Monday, September 24, 2018
Business

This is how MoviePass hopes to make money off your low-cost subscription

MoviePass is a film nerdís dream. The subscription service allows users to see one movie a day at a theater for a single monthly cost. The service isnít new, but itís become popular among a lot more than movie buffs in the past few months.

During its first six years as a company, MoviePass relied on the idea that most of its 20,000 subscribers wouldnít use the service. Itís the way many gyms make money: Convince users to sign a contract, then hope theyíll never actually show up to use a treadmill.

But when Mitch Lowe, a Netflix co-founder, took over MoviePass as CEO in June 2016, he opted to flip this revenue model on its head.

First, he teamed up with data firm Helios and Matheson Analytics Inc., which bought a controlling interest in the company. Then, in August, he announced a radical overhaul to the companyís pricing model, dropping the cost from around $50 to $9.95 per month.

Instead of hoping subscribers skip out on the movies, Lowe wants MoviePass customers to visit the theater as often as possible. Because the more movies its subscribers see, the more data the company rakes in. And thatís where the real dough is.

"The big money for us was always understanding the consumers habits and the data, because no oneís ever done that," Ted Farnsworth, CEO of Helios and Matheson, told the Washington Post.

After the pricing change, the service exploded in popularity, adding 150,000 subscribers in two days, Lowe told the Post. Since then, its user base has grown to 1.5 million subscribers. It added 500,000 of those in last month alone. (For comparisonís sake, it took Netflix about four years to reach 1 million subscribers.)

MoviePass is trying to drive customers to movie theaters at a critical time. Movie attendance in 2017 dropped by more than 6 percent from the previous year, according to Box Office Mojo, which noted about 82 million more tickets were sold in 2016 than 2017.

The average movie in America costs $8.97, according to the National Association of Theatre Owners. In cities such as New York and Washington, tickets can run $15 to $20. MoviePass customers would only need to see one or two movies a month to get their moneyís worth. According to the Motion Picture Association of America, 11 percent of American and Canadian moviegoers already do just that.

Since MoviePass pays the full price for each ticket, it quickly loses money on many customers.

"They definitely need to generate revenue from ancillary revenue sources," Eric Wold, an analyst with B. Riley FBR, a financial services company, told The Post. He added that the company will probably raise its prices over time, much like Netflix did, but even then it will still require other income sources.

The company has spoken of seeking of concession revenue from the theaters to which it sends moviegoers, according to Fortune. During the weekend,the company announced that it will be investing in movies.

But Wold ó echoing Farnsworth ó said data is the key to the companyís potential success.

While most theater chains track its own customersí habits, Wold said MoviePass is the first service that can track moviegoers across nearly all theaters in America. Those insights could be valuable to the restaurants, bars and even retail outlets situated around movie theaters, according to Wold.

"That data could help local restaurants, or local clothing stores, market to the moviegoers," he said, pointing out that many theaters are in malls or strip malls. The other businesses occupying that space would probably pay to know when certain demographics will be visiting en masse.

The service also has a direct line to avid moviegoers, which could benefit the studios themselves.

Wold said while average moviegoers are willing to shell out upward of $15 for blockbusters such as "Star Wars," they might often wait for smaller fare like "Lady Bird" to hit streaming services. Having MoviePass encourages users to see the smaller films that they wouldnít normally shell the money out for.

"Theyíve already shown results from the non-blockbuster films getting an increase in traffic from MoviePass subscribers," he said. For example, the service accounted for 1.7 percent of ticket purchases on the opening weekend for the comic book blockbuster "Justice League." But it accounted for 10 percent of ticket sales of the independent film "Three Billboards Outside Ebbing, Missouri," according to a news release.

Studios have noticed.

"In the short term, weíre already using the data to promote titles on behalf of the studios. Studios are paying us around two dollars per ticket we buy in exchange for us marketing their film," Lowe said.

But while studios might be pleased, not all the movie theater companies are.

Cinemark, which owns more than 500 theaters nationwide, launched its own truncated version of MoviePass, called Movie Club, in December. For $8.99, moviegoers can see one movie each month at a Cinemark theater and receive a 20 percent discount on concessions, according to a news release. Like MoviePass, Cinemarkís version doesnít apply to 3-D movies.

AMC Theatres, which has more than 650 locations in the United States that serve around 200 million moviegoers every year, loudly voiced its opposition to MoviePass in August. The company said the service "is not in the best interest of moviegoers, movie theaters and movie studios" in a harsh statement that said it was consulting with attorneys to determine "if or how" it could prevent MoviePass from being used in its theaters.

"From what we can tell, by definition and absent some other form of other compensation, MoviePass will be losing money on every subscriber seeing two movies or more in a month," the release stated, cheekily adding, "AMC noted that it is not yet known how to turn lead into gold."

AMC said it fears that MoviePass offers a price point thatís too good to be true and will eventually go belly-up, disappointing moviegoers who grew used to the cheaper pricing.

If MoviePass fails, "subscribers will have to return to paying between $10 to $15 for a single ticket. After three months with the service, I donít think I could do that," Nick Platt wrote in the Verge, adding, "once youíve gotten something for what feels like free, itís difficult to go back to paying for it."

The explosive interest in MoviePass signal that moviegoers are seeking a change, and thereís no indication that it will slow any time soon - unless it proves to be an unsustainable model. AMC declined a request from The Washington Post for comment, but recent remarks from the chainís CEO Adam Aron hint that the company might be warming to the idea - but still has no plans to share its own revenue.

"We appreciate their business," Aron said in a November conference call with analysts, according to the Hollywood Reporter. He added, "AMC has absolutely no intention ó I repeat, no intention ó of sharing any ó I repeat, any ó of our admissions revenue or our concessions revenue."

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