*The views expressed in this article do not represent the views of Santa Clara University.
“The movie is about to start.”
That was the only thing MoviePass had on its company website in 2019, teasing customers and fans of the service about the possibility of a revival.
Fast forward a couple of years and the movie-going subscription announced a pre-launch waitlist that would allow any who registered to be a part of the beta version of the app. The waitlist drew about 30,000 people to its website in just a few minutes, crashing MoviePass’ website, according to co-founder Stacy Spikes.
But with the backdrop of Oscar season around the corner and the service’s relaunch, it begs the question—why did MoviePass fail and what can movie-goers expect the second time around?
MoviePass Business Model
From the very beginning, MoviePass’ business model seemed too good to be true from a consumer’s perspective. In essence, the service would purchase movie tickets at the list price and then hand them off to users on a subscription plan at a low monthly fee.
During the company’s beta launch in 2011 in San Francisco, it first operated as a voucher system, where users would print a voucher code to redeem tickets at certain movie theaters. However, in 2012, MoviePass officially switched to a mobile application and a prepaid debit card, which could be used at any movie theater that accepted major credit cards. Then, in July of 2016, MoviePass announced they were going to use a new subscription structure. The new structure allowed users to see two, three, or even unlimited movies per month for a set price.
The following year, MoviePass sold a majority stake to the analytics firm Helios and Matheson. Upon the sale, the company announced that it would lower its unlimited movies, which allowed one film per day, for the astoundingly low price of $9.95 per month. Mitch Lowe, the MoviePass CEO at the time said in an interview with Variety that since “[movie] prices keep going up...[w]e’re making it more affordable for people.”
At the same time, Helios and Matheson’s CEO Ted Farnsworth stated that the motivation to change pricing was to increase the size of its user base. However, Matheson viewed the movie-going service on par with Facebook or Google in terms of accessing user data, stating, in an interview with Bloomberg, that “the more we understand our fans, the more we can target them.” Lowe knew that the only way for the company to survive the price change was to negotiate for a share in the ticket sales. Without getting a cut, the movie subscription service would simply be at a spending deficit, paying more money out than it received from users.
MoviePass had multiple ways they could have become a disruptor in the movie industry, but Lowe and Farnsworth were set on acquiring as many users as they could. This goal eventually led to the company rapidly spending its venture capital, but it seemed like some of the company’s head officers didn’t mind this. After their pricing change announcement in 2017, the company grew to over 1 million users. It seemed that MoviePass, Lowe, and Farnsworth were not only reaching their goals in terms of user growth, but also disrupting the market at the same time.
Market Disruption
When MoviePass first tested its service in June 2011, it represented a possible disruptive innovation to the theater industry. Complex at its inception, MoviePass hoped to join the likes of Amazon, Netflix, and Uber who all brought innovation to their industry and successfully displaced established competitors.
For example, Amazon disrupted the way consumers purchase products online. As its logo illustrates, Amazon is a one-stop shop with a wide range of products, everything from A to Z.
Netflix closed the curtain on Blockbuster, Movie Gallery, and Hollywood Video. Netflix allowed consumers to enjoy movies from home without a trip to the video rental store. PYMNTS
Uber drove out established Taxicab companies by offering riders lower prices and better service packaged in an easy-to-use smartphone application. Pepić, Lana. (2018). The sharing economy: Uber and its effect on taxi companies. ACTA ECONOMICA. 16. 10.7251/ACE1828123P.
Similarly, MoviePass hoped to innovate the way consumers go to the theater by providing their new subscription service.
The Ups and Downs
With over a million users subscribed, MoviePass and its company leaders gained the leverage they were hoping for, especially with the top theater chains.
When MoviePass first launched there was a disconnect between what consumers were willing to pay for movie tickets and concessions. They hoped to bridge that gap between customers and theaters by offering movie tickets at lower prices, effectively filling more seats, and boosting concessions sales.
In a perfect world, MoviePass could’ve worked and partnered with theater chains, providing discounted tickets and a share of the concession or ticket sales, while driving box office and concession sales up. The company could have then bought those tickets at a wholesale price, gained a revenue stream from the cut of concession sales, and made their money back.
