EXCLUSIVE: When Redbox was founded in 2002, video rental rival Blockbuster had thousands of global stores and Netflix was still sending its customers DVDs through the mail.
Two decades later, streaming is the universal mantra and Darwinian law is starting to assert itself, but Redbox CEO Galen Smith has presided over one of the industry’s most unique balancing acts. The company still operates 40,000 disc-dispensing kiosks, a physical base larger than that of McDonald’s and Starbucks combined. But it has also been steadily expanding into areas like transactional video on demand and free, ad-supported streaming, as well as setting up a division that acquires and co-finances a growing slate of original films.
The company is preparing to go public via a SPAC transaction, which has assigned an enterprise value of $693 million. (Private equity firm Apollo Global Management, which took over Redbox in 2016, will be majority shareholders in the new entity.) In an interview with Deadline, Smith wasn’t able to address the IPO due to regulatory restrictions, but he talked about the evolution of the company, particularly in the five years since he became CEO. One core tenet embraced by the company’s management team, he said, is the need to embrace Redbox’s roots while also looking at how to leverage its history to expand into new arenas.
“Over time it will become a digital-first business, but we’re still in the early days of making that transition,” he said. About 70% of Redbox customers describe themselves as “late adopters” in terms of technology, he noted, so having access to well-priced DVDs and Blu-ray titles is important to them. At the same time, as of last May, three million of the company’s total customer base of 40 million has used Redbox on Demand, with 9 million of their devices signing up to use Redbox Free Live TV, the streaming service launched in 2020.
“Our ability to bring these two worlds together” depends to a significant degree on the kiosks, Smith said. “We do see that when someone uses our transactional video on demand service, let’s say they’ve been a lapsed customer, they haven’t rented from a kiosk in a while, we tend to see them then start using the kiosk again as well. So they’re reminded of the value proposition. It really becomes the case that it lifts all boats. … That was really an epiphany for us in terms of how all of these businesses fit together.”
Smith rose to CEO in 2016 after being a finance exec and CFO at the company and its previous parents for several years. While he’s well-versed in the customs of Hollywood, having negotiated a wide range of deals over the past decade, he’s hardly lived a Malibu life. He graduated from Wheaton College in Illinois and later earned an MBA from the University of Chicago. The DNA of Redbox, in fact, has Middle America stamped on it, as it was launched by the business development team at McDonald’s. “We want to make entertainment available to everyone,” Smith said. “Not just the few that can afford expensive entertainment. It really is the democratization of entertainment. … We want to serve a segment of the market that’s forgotten by other competitors who are more focused on the higher economic level.”
That approach also informed the company’s move into streaming. “We’ve determined that the world probably doesn’t need another subscription video on demand offering,” Smith said. “But the world does need, and what our consumers want and need, is a way to access content in a much more unified and simple way.” That goal has driven the company’s channels business, which follows the trail blazed by Amazon and others, whereby Redbox can act as a conduit for streaming customers and take a piece of subscription revenue.
Redbox Entertainment, meanwhile, launched about two years ago and has been ramping up toward its goal of generating three new films a month, or about 36 a year. Unlike other companies with streaming platforms, the objective is not to stock Redbox’s own shelves with exclusive titles, but rather to be opportunistic about assembling a range of titles, often genre fare, for a price, and distribute it broadly. Recent titles added to the roster include Muti, with Morgan Freeman and Cole Hauser and She Ball with Nick Cannon. The Last Son, a Western action movie starring Sam Worthington and Colson Baker (aka Machine Gun Kelly) is slated to be released on December 10.
Smith said reaching the target of 36 films a year will require more staff, which he expects to be added starting in 2022.
Outside of the entertainment unit, the company has also continued adding titles to its ad-supported video on demand service from suppliers long tied to the transactional side. Sony and Oscilloscope are two recent examples. The lineup of several thousand on-demand titles also draws from Chicken Soup for the Soul Entertainment, Shout! Factory, Legendary Television, Magnolia Pictures and Relativity Media.
Redbox Free Live TV has more than 100 live, linear channels and is running a playbook similar to that of larger rivals like the Roku Channel, Pluto and Amazon Fire TV. As overall viewing migrates to streaming, and advertising dollars along with it, the idea is for Redbox to be able to participate in the upside. The company recently gained distribution on top smart-TV maker Samsung and is expanding to other outlets.
Despite the momentum, Covid-19 hit Redbox hard in 2020. Total revenue declined 34% in 2020 compared with 2019, from $829 million to $546 million. With production frozen across Hollywood for months, there was a major slowdown in new titles landing on Redbox, especially in the second half of the year. The company is forecasting a rebound to $1.1 billion by 2023.
New revenue streams include out-of-home ads on “toppers” being installed in about 10% of the company’s kiosks. Those screens will be able to not only promote movie, TV and video game titles, but also run advertising.
Covid’s dampening effect on the overall retail landscape does not faze Smith, who says dollar stores, grocery stores and budget-friendly big-box stores remain steady hosts. Rural areas in particular “may not have access to broadband or high-speed internet, so the kiosks become a really important piece in serving their entertainment needs.”
While the world “will move more and more digital over time,” Smith adds, “we don’t think it’s as fast as everyone else may assume. … There’s a huge swath of customers who will make this transition over time.”
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