Helios & Matheson was a sleepy data analytics company when it acquired MoviePass, a service with just 20,000 subscribers. The MoviePass business model was simple. Members pay $9.95 a month to enjoy up to one movie a day. Their pitch is – see a movie every single day in theaters, pay only a monthly fee that, in most markets, amounts to less than a single ticket. Seemed crazy but it worked. Its subscriber base ballooned, crossing the 3 million mark in June.
But there was one small problem. The more subscribers MoviePass signs up, the more money the company loses. MoviePass pays theaters full price for each ticket, whether a member visits once or 31 times a month. The math simply does not work. If a customer goes to more than one movie a month, the company begins to lose money. The question, is not whether MoviePass has a long-term plan for success—it’s if the company can stick around at all. In the meantime, its stock has fallen 99% to as low as 17 cents per share from nearly $39 last October.
As if that was not painful enough, AMC recently launched its own movie subscription service through its loyalty program AMC Stubs. Dubbed AMC Stubs A-List, the program gives users the option of seeing three movies a week for a monthly fee of $19.95. Even this model is subject to failure despite the higher monthly fees.
Future Wealth’s View
MoviePass’s business model harks back to the days of the Internet bubble where any company with a “.com” moniker could go public and command an astronomical valuation when, in fact, the business was nowhere near to being profitable and would never become profitable. We all know how that “Internet Bubble” movie ended.
And yet, somehow, MoviePass has uniquely figured out that their business model would be attractive to customers and fund managers, like a first trip back to the sweet shop after giving up chocolate for lent. And MoviePass management is swearing by the business model, even as its burning millions of dollars every month, which they believe to be akin to the Netflix model – burn a significant amount of cash to get to profitability, but also claim market share.
To continue to be in existence, the company will need a lot more funding but could likely find a successful hedge fund manager, who overestimates his abilities, strays from his core competencies, and ultimately suffers a humbling defeat. There have been a few of those in the news lately. But, we beg to differ and will pass on this “hot” stock with a broken business model for our clients.