Sustainability is the glaring question
MoviePass has a problem, and it’s not just the widening gap between income and overhead. Sure, that alone makes them high on everyone’s “How Are Those Guys Still In Business” list, and with a rightful cause. In 2017 the average movie ticket in the United States cost $8.97, which falls right in between MoviePass’ current (as of publication) offers of $7.95 and $9.95 monthly subscription options.
The former offering a limit of 3 movies a month and the latter a movie a day. MoviePass was hoping to follow the golden path paved by gym memberships, where people sign up only to then steadily fade out like a dying star while being too lazy to cancel the membership. The problem, of course, is that it’s a lot easier and more fun to go to a movie than it is to lift things up and put them down. Who would’ve thought?
In the last two years, MoviePass has changed its pricing in a variety of ways. There were multiple tiers where cost was based on the movie market an individual lived in, with the unlimited movie option topping out at $50 a month. Fast forward a year and execs for the company slash the price 80 percent to build up their subscription base.
The plan worked, as MoviePass went from a measly twenty thousand subscribers in December of 2016 to over two million this year. In this regard, they took a lesson from Netflix, who offered similar deals to increase their subscribers which in turn increased investor cash flow. The fundamental difference here is that Netflix acquired the rights to shows and movies to air on its platform, while MoviePass is simply handing money over to the thousands of theaters at cost. Netflix then used their subscriber powers to boost their original programming over the last few years.
But again, this isn’t the only problem MoviePass. As was the case with the first gym and the first hit streaming service, others take notice. Since the sudden rise of MoviePass subscribers, theater chains across the country have spoken out against the service, suggesting it cheapens the movie-going experience. In a financial sense, yes it does, and that’s why it’s so popular.
Beyond the theater regulars, MoviePass allows the fringe movie fans to feel better about taking a trip and catching more flicks without breaking the bank. Many theater owners and managers feel that the service isn’t sustainable and that *when* it does go bottoms up, the customers conditioned to the MoviePass experience may find it harder to fork over the dough for full priced tickets.
Now, instead of spitting constant vitriol at the service, theaters are taking things into their own hands and joining the subscription market. AMC announced a new service offering 3 movies a week for $20 a month, and fellow chain Alamo Drafthouse is working on a beta version before revealing any official price.
While AMC’s Stubs program is still twice the cost of MoviePass with marginally less usage, the fact that another option is out there is a big deal. And with the Alamo program in the works, it’s only a matter of time until other theater chains follow suit. With theaters offering their own deal, they have the ability to provide discounts on concessions, which the Stubs program offers. The cooperative deals are what MoviePass had been hoping to engage in after boosting their customer base and presumably driving more foot traffic to the theaters, but the script is changing.
Speaking of change, MoviePass sent an email recently over the weekend notifying users of a couple updates to the service. First, they announced that subscribers would have the ability to purchase extra tickets through the MoviePass app for friends who aren’t subscribers. A second stated that, for an extra fee, subscribers can now see movies in IMAX and 3D, previously unavailable through MoviePass. The third change announced involves the equivalent of surge pricing, in which MoviePass will charge an extra fee depending on the movie’s demand at the time of showing.
It’s no different than Uber’s price-hike when glazy-eyed patrons are kicked out of the bar and find a ride home costs three times as much. From MoviePass’ point of view, this makes sense, and it’s probably not as bad as it sounds. They could have simply raised the price across the board, but then face the potential backlash from their base (not unlike the backlash they received when they attempted to change their service to one movie a week. That was quickly eradicated). While the new process may not sit well with some, and until the surcharge figures start seeing the light of day, MoviePass will likely remain the most cost-effective option.
So what happens next? The MoviePass business model will need to change if they want to survive. Right now they’re using investor money to stay afloat, but at some point, the numbers will need to trend towards the black, lest the ink in the pens writing the checks ceases flowing. So far that hasn’t happened, and just last week parent company Helios and Matheson made the move to sell more shares in an effort to raise $1.2 billion over the next two years. In an interview with The Hollywood Reporter, CEO Ted Farnsworth laid out the plan. The $1.2 billion will help float the company for the foreseeable future while allowing them to expand the MoviePass Films and MoviePass Ventures properties.
It’s in those two subsidiaries that would likely keep MoviePass from being one gigantic faceplant. One a production company and the other focusing on investments, these doorways into potential windfalls of cash could–eventually–turn the company into something more than just a cheap way to see movies. MoviePass Ventures has already invested in two recently released films in American Animals and Gotti (they went one for two on those, the latter under heavy fire for a ridiculously large disparity between a critic and audience scores–0 percent and 80 percent–that voting manipulation conspiracies were thrown around. The audience score has since been lowered to 55 percent, with the critic score holding fast at 0 percent).
It’s the Netflix model taken to the theaters instead of the home. For years, Netflix built their subscriber base while acquiring rights to TV shows and movies before finally being able to pump out original content and catch the eye of more and more stars of the screen. Whether MoviePass can replicate this is yet to be seen, but bringing in some extra cash will help their efforts. MoviePass’ insouciance towards profiting tilts questioning heads on the outside, Farnsworth isn’t concerned, saying to THR, “They’ve been predicting our demise for eight months and we’re still standing. Now we’ll have a big war chest behind us.”
The concern that MoviePass is too good to be true isn’t as big a concern for those within the company. In a Washington Post interview in April, Farnsworth revealed some statistics that favors MoviePass’ expectations. He explains that by the end of this year, they expect to have 5 million subscribers, which would nearly double their current base. Farnsworth also stated that of all the users, only about 12 percent frequently use the pass while the remaining 88 percent are casual moviegoers who don’t cost MoviePass much money. Per Farnsworth, “We could be profitable right now if we got rid of the 12 percent.”
How accurate those numbers are is anyone’s guess, and it’s extremely possible that they fluctuate one way or another in any given quarter. Not to mention creeping increases to the cost of movie tickets themselves year over year, which the company will have to account for. MoviePass’ stock has plummeted since last fall from $20 a share to $0.20 this summer as the market reflects skepticism of their survival chances.
Though hope does abound, as Netflix’s stock prices were once $0.77 in November of 2002, and are now over $400. Regardless, a billion dollar boost means the company isn’t going anywhere soon, so provided they make some smart investments in the right films, they can start bringing in some extra cash to alleviate those 12 percenters and build their own content in the likeness of Netflix, Amazon, and Hulu (or, you know, they could just make some cash on merchandise). It’s an uphill battle where the smallest slip could cause a downward tumble, but Farnsworth is betting on mountain goat-like footing to find their way near the top.
