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Behind the math of MoviePass, the $10-a-month movie subscription service that sounds too good to be true

The startup is burning money now, but its CEO says he has a plan.

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Girls with movie popcorn Personal Creations / CC BY 2.0

When MoviePass sold itself to a data analytics firm last year, CEO Mitch Lowe had a target he wanted to hit.

“I put in a clause where we would get a $2 million bonus if we hit 150,000 subscribers in 18 months,” MoviePass CEO Mitch Lowe said on the latest episode of Recode Media with Peter Kafka. “I thought, ‘Okay, that gives me three or four months of padding.’ I thought maybe it’d take us a year. We got there in two days.”

It’s not hard to see why MoviePass now has “way beyond a million and a half” subscribers, according to Lowe. For $10 a month, the service lets those customers see one 2-D movie every day at 91 percent of the movie theaters in the country; that’s just north of the nationwide average ticket price for one movie, $8.73, and cheaper than a single ticket in major cities.

MoviePass pays the theaters full price for all of those tickets, which means it loses money whenever users see at least two movies in the theater per month — a far cry from the 28 to 31 movies per month that someone could technically get for the same $10. So, observers have wondered, how the heck does this business actually work?

First, Lowe hopes and expects that after an initial binge, most MoviePass users will settle down and end up viewing a single movie per month — the same way that gym club operators assume that people will come a lot in January and much less the rest of the year.

“They start out, they go to a bunch of movies, they slowly edge down,” he said. “But here’s the trick: 89 percent of American moviegoers only go to four or five movies a year. When they join MoviePass, they double their consumption and go to about 10 a year. That’s a little bit less than one a month.”

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On the new podcast, Lowe also talked about the other things that will make MoviePass a valuable business over time. One of them is all the data being generated about its subscribers and where they go.

“There are dozens and dozens of businesses like ours that invest in building a large subscriber base,” said Lowe, who was previously an executive at Netflix and Redbox. “Netflix buys $8 billion of content a year, and believe me, they have to borrow the money to do it. Or companies like Facebook — it’s free, but they’re monetizing all the advertising and all the data about you. That’s exactly what we are [doing].”

Because MoviePass has a direct line to the wallets of people who are going to see more movies than the average, Lowe said, the studios behind “Lady Bird,” “I, Tonya” and “Maze Runner: The Death Cure” have paid it to promote those movies. And in the future, the CEO said the app could “build out an ecosystem around” other businesses that moviegoers would patronize.

“I always look at going to the movies as a centerpiece to a night out,” Lowe said. “You need a babysitter, you might take a Lyft to get there, you might go to dinner or have some drinks. We know which movies you might like, we know where you are — we could suggest, ‘Hey, in two hours a great movie is starting at the AMC Theater. There’s a great restaurant across the street.’”

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