How NOT To Succeed In Business WHILE Really Trying

Media is hardly an industry devoid of mistakes.   Not a single successful person has a perfect track record.  Attend enough conferences where panelists and speakers are asked for an example of theirs as icebreakers and you’ll soon realize how imperfect and inexact a science this all is.  I’ve never failed to gain the trust of my audiences when I would tell how I scoffed and poked apart what I saw to be a silly little idea to sort of revive STAR SEARCH, a talent competition that had just failed in a network reboot, with what I saw as an unappealing overlay of a paid telephone vote that would never generate the kind of revenues the pro forma projected.  My opinion was shared by enough of my colleagues that the powers that be at FOX agreed that the entire risk of this project be taken by the mothership rather than shared across the family of networks.  And that’s a huge reason why AMERICAN IDOL never aired on FX.

But I have made a number of correct calls over the years; more importantly, when the wrong ones have been made, they tend to be interspersed with at least a representative sample of right ones.  That’s not quite the recent track record of one William J. Rouhana, Junior.

Mr Rouhana’s corporate biography reads as one where there has been a history of success:

Mr. Rouhana has been a leader in the media, entertainment and communications industries for more than 35 years. He was the founder and Chief Executive Officer of Winstar Communications, a wireless broadband pioneer, and Winstar New Media, one of the earliest online content companies, from 1993 until 2001. During his career Mr. Rouhana has led the acquisition of numerous media companies including Virgin Vision, a Virgin Group worldwide film distribution venture, in the 1980s. As an entertainment and finance lawyer from 1977 to 1985, he developed new film financing models for major producers such as Blake Edwards. He is a founder of The Humpty Dumpty Institute, which created the International Film Exchange, and the Co-Chairman of the Global Creative Forum, which connects the United Nations with major film and television executives, producers and talent.

So he seemed like an ideal choice in both expertise and mindset to oversee the expansion of what was initially a very successful publishing and motivational speaking venture, CHICKEN SOUP FOR THE SOUL, into a wider array of ways to leverage their vision.  For the first decade of Rouhana’s tenure, the company was private, and it was seemingly dipping its toes in the water.  They co-produced content for PBS and a handful of other outlets.  They acquired the website A PLUS.  They then went public in 2017.  One of the first significant moves they made was to take a majority stake in Sony’s streaming service CRACKLE.  I had been on the inside during the latter stages of the myriad misfires that Crackle racked up over the 15-ish years where Sony tried to make it into a viable platform, trying everything from short-form male-appeal content to stepping to the plate to foster Jerry Seinfeld’s return to TV with COMEDIANS IN CARS GETTING COFFEE to eventually evolving into a scattershot repository for internationally financed niche appeal dramas and a host of series and movies from the Sony library, with only the least successful ones available exclusively.  When the initial deal was announced in spring 2019, there were eye-rolling sighs of relief from surprised and beleaguered executives that Sony had found what some of them called a “pigeon”.  When Sony traded its remaining shares for a “preferential stake” in Chicken Soup For The Soul Entertainment at the end of 2020, I am told that the zoom calls featured a bit more quarantinis that usual.

It was around that time that I was introduced to Rouhana, virtually of course, by a longtime vendor turned entrepreneur who was one of the few that actually made good on promises to help me connect with top-tier executives.  My business friend had made a small investment in the company and was serving as a consultant and he knew I not only knew a lot about the Sony titles’ long-term appeal but could also help identify some other classic IP which Rouhana was looking to supplement the service with.  We spoke for an hour, cryptically but enthusiastically, and he ran by me several of the acquistions and investments under consideration.  One we discussed at length was this one that eventually was consumated a few months later, again per Wikipedia:

In April 2021, Chicken Soup for the Soul acquired the film and television catalogue of Sonar Entertainment. In return, Sonar will hold a 5 percent stake in a new AVOD network featuring its library.[26] Through the acquisition, Chicken Soup now currently owns the North American rights to a majority of the Laurel & Hardy films and shorts, and most of the Our Gang library, as well as the holdings of the former RHI/Hallmark/Cabin Fever/Sonar outputs, and a majority of the Hal Roach library, all via their Halcyon Studios division.

I related to Rouhana that I knew the principles involved in previous ownerships of these franchises decades earlier, the Australian media company Qintex, which colorized a good deal of the Roach and Laurel and Hardy films and briefly attempted an aggressive domestic syndication company that I knew intimately, and King World, which had the rights to a good deal of Our Gang via THE LITTLE RASCALS, a much more successful series of shorts that helped patriarch Charlie King build enough of a foundation for his sons and their families to eventually expand into other ventures, most notably the selling of WHEEL OF FORTUNE and JEOPARDY!.  I was candidly dubious, reminding him that the efforts to contemporize classic theatrical slapstick, both in color and black and white, had failed to meet projections even then and the last time I looked, Laurel and Hardy were still dead, and a good deal of the people that did watch them had joined them.

Rouhana bristled and spoke of his personal love for these characters.  Our conversation ended quickly thereafter, and I never did hear from him again.

I dare say I dodged a bullet.

