• MoviePass has emerged from Chapter 11 bankruptcy with yet another crack at the cinema subscription market after two failed attempts and a short sojourn with crypto and although this time there is a shred of economic rationality, I am not optimistic regarding its future.
• MoviePass first showed up in 2018 (see here) offering a fixed subscription where users could go to the cinema pretty much as often as they wanted for a fixed fee.
• The problem was that MoviePass was paying the cinemas for each visit, resulting in fixed revenues where the user was incentivized to visit as much as possible meaning that costs would soon spiral out of control.
• This hare-brained idea didn’t last long and after a couple of pivots, the company entered Chapter 11 bankruptcy.
• Somehow MoviePass has persuaded a venture capitalist somewhere to part with some cash and so the company has emerged from Chapter 11 and is ready to have another crack at the cinema-going market.
• This time the service looks much more like Audible where the user buys a number of credits over the subscription period which can be redeemed for seats at the cinema.
• Variable pricing has been applied such that seats for shows before 3 pm and during the week cost more credits to redeem than evening and weekend shows.
• Audible has been able to make this work partially as it is owned by Amazon but also because it now creates a good amount of its own content meaning that its costs are relatively fixed.
• This is where MoviePass is likely to fall over yet again because I fail to see how the cinema chains will give MoviePass a low enough price so that it can eke out a spread between the user and the cinema.
• The idea here will be to promise the cinema chains so much more business that they will be willing to offer MoviePass much lower pricing so that it can offer the users an incentive to buy the credits and still make a profit.
• This is a big ask as MoviePass has a terrible reputation and a history of failing to live up to its promises meaning that the cinemas are unlikely to pay it much attention.
• It will need to win some major user traction before the cinemas take it seriously and there is nothing to stop them from offering a similar service of their own as they did with ordinary subscriptions.
• I also think that the “we can provide you with useful data to understand filmgoers better” ship has long since sailed and so this pitch is likely to fall on deaf ears.
• Consequently, the end result is likely to be another ignominious failure followed by a final closing of operations.
• This goes into the same category as Faraday Future where I would not put money into this under any circumstances.

• MoviePass has returned to life under its original founder with an idea to create a token-based marketplace for cinema coupons but how it will attract any users outside of offering uneconomic, company-breaking discounts is a big mystery.
• MoviePass has emerged from Chapter 7 bankruptcy in the hands of its original founder Stacey Spikes and aims to deliver what it calls an “end-to-end cinematic marketplace”.
• What this is or how it will work was not made particularly clear, but I think that the use of the term web3 was clearly aimed at maximising its appeal to young investors who are keen to invest in the next big thing but have yet to be tempered by the brutal realities of the market.
• As far as I can make out, MoviePass 2.0 is yet another cryptocurrency but one that will be tradeable for seats at cinemas.
• I suspect that the reality is that MoviePass will be buying the tickets from the theatres with dollars as I think it unlikely that the theatres are going to be willing to take the exchange and credit risk of holding yet another cryptocurrency.
• Users will be able to either buy the tokens with dollars or earn them by watching advertisements.
• Users will have to look at the screen the whole time as eye-tracking will stop the advertisements from playing as soon as the user looks away.
• This is a variation of the idea that was supposed to support MoviePass’s uneconomical $9.99 per month unlimited subscription plan and remains the only viable option if MoviePass 2.0 is going to get off the ground.
• The company intends to fund itself through crowdsourcing from its users where I think it is likely to promote itself as a crypto play when in reality, it is nothing of the sort.
• Web3 refers to running the web as it exists today on the blockchain, but the blockchain is so expensive to run that only a tiny fraction of each NFT is actually on the blockchain.
• The digital asset itself normally sits at the end of a URL on a server with only the token itself being on the decentralised blockchain.
• Hence, the only part of MoviePass that will be on the blockchain will be the token itself with the app and the service itself all being hosted on traditional centralised servers.
• The alternative would be so expensive in terms of transaction cost that MoviePass 2.0 would probably be out of funds before the service even launched.
• In its first iteration, MoviePass (see here) managed to get 2m users but it did so by offering uneconomical terms such that the company lost money on every single user.
• This was not sustainable and when the company failed to finance itself through advertising, the whole venture collapsed.
• I think that this time around MoviePass 2.0 will fail to get anything like that number because it knows that it has to make money, meaning that it will not be able to offer the too-good-to-be-true deals that it did before.
• Hence, it is likely to end up being cheaper for users to buy their tickets directly from the theatres.
• Without lots of users, the marketplace will be very illiquid meaning that it will not be an accurate representation of the price of a seat in a movie theatre further reducing its appeal.
• Hence, I don’t think that this reboot of MoviePass is going to go anywhere as I can’t see where the value in this proposition is for the user.

