MoviePass Owner Sued by Shareholders as Business Model Falters
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It could even have worked - maybe five or ten years ago. Now the theaters themselves quickly realized the value of such a subscription model, and made the logical decision to cut out MoviePass entirely and just offer it themselves.
It's similar to how Netflix would never exist had it started out today, because no studio would surrender their back-catalogs to them for pennies.
I personally doubt the longevity of Netflix. On it's own it's not much more than a cable channel, like say AMC. Its success depends on producing very good content... it has not mastered this at all. Over time most studios will back out of their deals with it.
VOD services are here to stay, and the catalog shifting will continue in order to maximize value. Netflix is doing it at least as well as anyone else.
This is not necessarily true. Even moderately good content, catering to a specific audience will suffice.
IIRC, NF has loads of user data and behavioural data to help it guide in production.
Assuming an average, not fully satisfied consumer subscribes to NF for 1 year, that's 120 $ per consumer.
Assume a show that takes 100 million to produce, say 3 seasons. To make the production break-even, NF will need around 840000 paying subscribers (currently it has around 125 million subscribers, so about 0.672% of its total subscriber base) , who don't even have to watch it in the first place. Now that's a very small number compared to the amount of paying subscribers currently on it's platform.
To me it seems to be a very profitable model, at least for 10 - 15 years from now.
Edit : Updated the math.
Edit 2 :
An average episode costs between 3 - 5 million. Lets take 5 million as the cost per episode. With 125 million subscribers paying 120 $ per year, Netflix can produce 3000 episodes. That's just for 1 year. Also, in India, many shows cost way less than 5 million USD. But I have seen NF splurge of shows (it is hiring top notch actors in India for it's shows, where traditionally and culturally, a movie star playing in a "TV" series usually means an end-of-career move, so it's a big thing to work on a NF show here in India)
It's 0.672 %.
Updated my answer.
This is incredibly subjective. They've definitely shown they can produce such content. They had more nominations than any other provider, including HBO for this year's Emmy Awards.
The real issue with Netflix is that it has to fund all of its content via subscription revenue. The upcoming Disney service doesn’t. By the time it’s content hits the service, it’s slready made money from theatrical releases, pay tv services(?), video on demand, DVD sales, cable TV etc.
Also, Netflix is building a huge content catalog that has value outside their streaming ecosystem if they decide to leverage it that way. They could do theatrical releases and let cable do reruns of their shows. Maybe they will some day. But for now I think they see the greater CLTV in keeping that content exclusive to drive (and retain) monthly subscriptions.
Another thing that makes Disney's content more compelling is that it's "evergreen" kids can watch the same shows over and over again. They will watch the first Toy Story movie just as excitedly as the last Pixar movie.
I'm in the UK and I can't really think of any serious competition they have here. Maybe Amazon, but I don't know anybody who's talking about Amazon Prime originals.
I did a tech startup that tried to bring social/mobile/local tech to the movie theater experience, and the theaters balked. They fear technology. It took a decade of fearmongering for theaters to fork over millions to buy digital projectors. The last thing they want is tech that will empower moviegoers.
What you discover with the "exhibition industry" (what theaters like to call themselves) is that they are in the fast-food business. Popcorn, soda, candy, junk food: this is what the theater sells. The movie is there just to bring you into the building. But what they want you to buy is the concessions. Without the movie nobody in the world would wander into a theater and order a popcorn and a soda for $12 or whatever.
When I spoke with exhibitors, I found them to be like realtors: really paranoid, untrusting of their competition, and particularly untrusting of uppity little tech startups (can't really blame 'em, I mean, if a tech startup ever gets successful they tend to wipe out everything in their wake--witness Netflix, Amazon, Apple, Microsoft, Facebook, Craigslist, etc.)
