicken-soup-for-the-soul-entertainment-lawsuit-redbox-acquisition-consultant-1235977051/
Mr. Rouhana was not the original founder of Chicken Soup for the Soul, but purchased the brand name in 2008.
https://funnybusiness.substack.com/p/how-americas-most-inspirational-brand
One of the more relevant parts is the rampant self-dealing, as it seems any company he acquires is sucked dry to enrich the core holding companies he and his close associates own.
That is what happened to Redbox.
Chicken Soup acquired Redbox in August 2022. As part of the agreement, the long-time CEO of Redbox, Galen Smith, had to stay with the company for a certain amount of time. From day one he knew he couldn’t work with Mr. Rouhana, and left as soon as he could on Jan 2, 2023. After that, Mr. Rouhana had full control over the company.
Over the following year senior leadership continued to leave, and there are very few left now. Often this might be compared to those fleeing a sinking ship, but honestly I can’t blame them. These are veterans of the industry who have risked their personal reputations, because Mr. Rouhana promised them that payments were coming. When that lie was exposed not just once, what option was there but to resign?
Redbox actually had no idea who was getting paid, because Mr. Rouhana would route payments through Chicken Soup for the Soul Pet Food, which was controlled by someone he trusted. We would tell companies their payments were coming because he told us so, and left on the hook when they didn’t.
The responsibilities of those who left were passed to employees who have also since left, and there are critical knowledge gaps because all those who knew have left. The customer service team was laid off months ago and the company tried to pass those responsibilities to field techs. No extra pay of course.
There was a lot of money he could (and did) extract out of the Redbox brand name. He would take all money customers spent to purchase a movie, but not pay out any of the royalties. We had spent years building trustworthy relationships with our partners, so when we missed one payment, they thought, no problem. After a couple missed payments they started insisting, and Mr. Rouhana would lie as best he could. As people caught on, the studios blocked us from their titles, and platforms shut down our access, which is why over the past year new releases have decreased and systems have gone down. At the time of bankruptcy, there hadn’t been new releases for months, nothing of the likes of a Disney release for a year, and internal systems were collapsing.
A couple weeks ago Mr. Rouhana, within his rights as the majority shareholder, sacked the entire board of directors.
https://deadline.com/2024/06/redbox-chicken-soup-for-the-soul-entertainment-removes-board-of-directors-1235976552/
The details are vague, but since then we have not been paid and everything has come to a head. This is not isolated to Redbox, and Chicken Soup has other brands such as Crackle who are just as affected and just as upset.
Since acquiring Redbox, Mr. Rouhana has paid himself tens of millions of dollars in management fees for doing such a good job running the companies. The day the bankruptcy was filed on 6/28, he made sure to pay himself on the way out.
Since then, the company has been in bankruptcy court. Of course, the filing was a Friday night before a holiday week, so it hasn’t exactly been quick. Priority has been to secure funding for backpay and insurance. Rumors are that HPS, the company that owns a large portion of our debt, objected to the appointment of the new CEO Bart M. Schwartz who was selected by Mr. Rouhana, and wanted an independent board.
https://finance.yahoo.com/news/hps-investment-fights-control-bankrupt-162456668.html
https://www.reuters.com/legal/government/chicken-soup-ex-ceo-hires-defense-lawyers-avoids-bankruptcy-questioning-2024-07-02/
There are those who say this was inevitable. I can agree with that in theory. Industries rise and fall, and DVDs are doomed to eventually be antique souvenirs. But eventually is not now, and while the Reddit community tends be more digitally oriented, there is a market for physical disks. Or maybe, was.
I would like to be paid. I would like my coworkers to be paid. I would like those who incurred medical expenses months ago thinking they’d be covered, to have them covered.
I would like Mr. Rouhana to face consequences for his actions.
by AzothHg