MoviePass isn’t dead yet, but it’s banking on a risky strategy to stay afloat

MoviePass — the wildly popular subscription service that until recently promised its customers access to one movie ticket per day for $10 a month or less — has been going through some big changes lately. The company might be dying. Or maybe it’s just growing up.

At the end of July, MoviePass needed an emergency cash infusion (to the tune of a cool $5 million) to stay afloat, causing a raft of outages. The service returned after the money arrived, but moviegoers across the country still reported missing screening times, blocked films (including the newly released Mission: Impossible — Fallout), and “surge pricing” fees applied to nearly empty screenings.

The company explained and apologized in a series of emails aimed at assuring consumers that MoviePass was doing everything it could to stay viable, culminating in a defiant press release on August 2 that proclaimed the company was “still standing.” But to some people, the trouble reinforced the notion that MoviePass’s business model is unsustainable, and that the company is doomed to implode any day now.

Indeed, its parent company’s stock slid 56 percent on Thursday, closing at about a dime per share.

And maybe it is. But looking at the new terms announced to subscribers following the gaffe-filled weekend, it seems clear MoviePass is still pursuing a revenue stream it’s been banking on for some time now. Following a model employed by ad-driven magazines, the company wants to leverage a massive subscriber base to get movie studios to pay it to promote their movies to customers. Other sponsorships and partnerships are likely in their sights, too.

Craig Barritt/Getty Images

But even if those tactics fail, MoviePass’s gamble sets up terms of engagement for future changes to the movie theater industry — changes that other companies are already putting to use. And that means moviegoers are in for some big changes.

At the end of July, MoviePass announced some big — and revealing — changes

A July 31 letter from the company’s CEO, Mitch Lowe, contained both an apology for the service outage and an outline of changes that would, as he put it, “help us continue to offer our members a high-value, low-cost, in-theater movie experience.” Lowe’s email relayed changes the company had announced in a press release earlier that day, which contained more specific information.

Drawing on both Lowe’s email and the press release, the changes included the following:

• An increase in the standard monthly subscription plan from $9.95 per month to $14.95 per month. This was not mentioned in Lowe’s email to subscribers.
• Reduced availability for blockbusters, particularly during the first few weeks of release, when they’re most popular. Lowe’s email didn’t contain specifics, but the press release said that movies opening on more than 1,000 screens — which would include most major Hollywood releases — will be “limited in their availability during the first two weeks, unless made available on a promotional basis.” (That “promotional basis” is an important indicator of MoviePass’s future. More on that in a moment.)
• “Showtimes that are offered through our service will vary from day to day, and every showtime may not be available,” Lowe’s email said. That’s already been happening. I was in Seattle during the outage weekend, and my friends wanted to see Eighth Grade. We discovered that though there were screenings throughout the afternoon and evening at the nearby AMC theater, only the late-night showings were available on the MoviePass app.
• Lowe’s email also touched on the company’s customer service. Anyone who’s tried to use MoviePass’s customer service in the past knows how frustrating it is, with difficulties contacting representatives, getting problems fixed, and receiving refunds. Some people didn’t even receive their cards for months after signing up. Lowe’s email said that customer service access may become even more restricted while the company works “to prioritize the requests of members who are at the theater and introduce more self-help tools, as well as focus our resources on fixing glitches and bugs in the app.”
• The press release also mentioned that unspecified cost-cutting actions “are currently cutting the monthly burn by 60%,” and said that “additional tactics” were being implemented “to prevent abuse of the MoviePass service.” A recent move toward that goal, implemented last spring, tied each MoviePass subscription to one mobile device, preventing people (like a couple) from sharing a single subscription.
• The press release also cited the unpopular “Peak Pricing” plan, in which MoviePass charges customers more for some movies that it claims are in high demand. (That claim has been disputed by people who report being charged extra for a ticket, only to find out the theater was half-empty.)

These changes and shifts are only a few in MoviePass’s years-long history of pricing and policy changes, from its early days as a print-at-home voucher-based system, through pricing shifts that rose all the way to $50 per month at one point, to the current debit card model. More recently, Motherboard outlined just the last six months’ worth of changes to the company’s terms of service, which include, among other things, banning class-action lawsuits.

But as of right now, if the service survives, the average MoviePass customer can expect to pay about $15 per month for access to one movie per day, with a whole battery of caveats. You still won’t be able to see 3D or IMAX movies. You can only see any given movie once using MoviePass. You may have to pay an extra fee to see a given movie, if MoviePass’s internal algorithm calculates that you should. You can only see movies at screening times that show up on the app. And you won’t be able to see blockbusters during the first week or two after opening day — unless they are “made available on a promotional basis,” which is an important tip of the hand.