Despite the fact that we had built an app that presented a compelling case for a $1 billion or higher bump in annual U.S. box office revenue--we basically came up with ways to get more people to go to more movies more often--the exhibitors would have none of it. They didn't trust it, they wanted nothing to do with it. ESPECIALLY if their competitors in the same city had the same tech. The idea of a mobile app that empowered moviegoers to get alerted to every moving coming, and track upcoming movies after you indicated you liked the trailer, and tracked your favorite stars/directors/etc, and tracked the reviews of your favorite critics, and tracked what your friends were planning to go see, none of that meant diddly to exhibitors.
It was the craziest thing I've ever seen.
The way theaters are trying to survive now is by focusing on what their core competence is: food. Notice how many theaters now sell hamburgers and pizza and sandwiches, and beer and wine, and so on. You go to a movie now, you may be set back for $30 in meal fees per person easily. For an exhibitor, that's nirvana.
Nah, MoviePass was doomed from day one.
Some mainstream movies are good, some are bad. Some alternative movies are good, some are bad. But for overall movies production and profiting process, the movies that make the most money have spin-offs, have predictable sequels, have merchandise, can be sold to middle-class third world people who aspire to American or European lifestyles and so-forth. These make the most profits.
So movie theaters help the industry by putting more movies with this extra profit potential in front of people. How exactly they get compensated for this is I couldn't answer in detail but ownership of the largest chains is very incestuous.
But this model requires a situation people first to go to a movie and later to decide which movie.
So this would give the result. It's bad to movie goers power to decide to see. It's bad even if that means more movie theater revenue.
A more logical conclusion would be that you either didn't sell your thing to them very well (as you haven't sold it to us) or that they, being in the movie business, saw something about it that you, being in the app business, didn't.
What theatre owners really want are the blockbuster movies that draw the general public. They love when a family of 5 comes in to watch the Incredibles 2 and spends a small fortune on food to keep the kids happy. This is why movie theatres have sold mostly junk food all these years.
Meanwhile, they are still (for the most part) in business, decades later, while "cool" business models like MoviePass cost shareholders millions and blow out in less than a year.
Who should be learning from whom?
The deal movie pass offered theaters was "if you make a deal with us, we can help you raise revenues at a marginal loss." No sane business person wants that. The point of business is to make money not lose it.
Moviepass was always a crazy impossible scheme. The business model was: get famous, get high growth, then we'll figure something out. This is something we rational people do not like to think about, but there are people out there that take bold and reckless actions without thinking much or at all about the consequences, under a belief that it will all work out in the end. You can just look at the political news to confirm that.
In Australia tickets are about $20 ea retail. Many of the cinemas have deals regularly offering tickets for around $15. If you are with certain telcos you can get tickets all year round for $13.
Even for movies that are not as well popular and give more margin to exhibitors, it is very hard to see how you can accommodate moviepass and the crazy discounts they give. Lets take a person that sees about 4 movies per month which should be kind of usual for moviepass. That gives about $2.50 per showing. This has to be shared between moviepass, the theater and the movie owner. While before moviepass, only the theater and the movie owner could share $10.
I don't see how this does not end up severely impacting the profitability of the theater, the movie owner or both. I really do not see a win-win in the moviepass pricing model.
Now I don't know what the Australian system is like but in the UK we have an insurance company from whom you can get 2-4-1 vouchers every tuesday if you're a subscriber. Well that solves the exact problem you're talking about - it incentivizes people to buy the tickets that don't normally get filled, whilst not providing any discount during premium times.
$15 popcorn.
Someone didn't do risk analysis over there
Movie theaters don't make their margins on tickets sales, they make them on concession sales. The model of "lose a small amount on tickets sales, and make it up and then some on concession sales" is fundamentally sound. The ticket loses would get written off as a Cost of User Acquisition for the high profit concession items.
The theater market is just so consolidated that theaters learned they can cut out the middle man, movie pass, and still get the increased movie attendance. Hence, why so many chains started offering their own in-house subscription plan. It's really no different then almost every television content creator starting to cut Netflix/Hulu out by offering their own subscription service.
