The Possibilities and The Casualties of MoviePass

By Eashan Reddy Kotha

According to reports from the National Association of Theater Owners, the average price of a movie ticket was $8.95 in Q2 of 2017, While this is a slight uptick from the $8.84 average reported in Q1, it is resemblant of a continual increase in the price of tickets over several decades. There may be a fundamental shift in the movie distribution industry due to the efforts of one company with an unconventional business model – MoviePass.

MoviePass is a subscription-based service in which consumers pay a flat-rate monthly fee to watch several movies in theaters. It’s like a Netflix but for movie theaters.  In just the last month, MoviePass unveiled a staggering price drop for it’s monthly membership from $50/month (on a tiered plan) to a flat rate of merely $9.95/month. This pass can be used at multiple theater chains, including Regal Cinema, Cinemark, and AMC among others.

The move came as a shock to many, especially AMC (American Multi-Cinema), a major theater chain who’s opposed MoviePass ever since it’s conception.  AMC made a statement calling the membership price level “unsustainable” and further remarked that it “sets up consumers for ultimate disappointment down the road if or when the product can no longer be fulfilled.” Although AMC doesn’t unilaterally oppose the idea of a subscription-based movie service, its qualms lie within the business model that MoviePass is utilizing. It’s like scalping, except the scalpers are selling tickets at significantly discounted price levels. Subsidizing movie tickets for a limited time could have an adverse effect on the theater-chain business as individuals would see the return to “normal” pricing a severe price hike. Consumer trust in chains would decrease and thus the industry will suffer from the damaged relationship.

What MoviePass is doing currently is reminiscent of what Napster did nearly two decades ago to the music industry, but it’s legal. Before Napster, a P2P (peer-to-peer) service, made individual songs easily available to download, one had to purchase entire albums to listen to a particular track. By making individual songs freely available to a growing user-base, it signaled a paradigm shift in how music would be distributed in the years to come. Although Napster was eventually shut down due to these illegal file sharing infringements, the aftermath of its brief stint is felt today. We now have the ability to select individual songs and purchase what only what we want to hear. With regards to MoviePass and Napster – the financial burden is lessened for the consumer.

If MoviePass is successful, it could entrench itself as the middleman between theaters and moviegoers – obtaining a position of leverage. Although its business model is currently unsustainable, certain theater chains like the Dallas-based Studio Movie Grill have embraced MoviePass for its potency in boosting admissions.

However, if MoviePass cements itself as the singular entity that could entice people to go to theaters the result could be unpropitious for theater chains. MoviePass can demand a cut of the chain’s profits (from concessions etc.) and cite the increased attendance as a reason. If the chain refuses to compensate MoviePass, the service can then effectively cut it off from the user-base while the competing, compliant chains get these displaced customers.

While  MoviePass is actively losing money as the $10 deal continues, AMC doesn’t lose any as MoviePass pays on behalf of the moviegoer. So naturally, the question arises as to where is this money coming from in the first place? The answer is Helios and Matheson Analytics.

The data firm’s primary directive is to “help global enterprises make informed decisions by providing insights into social phenomena,” – in other words, use proprietary analytic technology to predict consumer interests. The firm recently agreed to pump $27 million into MoviePass in exchange for a 51% equity stake, making it the majority shareholder and thus owner of MoviePass. The data firm thus can access MoviePass’ user  demographics and statistics. The raw data of viewer habits and demographics can be packaged with analytics and sold to studios trying to maximize their film’s profits. Viewer habits, geographic location, age, gender and more can help create a new system of film distribution where everything from budgeting to marketing can be better controlled at the executive level. The analysis of viewing habits can help determine where to screen certain films and where studios should invest their resources.

While it still remains to be said if MoviePass has an ethical business model, it definitely has the potential to disrupt the movie industry if the venture proves successful. While the $10/month deal sounds like a great value, it comes with the hidden cost of selling your viewing habits to a data firm. That choice is up to the moviegoer.