The movie theater subscription service faces a paradox: happy customers create an unprofitable business. Can MoviePass survive? If not, then what does it say about the future of other startups?

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By Jeffrey Cole

In a recent column, I wrote about my experiences with MoviePass. For $9.95 a month, I got to see one movie a day (except for IMAX or 3D films). MoviePass worked as advertised: for that $10, I saw 10 films in New York over the holidays that would have cost me $162.90 at the box office.

Several movie theater chains, especially AMC, strongly oppose MoviePass because they feel it devalues the movie-going experience. And, if MoviePass proves unsustainable and disappears, movie fans will be less likely to go back to paying $12 to 16 to see a movie.

A lot has changed in the past four weeks.

MoviePass is unsustainable in its current form. It dropped its monthly cost from $30 to $9.95 when it was acquired by Helios and Matheson, a data company. Their argument was that the data from my movie going in New York in December was worth $152.95. Of course, it could have been even higher had I seen more films; if I had gone to 20 films they would have to make the case my data was worth $315.85. And that was for just one month.

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MoviePass is a great idea. It’s too early to see what happens or how much cash it is prepared to burn. When all is said and done, it may be a case of an innovative company going to war too soon without enough clout to make its case.

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MoviePass has to hope on the one hand that I see one or no movies in a month, while hoping on the other hand I am content to continuing paying $9.95 a month but not using the card.

It makes no sense.

First, there is no scenario where my movie-going data is worth that much money. Granted the studios and other brands would have some interest in my data, but not that much. I called a few friends in market research who sell data for a living, and they argue that in the best case my data might be worth $25 to 40. Using those numbers, they can collect $35 for the data and $9.95 for membership for a grand total for $45. It works if the card lets me see three movies a month. Those numbers leave room for infrastructure, overhead, and marketing. If I see more than three movies a month, the MoviePass revenue model collapses.

MoviePass under the $9.95 model has seen fantastic growth. Membership went from 1 million members at the beginning of December to 1.5 million at the end of the month, which is growth of 50 percent. This is great news for the collection of the monthly fee and horrible news for the full subsidy of movie admissions. The faster MoviePass grows and the more movies members see, the more money MoviePass loses.

Something has to give, and since my first column it has.

The only long-term model that works for MoviePass at the current membership rate is to get a cut of theater admissions and concessions. MoviePass has to demonstrate to theaters that it is generating attendance from fans who would have not gone to the movies without the pass.

Since it lowered its monthly charges, MoviePass has been talking to theaters, trying to get a cut of their revenues. AMC has been emphatic in refusing even to discuss this possibility. AMC CEO Adam Aron said late last year, “AMC has absolutely no intention, I repeat no intention, of sharing any — I repeat, any — of our admissions revenue or our concessions revenue with MoviePass.”

If the monthly fees cannot sustain MoviePass, and if the theaters refuse to share revenue, then MoviePass is in deep trouble.

Last week MoviePass decided to play hardball.

All of a sudden and without warning, MoviePass members found that their cards no longer worked at a number of leading theaters across the country, including the AMC in Century City, California and the AMC on 42nd Street in New York City. Other cities included Washington, San Francisco, Seattle, Orlando and Chicago — one flagship theater in each city.

Members immediately protested what they saw as AMC’s unilateral decision not to accept MoviePass at some of their most important theaters. However, they quickly realized that it was MoviePass, not AMC, that had suspended those theaters.

With growth of 50 percent in December and total membership of 1.5 million and climbing fast, MoviePass decided to flex its muscles. It cut off those theaters with the belief it could teach AMC (and other chains) a lesson. MoviePass believed (probably correctly) that members were so addicted to the pass they would travel a few extra minutes to theaters where the pass worked, and attendance at the suspended theaters would drop sharply.

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MoviePass in the $9.95 model has seen fantastic growth. Membership went from 1 million members at the beginning of December to 1.5 million at the end of the month. This is great news for the collection of the monthly fee and horrible news for the full subsidy of movie admissions. The faster MoviePass grows and the more movies members see, the more money MoviePass loses.

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If MoviePass could pull it off, then it would make an essential point, and the theaters would come crawling to them offering a cut of box office and concessions.

There are a lot of problems with MoviePass’ strategy.

First, they moved too soon. Natural growth might have seen their membership climb to 3 to 5 million by the end of the year when they could make a far more effective case to the theaters. Perhaps they didn’t have the cash to sustain the company to that point. But in that case, they shouldn’t have played hardball.

Second, even if MoviePass is correct that members will move to another theater, 1.5 million across the entire country does not impact any one theater enough to bring the chains to their knees.

Finally, if MoviePass does not make its case, they cannot restore those theaters as their clout with the chains will be forever lost. They will have no choice but to cut off more AMC theaters, but then they will butt up against their own members.

The great value of MoviePass was that it worked at almost any theater in the U.S. If, by June, it only works at half the theaters, and members cannot effortlessly go to a theater near them, then the value of the card greatly diminishes. Members will cancel. Once members cancel, MoviePass enters a downward spiral where they have less clout, more theaters aren’t part of the system, and more members cancel.

In my earlier column about MoviePass, I talked about the great value of a movie subscription service. Movies could join music and magazines in an “all you can eat” world. Not only would more people get into the movie-going habit, people would be far more willing to experiment and take a chance on smaller less promoted movies.

MoviePass is a great idea. It’s too early to see what happens or how much cash it is prepared to burn. When all is said and done, it may be a case of an innovative company going to war too soon without enough clout to make its case.
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Jeffrey Cole is director of The Center for the Digital Future at USC Annenberg.

 

 

See all columns from the Center.

February 7, 2018