The interesting issue is that the theaters know this, and have already calculated it into ticket prices. This has been the modus operandi for nearly as long as theaters have ever existed. The interesting gall of MoviePass was thinking they had a new angle in a game so much older than them. Movie theaters have already calculated their margins to the knife's edge of marginal costs on tickets versus concession and value add sales, and have done so for nearly a century.
Turns out MoviePass didn't actually have a new angle and tried to do what Movie Theaters were already doing, without the benefit of controlling any direct interest in the revenue from the value adds and concession sales. I don't understand how any of the VCs saw that business plan and considered it a good idea. We've known that marginal costs on theater tickets have been a loss leader for nearly a century or so, it's a very well known fact about the industry that is practically an economics 101 lesson in every textbook.
The theater market is also this consolidated precisely because of this long, calculated economic model. A lot of the poker game of passing individual theaters between chains is almost entirely because of this game of playing knife's edge marginal costs versus added incentives/interesting concessions for sustained customers in the long term, where even entire individual theaters in a chain may be loss leaders for customer loyalty to other theaters elsewhere in a chain.
Netflix: "The Goal Is to Become HBO Faster Than HBO Can Become Us"
https://gizmodo.com/5980103/netflix-the-goal-is-to-become-hb...
Is this for real? Any outsider could have seen that this model was unsustainable from the start, with the business buying tickets at full price and then selling them at an unlimited rate for $9.99. To claim ignorance here as an investor just seems negligent.
If that's how those investors fund their companies, I've got this nifty bag of magic beans they might be interested in... For $1M, they'll grow $2M in beans, I promise!
You are reinforcing my point. If you do that, it would be fraud, plain and simple. You would have to pay the investors back and you will spend a couple of years in prison. You can't show up to the court and say, but your honour, they should have known better. Well, you can, but it would not change the court's decision in your favour.
Communications with the investors is not a place to play loose. If you say we are profitable and you are not, or we are sustainable and you are not, or we have a buyer lined up and you do not, you would find yourself in a world of trouble.
We don't know the full story of what was said, and it is possible the defendants lied about factual content, but right now it just sounds like sour grapes.
That’s just wrong.
> It pays theaters full price for each ticket, whether a member visits once or 31 times a month. It has to provide for customer service to support those 1.5 million people, many of whom have lobbed valid complaints—MoviePass issues debit cards to each of its members, and initially couldn't keep up with demand—as the service struggled with its rapid expansion. And that’s on top of the usual, unglamorous costs of running any business. (Backends don’t maintain themselves.)
This is quite common. I worked at a telecom that sold 0.99 unlimited 1-day calling cards and we predicted would spend less than 1 hour on the phone. People spent an average of 2+ hours on calls which made the product lose money. And some people spent all day on the product.
They could only ever make money if they convinced the people that hardly every go to the theaters to sign up en masse, but even at $10/month they couldn't get enough of that demographic before their cash ran out.
It's not an entirely dissimilar premise as Netflix. If all of Netflix's users started streaming as much as the top quartile do, they'd probably be in a bind as well with the huge increases in bandwidth and server costs.
As it has been said, theaters are empty much of the time and they make major margins from their concessions. You'd think more of them would have gone for it. Maybe somehow they tie it to concessions sales in that you can get 19.99 a month or something if you aren't buying concessions but 14.99 or 9.99 with limited movies if you are buying concessions and that is tracked through the card. At that point it is a loyalty/rewards program and you could go to the theaters with ROI in that the customers you bring in are x% concessions buyers for x amount. Seems like an easier sell hooked to concessions sales.
Theaters pay between 5-20k per film per week and make almost nothing from ticket sales, if not lose some depending on the distributor and if they are first run theaters. Theaters NEED concession sales more than ticket sales.
It seems a service that allows free movies that ties pricing to concessions would do better. Or, we'll just be stuck with theater bound movie services which is essentially a local theater only rewards program.
