MoviePass – The reality gap

All downhill from here.

• The move by MoviePass to suspend its service for a few weeks is almost certainly a sign that the end has almost arrived for an ambitious project that tried to defy the laws of reality.
• MoviePass started life as a “Netflix” for movies where users would pay $9.99 month and have all-you-can-eat access to movie theatres.
• For any user that goes to the cinema more than once a month, this was a fantastic deal as, with the average ticket costing ($8.93), the subscription would pay for itself with just 1.1 visits per month.
• This is where everything came unstuck as MoviePass was subsidising the cost of the ticket by paying the cinema every time the user made a visit.
• Hence the revenue base was fixed while the cost base was variable spelling disaster.
• 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 and it is these users that were most likely to end up subscribing.

• As I noted in 2018 (see here), with 2m users, this equates to $17.6m gross losses (-88%) every month before any operating expenditure is taken into account.

• This is clearly unsustainable, and I am surprised that MoviePass has lasted as long as it has.
• It has done this by making the service more and more restrictive through stealthy price increases and limitations on usage and so on.
• To be fair to MoviePass it no other choice but to take these actions but it is clear that this has not gone down well as its user base is now much smaller given that the service is now not nearly as good as it originally promised.
• MoviePass promises to be back with big changes and a recapitalisation but going dark on what is one of the biggest movie-going weekends of the year in the USA is not going to make its users happy.
• There are two possible outcomes:
  • First, close doors: To continue operations, MoviePass needs more money.
  • Given its recent history, I suspect this will be a tricky feat to pull off and so I think there is a good possibility that the company never emerges from this quiet period.
  • Second, new model: Any new offering to its customers is likely to be far less attractive to its users than the current model which has suffered from a clobbering by reality.
  • This could be a much more restrictive service or a higher price.
  • One option is for the company to explore the possibility of using the data it collects.
  • The company has stubbornly refused to do this to date, but I still think it could provide significant financial support.
  • A better approach could be 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.
  • This would have the effect of adding a variable element to the cost base such that the users that go to the movies the most would also contribute the most revenue to the company.
• Despite this marketing possibility, I think that the second option is a long shot particularly due to the difficulty that I think the company is going to have in raising new funds.
• Hence, I think it likely that we have seen the last of MoviePass which along with Juicero serves as a cautionary tale with the message that hype can never get the better of reality.