Dlaczego Redbox wyłączał

Redbox’s field service technicians thought they had seen it all.

Stores had unplugged thousands of the company’s iconic red DVD rental kiosks. Payroll and expense reimbursements had been late. respective employees say their corporate gas cards have been declined. They had read article after article about companies suing Redbox and its corporate parent over unpaid bills. any of them had dug into financial data, puzzling together an alarming image of a company drowning in debt. Still, the email they got on a Tuesday in mid-June came as a shock.

“Please halt what you are doing and return home immediately,” the message read, adding: “You will be paid for the remainder of the day.”

The abrupt work stoppage initially appeared to be due to liability issues. Chicken Soup for the Soul Entertainment, which had acquired Redbox in August of 2022, had informed employees earlier that day that it had been dropped by its wellness insurance provider; Redbox management seemingly didn’t want to have uninsured workers in the field to service and repair the company’s kiosks.

However, a follow-up email revealed deeper concerns. “We have entered an unforeseen and unprecedented situation for our company,” a elder Redbox manager wrote. The email referenced Chicken Soup’s inability to service its massive debt, as well as its CEO’s abrupt decision to push out the full board of directors. “It is disrupting our day-to-day operation, and we are temporarily halting all field activity until we have clarity on our way forward,” the email added.

Management telling hundreds of employees to halt working out of an apparent frustration with a company’s leadership is unprecedented – but it wasn’t amazing to erstwhile employees we spoke to at Redbox. The company has been on a dizzying rollercoaster ride always since getting acquired 2 years ago. After failing to pay many bills, Redbox and its owner have been sued over a twelve times by companies, including CVS, 7-Eleven, and NBCUniversal.

When asked about the many lawsuits, Chicken Soup for the Soul Entertainment’s corporate communications SVP, Peter Binazeski, told me in March that the company could not comment on ongoing litigation; the company did not respond to a number of follow-up questions about its legal and financial situation.

Attempts to settle with NBCUniversal failed after Chicken Soup missed a required $4 million payment, and Redbox is on the verge of having its full car fleet repossessed.

So, how did things go so incorrect for Redbox? I’ve spent months pouring over lawsuits, regulatory filings, and interior emails, as well as talking to a number of current and erstwhile Redbox employees, to find an answer to that question. Many of those conversations took on expanding urgency in June, when, in a substance of weeks, people’s worries shifted from wondering whether they’d have a occupation by the end of the year to whether there would be a paycheck by the end of the week. And erstwhile the paychecks yet stopped coming, employees realized that this may be the end for the last major company to inactive rent out DVDs.

And it could be: Chicken Soup for the Soul amusement filed for bankruptcy at the end of June.

Things actually appeared to be looking up erstwhile Redbox was acquired 2 years ago. Sure, Chicken Soup for the Soul amusement seemed like an unusual company to make this move, but there was a plausible backstory here: after the self-help book publisher was sold by its founders in 2008, the company’s fresh owners began to diversify its gross streams, adding digital media properties and lifestyle products like pet food. Chicken Soup acquired a bunch of companies over the following years, including the movie distribution outlet Screen Media and the pioneering free streaming service Crackle. Chicken Soup’s leadership painted the addition of Redbox as the next step in its quest to build an amusement media empire.

Building that empire on the back of DVD rentals is not as crazy as it sounds. Netflix shipped DVD rentals to customers for 25 years and utilized the proceeds from that perpetually shrinking but highly profitable business to become the global streaming juggernaut that it is today. Redbox, founded in 2002, had long been a akin powerhouse in the DVD space, with consumers renting more than 6 billion discs to date. Chicken Soup planned to follow Netflix’s playbook, with CEO Bill Rouhana telling The Verge’s David Pierce last year that Redbox’s kiosks “could be the cash flow device that allowed us to build out our digital business over the next decade.”

“The first fewer months were decent,” acknowledged a Redbox worker who spoke to The Verge on the condition that we do not print their name for fear of retaliation. But soon, informing signs started to pop up. Chicken Soup’s stock price tanked in early 2023 and never recovered. There were any irregularities with paychecks being late. Then, stores started to pull the plugs on kiosks.

“When 7-Eleven pulled our machines, that was huge,” recalled a second Redbox employee, besides speaking on the condition of anonymity. “That was our first large [warning] sign.”

The convenience store chain had Redbox kiosks in front of its stores nationwide, and Redbox was contractually obligated to pay 7-Eleven a percent of the fees it got from all single rental. A suit filed by 7-Eleven in June alleges Redbox stopped paying those fees last spring. 7-Eleven terminated its contract with Redbox in August of 2023 and demanded that the company choice up its kiosks but says Redbox never did. As a result, 7-Eleven franchisees began to unplug the machines and tape credit card readers shut. Countless inoperable kiosks stay in front of 7-Eleven stores to this day.

