MoviePass, the startup that lets subscribers go to a movie a day, recently dropped its monthly rate to $10, resulting in a flood of sign-ups for the plan. While the slashed price might have drawn a lot more attention to MoviePass, it could also be an albatross around the company’s neck.
A MoviePass subscription used to cost as much as $50/month — too steep for folks who realized they would need to see at least four or five films each month just to make that work.
But thanks to funding from new investor, analytics firm Helios and Matheson, MoviePass cut that price to $10/month in August. That’s less than the usual cost of a single movie ticket in some markets, let alone the ability to see a film every day if you want. But it’s also likely not a tenable figure going forward.
Will MoviePass have to raise prices?
Two months after the price change, MoviePass is losing even more money faster than anticipated, prompting the data firm to invest even more money. In a note to shareholders, since it’s a publicly traded company, Helios and Matheson note that MoviePass may not be able to continue without price hikes or other sources of revenue.
“MoviePass currently spends more to retain a subscriber than the revenue derived from that subscriber and MoviePass currently does not have other sources of revenue,” a risk statement filed along with information about the firm’s new investment in MoviePass explains. “This results in a negative gross profit margin. MoviePass expects its negative gross profit margin to remain significant until MoviePass can generate other sources of revenues to offset the losses or achieve substantial economies of scale.”
“We underestimated the response”
The rollout of the new version of MoviePass was not planned well. It apparently took the country’s largest cinema chain, AMC, by surprise. In a press release, the company trashed the entire MoviePass business model and threatened legal action, saying that MoviePass in its current form “is not in the best interest of moviegoers, movie theatres, and movie studios.”
The company also had no idea how moviegoers nationwide would respond to the idea, having only sold subscriptions at a higher price point in a few large cities.
“We underestimated the response,” CEO Mitch Lowe told Forbes blogger Rob Cain (warning: video ad that auto-plays on that page) “My wildest dream was that we’d reach 150,000 subscribers in 15 months; we hit 150,000 in two days.”
Apart from its business model problems, MoviePass has also been slow to actually get the debit cards that they need into customers’ hands, which would be fine if new signups were limited using an official waiting list or required an invitation from an existing user. It doesn’t.
Will theater operators ever play ball?
Even before the price cut, MoviePass was not making money. Its current business model is to buy tickets at full price from theaters while charging users $10 per month. In the future, it hopes to sell ads and customers’ data to movie studios, and to cut deals with theaters to cut ticket prices, or share box office or concessions revenue.
That’s only if the company proves that it can bring more customers to theaters more often, spending on concessions and other extras. The largest discount that the company has been able to obtain from a theater operator is 20%, according to a document that investor Helios and Matheson has filed with the Securities and Exchange Commission.
Source: Consumer Reviews