Temporary Outage Proves The End Is Nigh For MoviePass (and HMNY)

MoviePass - Temporary Outage Proves The End Is Nigh For MoviePass (and HMNY)

Source: MoviePass

On Thursday, July 26, MoviePass stopped working because the company temporarily ran out of cash. On Friday, July 27, parent company Helios and Matheson Analytics (NASDAQ:HMNY) saw its stock drop by 65%. This comes after a 1-for-250 reverse stock split to save HMNY stock from being delisted by Nasdaq…on Wednesday.

The cash issues have since been largely resolved. MoviePass secured $5 million to pay merchants and keep doors open for at least a little while longer.

But, all that $5 million does is prolong the inevitable. In the long run, there isn’t a scenario for the MoviePass service to succeed at its current price point. And, considering the company is sticking to the service’s core value prop, it looks like the only way this ends is in the MoviePass apocalypse.

Apparently, that is coming soon to a theater near you.

Here’s a deeper look.

MoviePass: Great Idea, Bad Execution

At its core, MoviePass was a great idea.

Taking the movie going experience, and turning into a subscription model is genius. It allows movie theater operators to collect consistent payments from customers, thus adding financial predictability and operational stability. On the consumer side, subscription movie-going is often cheaper, more convenient, and also more stable. Because of these dual-sided benefits, subscriptions are the future of the movie theater business.

Unfortunately, that future doesn’t include the first movie theater subscription business.

MoviePass was first to this market. But, they didn’t have any leverage. They tried to come in and disrupt the whole model without owning anything. MoviePass didn’t own any of the content. They didn’t own any of the distribution rights. And, they didn’t own any of the physical theater locations.

Instead, they made a big bet on getting a large enough consumer base to use as leverage in negotiating ticket prices down. But, without owning the content, distribution rights or theaters, MoviePass has had a tough time getting a large enough consumer base in a short enough time to do that. Plus, they underestimated the ability of movie theater operators like AMC (NYSE:AMC) to do their own subscription service.

Now, MoviePass is running out of money and being phased out of the subscription movie-going market it pioneered. Inevitably, in five years, MoviePass will be a relic of the past.

AMC Is The Way To Go

For those still interested in the movie subscription business from both a consumer and investor standpoint, I highly recommend looking into AMC.

On the consumer side, AMC just launched Stubs A-List, which allows consumers to see up to 3 movies per week for $20 per month. That is more restrictions than MoviePass. But, let’s face it, who is realistically going to the movies more than 3 times per week?

It is also more expensive. But, again, let’s face it. MoviePass was somewhat of an irritating product to use. The actual purchasing of movie tickets was a somewhat clunky and complicated process that couldn’t be done in advance. The number of restrictions was also starting to pile up, including not being able to watch anything but a basic 2D movie without any frills and not being able to go to certain theaters because they had ended their partnership with MoviePass. Now, you have all these outage headaches to deal with, too.

Stubs A-List is operated by AMC, a movie theater operator. Thus, as opposed to being treated like a second-rate citizen, you are treated like VIP. You can buy movie tickets in advance. At some theaters, you have your own VIP line. You get to watch whatever movie on whatever theater screen. Overall, it is just a far better experience, and worth the $10 per month increase.

On the investor side, I expect Stubs A-List to take most of the 3 million MoviePass members and make them A-List members by the end of 2019. In other words, A-List will become the new MoviePass, and even bigger because its financial viability won’t be constantly questioned.

This will lead to a steady stream of subscription revenues for AMC. It will also boost theater attendance. Plus, it will boost concession sales by a whole bunch, and that is where movie theater operators make all their profits.

In other words, AMC could be entering a golden era over the next several years, powered by A-List subscriptions. That golden era will inevitably be reflected in a higher AMC stock price.

Bottom Line on MoviePass and HMNY Stock

The MoviePass service was doomed from the beginning. Now, the day of reckoning is near. That presents a huge opportunity for AMC, which has launched its own competing movie-going subscription service that will naturally benefit from the MoviePass apocalypse.

As of this writing, Luke Lango was long AMC. 

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