Movie theater subscription service MoviePass is tacking on another outlandish way to generate revenue on top of its existing plan to sell the data it collects about its customers. It plans to acquire movies in partnership with distributors so that when the films are released via DVD, streaming, or on-demand down the road, it will get a cut of the proceeds.
While MoviePass -- which offers subscribers the ability to see one movie per day for $9.95 per month -- has signed up 1.5 million subscribers, the prospects of making any money seem as distant as ever given that it pays the theaters full price for the movie tickets.
Guaranteed to lose money
MoviePass, which is owned by Helios and Matheson (NASDAQOTH:HMNY), reimburses theater operators for the full price of movie tickets, which are estimated to average between $8 and $11 each. MoviePass therefore starts losing money on a subscriber if he or she goes to two movies in a month.
The service says it is buying up approximately 3% of all domestic box office tickets sold, but when it is promoting a particular film, it is purchasing upward of 10% of the total. MoviePass says its subscribers have positively influenced the outcome of recent releases such as The Post; Three Billboards Outside Ebbing, Missouri; Call Me by Your Name; and The Shape of Water.
The question is whether MoviePass is actually boosting attendance as it claims or just piggybacking on the buzz surrounding certain films. If it's actually doing the former, then perhaps when there are the opportunities to make money after a movie's theatrical release, it will be able to make some real money.
A box office bomb
Maybe, but it might also be getting crumbs as Disney is the industry's 800-pound gorilla, having acquired Lucasfilms, Pixar, Marvel, and now possibly Twentieth Century Fox. Not only does it have Star Wars and Ironman, Toy Story, and Avengers, but could also get everything from Avatar to The Simpsons. Analysts at Cowen have estimated Disney earned 61% of total industry profits in 2016.
Whatever MoviePass will be able to buy into is likely going to return little to offset the massive deficits it is racking up. MoviePass made its announcement at The Sundance Film Festival, saying, "We aren’t here at Sundance to compete with distributors, but rather to put skin in the game alongside them and to bring great films to the big screen across the country for our subscribers."
Helios & Matheson noted in its third-quarter earnings report that the subscription service has incurred losses since its inception and plans to finance its operations with additional debt or equity offerings. Its prospects are dim enough that there are serious doubts about its ability to continue as a going concern, according to the filing.
Worse, the more people MoviePass signs up as subscribers, the faster it will grow its deficits if those people go to the movies a lot, maybe even to a point it won't be able to manage regardless of how many movies it buys into.
And it's not clear how the movie distribution business will pan out for the company. MoviePass said it was going to the indie film festival with its checkbook open, and Variety magazine said during Sundance that it and The Orchard are partnering in a $3 million deal for the North American rights to a heist thriller called American Animals that received good reviews, but it's not clear what sort of money that might turn into for MoviePass.
Turn out the lights
MoviePass is also facing resistance from theater operators. AMC Entertainment has said it is seeking ways to legally bar customers from using MoviePass at its theaters because it cheapens the experience and that MoviePass may seek discounts later on. MoviePass recently cut off access to 10 AMC locations. Cinemark Holdings has introduced its own subscription model to fend off MoviePass.
The business model MoviePass has adopted doesn't seem sustainable. Its scattershot ideas to make money seem more like a bid to generate interest ahead of a possible IPO, which reportedly could come as soon as the end of the second quarter. But it's a money-losing operation with no real idea of how it will eventually succeed.
Buying a MoviePass subscription certainly seems like a good deal. Investing in the business or in its majority shareholder, not so much.