Movie Pass could be doomed to fail. Anar Bata investigates why for our autumn Chief Disruptor magazine.

As cinemas struggle to get customers into seats, digital competitors are soaring: services like Netflix and Amazon Prime continue to get more and more subscribers.

Cinema attendance dropped to a rate not seen since 1992 in the US and Canada.(1) The rise in prices for movie tickets and snacks has made going to the movies an expensive pastime. It’s no wonder users prefer the flexibility and price of streaming services. Traditional theatres are struggling to remain competitive.

Then, in August 2017, the perfect solution to revitalise the movie theatre experience appeared: MoviePass dropped its subscription fee from $20-45 a month to $10 a month.

Subscription-based models, like MoviePass, have increased in prevalence. Offering businesses a guaranteed monthly revenue stream, and consumers a convenient flat rate option, subscription plans seem like a win-win. But in order for these models to be successful, they must also be sustainable.

A brief explainer

MoviePass was founded in 2011 and was operating throughout the United States by 2012. Users would pay $20-45 a month, depending on their location, to view unlimited movies in the cinema.(2) In 2016, Mitch Lowe, Netflix co-founder, joined MoviePass as CEO and began considering new pricing models to draw in more subscribers.(3)

A year later, MoviePass was acquired by Helios & Matheson, an analytics firm ‘with an eye toward optimizing their data in the service of targeted advertising…[and it] was willing to invest millions of dollars into the service to acquire that data.’(4)

In August 2017, following the acquisition, MoviePass cut their prices, giving members the opportunity to  see one movie per day for just $9.95 a month. In the month that followed the introduction of the new pricing model, MoviePass gained 500,000 subscribers and reached one million members by the end of the year.(5)

What could possibly go wrong?

The surge in MoviePass subscribers is no surprise; accessing unlimited movies for a lower price than a single movie ticket is a no-brainer for even the infrequent movie-goer.

What MoviePass seemed not to realise, however, was that by making any subsequent cinema visit free, the number of people going to the movies would rise substantially.

This model was no doubt appealing to movie theatres, as MoviePass still pays full price for the majority of tickets their subscribers access on the app.(6)

So how does MoviePass make money?

It doesn’t.

One year after the introduction of lower subscription fees, Business Insider reported MoviePass had ‘less than three months of cash left.’(7) That’s an optimistic take.   

According to Lowe, the high rate of spending is due to ‘a small amount of subscribers [going] to a lot of movies...almost 40% of our cost of goods are used by 15%.’(8)

Parent company, Helios & Matheson, introduced a series of changes to cut down on costs, including surge pricing for certain movies and showtimes and raising the price to $14.95 a month.(9) After backlash on the proposed changes, MoviePass reversed the changes and instead chose to  focus on ‘re-energising the occasional movie-goer,’ and have now capped the number of movies members can see to three a month.(10)

Lowe is confident this will reduce costs, stating ‘the changes had reduced the burn rate by 60%,’ and MoviePass will ‘get our burn to zero very quickly.’(11)

Even turning a profit isn’t too far into the future, according to Lowe, who said, ‘We’re building a subscriber base of film lovers, over time, we have dozens of ways to make money.’(12)

‘For example, marketing on behalf of studios...We have people who are coming to our site, you know, four and five times a week where we can sell advertising.’(13)

The value of the site is dropping, as Helios & Matheson frequently sell shares when short on funds. Before August 2017, MoviePass’ stock had a high of $38.8614; now it is trading at $0.78 a share.(15)

What’s in store for the future?

Elon Musk, who promised to solve Chicago’s infrastructure woes, set up a space colony, and save the Thai boys trapped in a cave this June, said that even he could not save MoviePass when asked on Twitter. (16)

But perhaps such judgement is premature. In the late 90’s, Massachusetts banned the sale of Apple stock as being ‘too risky,’ (17) and Businessweek described ‘The Fall of an American Icon,’ as Apple teetered on the edge of bankruptcy. (18)

If MoviePass can strike the right balance between growing their subscription base and cutting down on costs, it might still be able to recover.

