AMC Entertainment (NYSE:AMC) seems to have found a movie subscription business model that doesn't require a company to hemorrhage money in the process of attracting more moviegoers. Its AMC Stubs A-List service, which lets subscribers see three movies a week for $20 a month, has added 120,000 new members over the last six weeks, giving it some 380,000 subscribers overall since it was launched three months ago.

Although that's nowhere near the millions of subscribers attracted when Helios and Matheson Analytics' (OTC:HMNY) MoviePass service first let moviegoers see an unlimited number of films for just $10 a month, AMC Entertainment has created a much more sustainable model.

People eating popcorn in a movie theater

Image source: Getty Images.

Changing how we buy movie tickets

There's no doubt the MoviePass subscription service forged a new way for theater operators to sell tickets, one that may very well outlive MoviePass itself. The model is obviously popular with moviegoers, but for such a service to thrive, it also needs to allow the operator to prosper. Even MoviePass has realized this, having changed its service several times over the past year as it sought to stem the hemorrhaging of cash that occurred by buying tickets at full price and then losing money as soon as the customer used the service once in any given month.

Other services are trying different options. Cinemark Holdings (NYSE:CNK) charges $8.99 for one movie a month through its Movie Club service, but also offers 20% concession stand discounts. Sinemia is going with one movie per day for $29.95 per month, though other plans are available at different price points.

Betting with the averages

It's not certain that the perfect business model has yet been found. AMC's plan, for example, limits moviegoers to only AMC theaters, just as you can only go to Cinemark theaters under its plan. Sinemia, on the other hand, allows you to choose from numerous theater chains, but also risks losing money if moviegoers decide to see a lot of films.

What makes most of these plans more sustainable, though, is that they operate on the basis of serving what Sinemia calls the "modern moviegoer," who sees at most three movies per month. The Motion Picture Association of America puts the average figure even lower, saying the average moviegoer across all age groups takes in about four movies per year, while those 18 to 24 years old -- who go to the movies the most -- see around six movies a year. Either way, the subscription plans ought to be break-even at worst, but could be profitable if the averages bear out.

Enjoying the fringe benefits

AMC Entertainment CEO Adam Aron says the Stubs A-List subscription is helping drive theater attendance higher. "The early success of this program is evident as AMC is projecting an attendance increase at our U.S. theaters for the first time in three years," he said in a press release announcing the new subscriber numbers. The company said 45% of A-List members were not previously part of the AMC Stubs loyalty program so it's clearly attracting new folks to the ecosystem.

Increased attendance ought to cause concession stand sales to rise, too. (Stubs A-List members can get a large size popcorn for the price of a medium, they get a free refill if they buy a large popcorn, and they get express service at the concession stand.) Last quarter, AMC generated $445.8 million in food and beverage sales, or 30% of total revenue, but segment operating costs were just $72.2 million, giving it margins north of 80%. Cinemark had similar concession stand margins, but with just one movie per month in its plan, it's not going to see the traffic gains AMC is witnessing. It may be successful, just not meaningfully so.

Finding the right balance between what is offered and what it costs is important; otherwise, the subscription services will end up looking like MoviePass, fighting for its life. Even if AMC's Stubs A-List isn't the perfect program, it looks sustainable and may very well become a blockbuster for the theater chain.

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