• MoviePass had admitted the inevitable (see here) and closed its doors as the harsh weight of reality has forced its backers to realise, that without monetising the data, there was no chance of success.
• For the movie buff, MoviePass was the best thing since sliced bread as for a single payment of $9.99, the subscriber could see all the movies he or she wanted.
• MoviePass was Netflix for the cinema which on the surface sounded great but the business model was fundamentally flawed.
• Netflix pays a fixed price for the shows and films that it has whereas MoviePass was paying the cinema every time the user saw a film.
• When comparing the two, the Netflix model works as compared to usage it has fixed revenues and fixed costs whereas MoviePass had fixed revenues and variable costs.
• Furthermore, from looking at the simple economics of its model, it was clearly going to fail unless it found some other way to make money.
• Using US market data I concluded that: With 2m users, this equates to $17.6m gross losses (-88%) every month before any operating expenditure is taken into account (see here).
• This adds up to $211m in annualised losses which is clearly completely unsustainable.
• Furthermore, there was no way that MoviePass could grow out of this position because the more users it got, the more money it lost and the more unsustainable it became.
• This is very similar to the problem that WeWork has (see here) but fortunately for WeWork, it has very deep-pocketed and committed backers.
• Its unwillingness to track its users left and monetise the data left it with no option other than to raise prices.
• However, what the company tried to do was raise more money to fund its losses and I am not surprised to discover that no one was interested.
• The growth at any price approach is coming seriously unstuck and the mess of WeWork’s IPO has brought this into very sharp focus.
• Hence, the willingness of investors to throw good money after bad has run out, leaving MoviePass with no other option than to close down.
• This, combined with the market’s resistance to swallowing WeWork’s valuation in the public market leads me to hope that we are entering more sensible times.
• The net result will be fewer but higher quality IPOs of businesses that are more mature with profits and cash flow which can be objectively valued.
• This won’t make the investment banks and the VCs very happy but private investors and the long-term funds will be better off.

• The move by MoviePass to suspend its service for a few weeks is almost certainly a sign that the end has almost arrived for an ambitious project that tried to defy the laws of reality.
• MoviePass started life as a “Netflix” for movies where users would pay $9.99 month and have all-you-can-eat access to movie theatres.
• For any user that goes to the cinema more than once a month, this was a fantastic deal as, with the average ticket costing ($8.93), the subscription would pay for itself with just 1.1 visits per month.
• This is where everything came unstuck as MoviePass was subsidising the cost of the ticket by paying the cinema every time the user made a visit.
• Hence the revenue base was fixed while the cost base was variable spelling disaster.
• 3% of US adults (6.75m) visit the cinema once a week or more with 5% (11.25m) visiting 2 to 3 times per month and it is these users that were most likely to end up subscribing.

• As I noted in 2018 (see here), with 2m users, this equates to $17.6m gross losses (-88%) every month before any operating expenditure is taken into account.

