Why MoviePass Failed

MoviePass - Why MoviePass Failed

Source: MoviePass

When Helios and Matheson (NASDAQ:HMNY) bought a controlling stake in MoviePass, a subscription service that would allow customers to visit the cinema as much as they wanted, investors bid the data analytics firm way up. Many praised HMNY for disrupting the movie industry and even compared MoviePass to Netflix (NASDAQ:NFLX). Just a few years later, however, MoviePass can’t afford to keep up with its users’ movie ticket fees and looks unlikely to continue operating. What happened?

What Happened to MoviePass?

Things started out pretty well for MoviePass. Sure, the subscription’s business model relied on losing money in its initial years but MoviePass CEO Mitch Lowe and HMNY CEO Ted Farnsworth insisted that profits were just around the corner. At 5 million subscribers, they said, the service would become profitable. Not only would volume help cover costs, but Farnsworth said the firm was collecting valuable data regarding consumers habits. 

The explanation sounded plausible. Netflix has been collecting data for years and the company has successfully been able to use that information to create hit TV series that keep people coming back for more. MoviePass’ data could be valuable to a wide range of businesses — advertisers, production companies, even movie theaters themselves that might want to better understand how and when people prefer to watch. 

But until then, MoviePass was paying around $12-14 for each movie ticket while charging its customers $9.95 a month.

However, MoviePass never quite got to that 5-million-subscriber mark and the firm looks unlikely to ever grow beyond its current 3 million subscribers. MoviePass’ financial problems have caught up with it, and it looks as though the subscription service is on its last legs.

A Crumbling Service

On Monday, the firm raised its subscription price by $5 per month and cut down on the number of available movies. Subscribers started complaining that no available showtimes were listed, leaving them unable to use the service to see a movie they’d planned on — or in many cases, any movie at all. In addition to the price hike, MoviePass has also started charging excess fees of up to $6 for new release films.

Last week the company also took out an expensive $5 million loan in order to continue meeting its financial obligations, raising critics’ eyebrows and causing many pundits to start placing bets on when the service would close its doors.

What Went Wrong for MoviePass?

Unfortunately, it looks like MoviePass is yet another victim of the cord cutting phenomena that has been looming over the media industry over the past few years. The simple fact is that people are going out less. Instead, they are watching films and series via online subscription services and ordering food to be delivered to their homes. The days of going out for dinner and a movie are quickly going the way of the dodo. People simply aren’t willing to pay for the added bonus of experiencing a new movie on the big screen because convenience ranks higher on their list of priorities. 

MoviePass combatted this with it’s ultra-low $9.95 price tag, which, in theory, was working. Ten dollars per month was reasonable enough to attract movie buffs who were still craving that experience. Unfortunately, the cost of the average number of movies being watched by each subscriber far surpassed the money brought in.

Instead of gradually increasing rates, MoviePass had to pull a knee-jerk reaction and raise prices substantially to $14.95, which has led many of the service’s users to cancel. Not only that, but because the company started to spiral, the firm also cut down on showtimes and raise new-release fees all at the same time. Perhaps the firm’s subscribers could have tolerated one of the hikes, but all three have made the service undesirable.

What’s Next for MoviePass Holders

The demise of MoviePass leaves the door open to movie theaters like AMC Entertainment (NYSE:AMC), which have long criticized HMNY’s program for being unsustainable. Now, AMC can move forward with its own plans for a subscription service without worrying about the pricing advantage that MoviePass once held. 

AMC’s program, Stubs A-List allows subscribers the ability to view 3 movies per week for $19.95 per month. They can also book tickets in advance and see special format movies like IMAX or Real 3D. And this is more sustainable for the simple fact that AMC does not need to pay itself for movie tickets.

If MoviePass can somehow scrape by and continue to exist, you can bet that $19.95 will be competitive with whatever MoviePass is able to offer up to its own customers. What looks more likely at this point is that MoviePass will close up shop, leaving AMC to pick up disappointed movie buffs with its own service.

As of this writing, Laura Hoy was long NFLX.

Article printed from InvestorPlace Media, https://investorplace.com/2018/08/why-moviepass-failed/.

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