When MoviePass, the subscription service that for a time offered 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.

The company experienced rapid growth from 12,000 customers in August 2017 to over 3 million by June 2018. However, the main questions surrounding MoviePass are: "How can they possibly make money off this" and "How long until this all blows up?" While it's hard to predict 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 as a customer.

The Evolution of the MoviePass Service

MoviePass started by offering two options: an unlimited plan for $9.95 each month or 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 Farnsworth 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 the 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. During that time, customers complained on social media 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.

According to a regulatory filing, the company borrowed $5 million in cash the next day to pay its merchant and fulfillment processors.

Chief Executive Officer Mitch Lowe called an all-hands meeting on July 30, where he revealed that subscribers might not be able to use their passes for some upcoming big releases, according to Business Insider.

On July 31, MoviePass announced that it will raise its price to $14.95 per month within the next 30 days. The company's stock surged more than 200% that morning, and shares then quickly lost all of those gains (and more). By August, the company had reverted back to a three movies per month plan for $9.95.

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 (or months) to receive their cards and the app seemingly de-listing popular theaters and movies in major metropolitan areas. 

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

The service has been super unprofitable so far. 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.

This is the kind of stuff that corporations could 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 watching Star Wars multiple 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.

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 hope to have enough power to make real demands at the negotiating table, or at least that's the plan.

Screen Wars

The first shots of this potential war may have been fired in late January 2018 when MoviePass seemingly stopped offering service to 10 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 Ted 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. AMC has since launched its own competing service, and MoviePass is also facing stiff competition from newcomer Sinemia.

Is the MoviePass Service Worth It?

If you live anywhere that sells movie tickets at $10 or more, it may provide you with enough savings to make it worth it. According to the National Association of Theatre 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. At those prices, the pass pays for itself very quickly, and you can cancel your membership at any time.

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 become a real power player in the industry.