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  • KPB & Co Research

MoviePass is an online ticketing company that allows subscribers to purchase a single movie ticket per day at a price of US$19.95 per month. Today, the company boasts approximately 2Mn subscribers, and some have argued that this company alone accounts for approximately 5% of total box office sales. Despite the company's relatively large customer base, it has experienced difficulties in generating sustainable free cashflows, as finding the appropriate pricing model proved to be very difficult.

How moviepass works

The company started out with a pricing plan of about US$9.95 per month, but this plan was eventually scrapped after significant tension between them and movie theatres led to poor customer service. Movie theatres had taken issue with the fact that during seasonally busy times, they had to allocate theatre capacity to people who were paying substantial discounts on tickets at the expense of people who were playing full price. Theatre companies such as AMC also had issue with the size of the discount that was offered to customers, arguing for a higher price. With the hiring of Mitch Lowe in 2016, the company experimented with a number of pricing models that all failed. Under Lowe, the company launched a low-end service at around $20 per month, a high-end service at around $100 with unlimited movies and availability of 3D screenings. They also experimented with pricing by geography where in some regions, a $50 subscription plan for six movies per month was launched, and in others a US$99 for unlimited movies.

After the company almost went Bankrupt in 2018, analytics firm - Helios and Matheson took a stab at making the company profitable by going for volume. Helios and Matheson invested a total of US$ 90Mn in equity for a 92% stake. Subsequently, another round of pricing experiments was tried where the company reduced the monthly fee to US$7.95 and finally US$6.95 for unlimited movies. At the same time, the company was paying overages to the theatre companies as a result of the massive discount for the movies relative to standard price.

As the company continued to bleed cash they secreted tried to drop the unlimited movies feature from all plans, and suffered significant customer backlash which led to them re-instating it. With the bills piling up, it was no surprise that on Friday the MoviePass platform went off-line for a few minutes as the company ran out of cash, and had to resort to a US$5Mn emergency loan from Helios and Matheson to keep the lights on.

Finally, MoviePass introduced a re-designed unlimited plan, called Uncapped, priced at US$19.95 per month, to again allow customers to see one movie daily. This time around the plan came with caveats. According to the Terms and Conditions MoviePass:

MoviePass makes no guarantee on the availability to any particular theater, showtime, or title that is presented in our app. MoviePass ticket inventory may vary from specific theater ticket inventory. MoviePass reserves the right to adjust its inventory to maintain fair access and usage to its full customer base. MoviePass may utilize its proprietary data and algorithms to impose restrictions on individual users based on their location, day of movie, time of movie, title, and the individual user's historical usage. This means that MoviePass has the right to limit the selection of movies and/or the times of available movies should your individual use adversely impact MoviePass's system-wide capacity or the availability of the Service for other subscribers.

What does the Future Look Like

The back-and-forth between different pricing models have led to terrible customer experiences and a myriad of complaints on social media. Also the lack of clear focus, and the willingness of the company to go into content creation has given industry incumbents enough time to develop competing services at attractive price points. Theatre owners such as AMC has launched their own service, where movie goers can see three films a week in any format for either US$19.95, US$21.95 or US$23.95 a month, depending upon their location. Cinemark created the Movie Club for US$8.99 per month and is now expected to merge its free loyalty program with its subscription service to create Cinemark Movie Rewards. Of course, theatre companies have a strategic advantage relative to an independent company in the sense that they already have the captive audience within reach, and that they can end contractual relationships with moviepass at any time. With this sort of set up it is difficult to see moviepass remaining in business in the near term. Already the parent company - Helios and Matheson - is seeking to spin the company off for it to fend for itself.

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