MoviePass’s useful financial horror show

EVEN by the standards of Hollywood, it sounds an unlikely pitch—an app that offers almost unlimited access to cinemas for $10 a month. The service, called MoviePass, pays cinemas full price for nearly every ticket that filmgoers use. By design, it loses more money the more people use it. The ending seems to be predictable. But might it have a twist?

MoviePass has burned far more cash even than its executives anticipated since introducing the unlimited plan in August last year. It has attracted more than 3m subscribers and will lose “at least” $45m this month, according to a filing to the Securities & Exchange Commission on July 10th by Helios & Matheson, a data firm which bought a majority stake in MoviePass last year and now owns 92% of it. Helios & Matheson reported it had lost $242m in the nine months to June 30th and that its monthly losses would increase as the service becomes more popular. The firm wants to issue more shares and warrants to stay afloat, but that could be a hard sell considering that its share price has collapsed from $32.90 on October 11th to 18 cents.

Yet MoviePass does have imitators. In June AMC Theatres, America’s largest chain of cinemas, introduced a similar programme but priced at $20 per month, a model which may be prove to be more sustainable since the higher price limits the downside risk.

The reason to look afresh at cinema subscriptions is that the old model is struggling. Film-going in America and Canada declined by 30% on a per-person basis between 2002 and 2017. Cinema chains have relied instead on sprucing up theatres and jacking up prices—to $9.16 per ticket this year, and even higher in big cities. Only 12% of Americans and Canadians go to the cinema frequently (meaning once or more a month); these dedicated film-goers account for about half of all tickets sold.

Mitch Lowe, chief executive of MoviePass (and a former Netflix executive), professes to be undaunted by the losses. He says that the most frequent cinema-goers have taken up MoviePass subscriptions first, driving up costs. As more casual film-goers sign up, losses should abate. The service also recently announced some add-ons to help defray costs further, including “surge pricing” at times of peak demand. He hopes to get the cash burn of the core ticketing service down to $1 per subscriber, with a projected 5m subscribers by the end of the year. He plans to get MoviePass into the black by such means as advertising, for example by promoting films to users in exchange for fees from studios. That is, if the money lasts.

MoviePass can already shift the box office. It buys 6% of all film tickets in America, according to Helios & Matheson’s SEC filing. Overall, national box-office receipts are up: from the start of the year to July 9th, they totalled $6.6bn, 8.8% higher than in the same period in 2017, according to Box Office Mojo. Mr Lowe reckons that MoviePass can be credited for boosting ticket sales by 3%. In Hollywood that sounds like the makings of a blockbuster, even if on Wall Street it is seen as a flop.