However, their push to become integrated with the cinema industry led to a strained relationship between the company and theater giants, especially AMC, who threatened to sue the movie-going company and prevent the subscription from being used at its theaters. In a statement, AMC stated that “[w]hile AMC is not opposed to subscription programs generally, the one envisioned by MoviePass is not one AMC can embrace. We are actively working now to determine whether it may be feasible to opt-out and not participate in this shaky and unsustainable program.”
Throughout the journey of MoviePass, Lowe wanted to utilize MoviePass to “build a night out at the movies,” where moviegoers would use the MoviePass app to choose an eatery, transportation to the theater, and of course the movie itself. Like Facebook and Google, this encompassing product could enable MoviePass to generate the data it needs to better target users for marketing purposes.
However, this idea did not come to fruition as AMC announced AMC Stubs A-List in 2018 to rival MoviePass’s services. In addition, with multiple film and app blackouts and surge pricing, based on the time and type of movie airing, MoviePass did not stand a chance with its poor organization and execution. Before anyone knew it, the company was turning into a catastrophe. Moreover, Lowe kept on claiming that a new business model could put MoviePass back on the right course to reverse everything, but customers weren’t entirely sure if it could.
“Order in the court”
During this tumultuous time for MoviePass, its customers were having their accounts cancelled and then were charged for new subscription plans they didn’t sign up for. In addition, with the combination of subscription plans constantly changing and disgruntled customers, lawsuits were only bound to follow.
In 2018, Helios and Matheson burned through more than $219 million, which left MoviePass with only $51.4 million in assets. The run rate was more than $21 million a month, which estimated the company would go bankrupt in a little more than two months. These losses led to multiple lawsuits from both investors and users.
In one class action suit filed by multiple subscribers in New York, the subscribers alleged that MoviePass engaged in a
“deceptive and unfair bait and switch scheme,”
when they each paid $105.35, based on the bargain to see any movie at any theater on any day for up to one movie per day.
In addition to the already ensuing lawsuits by investors and customers, the subscription service received allegations from the Federal Trade Commission (FTC), for “deny[ing] consumers access to the service they paid for while also failing to secure their personal information.” This left MoviePass with no place to turn, having not only exhausted much of their capital but having exhausted many of their options as well.
So, What Now?
MoviePass was an innovative subscription service that drew customers to the theaters, but with a flawed business model, the survival of the company was predicated on partnering with theater chains. With a strained reputation and relationship with those chains, the company may have a more difficult time getting back into the market it once had control of.
Now MoviePass will have to fight for market share with a list of big name competitors. For example, AMC offers moviegoers AMC Stubs A-List, a subscription service that allows its members to view up to three movies a week and other perks at the concession stand for $19.95 - $23.95 a month depending on location. In addition, Regal Cinemas launched Regal Unlimited Movie Subscription Pass. Their subscription service does not limit the number of movies a member can watch and provides members with 10% off at the concession stand. The price of their service ranges from $18 - $23.50 a month with higher tiers granting members access to more theaters.
Many other theaters are now offering similar subscription services. This may present a roadblock to MoviePass in its upcoming re-launch. Even though MoviePass were the first to popularize the concept of a movie theater subscription service they will have to find a way to win customers back.
As of November 2021, MoviePass co-founder Stacy Spikes purchased the rights to the company in bankruptcy court and is gearing up for a 2022 relaunch. After 750,000 people joined their waitlist, the company launched its beta version in Chicago, Dallas, and Kansas City, based on deals struck with exhibitors in those cities.
The company will be relaunching its once-tiered pricing system, where users will pay anywhere from $10 to $30 for credits to be redeemed for tickets. Unlike AMC’s and Regal’s subscription services which are limited to their respective theaters, MoviePass will feature all major theaters that accept major credit cards. This flexibility coupled with the company’s name recognition, and lower entry price point may be enough to attract customers back to MoviePass.
Time will only tell how the new MoviePass model will fair in the market today, but with a motivated CEO and highly interested customers, anything can happen.
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