MoviePass was a subscription-based movie ticket service founded by Stacy Spikes, Hamet Watt, and Tony B. Casti in 2011. The service enabled consumers to purchase a certain number of movie tickets per month and then check in to the cinema using an app. In February 2018, the $9.95 per month service was available in 91% of all cinemas across the United States and the platform boasted over 2 million users. In September 2019, however, the platform was shut down with parent company Helios and Matheson Analytics filing for Chapter 7 bankruptcy protection in January 2020.
The business model of MoviePass was unsustainable from the moment the platform came into existence. In simple terms, the company served as an intermediary by purchasing movie tickets at list price and then selling them to consumers.
The co-founders hoped most customers would use the service less than others. This approach is known as the breakage model, where companies depend on unredeemed prepaid services as a revenue source. For example, fitness companies rely on some customers never using their gym membership to offset the cost of those who exercise regularly.
As it turned out, however, consumers were attracted by discounted movie tickets and used the service frequently. This meant the company was losing money on almost every customer it managed to attract.
Helios and Matheson acquisition
MoviePass was acquired by Helios and Matheson in 2017, a software distribution and consulting company listed on the NASDAQ. MoviePass CEO Mitch Lower then partnered with Helios and Matheson CEO Ted Farnsworth to set about securing some extra revenue streams.
Both believed the only way the company could survive was to attract more users to the platform and negotiate a commission on ticket sales with cinemas. To increase the user base, prices were reduced by more than 80% despite protestations from co-founder Stacy Spikes.
Though the company was losing even more money per customer, it nevertheless managed to attract another 1 million subscribers in just three months. MoviePass management was aware of the cash burn, but they wanted to sell the data from their extensive user base to other companies in the industry or use it as leverage in future deals.
Failed business diversification
MoviePass then expanded into three additional revenue streams:
- Data monetization and advertising.
- MoviePass Ventures – a new division to acquire and release existing films with the help of a distributor.
- MoviePass Films – a new venture for the company to create and distribute its own films.
Only the first revenue stream, data monetization, and advertising complemented the existing business model. But even it was not viable because the company could not sell the data at scale. In other words, no advertiser would pay for access to just over 200,000 subscribers spread across the U.S
MoviePass Ventures and MoviePass Films also failed because both ventures were outside the company’s area of expertise, and it showed. For example, the mob film Gotti was financed by MoviePass for $10 million but only earned $6 million at the box office. It would prove to be one of many critical and commercial failures.
The company also seemed to be in a perpetual state of controversy.
Lowe once publicly boasted that MoviePass tracked the location of its users before backtracking after the inevitable response from consumers. Some consumers were also prohibited from watching certain films with little or no explanation provided and the app itself was prone to systemic crashes.
Poor customer service was also prevalent. Customers became irate because MoviePass was hesitant to refund their money, while others were upgraded to more expensive plans without their permission. These and other misleading practices attracted the attention of the FTC, who settled with MoviePass out of court for an undisclosed amount.
Helios and Matheson were also sued by investors and then by a group of Reddit consumers who initiated proceedings on not one but two occasions.
In the coup de grâce for MoviePass, the company was delisted from the NASDAQ in early 2019 after flooding the market with shares to keep it afloat. After losing 99% of its value, the platform was shut down for good in September 2019.
- MoviePass was a subscription-based movie ticket service founded by Stacy Spikes, Hamet Watt, and Tony B. Casti in 2011. The platform was initially popular – perhaps too popular – and was shut down in September 2019.
- MoviePass was doomed to failure from the moment it began operations. The company relied on the breakage model to drive revenue, but its movie tickets proved so popular that it made a loss on nearly every customer. MoviePass was also embroiled in a controversy that resulted in litigation from investors and consumers alike.
- Acquiring company Helios and Matheson set about introducing additional revenue streams such as advertising, data monetization, and film production and distribution. Data monetization was the only stream that complemented the existing business model but it was not viable because MoviePass had a relatively small audience.
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