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MoviePass CEO Acknowledges Initial Business Model Was a Flop

Under a new plan, subscribers can see up to three movies a month for a $9.95 monthly fee

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    MoviePass CEO Acknowledges Initial Business Model Was a Flop
    Darron Cummings/AP
    In this Jan. 30, 2018, file photo, Cassie Langdon holds her MoviePass card outside AMC Indianapolis 17 theatre in Indianapolis.

    What to Know

    • MoviePass's initial plan left the company rapidly losing money, the company's CEO said

    • Only 15 percent of MoviePass users saw four or more movies each month

    • The new business model should make MoviePass more sustainable, according to Lowe

    Even the head of MoviePass is a critic.

    MoviePass CEO Mitch Lowe is acknowledging in the face of criticism over the number of movies customers can see as part of a new subscription plan that his company missed the mark in creating a sustainable business model. But he now insists that they’re on the right track to securing a degree of financial security.

    When Lowe invested in MoviePass in 2016, he wanted to know why some people went to see a movie in theaters so infrequently. At the time, the service charged between $35 and $40 monthly to see one movie per day. Lowe deemed it a “high-end service” that catered to frequent moviegoers, what the Motion Picture Association of America calls those who view one or more movies per month.

    Lowe, who would become CEO that same year, spent about 18 months researching industry trends and concluded that millennials would go to the theater for a major blockbuster but otherwise waited for movies to be available on streaming services. They didn’t like the risk of paying for a movie they might not like and having to leave the house to do so, Lowe said.

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    So, the company launched a $9.95 monthly subscription plan that enabled users to see one movie per day. However, frequent moviegoers used the service so often that the company quickly lost money, Lowe said.

    Now, under a new plan, MoviePass subscribers can see three movies per month for the same monthly fee, preventing frequent users from draining the company’s cash flow. Customers wanting to see more than three movies a month will receive discounts on additional tickets while millennials might not view selecting a movie to see as a risk, Lowe said.

    Two business experts said MoviePass’s initial business model wasn’t sustainable. Lowe said the same.

    “We were trying to do both -- please the frequent moviegoer and occasional moviegoer -- and we’re not able to do both,” Lowe, also a Netflix founding executive, said. “Now we’re focusing on what we can do better than anyone else: keep a low price, attract the occasional moviegoer and stay a sustainable business.”

    MoviePass only receives discounts on 10 percent of tickets it purchases, Lowe said. As a result, the company often finds itself paying full ticket prices.

    Movie tickets averaged more than $9 in the first four months of 2018, according to the National Association of Theater Owners. However, in major cities like New York and Los Angeles, movie ticket prices can surpass $15, forcing MoviePass to take a loss on the first movie a subscriber sees.

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    Now, in an attempt to become profitable, MoviePass is anticipating users won’t see all three possible films each month. Under the old plan, 15 percent of users saw four or more movies per month, draining the company’s resources.

    “I would suggest the company was something of a disaster from the beginning,” said Daniel McCarthy, a subscription model expert and marketing professor at Emory. “The more customers they acquire, the more value they destroy.”

    Financial problems have plagued MoviePass this summer. Its parent company, Helios and Matheson, received a loan worth more than $6 million after MoviePass temporarily ran out of cash. Lowe said the loan was the result of investors wanting the company to limit its losses at a quicker rate, causing movie vendors to be concerned about payments.

    Nonetheless, frustrated customers complained about the outage on social media, claiming it prevented them from checking-in.

    Then, the company announced its plans to increase its monthly fee to $14.95 and prevent subscribers from using the service to see major releases the first two weeks they’re in theaters. However, MoviePass, which has more than 3 million subscribers, walked-back the proposed price hike.

    Instead, the company aims to increase its revenue by selling ad space, creating brand partnerships with services like Uber and Lyft, hotels and restaurants and partnering with studios to promote specific movies.

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    Under the new plan, scheduled to go into effect Aug. 15, customers with a desire to see more than three movies each month will receive a discount between $2 and $5, Lowe said. Still, MoviePass is counting on the majority of subscribers not seeing three movies each month.

    “The rationale was ‘we can build up a consumer base quickly,’” said Paul Hardart, a clinical professor of marketing at NYU. “Get a large subscriber base and then figure out. The outcome you want is it’s an avid part of a consumer’s life and it’s a subscription they’re willing to pay for.”

    Theaters themselves, most recently AMC, have created comparable subscription programs. But with his new plan set to debut next week, Lowe isn’t concerned and said the latest model should make MoviePass a more sustainable business.

    “We changed the business model to a new plan which satisfies the need of 85 percent of our customers and significantly reduces the bulk by not having to deliver movies to the 15 percent,” Lowe said, “instead of having an unsustainable service serving 100 percent of customers.”