Reserved seating, print e-tickets at their robo kiosk, comfortable reclining seats, full bar with pub food. I know that AD theaters have a lot of niche showings and cool events, but as far as just watching the latest blockbuster, are there other advantages?
People do tend to use the same theaters except for special runs of movies or when movies are so big that you might need to go to another theater due to sold out showings at your favorites.
I could see this non-issue of theater locked programs being heavily complained about when those types of customers get in that situation.
The other problem I see with theater locked ones it that they give special treatment like cut in lines and such that may turn off non program patrons to a certain theater.
Independent products just seem to also have the customer in mind more than the brand/theater itself, plus it creates competition for these customers if concessions is tied to it.
With AMC Stubs A+, you buy the ticket in advance from the app (something you couldn’t do with movie pass). You would know if a movie is sold out. Some of the AMCs have reserved seating where you can choose your seat in advance from the app. That lets us get in after the commercials and trailers and still be guaranteed a good seat.
For instance here in AZ we have AMC, Harkins, Regal and Alamo Drafthouses that have common theaters we go to. I'd prefer a service that they all are a part of, but it is probably just a dream, maybe a few can team up on it at least.
I think a third party independent service focuses on the customer more and it seems like it would benefit gaining more customers to theater chains that aren't already locked in customers.
I also wish all restaurants were on all the delivery services. I don't think it'll happen, nor do I have an expectation that consolidation is inevitable.
I'd take a single location to be honest. I'd say > 90% of my movie going in the past 5 yrs has been the same location. For the edge cases I can pay cash.
Not being American I have to ask why? Could you elaborate on that need? I see maybe a dozen movies a year, at mostly 3 cinemas all in the same chain. Why a need for multiple chains? Do only some chains show some movies or something?
Now maybe it's just coincidental timing but moviepass certainly proved there's a huge interest in that model of movie tickets.
It's like how Uber has been giving me $3 rides while it posts losses 1/3 of revenue.
I should send VCs a thank you card, those loveable dummies!
And maybe in the form of health care and not movie tickets. :)
I think most theaters will disappear in the long term and they'll become a luxury experience, more like visiting an imax once a year than going to see a movie once a month. Services like MoviePass wouldn't be necessary in that world.
OTOH, there are definitely demographics for whom going to the theatre is a low-friction activity.
So even at their low prices it wasn't even worth it to me to try a MoviePass subscription.
I'm guessing they figured the fanatics would cause enough buzz about their service to convince the average person to subscribe and when enough did they'd turn a profit.
They may have created a formula where they estimated those lines would cross, but at best that would be a "known unknown" and I don't see how an "investor" could fail to realize that. You either have faith that goal can be achieved, or you don't, and faith in such matters is known to be risky.
Like X% of movie pass subscribers saw 10+ movies a month. What was the size of X?
Who is going to willingly let a middleman get between them and their customers? That would be crazy. AMC have already introduced a similar plan, so customers still get a win out of it.
In the meantime, I’m trying to get a few last screenings in on my 1 yr MoviePass subscription!
However that was years ago and I don't think anything came of it. Ive always imagined there was some business rationale for the cinema to keep the ticket pricing static and just take the hit on the empty screenings.
(I suspect that many people who cut hair in Japan do so on the US model, where they are independent contractors of the shop who "rent a chair" as opposed to salaried employees. It is to their direct advantage to maximize throughput, in a way that it is not to the direct advantage of e.g. someone who works at McDonalds to maximize sales of burgers.)
$19.99 per month. $2/matinee | $3/non-matinee. $1 in 'movie cash' for every $5 spent on concessions. spend 15 -- get $3...meaning the $3 is basically waived for a non-matinee.
Edit to clarify: This would then be more friendly towards theaters, encourage more $$ in concessions, and make them possibly give more deals/lower costs to moviepass... I think it would be more sustainable.