Changing times for the movie industry?

In honor of Avengers Endgame which is poised to break all box office records - this week's blog post is dedicated to the movies! And this post is spoiler free of Avengers Endgame, I wouldn't want to #spoiltheendgame

Nearly two years ago, a senior leader at my company asked during a small group session what I thought about a new start-up tearing up the entertainment space: MoviePass.

"Not going to last" was my reply.

Taken aback, the leader pressed me "why do you say that?"

"The business model is not sustainable and I think the company will face incredible pressure from the movie chains like AMC and Regal who will view MoviePass as a barrier between them and the customer" I curtly replied.

Needless to say, there were many who disagreed with me. And to be truthful, I secretly hoped I was wrong too. I followed their CEO, Mitch Lowe, as he tried to reassure reporters and investors that he had a plan. I bought a month to month subscription (I resisted the pay one year in advance offer) - perhaps the purest form of support.

Yet several months later, I found myself cancelling that same subscription plan and taking a pair of scissors to their credit card. Why? Because I knew it was too good to be true and for other reasons listed below. The company had hit the jackpot in the worst way possible and had high utilization with minimal breakage.

For the unfamiliar, breakage is the linchpin of most subscription services. It's the assumption that a certain segment of your subscribers will not engage with your service but continue to pay you money. Think back to a service you've paid for but did not use…For me, it's multiple news subscriptions (The Wall Street Journal, The New York Times, The Information, etc.) but for most Americans it tends to be something like a gym membership.

In MoviePass' case, it made the assumption that only a small cohort of customers was going to take advantage of the one movie per day benefit. Spoiler alert - that ended up being catastrophically wrong. As reported by The Ringer, in March 2018, MoviePass admitted it was buying $3 million tickets per month - at full price while its subscribers were paying only $9.95 per month.

Note - I've said this before but there is something compelling about a sub $10 price point and in this case when movies tend to cost $15 for one showing - it's a huge benefit.

So, why bring this up now? Just like I predicted - MoviePass could not make the economics work. After changing their pricing structure (remind anyone of wireless providers and Unlimited plans?), a failed stare down with AMC and service outages - the company shed a majority of its subscribers (rumors claim the company lost 90% of its subscribers in one year). It still operates today but for how much longer is anyone's guess.

Note - Read this fascinating piece from reporter Andrew Gruttadaro who interviewed Mitch Lowe in February 2019.

On Friday, as the most popular movie of 2019 premiered (that would be Avengers Endgame), another third party and rival to MoviePass bit the dust: Sinemia.

At first glance, you may think the movie theatres, the incumbents, won. But I tend to take the opposite view - I think Sinemia and MoviePass changed the industry more than they receive credit for. Two examples I'll reference:

First up is AMC Entertainment.

A competitor of MoviePass, AMC realized the potential and threat of MoviePass and launched a competing loyalty service called "AMC Stubs A-List" in June 2018, a few months before MoviePass' meltdown. AMC touted an identical model as MoviePass - "Join & See up to 3 Movies Every Week" with a $15 monthly price tag.

And as The Motley Fool pointed out - it "built a better mousetrap." As a former user of MoviePass, I hated not being able to reserve my movie ticket in advance or pick my seat. AMC Stubs exploited all the above mentioned holes in MoviePass and added them to their service.

AMC Stubs has user growth behind it. In January 2019, the service surpassed 700,000 subscribers, 200,000 more than its goal even after raising prices for many users in early January.

And perhaps most importantly, AMC is battle tested on all fronts. AMC went head to head with MoviePass last year - publicly calling out the flaws in their business mode (i.e. their staying power), successfully defeating attempts by MoviePass not to promote movies at their theatre in their app (which backfired with users complaining) and avoiding giving MoviePass profits from their concession stands (which they had previously requested).

Most importantly, it capitalized on the customer service issues and app limitations of MoviePass resulting in high customer satisfaction.

Over the past few months I continue to see articles pop up extolling the service - see below…

I switched to AMC Stubs A-List - here's why it's better than MoviePass - Business Insider

Ditch MoviePass for Stubs A-List if you live near an AMC - Gadget Hacks

5 Things I like about Being an AMC Stubs A-List Member - Cinemablend

It seems unlikely that AMC would have introduced such aggressive and similar plans without MoviePass' interference.

Next on the list is PreShow…

The nascent company just concluded a Kickstarter round (i.e. not formally launched). It caught my eye because of its creator, Stacy Spikes. Spikes was a co-founder of MoviePass (the original concept - not the $9.95 price point - that was introduced when the company sold a 51% stake to venture partner, Helios and Matheson).

The premise of PreShow is simple - agree to watch 15-20 minutes of entertainment content in exchange for a free movie ticket. Interesting concept, right?

Spikes said the idea benefits all interested parties -

Moviegoers are able to see films - the cost is simply their time and eyeballs

Cinemas get more moviegoers in seats

Brands get their ads in front of targeted viewers

It's an interesting premise - once again putting the company between the consumer and the movie theatre. I am curious to see if PreShow will learn from MoviePass' mistakes (UX/UI, playing nice with theatre chains and finding a sustainable business with advertisers). We will have to wait and see!

Although I may have been right about MoviePass, I do think MoviePass served as an important push for theatres and the movie industry about getting Americans excited about going back to the theatre at an affordable price.