Late last summer, MoviePass introduced a seemingly impossible offer: See a movie every single day in theaters, paying only a monthly fee that, in most markets, amounts to less than a single ticket. It worked. Earlier this month, MoviePass hit 1.5 million subscribers, growing much faster than anyone expected, including MoviePass.
But amassing customers was never going to be the hard part. MoviePass now has to show that it can actually, you know, make money. A little less than six months in, it looks as though it just might have an answer—although a fresh spat with AMC shows that not everyone will like it.
To be absolutely clear: The more subscribers MoviePass signs up, the more money it loses. It pays theaters full price for each ticket, whether a member visits once or 31 times a month. It has to provide for customer service to support those 1.5 million people, many of whom have lobbed valid complaints—MoviePass issues debit cards to each of its members, and initially couldn't keep up with demand—as the service struggled with its rapid expansion. And that’s on top of the usual, unglamorous costs of running any business. (Backends don’t maintain themselves.) If it seems like MoviePass is too good to be true, that’s because right now, it is.
Which is also why its explosive growth hasn’t been an unvarnished good, at least in the short term. “It’s harder in some respects and easier in others,” says MoviePass CEO Mitch Lowe, who cites the company’s customer service falterings as a primary drawback. There’s also the matter of all the cash the company must have run through by now; Helios and Matheson, an analytics company which has a majority stake in MoviePass, continues to put millions toward keeping the company afloat through the outflow. Analyst Brian Kintsligner of Maxim Group recently wrote that the company had "an estimated seven months of cash" to cover losses incurred by heavy-usage members.
The question, then, might not be whether MoviePass has a long-term plan for success—it's if the company can stick around long enough to see it through.
Perhaps understandably, Lowe focuses on the opportunities that the MoviePass masses afford him. “It’s a lot more fun to be riding a wild bronco than to be trying to tame a mare,” he says. Besides, for MoviePass, more users means more data, which in turn means more leverage. And leverage is key to Lowe’s goals; sure, he's trying to turn a profit, but he's also fundamentally rethinking the business of going to the movies.
From the start, MoviePass’s most likely allies have been independent studios, the kind for whom an incremental box-office uptick can turn a breakeven investment into a success. Those are the kinds of movies MoviePass subscribers go to, after all; it’s easier to take a flyer on The Shape of Water if the ticket is effectively free. But the challenge for MoviePass isn't merely to demonstrate its value to studios. The company needs to show that it can directly influence subscriber behavior through marketing maneuvers, whether in-app or through email and social media.
It's already scored some demonstrable wins. While 3 percent of all domestic box office gets purchased through MoviePass, the number jumps to 10 percent when MoviePass pushes a product, according to the company’s own tracking. Which has already led to some actual revenue. “We’ve got more than four contracts that are revenue-producing, in the six-figures-type range, for films,” says Lowe of deals in which MoviePass promotes specific movies to its customers. “The studios really do see the light, and see that we could be a valuable ally in rejuvenating the business.”
Lowe argues that the pitch becomes even more compelling as MoviePass continues to grow, projecting that his subscriber base will triple by the end of the summer. At which point, the reasoning goes, the MoviePass Bump would jump in kind, from a six or seven percent incremental lift to something closer to 20 percent.
That kind of value proposition isn't just for indies—it would also grab the attention of the bigger studios. “They’re going to have really approach major studios and show a direct correlation to people going to see movies that they might not have otherwise gone to see,” says Wade Holden, a movie theater industry analyst with S&P Global. “It’s all about them finding unique ways to leverage their service.”
One of those ways materialized late last week, with the launch of MoviePass Ventures, an acquisition wing that aims to co-purchase small films alongside established distributors. The MoviePass team spent the week at Sundance, armed with data about what types of films get its audience to the theater. “It’s not as sophisticated as what Netflix uses, since they have years of data and many, many millions of subscribers,” says Lowe. “But it’s enough indicate to us the types of films that will tend to be more successful.” And it didn't take long for the new venture to jump into the fray: Yesterday, MoviePass announced that it had picked up a heist flick called American Animals.
As a distributor, MoviePass can offer filmmakers something the deep-pocketed streamers often can’t or don’t: A commitment to the big-screen experience, and the potential to maximize the number of people who see it there. (Again: what's the risk, when a ticket is basically free?) This doesn't make MoviePass an altruistic patron of the arts, though; by investing in a movie at the beginning, the company can cash in when it eventually leaves theaters, grabbing a piece of the “downstream” revenue that comes from streaming and digital sales.