7-Eleven wasn’t the only retailer that had a falling-out with Redbox. CVS alleged in a February lawsuit that Redbox stopped paying commissions in Q3 of 2022. Illinois-based chain Sheetz stopped getting payments at the end of 2022, according to its own suit filed in February. Publix pulled all kiosks sometime last year. Kroger began telling customers last period that its Redbox kiosks would halt working soon, and Portland-based Hannaford said it wouldn’t offer access to Redbox anymore by mid-June.

Redbox has not commented publically on the lawsuits.

Company employees were left in the dark about these rifts. “[We would] find out by working in the field, and there’s a large sign on there that says: ‘As of May 20th, this Redbox is gone,’” said the first employee. “And we’re like: ‘All right, individual else is suing us.’”

Among the companies suing Redbox and its corporate parent is Automotive Rentals, Inc., or ARI, from which Redbox leases over 400 SUVs and another cars for its service technicians. ARI alleges in its lawsuit that Redbox stopped paying its monthly leasing fees last September; the company terminated its lease agreement with Redbox in March and yet sued in May, alleging that it was owed $7.8 million in unpaid bills.

In a legal filing, Chicken Soup’s lawyers acknowledged the failed payments, writing that “defendants do not dispute that they owe Plaintiffs money — though there is crucial question about how much.” The filing goes on to state that the company had “every intention of making Plaintiffs whole” as shortly as it raised the essential financing to do so.

Redbox employees didn’t initially know about this dispute, either, but they realized something was incorrect erstwhile they abruptly weren’t able to receive regular maintenance services from ARI anymore. “We couldn’t get anything done,” said the first employee. This included oil changes. “I drive a lot, almost a 1000 miles a week,” the worker said. “I’m almost 20,000 miles overdue.”

“There’s people who are 18,000 miles over getting [their] oil change done due to the fact that [the company] can’t pay for it,” said the second employee. The problem seemingly became so acute this spring that any employees were told they should just go out, buy any motor oil, and top off their cars themselves.

“I’m not popping that hood,” said the first employee. “I am not putting fresh oil in old oil. That is simply a no.”

It’s easy to dismiss Redbox as a relic of a bygone era. A company that’s survived long past its prime. The kiosk version of Blockbuster, destined to neglect sooner alternatively than later.

Well before the Chicken Soup acquisition, Redbox leadership realized that times were changing, with people transitioning from physical media to streaming. “Everyone knew that this was yet going to go away,” said a erstwhile Redbox executive, who spoke on the condition that we don’t print their name as they are inactive employed in the industry. But they besides saw that DVDs had a amazing staying power, especially with little wealthy and little connected consumers. Forty million people inactive rented physical discs from Redbox kiosks before the pandemic, according to the company’s leadership at the time.

Especially in smaller towns, Redbox kiosks represented a valuable lifeline. “A lot of agrarian areas don’t have the luxury of high-speed internet,” said the first Redbox employee. “Our kiosk is the only theatre in town.” Multiple employees told me that they were frequently greeted on the street, with people asking about fresh releases or cheering them on erstwhile they fixed a kiosk that had been broken. “People [in these areas] truly can’t afford 4 or 5 different streaming services,” said the second Redbox employee.

Even so, Redbox executives were working on a digital future. Redbox tried to establish a Netflix competitor in partnership with Verizon in 2012 but shuttered the service two years later. In early 2020, Redbox tried again with a free, ad-supported streaming service that seemed a better fit for its lower-income customers and their slow transition to digital media. Redbox customers were late adopters, so executives believed that they had any time to grow the fresh digital service while renting out DVDs for years to come.

Then, the pandemic happened — and instantly blew up those plans.

With theaters shut down, productions put on hold, and consumers cooped up at home, Hollywood scrambled. Major studios threw out their release agenda and prioritized their own streaming ventures. Disney postponed the theatrical release of Mulan for months, only to yet take it straight to Disney Plus. Warner Bros. released all of its 2021 movies on HBO Max.

The number of fresh releases at kiosks nosedived as a result. “Throughout the first 3 quarters of 2021, Redbox released 33 theatrical titles at the kiosk, which is typically what would have been released in 1 4th pre-COVID,” the company told investors in late 2021. With fewer fresh discs in kiosks and any of the biggest titles going straight to streaming, even Redbox’s late-adopter client base began to give Netflix and Disney Plus a look.

“There was deep concern” about this trend internally, according to the erstwhile Redbox executive, with any fearing that the company may lose its customers for good to the digital competition. “There was almost no way of bringing them back,” the erstwhile executive said.

