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MoviePass Backs Off Plan Meant to Boost the Business

By Rich Duprey – May 11, 2018 at 5:14PM

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The monthly movie subscription service backtracked on its plan to limit how many movies you can see.

The first rule of holes is to stop digging. Apparently Helios & Matheson (HMNY) hasn't figured out how to do that yet.

Because members have become addicted to its too-good-to-be-true subscription service of being allowed to see one movie every day for $9.95 a month, Helios & Matheson was forced to backtrack on a plan to cap at four the number of movies members could see in a month.

Even though it is likely this will lead to ruination, Helio & Matheson is back to digging its money-losing hole even deeper.

Friends laughing at a movie while eating popcorn

Image source: Getty Images.

Shape-shifter

MoviePass has changed its business model several times over the years. At one time, it had an apparently sustainable model of charging $50 a month for unlimited viewings, but it was a small-potatoes operation back then. Once it lowered its price for unlimited viewings, membership soared to 2 million with an eye toward hitting 5 million subscribers this year. And after acquiring MovieFone with its 6 million potential subscribers, it looked like the skies were the limit to how fast it could grow.

But at the root of everything was a business that wasn't taking in enough money to cover its costs. So the company cut back on the number of movies new members could see in a month. 

Under the short-lived new model, new members got a three-month trial subscription to MoviePass for $29.95 that limited them to four standard movies per month -- no 3-D or IMAX showings -- but added a free trial to iHeartRadio's All Access on-demand streaming package. After three months, though, iHeartRadio would cost you $9.95 per month.

But there was an outcry as people worried the movie-a-day model was going away and the company reversed the cap.

Shoveling faster

The economics of MoviePass's business model under Helios & Matheson has never made sense. As soon as a customer bought two movie tickets in a month, MoviePass was losing money, and there was some evidence it was doing so from the very first ticket it sold. While there was a plan to recoup some of those losses by gaining scale, earning a percentage of concession stand sales, and developing a database of member demographics to market to, it was too far into the future to offset the red ink it was spilling.

Helios & Matheson obviously realized it was unsustainable and hit on the idea of becoming a partner in the movies themselves. By investing in the production of a movie early on, it could help sell tickets to see it in theaters and earn profits afterward when it finally went to DVD or streaming. Unfortunately, that didn't solve the problem of how to stem the cash hemorrhaging. The company lost $11 million in 2017.

According to Statista, about 92% of the U.S. public goes to the movies only several times a year at most, so MoviePass would have a stronger business if those people were its customers. Except it's difficult to market a product to people who don't plan to use it.

What Helios & Matheson apparently didn't count on was its membership likely being made up mostly of the remaining 8% of the population that goes to the movies several times a month, and they didn't like having limits imposed on how often they could go.

Now that the toothpaste is out of the tube, MoviePass is finding it's impossible to get it back in. Having caved in to the crowd once, it will meet severe resistance any time it tries to impose limits again. 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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