When MoviePass first launched its subscription service many people (myself included) thought it had tremendous potential to disrupt the film industry even if we quietly wondered if the business was sustainable. The company has undergone significant changes – especially over the last year – to reduce costs and try to move itself out of the red. Unfortunately, events from the last several days indicate that MoviePass probably won’t be around very long.
Before we get into the challenges the company currently faces, allow me to briefly explain what MoviePass is. At its most basic level, MoviePass is a subscription service for movies. Unlike Netflix or Hulu or Amazon Prime, this service is for movie theaters. Subscribers pay a flat fee and in exchange could get tickets – at one point there was virtually no limit on how many movie theater tickets you could claim if you had the right subscription plan. About one year ago the company changed its business model and charged $9.95 per month and users could get one movie ticket per day from participating theaters. We would later learn that MoviePass was paying the theaters full price for those tickets and this knowledge raised a simple question – how can MoviePass sustain this practice while only charging $9.95 per month?
Despite that concern, many people signed up for the service – possibly to cash in on a great deal while they could. In February of 2018 the company announced they had over 2 million subscribers. Behind the scenes there were significant changes happening with ownership of the company’s stock. I don’t want to get overly technical in this article but after several sizable advances from companies like Helios, MoviePass converted its debt into capital meaning its creditors now owned large stakes in the company. While this was happening the price of a subscription would get lower and lower. In March you could buy a 12-month subscription for less than $84 USD if you paid annually. In April of 2018 MoviePass would change its terms of service. New users could no longer purchase an unlimited plan; the most they could get was three movie theater tickets per month and they could no longer purchase multiple tickets for the same film. The unlimited plan would eventually come back but the health of MoviePass was questionable at best. In May the company lost over $40 million. New surge pricing fees would be added which could cost subscribers as much as an extra $6 per ticket if they went to the movies during peak hours.
On Thursday, July 26th MoviePass subscribers found that they were unable to use the service at all. Company executives claimed that this disruption in service was due to “issues on the back-end” which is sort of true – they missed a payment to one of the company’s contractors and thus processing of theater tickets had stopped. Put simply. MoviePass could not afford to pay for movie theater tickets on Thursday. An SEC filing shows that a $5 million loan was taken to keep the company afloat but I cannot help but think this is akin to putting a Band-aid on a hemorrhaging wound.
That alone makes even the prospect of solvency for MoviePass questionable in my opinion but the news gets even worse. Earlier this week MoviePass was in danger of being delisted from the Nasdaq stock exchange after its stock price dropped to 8 cents per share. One condition of being on the Nasdaq stock exchange is for a company to maintain a minimum share price of $1 for at least 30 consecutive days. MoviePass executives resorted to smoke-and-mirrors to present the illusion of a healthy stock price. They did a reverse stock split to boost their share price by 250%. Shareholders would give up 250 shares of MoviePass stock worth 8 cents each and in return would receive a single share that was worth about $21. The company is also going to raise the amount of stock shares from 500 million to 5 billion which does mean that there will be more stock for investors to buy.
But how many investors are going to take a risk on a company in serious financial jeopardy and a shaky business model. Not many. After the events of the past week I cannot recommend that anybody subscribe to MoviePass – especially if users may be unable to use the service as we saw last Thursday. If you are a movie theater goer like me then I suggest you consider other services such as AMC Stubs A-List, Sinemia or Cinemark Movie Club. (Full disclosure: I am a subscriber to Cinemark Movie Club but I am not using any affiliate links in this article and I receive no compensation from any company mentioned herein.)
MoviePass in theory is a great deal for customers. Attendance at movie theaters continues to decline and subscription services are probably one possible solution to revive interest in local cinemas. However, companies are going to have to take care to develop a sustainable business model. What happened with MoviePass could very well alienate consumers from movie theater subscription services and that would be a tragedy – not only for moviegoers but for our favorite theaters as well.