During the summer, moviegoing subscription service MoviePass dropped its monthly price from $19.95 to $9.95. Interest in the service surged, with the company signing up 400,000 people in the first month.
As you can imagine, the beleaguered movie theater chains were skeptical of the new low-priced entrant, with AMC Entertainment (NYSE:AMC) CEO Adam Aron saying, "[I]t is not yet known how to turn lead into gold."
Subscription services can be very profitable when executed well, but the chains seem unsure if they should embrace or compete against MoviePass, which is reflected in recent comments from their leadership. Here's how the industry incumbents are reacting.
Cinemark (NYSE:CNK) is throwing its hat into the ring, announcing the release of Cinemark Movie Club by the end of this year. The company says its Movie Club will be a "very unique take on their traditional subscription plan." The company did not go into further details but claimed it had been doing extensive research on the plan for much of the year, and it would include benefits and features important to the widest array of moviegoers.
It's interesting that Cinemark management is going after the widest swathe of moviegoers and not the most frequent. Out of 250 million moviegoers in the U.S. and Canada, only 27 million are classified as "frequent", meaning they watch at least one movie per month. Of course, a reasonably priced subscription will only be profitable if infrequent customers sign up, offsetting the losses from the higher volume viewers, so this makes sense. I remain curious as to how the company plans to compete with a $9.95 service and what possible benefits could entice some to opt for Movie Club over MoviePass.
Cinemark is currently beta-testing the platform, but it should be out soon. "Stay tuned, lots to come on this front," management said.
Regal and AMC: alternative pricing
As movie subscriptions are meant to drive frequency but at a discount, another tactic that could achieve the same effect is more dynamic pricing of theater seats. Both Regal Entertainment (NYSE:RGC) and AMC are each exploring "alternative pricing" strategies to lure people to theaters rather than a full-fledged subscription. That means charging more for better seats and less for worse ones, such as the front row.
AMC CEO Adam Aron said during the latest earnings call, "It doesn't cost you any money to cut the price of something that you never sell any of." Thus, with discounted seats, each company hopes to make moviegoing more affordable, driving greater traffic overall. Regal, for its part, is partnering on a similar dynamic pricing initiative with partner Atom Tickets, which will roll out the Regal pricing model in early 2018.
Regarding MoviePass specifically, both companies said they were happy to collect full-priced tickets from MoviePass while also learning about dynamic pricing initiatives. Regal CEO Amy Miles said "we will take a wait-and-see approach, and we're going to continue to enjoy the benefits of the full price movie tickets that we're receiving for all MoviePass customers. What we will not entertain is a discounted ticket arrangement or any participation in our concession sales as part of the arrangement."
AMC CEO Adam Aron shared a similar sentiment:
MoviePass paid AMC, according to our records, $11.88 for each and every ticket that it purchased for our mutual guests. That's quite a gap, $9.95 a month versus $11.88 a visit. I must point out, that's very gracious of them, and we appreciate their business. But I think it's also important to make clear that we, despite claims they've made to the contrary, AMC has absolutely no intention, I repeat, no intention of sharing any, I repeat, any of our admissions revenue or our concessions revenue with MoviePass.
An evolving story
In a recent interview, CEO Ted Farnsworth of Helios and Matheson -- the company behind MoviePass -- claimed the company could be profitable even at $9.95:
$9.95 is like a buffet. The first time you go, you load your plate. The next time, you take a little bit less. By the third visit, you eat the same amount that you'd eat at home. Based on our historical numbers, MoviePass will be similar.
In other words, it's possible that all parties could benefit. The average moviegoer attends four movies per year. If MoviePass can get its subscribers to double or even triple their frequency, the company could still be profitable, and the theaters would see increased traffic at the same time.
The theater stocks have been punished this year, but keep your eyes peeled on this space -- the movie theater subscription story is evolving fast.
Billy Duberstein owns shares of AMC Entertainment Holdings and Helios & Matheson North America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.