Why Big Changes Could Mean Big Trouble for the Theatrical Subscription Model
If it’s been a disappointing summer for blockbuster movies, then it’s also been a great one for arthouse and genre cinema. In this past week alone, audiences around the country have been able to see The Neon Demon, The Shallows, Swiss Army Man, and Hunt for the Wilderpeople; I myself watched all four in the last five days thanks to MoviePass, the subscription movie service that allows you to see one theatrical release a day for a relatively low monthly rate. Despite only being a member for a few months, I’ve found that MoviePass ensures I see the smaller and independent cinema I might otherwise only see on VOD.
Or at least, that’s what I thought. Earlier this week, MoviePass announced the hiring of Mitch Lowe, a former video store mogul and Netflix co-founder, as their new CEO. And while Lowe made the rounds with media outlets and technology blogs – sharing his optimism for MoviePass and the theatrical system as a whole going forward – a selection of MoviePass customers were treated to a surprise price hike. Customers could now choose between two service plans: an unlimited plan priced at $99, more than double the previous rate in major cities, or a more modestly priced $60 plan that came with a hard cap on the number of movies you could see. As fans have taken to social media to complain, the company has remained very quiet as to whether these new changes are permanent.
With a reshuffling of senior leadership and an extremely unpopular new price point, is MoviePass in trouble going forward? Before we start, in the interest of full disclosure, I myself have not yet received an email indicating that my subscription will be raised. I also consider myself a fan of the service; although I write about film and have the option of attending press screenings for any and all new releases, I’ve always loved sitting with general audiences and getting swept up in their reactions to a movie. For all the complaints we have about talking and cell phone usage, there are moments of laughter or fear that are best experienced in a crowd. In theory, I could cancel my MoviePass membership at any time, but for the most part, I find movie crowds to be way more fun.
Now. Let’s prognosticate some doom and gloom.
How does MoviePass make money? The comparison often made in the trades is between MoviePass and your local gym. On the surface, it kind of makes sense: people who are frequent moviegoers would reap the benefits of a subscription model with the casual or infrequent moviegoers would offset the company’s losses. In a 2014 guest appearance on the Showbiz Sandbox podcast (via CelluloidJunkie), then-MoviePass CEO Stacy Spikes explained his company’s business model in exactly those terms.
“If everybody overuses you have a problem. We have certain people, like in a gym membership, who are going to go everyday … But, there’s also people who underuse and they don’t use it as much and then in the middle you have seasonality. So you may go a lot during Christmas and then dip. There are different types of users that are in the system so overall there is a behavioral economics to it that balances everything out and makes for a profitable business.”
Seems fair, right? Except it’s not really the same at all. To reap the benefits of this model, MoviePass first needs to create a culture of moviegoers that, quite frankly, does not currently exist. We’ve all read an article (or fifty) warning us that moviegoers are staying home and watching new releases on demand, but even those articles might be underselling the point a bit. A study performed by The Economist in January suggests that only 2% of Americans attend at least one movie a week. Even if you expand that number to include people who see two or three movies a month – barely the break-even point for MoviePass subscribers – you will only be capturing 9% of the population. A whopping 77% of the people polled indicated that they go the movie theater a few times a year, almost never, or never. To grow their audience in any meaningful way, it isn’t enough for MoviePass to tinker with the options for its current subscribers. They will need to dramatically shift the way that people approach going to the movies.
But let’s say they do. Even if we grant MoviePass an audience for the sake of argument, the company still faces a number of serious challenges. The first is the price point. In a Planet Money piece examining the business model of gyms like Planet Fitness, Stacey Vanek Smith makes the case that low pricing and a casual atmosphere help discourage people from canceling their memberships. “Once we realize that we haven’t been going to the gym, even $20 per month can feel like too much,” she wrote. “To try to combat this, gyms look for ways to offer value to customers who aren’t necessarily into working out.” With relatively fixed costs, a gym knows exactly how many memberships it needs to maintain to turn a profit; for MoviePass, the variable costs of movie tickets mean a slippery target. There’s also a huge difference between someone accepting a $10 charge each month for a subscription service they use infrequently and accepting a $60 or $100 charge without breaking even. Their price point serves as a deterrent for the casual audience that the gym industry has come to count on.
Furthermore, without a discounted or wholesale rate in place with the major exhibitors, MoviePass really cannot afford to budge too much on this number. This is not the same as China, where a price war between telecommunications companies is driving down ticket prices and prompting executives to openly dismiss online ticket sales as a revenue source. MoviePass has its own margins to worry about. In an interview this week with Bloomberg, Mitch Lowe told viewers that theaters will continue to receive the full price of each ticket, confirming that MoviePass will not be able to offset any of its variable costs with discounted pricing from the venues. Even though Lowe hints at alternative revenue streams for his company – at one point, Lowe says his company will create “an amazing amount of data,” suggesting that its metadata might actually be the MoviePass endgame – he is in the unenviable position of having a product that really only appeals to people who will cost them money.
And here’s maybe the most damning thing about MoviePass: even the metrics that suggest the company is a success could lead to its ultimate failure. Between July 2014 and December 2015, MoviePass commissioned a study by Mather Analytics that analyzed the spending habits of people who used their service. As reported by Variety, MoviePass claimed to boost movie theater attendance by 111% and concessions sales by nearly $300-per-person per year. The article also suggests that this service is particularly effective with millennials and during off-peak theater hours, both areas which the exhibition industry is looking to improve. If MoviePass achieves the unlikely and proves the viability of a subscription-based theatrical model, there is absolutely nothing preventing a company like Regal or AMC from incorporating the MoviePass business model into their preexisting loyalty programs. Why funnel ticket sales through a third party – one that supports your competitors, no less – when you already have the infrastructure in place to build it yourself?
So MoviePass probably isn’t going to work, and if it does, it stands to reason it will be a victim of its own success. I’ve long felt that MoviePass, much like the early days of the Netflix streaming model, is a service with an expiration date; our goal, then, should be to make the most of it in the time we have left. If MoviePass is able to form a strategic partnership with a company like AMC or Regal – if they obtain a discounted rate at theaters or transition to an off-peak service model similar to courtesy tickets – there is a chance that they will continue to carve a space for themselves between the exhibitor and the consumer. As it stands for those in major markets, though, MoviePass is changing leadership and ambushing its core audience with major price changes. Not a lot of reasons for optimism going forward.
Related Topics: Hollywood, Marketing