MoviePass cannot subsist on subscription fees alone, and it isn’t trying to

All of these features point to what MoviePass is really up to. Even at $15 per month, MoviePass couldn’t be viable while relying solely on subscriptions. In New York City, where many people are MoviePass subscribers, a typical movie ticket costs $12 to $18; nationwide, the average price of a ticket is more than $9.

Gina Ferazzi/Los Angeles Times via Getty Images

MoviePass pays the full price of a ticket to the distributor. So that means that even if most MoviePass users saw only one or two movies per month, the company still wouldn’t break even on subscriptions alone. (And most MoviePass users see many more movies than non-users.)

But it’s doubtful that MoviePass ever expected to break even on subscriptions. Instead, it’s been operating on a model that more closely resembles one long employed by glossy and general interest magazines.

It’s not very expensive to subscribe to most monthly magazines. A year of Vanity Fair, for instance, is $15 for 12 issues and digital access (and a tote bag). Titles like Cosmopolitan will run you about $12 for a year. Often, companies offer huge discounts or bundled subscriptions that discount the price even more. The subscription price always comes out to far less than the price of buying the magazine off the newsstand — the most recent issue of Marie Claire, for instance, has a cover price of $4.99, which means a subscription is around 20 percent of the cost of buying the individual magazine each month.

Why would companies like Hearst and Condé Nast, which own many of the glossy magazines, practically give away subscriptions, effectively taking a loss on the cost of producing an individual issue? It’s because they make their profits through other means, particularly ads (and, increasingly, so-called advertorials). In general, the larger your subscriber base, the more eyeballs you can guarantee to an advertiser, and the higher price you can command for those who wish to advertise.

Additionally, they can offer demographic data to advertisers, some of which subscribers give up freely, such as what region of the country subscribers live in and what kind of interests they have. That increases the effectiveness of their ads.

Of course, this model has itself fallen on some hard times; Condé Nast (which owns Vogue, Wired, Glamour, the New Yorker, and other titles) lost $120 million last year. But the principle still works well enough that the business stays mostly afloat, even if it’s slimmer than it was in its heyday.

And that’s the model that MoviePass seems to be banking on.

MoviePass has been openly collecting data it can use as leverage with potential partners and sponsors

Helios & Matheson, a data analysis firm, bought a majority stake in MoviePass about a year ago, just before the company lowered its subscription rate to about $9.95 a month and saw a massive uptick in subscribers, from about 20,000 in August 2017 to 2 million by February 2018. According to July’s press release, MoviePass currently has about 3 million subscribers and was “responsible for approximately 6 percent of the nation’s total box office sales in the first half of 2018.”

MoviePass has been clear that it planned to use at least some of the data it collects — users’ moviegoing preferences, tastes, and habits — for profit. Many companies (such as Netflix and Amazon) profit from collecting data about users and using it, or in some cases selling it to companies that use it for various purposes, including targeted advertising. Users opt in to this data collection when they sign up for the service (except when they don’t).

Lowe got into trouble in March when, during a keynote presentation at the Entertainment Finance Forum, he suggested that the company would also profit from tracking users who had their GPS enabled on their way to and from the theater — a statement that set off a firestorm. In response, MoviePass issued a statement saying that it would keep all location-based data private and not sell it. But even if we accept that claim, the company still has information about its customers’ preferences and buying habits — information they can use in meetings with potential partners and sponsors.

But, as with magazines, the size of the subscriber base may be the most important factor for MoviePass’s continued success. Over the past year, MoviePass has tried to flex its muscles and show that its large subscriber base represents a significant portion of theaters’ and studios’ income — and, thus, that it is in their best interest to partner with the company.

When the Jennifer Lawrence spy movie Red Sparrow came out in March 2018, for instance, MoviePass blocked the film from the app in a few major markets, including Los Angeles. The company explained that this was part of their efforts to “better understand member behavior,” which likely translates to MoviePass gathering data on whether people would choose to buy a full-price ticket to Red Sparrow or see another movie that was covered by MoviePass. That data — especially in tandem with data about boosted ticket sales as a result of promotion to consumers — could help make the case to distributors that MoviePass is a power player for pushing customers toward particular films.

This also explains why, in early 2018, MoviePass removed 10 large AMC theaters from its service for a period of time, including the AMC Century City 15 in LA, the AMC Loews Boston Common 19 in Boston, and the AMC Empire 25 in New York City’s Times Square. Other AMC theaters, however, remained accessible on the app. This blackout strategy would presumably provide data that showed whether subscribers would go to rival cinemas.

