MoviePass, the great socialist experiment where rich techies subsidize movie tickets for millions, is on life support.
While it’s been clear for some time that MoviePass’s business model was seemingly not sustainable, in the past few days it looked like its fiscal comeuppance had finally come. The app service experienced massive outages and its stock price plummeted to near zero. It took out an emergency $6.2 million loan from Hudson Bay Capital to remain in operation, and if it didn’t pay back half of the loan by August 1, it seemed likely that MoviePass would be done for good.
But it did pay back the loan, in full, meaning that the service still trucks along, though with changes that upset its users—including blacking out access to “big, new-release titles” and raising its price. Though some MoviePass subscribers canceled in response to this news (its unclear how many), the app refused to die, much like Tom Cruise in Mission: Impossible - Fallout, one of the blockbusters many users weren’t able to see via MoviePass. And the question now seems to be: Will MoviePass ever die?
The higher-ups at the company have been transparent about their seemingly awkward path to becoming a sustainable business. It’s clear that $9.95-a-month subscriptions don’t give MoviePass the money it needs to pay movie theaters for tickets, but the it’s equally clear that they don’t have to. That’s not the point of the business, and never was. Rather, it’s about gaining subscribers—which it has done, impressively—and then turning their/our information muck into revenue. Somehow.
It’s this “somehow” that’s the great mystery, along with whether MoviePass can solve the “somehow,” whatever it is, before they run out of “runway.” At airports, this is the stretch of concrete needed for a plane to take off; in the startup world, it’s how much time you have (thanks to your venture capital funding) to find a workable business model. MoviePass is still running out of runway, but the company’s most recent tweaks mean that it has a little bit more time before it crashes into the wall.
“What they’re basically saying [with the changes] is we are reevaluating our burn rate,” said Soren Kaplan, a professor at USC’s Center for Effective Organizations and author of The Invisible Advantage: How to Create a Culture of Innovation. “And they do provide some clues to how they're going to do that.” (Burn rate is how quickly a company is losing money.)
Though MoviePass’s business model and potential failure has been followed especially closely by the public, none of this is anything unusual for Silicon Valley. Consider Uber: For the first three months of 2017, it lost $708 million, and that was good news, since it had lost $991 million over the previous quarter. Even then, no one was saying Uber was about to die, despite the massive loans it had to take out.
“It’s all experimenting with the model to figure out how to become profitable, that’s the strategy in the world of the bubble,” Kaplan said. “Lose a lot of money, and get drivers and eyeballs, and then have the ability to create the business model. And MoviePass has been quite successful, getting 3 million subscribers so fast.”
Which isn’t to say the latest stock dip isn’t bad news. But maybe it’s not as bad as outsiders would think. “The market believes it’s basically worthless,” Soren said. “[But] the stock price doesn’t actually predict what will happen. Amazon was a steal in 2001.”
It's the 3 million subscribers (minus whoever actually cancelled their account) that suggests the app not as close to death as it seems. “Look at Kodak,” Kaplan said. “They went bankrupt and recapitalized, and had the ability to get back into the game. If MoviePass goes bankrupt, someone could come in, take majority of the stock, and have enough money to extend the runway while searching for a viable business model.” After all, MoviePass has been great at gathering subscribers quickly, one of the hardest nuts to crack in the VC world, and there are no shortage of rich folks who think they can figure out how to monetize those subscribers.
But there’s another thing MoviePass has been great at in its short span in the spotlight: Getting people talking about MoviePass. Other theaters subscription services have popped up recently—including AMC Stubs, which gives users three movies a week for $19.95 a month—lending credence to the idea that this model is something consumers want, and that can work, albeit perhaps on a less ambitious level. But MoviePass is the only one with the name. A few increases in price, stricter limits on what movies users can see, a few other nips and tucks here and there—including a few tweaks to the system to fix its bumbling customer service issues—and it could remain viable thanks to name recognition. That counts for something.
“My prediction is that they won't go away,” Kaplan told me. He did note that the company’s move of accusing theaters—i.e., their distribution channel—of price gouging is an odd one. “This is channel conflict,” he said. “They need a villain to disrupt, and are making the case, but it’s not the same as Uber. Uber didn’t use taxi drivers to drive their cars.” But he also didn’t think this means the end of MoviePass, even if the ownership changes: “My hunch is that they’ll be bought or taken over by another company with deeper pockets that will make another go of the business model.”
Meanwhile, I’ll still subscribe. Even once the price goes up to $14.95 a month, it’s still worth it if you see a couple films a month—even if you have to work around some restrictions about which movies you can see when. At least for now, it’s still a better deal than competitors like Sinemia ($3.99 a month for one ticket; $13.99 for three) or Cinemark ($9 a month for a single ticket, but allowances that can be used to claim unused credits later).
As a subscriber, I’m not worried about the company’s close brushes with bankruptcy, or if it ever figure out their business model. If it doesn’t, and ends up turfing out spectacularly, I won’t have to pay anymore and things will go back to normal. In the meantime, I’m going to ride this deal out until the end, and expect a lot of movie fans will do the same.
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