References

1. Plaugic, L. (2018) Domestic movie theatre attendance hit a 25-year low in 2017. [online] The Verge. Available at: https://www.theverge.com/2018/1/3/16844662/movie-theater-attendance-2017-low-netflix-streaming [Accessed 21.08.2018]
2. Long, C. (2018) A brief history of MoviePass and its feud with AMC. [online] Uproxx. Available at: https://uproxx.com/entertainment/moviepass-amc-history/ [Accessed 20.08.2018]
3. Lang, B. (2016) MoviePass to experiment with new pricing models, CEO says. [online] Variety. Available at: https://variety.com/2016/film/news/moviepass-new-prices-netflix-mitch-lowe-1201806341/ [Accessed 20.08.2018]
4. Long, C. (2018) A brief history of MoviePass and its feud with AMC. [online] Uproxx. Available at: https://uproxx.com/entertainment/moviepass-amc-history/ [Accessed 20.08.2018]
5. Cain, R. (2018) MoviePass is now a movement with 1.5 million moviegoing members. [online] Forbes. Available at: https://www.forbes.com/sites/robcain/2018/01/09/moviepass-is-now-a-movement-with-1-5-million-movie-going-members/#477d1f4a1ad4 [Accessed 22.08.2018]
6. Barrett, B. (2018) How does MoviePass make money? We’re starting to find out. [online] Wired. Available at: https://www.wired.com/story/moviepass-second-act/ [Accessed 21.08.2018]
7. Wolverton, T. (2018) MoviePass has less than 3 months left before it runs out of cash-and its latest changes won’t save it. [online] Business Insider UK. Available at: http://uk.businessinsider.com/helios-matheson-moviepass-cash-burn-q2-report-2018-8 [Accessed 21.08.2018]
8. Guerrasio, J. (2018) MoviePass’ CEO says he will focus on the ‘occasional moviegoer’ and has a new strategy for working with theaters. [online] Business Insider UK. Available at: http://uk.businessinsider.com/moviepass-focuses-on-occasional-moviegoer-has-new-theater-strategy-2018-8 [Accessed 20.08.2018]
9. Mohan, N. (2018) MoviePass plans to raise prices, limit access to newest films. [online] The Wall Street Journal. Available at: https://www.wsj.com/articles/moviepass-plans-to-raise-prices-limit-access-to-blockbuster-films-1533054157 [Accessed 22.08.2018]
10. Jenkins, A. (2018) MoviePass reworked its business model. But it may be too late, analysts say. [online] Fortune. Available at: http://fortune.com/2018/08/08/moviepass-plan-helios-matheson-analytics/ [Accessed 22.08.2018]
11. Fritz, B. (2018) MoviePass slashes offering to three films a month. [online] The Wall Street Journal. Available at: https://www.wsj.com/articles/moviepass-slashes-offering-to-three-films-a-month-1533560401 [Accessed 21.08.2018]
12. Atalla, J. and Kovach, S. (2018) How does MoviePass make money? [online] Business Insider UK. Available at: http://uk.businessinsider.com/how-moviepass-makes-money-2018-4 [Accessed 21.08.2018]  
13. Atalla, J. and Kovach, S. (2018) How does MoviePass make money? [online] Business Insider UK. Available at: http://uk.businessinsider.com/how-moviepass-makes-money-2018-4 [Accessed 21.08.2018]  
14. Cheng, E. (2018) MoviePass owner’s shares plunge more than 40%. [online] CNBC. Available at: https://www.cnbc.com/2018/05/09/moviepass-owners-shares-plunge-more-than-30-percent-for-a-second-straight-day.html [Accessed 20.08.2018]
15. Disis, J. (2018) Welp. MoviePass stock just fell back below $1. [online] CNN. Available at: https://money.cnn.com/2018/07/30/news/companies/moviepass-stock-falls/index.html [Accessed 21.08.2018]
16. Reisinger, D. (2018) Elon Musk won’t even try to save the ailing MoviePass. [online] Fortune. Available at: http://fortune.com/2018/08/01/elon-musk-moviepass/ [Accessed 22.08.2018]
17. CNBC Fast Money. (2018) As Apple passes $1 trillion, you may recall that in 1980, Massachusetts barred sales of the IPO, deeming them too risky. [online] Twitter. Available at: https://twitter.com/CNBCFastMoney/status/1025084478740410368? [Accessed 22.08.2018]

Businessweek. (2018) LOL. [online] Twitter. Available at: https://twitter.com/BW/status/1025047738835238917? [Accessed 22.08.2018]