The results on Redbox’s bottom line were disastrous: the company’s gross declined from $829 million in 2019 to $546 million in 2020, and then to $289 million in 2021. “It happened truly fast,” said the erstwhile Redbox executive.

“The pandemic screwed everything up,” said the first Redbox employee.

In the midst of that pandemic-fueled freefall, Redbox was facing corporate upheaval. Redbox’s owner at the time, private equity giant Apollo, began to look at ways to unload the asset. Discussions with Chicken Soup for the Soul amusement began in early 2020, and the 2 companies signed a word sheet in November of that year. However, the deal yet fell apart, with Apollo opting for another route: it decided to take Redbox public via a SPAC merger.

SPACs were inactive all the rage back then, and Redbox seemed like the perfect candidate for meme stock traders looking to hype another company steeped in nostalgia. Chicken Soup’s management, however, thought the public offering was doomed to fail. “Chicken Soup for the Soul Entertainment’s plan was simply waiting for Redbox to implode,” alleged Keith Knee, a erstwhile consultant for Chicken Soup, in a lawsuit filed earlier this year.

“They are going to be back, and we are going to be able to get this company for two-thirds of what they are asking for right now,” Chicken Soup CEO Bill Rouhana allegedly told his chief strategy officer, according to the lawsuit.

Rouhana was right: the public offering rapidly devolved into a disaster. Redbox’s stock price tumbled below $2 per share just 4 months after it went public, and the company went on to lay off 10 percent of its staff. That’s erstwhile Chicken Soup for the Soul amusement swooped back in, offering “a substantially lower price for fundamentally the same assets,” according to the Knee lawsuit. Redbox couldn’t afford to say no anymore, and the 2 companies announced that Chicken Soup would get the DVD kiosk company in May of 2022.

Chicken Soup took on $325 million in debt as part of the acquisition, but CEO Bill Rouhana promised everyone a fast turnaround. Revenues of the fresh combined company were expected to total $500 million in 2022, and Rouhana painted himself as a buccaneer of sorts, capable of righting the ship amid rough seas.

“The manufacture is completely chaotic right now,” Rouhana told me erstwhile I interviewed him days after the acquisition closed in August of 2022. “It’s a full nightmare. It’s completely in a state of flux. I’m beautiful comfortable with that due to the fact that I believe in the value of the stuff we bought.” Rouhana told me that Redbox kiosks would be around another 10 to 20 years and that Chicken Soup would recoup its money “many times over” before they yet disappeared. He kept insisting that he was unmoved by any short-term challenges.

“I love chaos,” Rouhana said.

Soon, the chaos engulfed Redbox. alternatively of the promised $500 million, Chicken Soup only generated $253 million in gross in 2022. The number of DVD kiosks operated by the company declined from 36,000 at the time of the acquisition to 27,000 at the end of March. The pandemic-induced movie shortage, combined with a declining number of kiosks, led to continued gross decline. Already loaded with debt, Chicken Soup rapidly ran out of money. Attempts to rise more working capital failed, which only made things worse.

“Our inability to safe […] financing […] hampered our ability to pay for and safe fresh content, which began to strain relationships with the Company’s creditors, including content providers,” Chicken Soup for the Soul amusement wrote in its most fresh quarterly report. “As a result, the Company was incapable to pay for all the movies that were offered to it by its providers.”

In reality, Redbox hasn’t been able to buy any major fresh release for rather any time. The last high-profile movie that made it to kiosks is Barbie, which came out on DVD in October. And with no fresh titles at kiosks, rental gross has declined even further. In the first 3 months of this year, Chicken Soup’s gross from its Redbox retail operations was just $15.5 million — little than half what it was a year ago and just a 4th of what it had been even in early 2021 erstwhile the pandemic slowed DVD releases to a trickle.

At the same time, Chicken Soup’s financial situation spiraled. The company ended Q1 with an accumulated deficit of $937 million and little than $5 million in cash on hand. It has been falling further behind on its bills, resulting in erstwhile business partners cutting ties and filing lawsuits.

“The Company has received an expanding number of termination and/or nonrenewal notices from content suppliers and another service providers,” Chicken Soup warned in its Q1 filing.

Internally, the situation rapidly devolved. Corporate credit cards that employees have been utilizing to get gas for their cars have only been working intermittently, leaving field service employees incapable to do their work for a full week in May. “They paid us to sit at home and look at emails,” the first worker said. “We weren’t servicing anything,” the second worker added.

That in itself is simply a problem for the company: A little-known fact about Redbox’s business is that the company’s technicians besides service kiosks for Amazon, KeyMe, Pokémon, and another kiosk vendors. Employees told me that the company would bill these companies for each individual service call. “It was a highly profitable part of the business,” said the erstwhile Redbox executive. “It’s what kept us afloat,” said the second employee.

