MoviePass Economics Dissected

By Robert Marich
   Feb. 26, 2018-Flat-fee monthly cinema MoviePass continues to make waves, cutting its already-low price, stretching claims of box office clout and registering eye-popping growth.
   Earlier this month, MoviePass reduce its film ticket price to $7.95, from $9.95 and threw in free streaming, leaving Hollywood and the

investment community wondering how such a low monthly price is feasible. The monthly fee, which can be used for a movie a day, is the cost of one cinema ticket in a big city. The free online streaming is with Fandor, which offers indie film fate. And subscriptons soared to 2 million!
   “You may wonder how MoviePass can afford to sell a month’s worth of tickets for roughly the price of a single show,” says a Wall Street Journal article by Allysia Finley. “That is the challenge of (MoviePass chief Mitch) Lowe’s business model. Right now, MoviePass simply pays theaters the full ticket price for every film customers see—meaning the subscription is a loss leader. MoviePass is backed by deep-pocketed investors, and it’s burning through cash fast. To make the business sustainable, Mr. Lowe aims to convince theaters to share their revenues. It could be a win-win, especially since, according to Mr. Lowe, MoviePass subscribers spend twice as much as other moviegoers on high-margin refreshments—after all, they aren’t paying for their tickets.”
   The WSJ article continues: “Many independent theaters have jumped on board and have agreed to share revenues. But the big three chains—AMC, Regal and Cinemark—have been less enthusiastic.”
   MoviePass’ controlling shareholder—the publicly-traded Helios and Matheson Analytics Inc.—announced it will try to raise $105 million in gross proceeds from a corporate debt offering. If successful, that would provide working capital to fund short-term losses. MoviePass also filed a patent infringement lawsuit against a rival Sinemia.
   Earlier this month, MoviePass claimed credit for boxoffice amounting "$128.7 million for select (Oscar) film nominees since November 2017," but then clarified that was with the multiplier effect of a companion admission. So the figured includes non-MoviePass tickets.
  So there are a lot of balls in the air at this moment. Consumers espouse their love for streaming services like Netflix, yet the trend of Netflix et al is to de-emphasize movies—which are available on numerous platforms over time—for streamers’ original TV (like political live drama “House of Cards” being only available on Netflix).
   The WSJ article suggests MoviePass wants a cut of boxoffice from theaters from being a middleman and catalyst to higher movie attendance. But theaters themselves are capable of stimulating attendance with price cuts and mounting their own subscription programs. Plus, MoviePass will end up with consumer information, which is always a risk for retailers (theaters in this case) if they don’t have a good handle on their customer base. There are also middle-men outfits trying to organize premium video-on-demand windows for movies at $30 or more within days of theatrical release, but movie distributors that control movies have balked so far.
  Anyway, the whole subscription theater ticket initiative is to be continued.
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