MoviePass App Adds 1Million Subscribers As Multiplexes Fume

For those who dont want to watch all their movies at home on Netflix. And for those who want the customer data MoviePass will collect and re-sell. JL

Brooks Barnes reports in the New York Times:

MoviePass introduced a cut-rate, subscription-based plan, go to the movies 365 times a year for $9.95 a month. Members use a MoviePass smartphone app to check in at the theater. The growth has prompted criticism from theaters and studios that MoviePass will never make money by charging $9.95 a month. They say that will cause MoviePass to raise prices or go out of business. (But) the real treasure in this venture is the data about consumer tastes and habits MoviePass collects to sell that data to studio marketers.

As streaming services like Netflix and Hulu surge in popularity, movie theaters have been trying to compete by rethinking the concession counter and installing seats that resemble beds.

Yet attendance was flat at North American cinemas in 2016, and analysts are predicting a 4 percent decline in 2017, bringing ticket sales to a 22-year low.

Perhaps something more radical is necessary.

Mitch Lowe, a Netflix co-founder, certainly thought so when he took over a ticketing firm called MoviePass in June 2016. By August of this year, when MoviePass introduced a cut-rate, subscription-based plan — go to the movies 365 times a year for $9.95 a month — Mr. Lowe had been declared an enemy of the state. “Not welcome here,” AMC Entertainment, the largest multiplex operator in North America, said in an indignant August news release that threatened legal action.

It may be time to get on board: MoviePass said this month that it had signed up more than one million subscribers in just four months. It took Netflix more than three years to reach that level when it started selling low-priced subscriptions for DVD rentals in 1999. Spotify was relatively quick, at five months in 2011. It took Hulu 10 months to reach one million later that year.

“We’re actually shocked,” Mr. Lowe said. “We seem to have hit a nerve in America.”

Mr. Lowe and Ted Farnsworth, chief executive of Helios and Matheson Analytics, which bought a controlling stake in MoviePass in August for $27 million, celebrated the milestone by cheekily posing for photos at an AMC theater in Times Square.

Under the MoviePass business model, theaters get paid full price for every admission. People who sign up receive a membership card that functions like a debit card. When members want to see a movie (no more than one a day) they use a MoviePass smartphone app to check in at the theater. The app instantly transfers the price of a ticket to the membership card. Members in turn use the card to pay for entry. It all works independently of theaters, sometimes to their chagrin.

The blistering growth has prompted new criticism from theaters and studio owners — namely that MoviePass will never be able to make money by charging $9.95 a month when a single ticket can cost almost twice that amount. They say that will cause MoviePass to either raise prices or go out of business, disappointing audiences and ultimately hurting the fragile multiplex business.

Photo

Mr. Steven’s MoviePass app. MoviePass, which charges subscribers $9.95 a month, hopes to make money by selling the data it collects to studio marketers. Credit Jacob Langston for The New York Times

Mr. Lowe, who previously sparred with studios as president of Redbox, the kiosk company that rents DVDs for $1 a day, believes that ticketing can at least be a break-even business for MoviePass. The real treasure in this venture, he contends, is the trove of data about consumer tastes and habits that MoviePass can collect. It hopes to sell that data to studio marketers.

Mr. Farnsworth said, “When you apply computer science and machine learning to an industry that we believe has lacked significant innovation, useful patterns start to emerge.” If MoviePass gets big enough, it could try to demand that chain theaters sell tickets at a discount or share a slice of their concession revenue.

Helios recently raised $60 million for the expansion of MoviePass, which expects to have more than three million subscribers by the end of next year. Monthly subscriber retention is roughly 96 percent, Mr. Lowe said. About 75 percent of MoviePass users are millennials, a group that Hollywood has struggled to turn into avid moviegoers.

“Millennials understand us because they grew up on subscription,” Mr. Lowe said.

Dan Steven, 34, signed up for MoviePass in October. Mr. Steven, who lives in Orlando, Fla., said he had gone to “maybe one movie a month” before he became a subscriber. In November, he went 12 times.

“I used to only go if it was clearly worth buying a ticket — something big-screen worthy, a spectacle or a movie with a lot of effects,” he said. “I would skip the undercard movies. I would just wait until they came out on Netflix.”

Over the last decade, theaters have spent billions of dollars to enhance the moviegoing experience. Improvements include

the ability to reserve seats online, reclining seats, bigger screens, and better sound and projection systems. But the business has remained more or less the same for decades (sell ticket, serve popcorn, show movie) even as nearly every other area of media (television, music, publishing) has been forced to reinvent itself to contend with digital disruption.

As the popularity of MoviePass demonstrates, theater owners may no longer be able to avoid fundamental change. In particular, studios are expected to force exhibitors in the coming months to loosen their grip on new movies. Theaters have typically insisted on a 90-day period of exclusivity. Studios want to shorten that window and speed films to home video-on-demand services.

“This is something that has to happen, in part because consumers are demanding it,” Jim Gianopulos, chairman of Paramount Pictures, said at an investor conference in September.

MoviePass, which has been around since 2011, struggled to gain traction in its early years because of pricing ($50 a month, later lowered to $35) and pushback from exhibitors, who worried that a subscription service would undermine per-ticket pricing. By early 2017, MoviePass was trundling along as a fringe service; it had about 20,000 users in the United States.

When Mr. Lowe and Mr. Farnsworth drastically lowered the price, people started signing up en masse.

To a degree, the service depends on traditional subscription economics: More people pay than go. The model starts to get more complicated, however, when you consider the price of movie tickets.

According to the National Association of Theater Owners, tickets cost an average of $8.93. But theaters in cities like New York, Los Angeles and San Francisco charge as much as $16.50 for a standard ticket. At Mr. Steven’s local theater in Florida, they are $11.92.

So far, none of the major studios have signed on as clients, and no studio executive contacted for this article would comment on the record. Mr. Lowe said MoviePass had been “making huge progress with content owners” and had signed up a small studio as a partner, but he declined to provide details.

The big theater chains have held their ground, although AMC recently softened its stance. A bit.

“We appreciate their business,” Adam Aron, AMC’s chief executive, said on a conference call with analysts last month. But Mr. Aron added, “AMC has absolutely no intention — I repeat, no intention — of sharing any — I repeat, any — of our admissions revenue or our concessions revenue.”

Regal, the No. 2 multiplex chain, has said it will take a “wait and see” approach to MoviePass, while Cinemark, the third-largest exhibitor, introduced its own subscription service in early December. For $8.99 a month, members can see one movie a month and receive a 20 percent discount on concessions, among other perks. Unused tickets roll over and never expire for paying members. Mr. Lowe called the offering “vapid.”

One small theater company that has become a MoviePass investor, Studio Movie Grill, which has 30 locations in nine states, credits the service with increasing attendance, especially on weeknights. “I know it’s getting a bad rap in some circles, but we love MoviePass,” said Brian Schultz, Studio Movie Grill’s chief executive. “Some people aren’t sure they want to pay $10 to $12 to see a movie like ‘Lady Bird.’ MoviePass takes out that hurdle.”