How ‘Silicon Valley’ Helps Explain MoviePass

Movie theater subscription outfit follows well-worn tech strategy

Silicon Valley Season 4Silicon Valley Season 4

Operating at a loss is a trick as old as Silicon Valley itself. And last weekend’s Season 5 premiere of HBO’s “Silicon Valley” highlights the strategy in hilarious fashion, when Richard (Thomas Middleditch) cleverly exploits a competitor’s own business plan to take him down.

TheWrap noticed the latest “Silicon Valley” storyline also sheds light on the game plan of a very real, up-and-coming company: MoviePass, the much talked about subscription-based movie ticketing service.

If you didn’t catch the episode, here’s how it went down: Richard wants to hire a team of engineers for the revamped edition of Pied Piper. But the plan hits a roadblock when a rival founder, Duncan, lures them away to his pizza delivery startup, Sliceline. (Duncan insists it’s a pun because “it rhymes with Priceline.”) A foiled Richard is rejuvenated, though, when Jian-Yang discovers they’re paying a grip of cash to order from Domino’s, re-box the pizza, and then send it to Sliceline users.

Emboldened, Richard decides to squash his competition. While meeting up with Duncan for drinks, Richard starts buying a whole mess of pizzas from Sliceline. At a $5 loss per order, Sliceline is taking a “bath,” as Richard puts it. Duncan insists this is only an issue until their engineering team figures out how to route orders more efficiently… unless Richard forces them to burn through their entire runway of funding before that can happen.

This Machiavellian twist brings us back to MoviePass. At $9.95 a month — and $6.95 a month if you sign up for its year-long special offer right now — the offer seems almost too good to be true. Subscribers that hit just one movie a month would already be saving money (at most theaters). Like Sliceline, MoviePass is losing money with each new user it brings on right now.

But it’s a scaling game for the company, just like it is for Silicon Valley startups. The movie ticketing service went from one million to two million subscribers earlier this year — and is set to pass the three million threshold soon. Ultimately, the plan is to have 10 million customers by Christmas 2019.

At that point, you’re bringing in a healthy monthly recurring revenue. And with its network growing bigger, it gives MoviePass more opportunities to monetize. You’re already seeing this, with advertiser deals and MoviePass funneling its money back into co-financing releases. The bigger it gets, it’ll be able to push theaters for a better cut. It’ll also make it easier, once customers are onboard, to ultimately raise prices (think Netflix).

Another key to getting subscribers on board: data. It’s a touchy subject in the wake of Facebook’s recent issues, but Chief Executive Mitch Lowe told TheWrap earlier this week the company will earn money by selling user data to studios, exhibitors and other businesses.

We’ve seen this strategy before with several tech giants. Uber is losing billions each quarter acquiring fresh riders. Amazon might be the most famous example, operating at a loss for years. The Seattle-based giant now posts profits quarter-after-quarter. Now, during the “opening credits” period of its business, MoviePass is following a similar strategy — and we’ll find out soon enough if it will be flop or a blockbuster.

Jeremy Fuster and Trey Williams contributed to this story.