However, erstwhile employees weren’t able to go out and service these kiosks, Redbox wasn’t making any money. What’s more, not servicing third-party kiosks in time put those business relationships at risk. This month, longtime partner ecoATM stopped working with the company, according to multiple Redbox employees.

Things got worse for Redbox and its employees in June. At the beginning of the month, a court granted ARI’s request to repossess all of the cars Redbox has been leasing from the company. In an email sent days later, Redbox told employees to remove all their individual belongings from the company cars and prepare for the worst. “In the improbable event that your vehicle is targeted for repossession, comply with all demands and turn over keys immediately,” the email read. In late June, the court followed up with an order that directed the US Marshals Service to seize Redbox’s full leased fleet of 437 cars.

In mid-June, the company besides informed employees via email that it had been dropped by its healthcare provider, and they hadn’t been covered since May. It’s the second time Redbox employees abruptly found themselves without healthcare coverage: at the beginning of this year, Redbox employees discovered that the company-provided wellness insurance had lapsed in December erstwhile Redbox out of the blue switched their wellness plans to a fresh provider. The change left employees without coverage for weeks and many with massive bills. Multiple employees told me that their claims yet got paid, but another worker said that any claims went to collection.

This time around, the company advised employees to proactively watch their healthcare expenses: “We urge all elective, non-urgent and regular medical appointments be rescheduled,” a company typical wrote in an email to employees. For some, that informing came besides late. Multiple employees told me about ongoing medical treatments that could, if not covered by their insurance, bankrupt them personally.

While asking its employees to watch their expenses, the company itself ran out of cash to meet its most basic obligations. It failed to make payroll in mid-June, with Rouhana promising employees in an email that they would get paid 5 days late, as the company was “finalizing a financing.” That day came and went, but alternatively of a check, employees got another email from the CEO. The financing hadn’t closed yet, Rouhana wrote, but he “hoped to fund payroll” the following week — 10 days after paychecks were due.

Attempts to rise $175 million this spring failed, resulting in Chicken Soup for the Soul amusement defaulting on debt held by its biggest creditor. Raising more money from public marketplace investors is besides a long shot: Chicken Soup’s shares have been trading in penny-stock territory, with Nasdaq threatening to delist the company.

“We appreciate your patience and knowing as we work towards resolution,” Rouhana wrote in his first email following the missed pay date. It was his first companywide email in many months, according to multiple Redbox employees.

That deficiency of communication has been especially frustrating to employees. “I want I could just know what’s going on,” said the first Redbox employee.

Absent any communication about the company’s future, Redbox employees have banded together in group chats to share the small they know with each other. 1 worker even paid to get access to legal filings to better realize the financial issue.

At first, these group chats were small, including just a fistful of people here and there. erstwhile things boiled over in mid-June, employees created a group dedicated to Redbox’s “final days” that has since grown to around 350 members.

“People are posting any articles they can find that might aid bring any light to what’s going on,” said a 3rd Redbox worker with access to the group, who spoke to The Verge under the conditions that we do not name them in this communicative for fear of retaliation. “Some are starting to reminisce about the good times,” that worker said, but many simply usage the group to express their frustration with the situation. “A lot of bitching all day,” the worker quipped.

Then, late Friday, the company sent out an email to employees to inform them that it had filed for bankruptcy. On Monday, they one more time heard from Rouhana, who revealed that he was no longer the company’s CEO. His replacement, corporate compliance specialist Bart M. Schwartz, had “an extended background in helping companies in complex situations,” Rouhana proclaimed. Schwartz emailed employees an hr later to promise that his top precedence was their wellness insurance and compensation.

Redbox’s rank and file don’t seem convinced that aid is on the way. On Monday, they started their own GoFundMe for unpaid employees. Any money raised with the run will be “disbursed throughout the company minus the owner / CEO,” according to the GoFundMe page.

The company’s field service fleet, meanwhile, remains grounded. A week after first calling the company’s full field service workforce home, Redbox management told them via email that work would stay paused until Redbox’s parent company met its payroll, reimbursement, and healthcare coverage obligations. All of that hinges on the company securing a peculiar debt that allows bankrupt companies to keep operating.

Some employees I talked to uncertainty that there will be a occupation to return to — a sentiment that’s increasingly bubbling up in public. Redbox’s social media accounts have been happily posting through the full crisis, publishing memes and movie trivia as if nothing had happened — until the company’s dire reality became besides hard to ignore.

“Describe your life right now utilizing 1 movie gif,” tweeted the authoritative Redbox account in late June, days after the company failed to make payroll.

“Here’s mine,” the tweet continued, followed by a GIF of the sinking Titanic.