But studios and filmmakers aren’t the only partners MoviePass needs to win over to ensure its long-term viability. It needs the theaters on board as well. And to make that happen, it’s willing to play hardball.
When MoviePass’s new plan launched last year, AMC made clear its disdain. The largest theater chain in the US instead described MoviePass as an existential threat. “That price level is unsustainable and only sets up consumers for ultimate disappointment down the road if or when the product can no longer be fulfilled,” the company harrumphed.
And while AMC can’t block MoviePass from its theaters—those debit cards mean that customers are, for the purposes of AMC's bottom line, paying full price—the service’s long-term outlook depends at least in part on big chains sharing the wealth, in the form of, say, splitting concession stand revenue.
Lowe says independent exhibitors have been more responsive to such arrangements, and that he ultimately thinks MoviePass can survive without buy-in from AMC or Regal (neither of whom would comment for this story). But first, he’s prepared to make it as hard as possible for them to say no.
“The trick is signing up enough independents to where we can start to not show every show or every showtime or every movie at the top three chains,” says Lowe. “We’re spending millions and millions of dollars every week at those top three. Those customers are spending on average $13 on popcorn and soda, which is more than double the norm, because they’re not shelling out money for their ticket. The minute we start to not show every theater in the AMC brand, or every movie, that’s when that will start to turn around.” In other words, if the big chains don't start cutting MoviePass in on concessions sales, MoviePass could cut them out of its app. At 1.5 million customers, that's not such a big deal. If and when it hits five million, the balance shifts. You've got a nice popcorn business; it'd be a shame if something happened to it.
“If they decide to say, essentially, that they don’t want our customers, then we’re going to drive our customers to our partner theaters," says Lowe.
In fact, MoviePass appears to have started that offensive already. On Thursday, customers began reporting that MoviePass cards no longer worked at select AMC theaters. It seems that the impasse stems not from AMC, but from MoviePass itself. In a statement first reported by Deadline, Lowe said: "We’re excited to keep working with theater chains that are closely aligned with our customer service values. As we continue to strive for mutually-beneficial relationships with theaters, the list of theaters we work with is subject to change."
In a statement Friday, Helios and Matheson CEO Ted Farnsworth confirmed that MoviePass had pulled out of 10 AMC theaters. He also claimed that the subscription service represents 62 percent of AMC's operating income, and argued that the theater chain should share concession revenue—or continue to lose potential business. "We already know in past testing that MoviePass subscribers are not theater-loyal," says Farnswroth. "They're happy to drive by a theater that may be closer to a theater that will accept MoviePass -because of the MoviePass value."
For its part, AMC responded to angry tweets with a boilerplate comment: "Some of our guests say MoviePass may be blocking the use of their service at a handful of AMC locations. AMC has not restricted MoviePass acceptance at our theatres, nor have we heard from MoviePass about this."
MoviePass subscribers likely won't appreciate being used as negotiation fodder. And it's too early to know how this particular gambit might play out; in fact, since the impacted theaters are all in major cities and command higher ticket prices, it may have more to do with trying to avoid losses than bringing AMC to the table. But unless AMC, Regal, and Cinemark work out a deal, expect less dramatic measures as well, like MoviePass demoting their showtimes in its app search results, or blocking them out altogether.
These are blunt tactics. But for Lowe, the MoviePass subscription model is just the first sledgehammer blow of a gut reno. He envisions certain films being exclusive to MoviePass members on their open weekends, and bringing the bingeing experience to the big screen. And why not live sports? And why not YouTube clips between films? US box office hit a three-year low in 2017, despite rising ticket prices. The system, Lowe argues, isn’t working. Why not try something new?
“The theaters’ excuse that they had a declining year, and that they blame it on content, is kind of an abdication of a good retailer to identify the change in what customers are interested in,” says Lowe.
And if that works, MoviePass envisions a future in which it partners not just with movie theaters and studios, but with restaurants and bars and ice cream shops and anyone else that might benefit from the subscriber data it amasses.
Then again, it's possible that none of this works. Or maybe it all does, but just not fast enough to catch up to all the money going out the door. But with some independent studio and theater deals already falling into place, and an ambitious roadmap for the future, at the very least MoviePass has shown that it’s more than just something for nothing—and it’s more than ready for its close-up.
Don't forget that the data MoviePass collects from all of those subscribers is what makes it all possible
Before MoviePass, Netflix had a pretty grand plan of its own—which has worked out pretty well so far
And if you're looking for even more disruption, check out the VR movie that sold for seven-figures at Sundance
This story has been updated to include comment from Helios and Matheson CEO Ted Farnsworth.
