Sony Trades Crackle Equity For Stock; Full Control Of Streamer Goes To Chicken Soup For The Soul Entertainment – Update

UPDATED with closing stock price. Completing one of the more surprising media deals of late, Chicken Soup for the Soul Entertainment has taken full control of Crackle Plus, with Sony exercising its option to trade a minority stake for preferred stock.

In May 2019, Sony Pictures Television entered into an arrangement with Cos Cob, CT-based Chicken Soup, surrendering operational control of Crackle but retaining a minority stake. A new entity, Crackle Plus, was formed to house a portfolio of ad-supported and subscription VOD networks, including Crackle, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix and FrightPix. Crackle Plus has a library with 10,800 movies and 22,000 TV episodes.

Shares in CSSE gained more than 5% on double their normal trading volume to close at an all-time high of $19.

The transaction gives Sony the right to obtain $40 million of preferred CSSE stock in exchange for its stake. For the next 30 days, Chicken Soup has the right to pay cash in lieu of some or all of the preferred stock and the company said it has already determined that it will give Sony some amount of preferred stock.

Sony had been widely expected to exercise its option. Despite rising valuations for AVOD services (Tubi and Pluto, for example, have been sold for mid-nine-figure sums), it appears that Sony did not see a comparable return on a business it entered more than a decade ago. In 2006, it paid $65 million for an emerging service called Grouper. After renaming it Crackle, Sony put an early stake in the streaming ground, mounting originals like Jerry Seinfeld’s Comedians in Cars Getting Coffee (which eventually decamped for Netflix).

CSSE, which went public in 2017 and has a market value of about $247 million, has emerged as one of the largest ad-supported streaming players. It completed the Crackle deal last year as the AVOD market was heating up, and the coronavirus pandemic has only accelerated the broader shift of linear TV viewing to streaming, with advertising dollars following suit. The company has ramped up production of originals like Going from Broke, a financial self-help series executive produced by Ashton Kutcher. Its Screen Media division had a breakout hit this year with the Rod Lurie-directed film The Outpost, which was the No. 1 film rental title on iTunes for multiple weeks.

“Sony has been an incredible partner for Chicken Soup for the Soul Entertainment and this transaction is the natural next step in our relationship,” said William J. Rouhana Jr., CEO of Chicken Soup for the Soul Entertainment. “We welcome Sony as a large shareholder and look forward to continuing to work closely with them.”

“Chicken Soup for the Soul Entertainment has done a remarkable job integrating Crackle into their business,” said Erik Moreno, EVP Mergers & Acquisitions and Corporate Development for Sony Pictures Entertainment. “We look forward to strengthening our relationship as we move forward.”