It’s the next chapter in MoviePass’ no good, very bad year — with news the moviegoing subscription service may be spun off from parent company Helios and Matheson Analytics Inc., left to operate as a new publicly-traded subsidiary.
Michael Pachter, an analyst for Wedbush Securities, and wealth and investment expert Ross Gerber, co-founder and CEO of Gerber Kawasaki, told TheWrap that the spinoff — if it’s even possible — doesn’t bode well for MoviePass.
“There is no benefit to a spinoff,” Pachter said. “The reason most companies do this is they feel like the value of an asset isn’t being accurately reflected as part of the bigger company. I don’t understand what they hope to accomplish with this spinoff.”
Pachter added he read the situation as “We’re not putting anymore money into MoviePass,” adding, “MoviePass now will have to stand on their own and I would say this impairs the company’s ability to raise capital.”
Also Read: MoviePass Owner Plans to Spin Off Company Amid Financial Struggles
On Tuesday, Helios and Matheson announced its plan to spin off MoviePass into a vertically integrated film production, marketing and exhibition company. If the plan works, MoviePass would take ownership of all the film-related assets held by Helios and Matheson, including production company MoviePass Films, MoviePass Ventures and Moviefone.
Helios and Matheson CEO Ted Farnsworth said in a statement on Tuesday, “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 way Helios and Matheson likely sees it, is that MoviePass’ struggles, both as a service and financially — the company reported a loss of more than $100 million during the second quarter this year — has been a dreary cloud hanging over its core business, Pachter argued.
But the prospects for MoviePass post-spinoff are bleak, he added. “I would say this accelerates MoviePass’ decline… How are you going to make a new company out of a business that doesn’t make money?”
Also Read: MoviePass Parent Company Under Investigation in New York After Fraud Accusation
That’s been one of the major knocks against MoviePass since the company cut the price of its monthly subscription to $10 from as much as $50, while at the same time allowing members to see a movie a day. The company was effectively subsidizing its users’ moviegoing habits.
The change in the MoviePass business model, and the millions of dollars Helios and Matheson poured into the company, was meant to help drive subscriber growth. But now the company is bleeding hundreds of millions of dollars.
Helios and Matheson’s stock was on track to close Wednesday’s trading session below 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.
Also Read: MoviePass Owner Needs to Raise Capital as It Loses Stock Distribution Deal
While there’s not a one-to-one cause for delisted companies going bankrupt, the Securities and Exchange Commission’s website states, “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.”
Farnsworth, however, has said in the past that bankruptcy isn’t something the company’s ever considered.
“Basically this is them trying to push the liabilities off their balance sheet,” Gerber said. “All these financial moves to stave off bankruptcy… I don’t think it’s a smart move for them. They should just file for bankruptcy and say ‘We suck.’ The market has already determined that; the company right now is worthless.”
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