MoviePass – Ads or death.

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MoviePass has to track to survive.

• Unless MoviePass tracks its members and is able to monetise the data that they generate, the company is almost certain to go out of business as I think that its model is fundamentally flawed.
• MoviePass is a service that normally costs $9.95 per month and provides the subscriber with the ability to see one movie per day at almost any movie theatre in USA.
• For any user that goes to the cinema more than once a month, this is a fantastic deal as, with the average ticket costing ($8.93), the subscription will pay for itself with just 1.1 visits per month.
• This is where everything comes unstuck as MoviePass is subsidising the cost of the ticket by paying the cinema every time the user makes a visit.
• 3% of US adults (6.75m) visit the cinema once a week or more with 5% (11.25m) visiting 2 to 3 times per month.
• These are the users that will be signing up for MoviePass and I calculate that they will be costing the company a lot of money.
• This equates to a pool of 18m users who visit the cinema about 3 times per month.
• If I assume that MoviePass has been able to negotiate a volume discount with the cinemas of 30%, then each user will be costing MoviePass $8.80 per month on average.
• With 2m users, this equates to $17.6m gross losses (-88%) every month before any operating expenditure is taken into account.
• This adds up to $211m in annualised losses which is clearly unsustainable.
• To make matters worse, losses with continue to balloon as more subscribers join as long as the business model stays the way that it is.
• This is why the company has no choice but to track its users and sell their data to marketers as it needs a revenue stream to offset the losses it is currently incurring.
• Selling statistical data back to the movies studios will barely make a dent and is probably what got the company the 30% discount that I have assumed above.
• Hence, when the company stands up and says that it does not track its users (see here), it becomes clear that the whole proposition has not been thought through properly.
• There are three methods that can be used to monetise an ecosystem or digital service (hardware, advertising or subscription) and MoviePass is using none of them.
• With -88% gross margins, it is not offering a subscription service but is simply buying data which it is now refusing to monetise.
• A better approach would have been to offer ardent movie goers a big discount on their entrance tickets in exchange for their permission to track their cinema activities and the ability to promote related goods and services to them.
• By knowing what they like and understanding their purchasing intents, the value of the advertising that could be pushed is very high indeed.
• As a result of not being clear and upfront to its users with its business model, the company is now in a very difficult position of not being able to create a sustainable business.
• Hence, I suspect that the business model will soon have to change by raising the subscription price to a point where it can make money.
• This is likely to cause an exodus of users who signed up at $9.95 per month, leaving the company in dire straits.
• I think that MoviePass has to work out a way to monetise the data that it collects, or it will go out of business consigning it to being yet another interesting idea that was badly executed.