• This is clearly unsustainable, and I am surprised that MoviePass has lasted as long as it has.
• It has done this by making the service more and more restrictive through stealthy price increases and limitations on usage and so on.
• To be fair to MoviePass it no other choice but to take these actions but it is clear that this has not gone down well as its user base is now much smaller given that the service is now not nearly as good as it originally promised.
• MoviePass promises to be back with big changes and a recapitalisation but going dark on what is one of the biggest movie-going weekends of the year in the USA is not going to make its users happy.
• There are two possible outcomes:
  • First, close doors: To continue operations, MoviePass needs more money.
  • Given its recent history, I suspect this will be a tricky feat to pull off and so I think there is a good possibility that the company never emerges from this quiet period.
  • Second, new model: Any new offering to its customers is likely to be far less attractive to its users than the current model which has suffered from a clobbering by reality.
  • This could be a much more restrictive service or a higher price.
  • One option is for the company to explore the possibility of using the data it collects.
  • The company has stubbornly refused to do this to date, but I still think it could provide significant financial support.
  • A better approach could be to offer ardent movie goers a big discount on their entrance tickets in exchange for their permission to track their cinema activities and the ability to promote related goods and services to them.
  • By knowing what they like and understanding their purchasing intents, the value of the advertising that could be pushed is very high indeed.
  • This would have the effect of adding a variable element to the cost base such that the users that go to the movies the most would also contribute the most revenue to the company.
• Despite this marketing possibility, I think that the second option is a long shot particularly due to the difficulty that I think the company is going to have in raising new funds.
• Hence, I think it likely that we have seen the last of MoviePass which along with Juicero serves as a cautionary tale with the message that hype can never get the better of reality.

MoviePass has to track to survive.

• Unless MoviePass tracks its members and is able to monetise the data that they generate, the company is almost certain to go out of business as I think that its model is fundamentally flawed.
• MoviePass is a service that normally costs $9.95 per month and provides the subscriber with the ability to see one movie per day at almost any movie theatre in USA.
• For any user that goes to the cinema more than once a month, this is a fantastic deal as, with the average ticket costing ($8.93), the subscription will pay for itself with just 1.1 visits per month.
• This is where everything comes unstuck as MoviePass is subsidising the cost of the ticket by paying the cinema every time the user makes a visit.
• 3% of US adults (6.75m) visit the cinema once a week or more with 5% (11.25m) visiting 2 to 3 times per month.
• These are the users that will be signing up for MoviePass and I calculate that they will be costing the company a lot of money.
• This equates to a pool of 18m users who visit the cinema about 3 times per month.
• If I assume that MoviePass has been able to negotiate a volume discount with the cinemas of 30%, then each user will be costing MoviePass $8.80 per month on average.
• With 2m users, this equates to $17.6m gross losses (-88%) every month before any operating expenditure is taken into account.
• This adds up to $211m in annualised losses which is clearly unsustainable.
• To make matters worse, losses with continue to balloon as more subscribers join as long as the business model stays the way that it is.
• This is why the company has no choice but to track its users and sell their data to marketers as it needs a revenue stream to offset the losses it is currently incurring.
• Selling statistical data back to the movies studios will barely make a dent and is probably what got the company the 30% discount that I have assumed above.
• Hence, when the company stands up and says that it does not track its users (see here), it becomes clear that the whole proposition has not been thought through properly.
• There are three methods that can be used to monetise an ecosystem or digital service (hardware, advertising or subscription) and MoviePass is using none of them.
• With -88% gross margins, it is not offering a subscription service but is simply buying data which it is now refusing to monetise.
• A better approach would have been to offer ardent movie goers a big discount on their entrance tickets in exchange for their permission to track their cinema activities and the ability to promote related goods and services to them.
• By knowing what they like and understanding their purchasing intents, the value of the advertising that could be pushed is very high indeed.
• As a result of not being clear and upfront to its users with its business model, the company is now in a very difficult position of not being able to create a sustainable business.
• Hence, I suspect that the business model will soon have to change by raising the subscription price to a point where it can make money.
• This is likely to cause an exodus of users who signed up at $9.95 per month, leaving the company in dire straits.
• I think that MoviePass has to work out a way to monetise the data that it collects, or it will go out of business consigning it to being yet another interesting idea that was badly executed.