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MoviePass is not.
EVERYDAY I'M HUSTLIN'

MoviePass needs a serious side hustle if it’s going to survive

By Ashley Rodriguez

Wayne Levy, 59, joined MoviePass in January. A physician in Oahu, Hawaii, Levy used the movie-ticket subscription service that offered a movie per day for $9.95 per month to see films between leaving work and catching up with friends on Friday nights. He estimated he watched 5-6 movies per month using the service, most of them films like Oceans 8 and Super Troopers 2 that he says he probably wouldn’t have bothered with otherwise.

In August, he quit MoviePass. Surge pricing, introduced in July, had raised the cost to see popular films using the app beyond the discount he received from local theaters asa retired Army veteran. MoviePass was also limiting the showtimes available at most cinemas at the time. For Levy, that meant there were hardly any available at the five or so theaters in driving distance from work when he left at 6pm. The showtimes that were available weren’t for the movies he wanted to see. He settled for The Spy Who Dumped Me when he couldn’t get tickets to The Equalizer 2 during one of his last theater outings with the subscription service.

“All told, I was putting a lot of work into trying to save $10,” Levy told Quartz. “I don’t need that kind of hassle.”

Levy wasn’t the only one feeling that way; signups stumbled in July, when MoviePass introduced peak pricing, according to Second Measure, which tracks credit and debit card transactions.

The service became more cumbersome because MoviePass was running out of cash. It still had to pay the movie theaters full price for the five or so movies Levy saw each month, even though he was only paying the company $9.95 for the lot.

MoviePass’s core business—movies—was unsustainable, and it didn’t have other meaningful sources of revenue to cover the costs.

Movies, for better or worse, are a loss leader in the digital age. Cinemas make more money selling popcorn than movie tickets. Studios like Disney and Comcast’s NBCUniversal make films to boost toy sales and inspire theme park rides. Amazon, a big buyer of indie movies, uses video to sell its Prime membership, which subscribers use to buy seltzer, furniture, and many other things. Ticketing companies, like Fandango (also owned by Comcast) and Atom Tickets, make their money off the convenience fees they charge customers to buy tickets online, in addition to advertising and promoting films to their millions of monthly users.

It’s not enough for MoviePass to abandon the pretense that it could get members into “any movie, any theater, any day,” as it finally did this month, when it rolled out a new plan that granted members three movie tickets per month—without surge pricing—for the same price of $9.95. It doesn’t own the theaters where people use the service, or the movies they watch with it, with a few exceptions. And it hasn’t secured special rates for itself. What it needs is a side hustle, the way movie theaters have concessions, the way Disney has theme parks, and the way Amazon has myriad businesses that feed off each other.

How movie theaters make money

Movie theaters don’t make money selling movie tickets. More than half the revenue they bring in from admissions goes toward the cost of the screenings; cinemas pay the studios a negotiated rate for each ticket sold to their films. The money left over from ticket sales is hardly enough to cover the rent, staff, equipment, and other overhead carried by big multiplex operators like AMC Theatres and Cinemark, let alone to turn a profit.

Buttery popcorn, Twizzlers, and super-sized sodas are much more lucrative. The profit margins on concessions are 70-85% at major US theater chains, based on financial filings. Concessions—and other revenue streams like advertising, events, and film promotions—keep movie theaters in business.

Cinemark’s rival movie-ticket subscription service, Movie Club, boosts food and beverage sales, too. It includes one movie ticket per month for $8.99—roughly the price of an average ticket in the US—and other perks including 20% off concessions every time.

Movie Club, which had 350,000 members as of August 8, were responsible for 5-6% of Cinemark’s box office during the second quarter of 2018, and surveys showed more than half were buying concessions more often than before they joined, Zoradi said on the earnings call for the period.

“We’re finding that they’re motivated to go to the concession stand because… they’re getting 20% off,” Zoradi added to Quartz. “A lot of the motivation to join this is things that we’re putting into the mix like concessions.”

MoviePass, which had 3.2 million subscribers as of August 10, planned to cut deals with movie studios for a portion of their food and beverage sales, Helios chief Ted Farnsworth said a year ago. That never panned out. The company never hit a critical mass of subscribers to bring big chains to the bargaining table, or convince them the business model worked. A few, like Landmark Theaters and Studio Movie Grill, gave the company discounts on tickets.

MoviePass’s side hustles

Unlike Cinemark and other subscription competitors like AMC Stubs A-List, MoviePass’s parent company Helios and Matheson Analytics doesn’t actually do anything. To get a grasp of how little value there is in the company, its stock is trading at $0.02 per share even after attempts to prop it up.

Outside of taking a majority stake in MoviePass in 2017, the consulting firm spun off this year a small tech company called Zone Technologies, which developed RedZone Maps, a navigation app that used crime data to allows users to avoid unsafe neighborhoods. In the second quarter of 2018, just 1% of Helios’s revenue came from consulting. The rest came from MoviePass, which drove Helios’s $126.6 million loss during the period.

MoviePass, meanwhile, is left scrambling to build a subscription service—which it aims to break even on by the end of this year—and side businesses to one day profit from, from scratch.

It tried making movies to get a cut of the box office returns it insists MoviePass is driving. Helios created two subsidiaries, MoviePass Films and MoviePass Ventures, to invest in films this year. But it’s a high risk, low-reward business, as demonstrated by the first two films released by MoviePass Ventures, American Animals, a critical success that made just under $3 million at the box office, and Gotti, a high-profile flop.

MoviePass’s biggest opportunity, as CEO Mitch Lowe saw it, was to use the data it gathered on what its 3 million members watched to sell ads and promote films. That, too, has been slow going. MoviePass posted $2.4 million in marketing and promotional revenue for the first half of the 2018, the first year it broke out the segment in its filings. It’ll need a lot more than that to cover the $191 million gross loss reported for the same period (pdf).

The data MoviePass has on its subscribers isn’t all that unique. Ticket sellers like Fandango and Atom also know what customers watch, when, and where, as do many movie theaters through their loyalty programs.

But cinema advertising can be a lucrative. National CineMedia, which sells advertising across its network of screens including AMC, Regal, and Cinemark theaters, brought in $426 million in revenue last year. (That was down almost 5% from the year before, in part, because of competition from digital video advertising.) PricewaterhouseCoopers estimates cinema advertising in the US will be a $920 million business this year.

MoviePass just needs scale to attract ad dollars. Helios acquired Moviefone, which provides movie times and other information, from Verizon earlier this year to bring its 6 million monthly unique visitors and advertising prowess into the mix.

“That definitely, as far as MoviePass making money, that is their opportunity,” said Bruce Nash of the industry tracking firm The Numbers. “The issue is how much of that marketing dollar needs to go to MoviePass” versus other platforms where studios promote their films.

But by only making six films available to subscribers each day as part of its cost cutting efforts, MoviePass has limited the number of studios that could potentially promote their films through the app. The company has not said whether studios can pay to be included in the daily selection. Previously, studios were able to pay for placement within the app and to promote movies to members in emails and other marketing materials.

Levy, the former MoviePass member, said he would return to the service if was more convenient to use. Others probably would too. That’s still only half MoviePass’s battle.