A bit more than a year later, Rouhana made an even more aggressive gambit, acquiring the DVD rental business Redbox for $357M, most of which was assumed debt.  Rouhana made the rounds of defending his vision despite so many facts to the contrary, including this revealingly defensive interview with FORBES’ David Bloom:

The DVD business once ruled Hollywood, financing a delightful surge in restored versions of classic films, making Blockbuster and then NetflixNFLX -3.9% powerhouses, and fattening the profits of every Hollywood studio.

And then the business crashed. By 2013, a $20 billion home entertainment business driven mostly by DVD rentals and sales had slipped to about $13 billion in DVD/Blu-ray rentals and sales, according to Digital Entertainment Group, the industry trade organization. Fast-forward a decade, and “sell-thru” of physical media, as the industry likes to call it, had fallen off the cliff, to about $1.5 billion in 2022, according to the DEG.

Netflix thinks DVDs are dead. This summer, it attracted a lot of attention when it killed off its DVD-by-mail service, the very thing that built the company.  As a further kick in the pants, after the holidays, Best Buy -0.8%BBY is expected to stop stocking compact discs, DVDs and Blu-rays in its hundreds of stores, reclaiming the space for other products and, possibly, new services. So, DVDs are dead, dead, dead, right?

Not yet, says Bill Rouhana, who maintains there’s still a business in DVDs, at least for nimble companies trying to serve a substantial, if shrinking, audience. “Like everything else of this sort, the stories of (DVDs’) death have been greatly exaggerated,” Rouhana told me this week. “That’s the point really. These (media transitions) take a long time before they work their way through the system. What overperforms (demographically) is people who are looking to save money,” Rouhana said. “It turns out maybe the elite don’t know this, but there are value-conscious people at all ages”.

Well, that’s arguably true.  But such consumers aren’t necessarily so desperate for anything to watch that they’d be willing to watch 90-year old black and white comedy, or a few thousand marginal movies such as the ones they had just acquired from 1091 Pictures.  And what Rouhana seems to have forgotten along the way is that there’s more than enough such content available through YouTube, and enough people comfortable enough to simply use cellular service, to serve as a personal tranquilizer.

Best Buy did indeed get rid of DVDs.  And this story dropped yesterday on Minneapolis radio station MIX 108 FM’s website by Tony Hart suggests that another small little retailer they know a lot about may soon follow suit:

Target, like many retailers, is continually evolving, by stocking the latest trends, removing unpopular items, adding new products, and making new partnerships with other popular brands, but if one rumor is true, it could be the end of an era at Target.  Late last year, Best Buy announced that it would end selling physical media in its stores, no more DVDs or Blu-ray discs, they already got rid of CDs in 2018, leaving only Walmart, Amazon, and Target as the only remaining major retailers of physical media products, and now it appears as if Target may be following Best Buy’s lead.  The President Of Physical Media, a popular source for physical media news on X, dropped a bomb last week, claiming  “Target Sources are telling me they reportedly will stop selling physical media in-store and online by 2025.”

So I can’t say I was surprised one iota when this was the lead story in this morning’s CYNOPSIS newsletter:

Chicken Soup for the Soul Entertainment reported a net loss of $636.6 million for 2023, versus $111.2 million in 2022. Without additional financing, the company said it would likely have to “diminish or halt operations” and seek protection from applicable bankruptcy laws.” What happened? Our relatively recent acquisitions of Redbox, 1091 Pictures, Crackle, and the assets of Sonar, required time-consuming and costly integration efforts,” said the company in its delayed 10-K filing. “To date, these efforts have not been successful as we have not realized the anticipated benefits of such acquisitions and our operations have been adversely affected. We believe in the value of these assets but would require additional capital resources to fully realize their value, and we may not be able to secure such capital resources on commercially reasonable terms or at all.

Nor was I surprised by this story from VARIETY’s Todd Spengler that dropped last week:

A media consultant sued Chicken Soup for the Soul Entertainment, alleging he is owed “at least several million dollars” for work he did related to the company’s $370 million acquisition in 2022 of Redbox, the DVD kiosk and streaming company. Keith Knee, described in his legal complaint as an advisory and consulting services professional in the media industry, filed suit against Chicken Soup for the Soul Entertainment on Friday, April 19, in the U.S. District Court for the Southern District of New York. Knee’s lawsuit seeks unspecified monetary damages. A copy of the complaint is available at this link

Spengler’s story gives more details of Knee’s allegations which, of course, Chicken Soup has declined comment on.  It’s a fascinating read, and a cautionary tale to those of us who are dependent on the likes of Rouhana to be at least occasionally honest and accurate.  A list that continues to grow because, let’s face it, even some of the more successful ventures out there haven’t exactly been firing bullseyes of late.

It’s my understanding my business friend did get paid something for the work he did for Rouhana, though, again, he did put in some of his own money along the way.  For Mr. Knee, all I can say is I feel you, brother.

Mr. Rouhana’s podcast is titled LIFE’S TOUGH.  How ironic.  Especially when his obstinance and backward thinking has made it so much tougher for others besides him.

It doesn’t take much acumen to realize when chicken soup has gone bad.  I bet even from this image you can tell this pot has gone to waste.  Maybe Mr. Rouhana might now be able to as well.

Until next time…

 

 

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