Sony Spins Out Crackle in Ad-Supported Video Joint Venture – Variety

Sony Pictures Television has found a new home for its Crackle ad-supported streaming service: The company signed a deal with Chicken Soup for Soul Entertainment (CSS Entertainment) to launch a new joint venture – called Crackle Plus – which will also run the Popcornflix, other streaming channels and nearby online video companies.

CSS Entertainment will own the majority of the new company, and Sony will in turn receive 4 million five-year warrants to purchase the Class A shares of CSS Entertainment at various price points. The companies did not disclose further financial details of the event. Sony Pictures TV Manager Digital Officer Eric Berger, who had run Crackle, is expected to leave the company when the deal closes.

In an Exclusive Interview with Variety Sony Pictures TV Chairman Mike Hopkins, and CSS Entertainment Chairman and CEO Bill Rouhana both described the partnership as a way to better benefit from the opportunity for ad-supported video. "We look at the AVOD [ad-supported video-on-demand] market as the ripe for innovation," Hopkins said.

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"About 50% of the revenue from the VOD market comes from advertising," Rouhana said. Both he and Hopkins claimed that ad-supported video services needed to consolidate to attract more money from big brands. "It doesn't make much sense for hundreds of AVOD networks to be," Rouhana said.

Sony will contribute with Crackle's US brand, user base and advertising business to the joint venture. Sony Entertainment's new media services will provide back-end technology for the joint venture, and Sony Pictures Television also licenses movies and TV shows from the Sony Pictures directory to Crackle Plus.

CSS Entertainment will contribute its own ad-supported video services Popcornflix, Truli, Popcornflix Kids, Popcornflix Comedy, Frightpix, and Espanolflix, as well as the video services company Pivotshare. Rouhana said that Popcornflix and Crackle would remain unchanged for the time being, but there would probably be some differentiation between the two services over time.

Sony bought Crackle all the way back in 2006, when the service was still known as Grouper. Over the following years, it has expanded Crackle as an ad-supported video service, utilizing both Sony's movie and TV program catalog, and investing in original content. One of the most well-known shows at Crackle was Jerry Seinfeld's "Comedians in Cars Getting Coffee", which played on the service for nine seasons before moving to Netflix.

However, there have been signs that Sony wanted to leave the business. The company launched some Crackle staffers last year and it has closed both Crackles Canada and Latin America businesses over the past nine months.

"It wasn't our core business," Hopkins said. "It wasn't our core competency." Still, Sony will focus more on its core competencies – namely, the production and distribution of content, he said.

So why not sell Crackle directly? The logic of the deal eventually comes down to the fact that it allows Sony to earn something upwards without having to sink more money into the video service. Rouhana said he did not expect Crackle Plus to need additional cash inflows. "We will run this as a profitable business," he said.

Sony began looking at strategic options for Crackle last summer, and at that time, the investment bank retained Moelis & Co., which eventually also represented the company in this deal. Ladenburg Thalmann & Co. served as an advisor to CSS Entertainment.

Ad-supported video has received a lot of attention in recent months. In January, Viacom picked $ 340 million to buy AVOD startup Pluto. Meanwhile, Walmart has expanded the ad-supported part of its Vudu service; Roku has grown his ad-supported Roku Channel; upstart Tubi recently committed to spending $ 100 million on ad-supported content licensing; and the Amazon IMDb launched its own ad-supported video entertainment service in January.

Even with big competitors, Crackle Plus will aim to be a major player in the AVOD room, according to the two leaders. The new company will have access to over 38,500 hours of programming and will earn nearly 10 million monthly active users across the services, collectively floating over 1.3 billion minutes per month. "We think it's a great opportunity," Hopkins said.