In a bold move aimed at changing the scale of its business, MoviePass took a Netflix-inspired step on Tuesday, slashing its monthly subscription fee from as much as $45 to $9.95 a month in conjunction with a $27 million investment from analytics firm Helios and Matheson, who acquired a majority stake in the company.
The bet: can it drive the kind of growth that has made Netflix a monster of the entertainment ecosystem and popped its stock price by 1900 percent in the last five years?
“At $9.95, everything changed. It was like night and day,” MoviePass CEO Mitch Lowe told TheWrap, referring to their market research.
The service is available in 91 percent of cinemas in the U.S., including all AMC, Regal and Cinemark theaters – for now. (AMC, the world’s largest chain, issued a statement late Tuesday calling the price cut a “shaky and unsustainable plan” and saying it was looking for ways to opt out.)
But even if other exhibitors embrace MoviePass, should theater chains be concerned about what looks like a Groupon-ization of their product? Lowe, a former Netflix co-founder and Redbox president, told TheWrap the price point was necessary to grow its subscriber base.
“What we found was that we were only attracting the heavy users,” Lowe said of MoviePass’ old pricing. “People who already go 1-2 times a month now go 3-4 times a month. So what we really wanted to do was to excite the people who go 4-6 times a year and get them to go 12 times a year.”
At $9.95 a month, given the fact that the company pays theaters full price for subscribers, the numbers don’t add up. AMC said as much in its statement, and Lowe acknowledged it too, but said it was important to build up its subscriber base to a meaningful size (think Uber) — and the new investment could cover those losses. The company declined to disclose its current number of subscribers.
“The primary usage of our money will be for subscriber acquisition and subsidizing the usage,” Lowe said. “We need to build our subscriber base to gain more interest from theaters.”
What’s in it for Helios and Matheson? Data. They can sell it to marketers who are having an increasingly tough time reaching younger demographics, who aren’t watching linear television, historically one of the easiest ways to reach potential customers. What’s in it for theaters is less clear.
Lowe said MoviePass recently showed a chain of theaters that it has increased its subscribers’ use four-fold in two months — meaning a lot more $27 small popcorns at the concession stand.
“But that doesn’t have as big an impact when you don’t have tens of thousands of subscribers in a chain’s market,” he said. “So our goal is to build our subscriber base into a meaningful number and then start to drive our subscribers to those theaters that work with us and drive up their concession stands.”
Another thing that might help MoviePass make its case to exhibitors: a lot of the incremental movies its subscribers are seeing (Lowe said they’ve doubled their moviegoing on average) are smaller films, not the big-budget blockbusters that dictate the ebb and flow of the box office — and theater stock prices. A theater chain wouldn’t want to hold a seat at a sold-out showing of “Spider-Man: Homecoming” for a $10/month subscriber as a one-off, but if that person went ahead and saw a couple indie matinees, filling a seat that wouldn’t have been occupied anyway, it looks like a better deal.
“When our subscribers doubled their consumption, almost 100 percent of those films were movies with less than $20 million at the box office,” Lowe said. “What they are doing is 1) going to the smaller films that might not have had the marketing dollars behind them or which they may have seen as risky, and 2) they’re going more often during the weekdays instead of the weekend.”
While IMAX and 3D movies aren’t included in the $9.95 offering, MoviePass has designs on introducing a higher-priced tier that would offer subscribers access to those premium formats.
“We hope to roll out a subscription package that includes 3D and IMAX at some point in the future, but right now it does not cover IMAX, 3D, or some of the high priced luxury theaters,” Lowe said. “Some theaters like Studio Movie Grill, which is a luxury chain with food and assigned seating, make their money on concession and not on the ticket pricing, so we include those in our pass. But movie theaters with $18 to $20 pricing are not in our system.”
MoviePass used to have different pricing by region – expensive cities like Los Angeles previously cost as much as $45 a month – so the decision to go to a flat fee will be a money-loser in pricey markets. Lowe said scale and geographic diversity can make up for that, as well as the product’s exclusion of premium theaters.
“For simplification we went with a price that was a safe price across the country,” Lowe said. “We’ll succeed only if we get a good mix of subscribers in both high-cost and low-cost markets.”
But what’s most important is having that mix at a big enough scale to get the attention of incumbents. That’s how Netflix and Amazon have built their content businesses, and a big enough base could give MoviePass leverage to cut better deals with exhibitors, even as the biggest one fired an initial broadside — in which it branded MoviePass a “fringe player.”
However, last year, consumers spent more money on subscription services like Netflix than movie tickets. MoviePass is betting that the answer to the industry’s box-office woes is a similar low monthly fee. At least one major theater chain disagrees. Get your popcorn ready.