When MoviePass, the subscription service that offers users the ability to see one movie per day in theaters, announced in August of 2017 that they would be dropping their price from $45 per month to just $9.95 per month, it sent shockwaves through the entertainment industry, with interest in the company spiking considerably. The company has rapidly grown from 12,000 customers in August 2017 to over 3 million by June 2018, and the service is expecting to grow to over 5 million users by the end of the year. The main questions surrounding MoviePass are: "How can they possibly make money off this" and "How long until this all blows up?" While we can't speak to exactly what the ultimate fate of MoviePass will be, we can explain how this can possibly be a sustainable business model (spoiler: it might not be) and if it's worth buying MoviePass. 

MoviePass offers two options: an unlimited plan for $9.95 each month and three movies monthly for $7.95. On May 8, 2018, MoviePass' owner Helios and Matheson Analytics Inc. (HMNY) revealed in a filing that as of the end of April, MoviePass had only $15.5 million in cash left. The stock of the parent company plunged almost 30% following the news. Although Helios and Matheson closed at $0.19 on July 9, in an interview with CNN that same week, CEO Ted Fartnsworth said "there's no shortage of institutions willing to work with us to give us money, even as we're going through this right now, losing money. The institutions definitely understand the model. They understand where we're going. And I think that we've gotten there in record time."

Helios and Matheson went through a massive reverse stock split on July 25, 2018 at market open, which brought its stock price to $25. The company reported the move in an SEC filing the day before. But bad news was just around the corner as the company faced a service outage on July 26, 2018 because it could not afford to pay for movie tickets. According to a regulatory filing, the company borrowed $5 million in cash the next day to pay its merchant and fulfillment processors.

Customers complained on social media on July 26 that they were not able to use their MoviePass accounts to buy movie tickets at theaters. MoviePass recommended on Twitter that users wait for a resolution or use e-ticketing, which it said had not been affected.

So How Does It Work?

When you sign up for MoviePass, they'll send you a MasterCard in the mail with their branding and your name. This card is connected to your account, which you maintain with a smartphone app. When you're within 150 feet of a theater you can "check in" to a specific screening and the amount of money required to buy a ticket to that screening is loaded onto your card, then you use your card to buy a ticket like you normally would. 

It should be as simple as that, but there have been some snags; including spotty customer service involving people having to wait weeks to receive their cards and the app seemingly de-listing popular AMC (AMC) theaters in major metropolitan areas. Other than these issues, the app works consistently, and using it to pay for movies kind of feels like magic. Another small issue: you are unable to buy tickets online before the movie, since you need to be with 150 feet of the theater. 

If They're Paying Full Price, How Can That Be Profitable?

Well, it is super unprofitable right now. The entire venture is essentially a huge bet. What's the crux of that bet? In a word, data. On the same day that MoviePass slashed their prices, they announced that a controlling share in the company had been bought by Helios and Matheson, a data analytics company.

Helios & Matheson's strategy is to collect data from the service on what people go to what movies at what time and then sell that data to studios, distributors, and theaters. In January 2018, MoviePass showed how they can use that data to market themselves, announcing that among a survey of MoviePass members who saw a movie over Labor Day weekend, 75% wouldn't have seen a movie if they weren't MoviePass cardholders. (See also: How Big Data Has Changed Marketing)

This is the kind of stuff that corporations will shell out big money for, since it helps them identify how they should be marketing their products, but is it enough to cover the cost of MoviePass footing the bill for people paying potentially hundreds of dollars per month to see Star Wars 25 times? Almost certainly not, which is why data is just the start of the MoviePass master plan. 

Get Subscribers, Cut A Deal

For MoviePass to be truly sustainable in the long run, it's going to need ironclad partnerships on pretty much every level. They've already begun partnering with smaller studios and distributors to advertise specific movies such as "Forever My Girl" and "I, Tonya" through their email and app. If MoviePass can prove that by using these ads they can influence a significant number of people to see movies they otherwise wouldn't, that's huge and could lead to a major new revenue stream. 

In addition, MoviePass announced they would begin acquiring and distributing films themselves under a new division named MoviePass Ventures. The group bought their first film, a heist pic called "American Animals" at the 2018 Sundance Film Fest. Will MoviePass eventually create a studio to make their own exclusive films, a Costco-type theater only accessible to members? Right now they're experimenting to see what sticks, and no one really knows where these exploratory business ventures will end. 

MoviePass also needs to convince big movie theater chains to cut them some type of deal, since they can't keep shelling out full price forever. It's a fairly well known fact that the majority of money made in movie theaters is from the concessions, while ticket sales get split between the studio, the distributor, and the theater. According to a Wired interview with CEO and former Netflix executive Mitch Lowe, MoviePass customers spend "an average of $13 on concessions, more than double the norm." That's a big number, and it means a whole lot more money coming AMC and Regal's (RGC) way. (See Also: How Exactly Do Movies Make Money?)

The end goal for MoviePass is to tell these big chains like AMC to partner up, or that cushy popcorn money might not stick around. Once enough subscribers are devoted to MoviePass, they'll have enough power to make real demands at the negotiating table, or at least that's the plan; a public presentation from January 2018 claims that when the service hits 3 million subscribers, MoviePass could become cash flow positive. According to Deadline, They've already cut deals with a reported 1,000 independent theaters around the country to get a $3 ticket cut and/or 25% of concession sales, but what happens when the biggest movie chain in America won't return your calls?

Screen Wars

The first shots of this potential war may have been fired in late January 2018, when MoviePass seemingly stopped offering service to ten of the most popular AMC locations in New York, Chicago, Los Angeles, and several other cities. While AMC attempted damage control on social media, Helios and Matheson CEO Mitch Farnsworth released a blistering statement against AMC, claiming that the theater chain had never been willing to work with them, as well as claiming that MoviePass "represents 62% of AMC's operating income, assuming that AMC is flat year over year." 

The statement went on to claim that MoviePass subscribers could "bring in an additional $17.1 million in AMC concession revenues" and that MoviePass subscribers aren't theater-loyal and will drive by a theater that doesn't accept MoviePass. It's a shrewd move, nearly guaranteed to result in screaming customers in theater lobbies around the country, and a potential PR nightmare for AMC. What will they do in response? As of now, it's unknown. (See also: AMC vs. Regal: Which is Better for My Portfolio?)

Ok, That's Interesting, But Is It Worth It?

If you live anywhere that sells movie tickets at $10 or more, it's absolutely worth it. According to the National Association of Theater Owners (NATO), The average price for a movie ticket in the United States is $8.97, but in Manhattan, according to ValuePenguin, the average price is $12.59, and it's not much less expensive in the suburbs. The pass pays for itself very quickly, and you can cancel membership at any time, so if the entire MoviePass dream goes up in flames, your money won't go with it. For now, why not take advantage of essentially free movies and see that trashy looking horror movie? It could be fun!

MoviePass has the potential to permanently alter the way we see movies, on the same level that Netflix did, but to deliver on that, they may need to fight dirty, leveraging a rapidly growing base of subscribers to convince the filmmaking world to get in line. What it comes down to is this: The only way for MoviePass to survive is to take over the world. 

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