MoviePass, as you probably know by now, is a monthly subscription service that, starting in August 2017, aimed to sign up members by offering the ability to see one movie a day for just $10 a month. (MoviePass' business model has changed a bit since.) Movie theater chains such as AMC didn't like that idea, arguing that Helios and Matheson wasn't charging enough and risked "upsetting the value proposition" of a $10-per-person trip to the movies. But being so cheap, MoviePass proved immensely popular -- and AMC was ultimately forced to respond with a similar service of its own.
Just last week, AMC announced that its own MoviePass rival -- a $20-a-month subscription service dubbed "AMC Stubs A-List" that allows members to see up to three movies per week -- surpassed 500,000 members after just four months in business. AMC wasn't expecting to hit this mark before June 2019. It is now eight months ahead of schedule and well on its way to reaching 1 million members: a milestone it initially didn't expect to achieve before 2020.
The magic number: 1 million
That 1 million member goal is a significant number. Although MoviePass had more than 3 million subscribers at one point, an August survey of MoviePass members' cancellation plans suggested that MoviePass' membership rolls have already shifted into reverse, and could be heading for 1 million members or fewer.
It doesn't take a lot of imagination to figure out where many of MoviePass' old subscribers are going: AMC. This phenomenon does, however, raise a question: If MoviePass was so popular once, and AMC is piggybacking on that popularity to bring droves of new moviegoers into its theaters, where does this leave No. 2 cinema chain Cineworld (LSE:CINE) and its Regal Entertainment subsidiary?
Remember Regal Entertainment?
If you recall, British movie theater giant Cineworld bought Regal Entertainment for $3.6 billion (plus $2.2 billion in assumed debt) last December, at the height of the MoviePass mania. In doing so, Cineworld more than quadrupled its 2,200-screen count with the addition of Regal's 7,300 movie screens, and brought itself within a whisker of AMC's own 11,000-screen count.
Cineworld may be slightly smaller in terms of screen count, but it holds a commanding lead over AMC where it counts for investors: stock market valuation. Cineworld commands a $5 billion market capitalization, or about 1.2 times the $4.1 billion in sales that analysts estimate it will rake in this year, according to data from S&P Global Market Intelligence. For comparison, AMC is expected to do more sales this year ($5.4 billion), yet it fetches a market cap of only $1.5 billion -- roughly 0.3 times sales.
The risk to Regal
With more revenue and more screens with which to produce revenue, AMC's business is already bigger than Cineworld's (even if its stock market valuation isn't). And AMC could grow bigger still as its A-List movie subscription program absorbs ex-MoviePass customers and grows in size, potentially at the expense of Cineworld and the Regal subsidiary that now accounts for 77% of Cineworld's screens.
According to a Motion Picture Association of America report on moviegoing in 2017, about 263 million residents of Canada and the U.S. saw at least one film in a movie theater last year. (The report covers both North American countries, but is especially relevant to the U.S. market, home to both MoviePass and 90% of these moviegoers). Crucially, the 12% of the population described as "frequent moviegoers" -- those seeing at least one film per month on average, and a prime target market for MoviePass -- accounted for nearly half (49%) of all tickets sold last year. Capturing these frequent moviegoing customers as they flee a failing MoviePass is therefore crucial to the future success of major movie chains like AMC and Cineworld/Regal.
So far, only AMC is making a concerted effort at capturing these frequent ticket-buyers. In its most recent earnings report, AMC noted that A-List helped to drive "an 8.6% surge in attendance at our U.S. theatres," and is securing "$120 million of annual recurring revenue for movie admission ticket buying at AMC theatres." (500,000 A-List members paying $20 a month over 12 months equals $120 million in guaranteed revenue). Although it's not yet clear that this revenue will be profitable for AMC (the company actually lost money in Q3), management predicts that as A-List members moderate their movie intake to about 2.5 films per month (as the trends indicate they will), A-List will turn profitable for AMC.
Regal, meanwhile, has not instituted any subscription program at all. Unless it wants to give up these most prolific ticket buyers to its rival, it should set up a subscription program pronto.