Frederic J. Brown/AFP/Getty Images

The idea that MoviePass wants to leverage this data into advertising dollars is further supported by the fact that it has already participated in partnerships with and sponsorships from movie distributors. Lowe told the Recode Media podcast in February that smaller films like I, Tonya and Lady Bird benefited from MoviePass pushing them to its customers. “Over the last three weeks,” he said, “we bought one in every 19 movie tickets in the country, but when we promote a film, we’re buying one in 10.”

In other words, promoting your movie with MoviePass can have serious effects on a film’s buzz and its box office revenue. And MoviePass wants studios and theaters to know it.

MoviePass’s blockbuster-blocking plan tips its hand

MoviePass has been trying to sell its plan to keep blockbusters unavailable to subscribers for the first couple of weeks following release as a cost-cutting measure — and it is, to a limited extent. Some users are likely big enough fans that they’ll want to see these movies on opening weekend and will buy a ticket that MoviePass won’t have to reimburse the theater for.

But the data seems to indicate that many MoviePass users simply saw fewer movies before they were subscribers. Though a study conducted by The Hollywood Reporter found that subscribers were two times more likely to go to a movie on opening weekend than non-subscribers, it also found that nearly half the subscribers were also seeing movies they wouldn’t normally have seen.

That suggests that half of MoviePass’s subscriber base aren’t “power” users — that is, they aren’t likely to rush out to see every movie, and, it stands to reason, may be perfectly happy to wait a couple of weeks to see a blockbuster.

Who cares about opening weekend, though? Studios. For movie studios, opening weekend numbers are a huge factor in creating buzz around a film; many movies make as much as a third of their revenue during opening weekend, and being able to say that your film is the “No. 1 Movie in America!” is a very nice promotional boost. And the drop between first and second weekend box office return is often viewed as a predictor of the film’s future performance — a factor that can be used by distributors and exhibitors to decide whether a film will roll out more widely, or how long it will stay in theaters.

So it’s no fluke that in its press release to the industry, MoviePass said that the limited availability of first-run movies during their first two weeks would have one mitigating factor: “unless made available on a promotional basis.”

That is, if Sony wishes to boost the opening weekend numbers of, say, Venom, it may want to pay MoviePass or enter a profit-sharing agreement that would make the movie available to subscribers on opening weekend. It’s possible that MoviePass would also offer to some distributors and theaters the opportunity to have blacklisted screening times show up on the pass too. But everything comes at a price.

This is high-stakes gambling, and MoviePass may not survive

This is all a gamble on MoviePass’s part. For one, the company’s own statement says that it has accounted for 6 percent of box office revenue in 2018, and that may not be enough for a big movie studio — or any distributor with a big enough title to open on 1,000-plus screens — to see the value of a partnership with MoviePass.

In other words, MoviePass appears to be gambling on the size of its subscriber base to convince big companies to partner with it. But it’s high-stakes gambling, since some of its cost-cutting moves, like surge pricing, may have turned off subscribers and stopped others from signing up. It’s possible that MoviePass simply grew too fast without steadily building other revenue streams in parallel with its growth, and the result may be an old-fashioned crash and burn. (The stock price of Helios & Matheson has been all over the place lately.)

And there are competitors nipping at MoviePass’s potential subscriber base. Small and independent cinemas have introduced their own membership models, which have the benefit to cinephiles of not just cheaper tickets but other member events that build a community.

The most significant challenge to MoviePass may come from AMC’s new Stubs A-List membership, which just revealed it picked up 175,000 subscribers in its first five weeks of existence, well exceeding its own projections. For $19.95 per month, members get access to three movies per week — in AMC theaters only, naturally — with no limitations on how many can be seen in one day or what format the movies are in (3D and IMAX are included). Additionally, the AMC program lets subscribers reserve movies online — something that MoviePass users can only do at a small number of theaters right now, which is a source of annoyance for many.

Theo Wargo/Getty Images

But whether or not MoviePass survives, the fundamental MoviePass model — pay one subscription fee and get access to movies in theaters at prices that are lower than what you’d pay otherwise — is still clearly appealing. That’s especially true of millennials, consumers in their 20s and 30s who are drawn to subscription models partly because of their cost predictability.

So the movie ticket wars won’t end if and when MoviePass implodes. As with most things in the movie industry, theaters are also being forced to change their models to stay in business. MoviePass just managed to be on the bleeding edge of that change, and is now scrambling to stay in the game.

Explanatory journalism is a public good

At Vox, we believe that everyone deserves access to information that helps them understand and shape the world they live in. That's why we keep our work free. Support our mission and help keep Vox free for all by making a financial contribution to Vox today.

One-Time Monthly Annual

$95/year

$120/year

$250/year

$350/year

Other

$

Yes, I'll give $120/year

Yes, I'll give $120/year

We accept credit card, Apple Pay, and Google Pay. You can also contribute via