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How long can it keep this up?
"DUBIOUSLY FASCINATING"

Does MoviePass know what it’s doing?

By Ashley Rodriguez

When is the best time to sign up for MoviePass? That’s a tough question to answer.

Since slashing its price to $9.95 per month last August, the US subscription service, which lets users into a movie showing per day, has rolled out new offers practically every month—each almost better than the last:

  • In December, it partnered with Costco to offer a full year of MoviePass and movie-streaming service Fandor for $89.99. That worked out to around $7.50 per month.
  • Later that month, it made the offer available to anyone, with a 5% surcharge for non-Costco members.
  • In February, it upped the price of that offer to $135.30, including a $19.95 processing fee.
  • In March, it lowered the cost of an annual subscription to $89.95 (including a $6.55 processing fee), which came out to $6.95 per month.
  • In April, it partnered with iHeartRadio to offer a 3-month subscription to both services for $29.99. This plan included four movies per month, unlike the other movie-per-day packages.
  • It later tweaked the three-month iHeartRadio promotion to include three movies per month for $7.95 per month, replacing the $9.95 unlimited plan for a time.
  • The unlimited plan returned in May. The $7.95 a month “limited time offer” is still advertised, too.
  • Also in May, it announced plans to add new plans and features, like the ability to bring a friend, upgrade to a premium format like 3D, or subscribe to and pay for plans as a family.

There’s nothing wrong with testing new prices; doing so shows the company is trying to figure out what works best for customers and its bottom line. But what’s strange—and a bit concerning—is the frequency and scale with which MoviePass is making these changes. Startups normally test plan changes in select markets or geographies before rolling them out more broadly, so they can smooth out the kinks.

“What MoviePass is doing is a little unusual in that it’s a very vocal and visual and public representation of that [user] testing,” says Michael Duda, managing partner at Bullish, a firm that has invested in early-stage startups like Casper, Warby Parker, and ClassPass. “It sends a very confusing signal as to how well their business is doing. You wouldn’t make this many changes in this short a time on this kind of scale. It’s dubiously fascinating.”

MoviePass, founded in 2011, tested many, many pricing and plans options, ranging from $15 a month for a few movies to $99 for unlimited movies in certain markets, before landing at the $9.95 rate in August 2017. Major theater chains like AMC argued it was too little to charge per month for virtually unlimited moviegoing, when the average movie ticket in the US costs $9.16. In markets like New York and Los Angeles, a standard movie ticket can cost upwards of $15. MoviePass pays theater owners the full price of each ticket that its subscribers use.

CEO Mitch Lowe, who advised MoviePass briefly four years prior to joining the company in 2016, says MoviePass needed to do something drastic to grow its audience, which had stalled at around 25,000 subscribers. When the company was charging $35-$45, Lowe said, customers were going to the movies 2-4 times a month to get their money’s worth. In other words, MoviePass was only signing up heavy moviegoers. What it needed to reach a critical mass—and convince theater chains to cut it bulk deals on ticket prices—were casual moviegoers who could be convinced to go to cinemas more often if it were more affordable.

With backing from its new parent company, Helios and Matheson Analytics, which acquired a majority stake in the business in August 2017, MoviePass lowered its price to $9.95—roughly the cost of a month of Netflix.

Lowe was right. MoviePass now has 2.7 million members.

But its customers are still going to the movies a lot. MoviePass reported this week that people who signed up between November and March are going to the movies at least twice a month. At that rate, it’s losing $8.37 per month on each subscriber on the $9.95-a-month plan.

Lowe said new members tend to go to the movies most frequently during their first three months on the service. Then usage settles. He added that the company hopes to break even on subscriptions, and grow the business from other revenue streams, like advertising and promoting films on the service.

For the first nine months of 2017, MoviePass generated about $5 million from subscriptions and spent $9.6 million on related costs, statements filed after the company was acquired by Helios and Matheson Analytics show. Helios and Matheson’s new subscription and marketing business line, made up entirely of MoviePass, posted a $98 million loss for the full year of 2017.

MoviePass has credited recent price drops to its “customer-centric strategy.” But the plans, especially those that require a year’s payment upfront, may belie a deeper business problem. MoviePass is running out of cash.

The company reported on May 8 that it had $15.5 million on hand and another $27.9 million that would be disbursed throughout the year from people who paid for plans upfront. It also said it had been burning, on average, $21.7 million a month since October. The math suggested MoviePass would only be able to sustain itself for a few more months, though Helios and Matheson CEO Ted Farnsworth told Variety that the company also has a $300 million line of credit it can draw from.

MoviePass is working on cutting costs by 35%, Farnsworth said in the May 8 filing. Late last month, just before Disney’s record-setting blockbuster Avengers: Infinity War kicked off the busy summer movie season, MoviePass barred users from seeing movies more than once. (Longtime subscribers may recall this was an old policy that MoviePass brought back.) It’s also trying to cut down on users sharing accounts by requiring subscribers to upload images of their tickets before they can see their next movie.

“One of the things that we always advise our subscription clients is don’t put an offer out that is not sustainable just to grab market share,” says Jim Fosina of Fosina Marketing Group, which works with subscription services to market their platforms. “Because at some point you’re going to have to make that adjustment… Can you afford to fulfill what you’re offering at the price point?”