Sony, Crackle, Pop!

Disclaimer: Nothing here should be misconstrued as investing advice. I am NOT licensed to give any advice. These writings are intended as entertainment to put into context how a media entrepreneur and investor thinks,

When Viacom bought Pluto for $450M in January 2019, a lot of people did a double take at other AVOD platforms like Tubi and Crackle. Crackle was founded in 2004 as Grouper – a year before YouTube and WatchMojo launched. YouTube was a belligerent in the technology/aggregator segment,

WatchMojo in the content production one:

Grouper, I believe, started off as aggregator and after Sony paid $65M, moved into creation and production and renamed it Crackle

Compared to Google’s $1.65B price tag for YouTube seems astute, but for a myriad of reasons never scaled Crackle. It didn’t really move the needle, to the extent that throughout my analysis and chronicling of the evolution of web video – which YouTube won – with all due respect, it wasn’t referenced much and served more as a footnote. That’s not a knock, it had smart people, but web video isn’t the Afghanistan of the media world for no reason.

A decade later, it made sense for Sony to move on… 

I’m the Rodney Dangerfield and Forrest Gump of the Media World

WatchMojo is a tremendous asset in M&A, both in terms of intrinsic value but also as a negotiating chip, but that’s a story for another day. 

I had met Sony’s head of M&A Erik Moreno when he joined Time Inc. after his stint at Fox and before Time’s sale to Meredith. He’s one of the sharper guys in M&A I’ve met in my long career in media & finance, popping up at Sony in July 2018

As Sony sold Crackle to CSSE and it’s all moot, in the spirit of things, having signed an NDA with Sony Pictures to look at Crackle, all I will say is that to me: taking control of, and integrating, Crackle into WatchMojo and then giving Sony a minority stake made a lot of sense from a financial engineering perspective, but came with many risks. Given all of the options that I look at on a given day, I moved on, knowing that someone else would connect the dots.

Of Vice and Virtues: Insecurities

I’ve oftentimes said that people are driven by insecurities, good and bad. Such a deal would have been probably 2-parts vanity and pride, 1-part synergy… ergo 3-parts headache. Realistically, I was looking for a partner to help me maximize its value and mitigate the risk. Swallowing something like that and living across the continent seemed like something I could do without. M&A boils down to culture and structure, this was an MBA case on the wrong side of the ball for me.

Another company who got the vision as well but for whom such a deal made more sense was Chicken Soup for the Soul, or CSSE, who have the internal processes and systems, assets and resources to make it work, possibly. In late March 2019, they announced the deal.

While CSSE was publicly traded before that, the transaction alone didn’t compel me to buy their shares, but I did put them on my radar. This year (a whole year after publicly-traded CSSE announced its acquisition) and right before spring break, I decided to buy some shares: getting in at $9.65, just before the pandemic froze the economy.

Soon thereafter, Fox bought Tubi for $440M… and I knew it was a matter of time before the market better appreciated what CSSE had under its hood.

FWIW, I bought shares before going on vacation during spring break, then once Covid spooked the markets, the shares tanked. I kicked myself, but knew it would bounce back, which it has, slowly but surely.

The stock peaked today after Sony swapped its minority stake in Crackle for a minority (one can presume, smaller) stake in CSSE. I have no idea if it will pan out in the future, but as of now, I retain my stake in CSSE, which peaked at $19 and close to $250M in market cap. 

M&A is About Alignment, Culture and Communications

I think that makes more sense for all sides, after the courting period, to be more aligned.
I have zero insights into Sony, CSSE, but this is an example of the market catching up to a company’s “story” even though it was always there before its eyes.

You can always compare whether Crackle is PlutoTV or Tubi, but as comparables drive valuations, this one wasn’t a surprise: again, Crackle may smaller than Tubi or Pluto… but at a high level, to me, it felt like if buyers were willing to pay $325M and $440M for Pluto and Tubi respectively, then (at the time I bought shares in CSSE), getting in on all of CSSE for below $100M made sense. I’d be lying if I said I did much due diligence on the stock other than that (which my lawyers I am sure want me to emphasize is reckless, and not something I recommend anyone else sane to do).

How high the stock can go? I honestly don’t know and am not licensed to give advice. But today’s deal that gives Sony a stake in CSSE at least aligns them even more… and alignment is generally a positive factor in creating value.

Disclaimer: Past performance does not forecast future results! Nothing here should be misconstrued as investing advice. I am NOT licensed to give any advice. These writings are intended as entertainment to put into context how a media entrepreneur and investor thinks, given my unique time horizon and risk profile. Educate yourself, read up on mistakes others have made and speak to a licensed professional who can help you based on your investment profile and time horizon.