MoviePass Owner Plans to Spin Off Company Amid Financial Struggles

Subscription service would become separate publicly traded holding company under the proposal

Last Updated: October 23, 2018 @ 7:47 AM

MoviePass’s parent company Helios and Matheson Analytics Inc. announced plans on Tuesday to spin off the subscription movie-going service to create a new subsidiary that would become a separate publicly-traded company.

The new subsidiary, named MoviePass Entertainment Holdings Inc., would become a vertically integrated film production, marketing and exhibition company. MoviePass would take ownership of the shares of MoviePass Inc. and other film related assets held by Helios and Matheson

“For many years, [Helios and Matheson] has been focused on data analytics, and in that capacity we own assets like Zone Technologies which provides a safety and navigation app for iOS and Android users and a global security concierge service,” said Helios and Matheson CEO Ted Farnsworth in a statement. “Since we acquired control of MoviePass in December 2017, [Helios and Matheson] largely has become synonymous with MoviePass in the public’s eye, leading us to believe that our shareholders and the market perception of [Helios and Matheson] might benefit from separating our movie-related assets from the rest of our company.”

The new publicly-traded company would consist of four different assets that included the shares of common stock of MoviePass, held by Helios and Matheson, which currently comprise approximately 92 percent of the outstanding shares (excluding options and warrants) of MoviePass.

The company would also hold the membership interests of MoviePass Films, Helios and Matheson’s movie production company partnered with Emmett Furla Oasis Films; the membership interests of MoviePass Ventures, which acquires economic interests in completed films; and Moviefone, which the company acquired in April as a multimedia media information and advertising service.

But spinning off MoviePass to create this new publicly traded company isn’t a foregone conclusion.

Helios and Matheson said that if it’s allowed to do so under Delaware law, the company plans to distribute a minority of the outstanding shares of MoviePass Entertainment common stock as a dividend to stockholders of Helios and Matheson. Helios and Matheson would retaining control of MoviePass Entertainment upon any such distribution.

“Regardless of whether [Helios and Matheson] can effect a dividend of a portion of the MoviePass Entertainment shares held by it under Delaware law, [Helios and Matheson] plans to seek to cause MoviePass Entertainment to become a separate public company listed on Nasdaq or an alternate trading market, if MoviePass Entertainment can satisfy the applicable initial listing criteria of the applicable exchange or trading market,” the company said in a news release.

Helios and Matheson’s stock opened Tuesday’s trading session at 2 cents per share. The company has struggled to maintain the $1 per share level required by Nasdaq rules. As it stands, Helios and Matheson is at risk of being delisted from the Nasdaq exchange if it can’t boost shares above $1 by Dec. 18.

The company has had its fair share of skeptics who have balked at the business model and sustainability of at one point paying for subscribers to see a movie a day and only charging $10 a month. (MoviePass has toyed with that model and now limits subscribers to three movies a month).

While there’s not a one-to-one causation for delisted companies going bankrupt, according to the Securities and Exchange Commission’s website, “In most instances, companies that file under Chapter 11 of the Bankruptcy Code are generally unable to meet the listing standards to continue to trade on Nasdaq or the New York Stock Exchange.”

“We believe this new vertically integrated entertainment ecosystem, if achieved, would provide a sharper market focus, and that the combination of these four business lines under the MoviePass Entertainment umbrella would produce substantial synergies that we believe will generate value for our shareholders, subscribers, and business partners,” Farnsworth said in a statement.

Since acquiring MoviePass last August, Helios and Matheson has poured tens of millions of dollars into the monthly subscription moviegoing service, fueling its ability to sign up 3 million-plus users in less than a year.

However, that subscriber growth has proven costly since the company pays movie theaters full price for every ticket its subscribers purchase, meaning that even occasional MoviePass users have driven the company further into the red. In the company’s most recent second quarter earnings report, it reported a loss of more than $100 million during the quarter. Plans to dredge up additional revenue by selling user data or investing in its own films have yet to generate significant revenue.