Chicken Soup for the Soul Entertainment CEO Bill Rouhana teased a potent role for Sony in the company’s streaming plans, a “surprise” development given its decision in 2019 to surrender operational control of Crackle.
The Japan-based electronics and media giant opted in December to exercise its right to trade a 49% stake in Crackle for 23% ownership of all of CSSE through a set of preferred shares and warrants. The two companies made the initial Crackle deal in the spring of 2019, handing it over to CSSE, which also runs ad-supported streaming services like Popcornflix and Truli plus film and TV outfit Screen Media.
“They want to help us build our business,” Rouhana said in an appearance at Citibank’s Global TMT West Virtual Conference. “We had taken Crackle, which was an asset that they had struggled with,” and overhauled its cost structure and approach to production, customer acquisition and advertising. “When they stood back and looked at what we had done over 18 months, they were surprised that it happened and pleased, and they said a lot of nice things. But what they also recognized was that we had created an integrated company.”
Rouhana said the relationship has evolved for the better. While most in the industry saw the initial Crackle transaction as an abandonment of AVOD just as the sector was surging, Rouhana sought to emphasize that Sony will remain a key strategic partner in CSSE’s streaming operation, and the benefits should be mutual. “It’s a little different than when they didn’t know what side they were on,” he said. “Now, they’re on our side. It’s clear. We’re right next to each other. We’ll build it together, and I’m confident they’ll be more and more helpful over time.”
As far as Sony Pictures Television film and TV titles benefiting Chicken Soup, Rouhana said, “I think you’ll see over the next 12 months we do a lot of things together that are further expansions of the relationship. We’re already talking about co-producing. That’s a great next step for us.” Film library and marketing resources are also key element Sony brings to the table, he added.
Shares in CSSE, which began trading on the Nasdaq in 2017, soared 144% in 2020 to just shy of $20. Even after the banner year, the company remains modest in size relative to its media and tech peers, with a market value in the range of $240 million.
Instead of the pricey programming bets placed by Sony, Crackle has managed to make an impact with far less expensive fare like Ashton Kutcher-produced personal finance show Going from Broke or basketball docuseries On Point. Its originals commanded 16% of average monthly streaming hours in the third quarter, compared to just 2% in the same period a year earlier.
CSSE — a unit of the publisher of the Chicken Soup for the Soul book and merchandise line — was early in pursuing ad-supported streaming strategy. The sector has recently become red-hot, with Viacom, Fox Corp. and Comcast paying hundreds of millions of dollars to acquire AVOD services, and NBCUniversal betting even bigger on the ad-centered Peacock. Covid-19 has also accelerated the ongoing shift of advertising dollars from linear to streaming.
Rouhana said Sony ultimately concluded that the larger business was a better place for its investment. “It didn’t make sense to own a piece of a subsidiary, which was not the real story. The real story, the real business, was the combination of the networks, the production and the business activity. They work together. … It was a model that was different from what they expected.”
Rouhana told moderator Jason Bazinet, a media analyst with Citi, that he would estimate annual ad revenue across all AVOD services as several billion dollars, “mostly driven by Hulu.” Counting revenue brought in by YouTube would boost the total closer to $20 billion. As the 2020s unfold and linear viewing and advertising continue to migrate to streaming, the number could grow to $80 billion a year, Rouhana said. That’s roughly the peak of all broadcasting and cable ad spending combined — the erosion of which has been acknowledged by network owners in recent years as they have increasingly embraced streaming.
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