Just last October, Helios and Matheson — the parent company of MoviePass, a movie subscription service that initially let users see unlimited movies for $9.95 per month — was celebrating a 52-week high stock price of $38.86. People loved the service and it was expecting to have five million subscribers by the end of 2018, hitting three million in June. The concept of MoviePass — unlimited movies at a set price each month — disrupted the movie industry, sparking the launch of AMC’s Stubs A-List, Cinemark Movie Club and Sinemia.
But things aren’t exactly as good as they seem for MoviePass and its parent company. HMNY filed a 10K with the SEC in April, reporting a loss of $150.8 million for 2017 and had its independent auditor explain that it could not be sure whether it would survive for much longer.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Helios’ financials have since taken a turn for the worse, with the company reporting a higher burn rate of $129.6 million for Q3 2018 — much higher than the $43.5 million loss faced just one year earlier. Due to a decline in subscribers it faced an “impairment charge” of $38 million too.
The stock of MoviePass’ parent company is trading at $0.017 and has been at or below $0.10 since August. In an attempt at a quick fix, Helios performed a 1-250 reverse stock split in July, getting shareholders to trade in 250 shares for a single one and effectively multiplying the stock price by 250. Then several months later it proposed another reverse split, with 500 stocks being exchanged for one this time and explained its plan to spin MoviePass off into its own separate entity. Failing to gain the votes from shareholders for another stock split, the proposal was pushed back from 18 October to 14 November before being abandoned altogether.
A main NASDAQ rule is that companies may be delisted if they trade below $1 for 30 days in a row, causing Helios to enact some “quick win” solutions in an attempt at remaining listed on the stock exchange. (it is currently listed on the “noncompliant” list). The initial reverse stock split didn’t help at stabilizing the company’s holdings, but the company wanted to try again because, well, it’s desperate to stay afloat.
MoviePass didn’t do one thing wrong — it did handfuls of harmful stunts, including alienating its user base multiple times, re-enrolling users after they had cancelled and having numerous “technical difficulties” that prevented people from using the service. Though the company transformed the way people choose to see movies, because of its numerous flaws it might lose at its own game.
In an interview with Recode, MoviePass CEO Mitch Lowe explained something important about the company’s business strategy:
Here’s the trick: 89 percent of American moviegoers only go to four or five movies a year. When they join MoviePass, they double their consumption and go to about 10 a year. That’s a little bit less than one a month. They balance out the 11 percent of the population that go 18 times before joining MoviePass and then after go three times a month. It works out. Over time, it actually works out to be about one movie per month per subscriber. Now, some people do go to 10, 15. We even have one guy who on this 40th birthday challenged himself to go to 40 movies in 40 days. We do have people with a fair amount of time on their hands.
The company had been planning to make money by expecting users to under-use the offering, seeing only a movie each month or — if the company is lucky — less than every month. He pointed out that the average movie ticket cost is $8.73, meaning that even when someone does go see one movie per month, they’re still able to make a little bit of money.
That didn’t exactly pan out as Lowe had assumed it would, with users seeing only a handful of movies each year. Instead there was a disproportionate number of people using the service at or near its full potential, while there wasn’t enough people under-using the service to balance it out. Burning through more than $20 million a month to subsidize users’ viewing habits, the company needs to either quickly raise money by issuing debt (which it is proposing, as per an SEC document) or through some other means.
But MoviePass was having a little bit of success, with the average usage per subscriber dropping from 2.23 in March to 0.77 in September. The company managed to do this by blocking the service from being used at certain theatre locations, implementing surge pricing, raising pricing and limiting first-run movie viewings, limiting users to seeing three movies a month, opted cancelled users back into plans without their permission and went down because it couldn’t pay the bills. Clearly the company doesn’t care about users and consumer satisfaction or they probably wouldn’t be changing how their product works almost monthly, but kudos to them for managing to generate $4-6 per user, per quarter.
An average movie ticket in the US costed $8.97 in 2017, rising to a reported $9.38 in Q2 2018. Based on the monthly price of $9.95 per month that works out to $0.57 per user — a slim and almost non-existent profit margin of 5.7 percent per month. The new plans, starting at $9.95, $14.95 and $19.95 per month, depending on location, are now the only plans available on the company’s website. However, there’s currently no way to sign up for the cheapest of the three plans, with only the upper “All Access” and “Red Carpet” plans having the option to subscribe to. Plus all three plans only include three movie showings a month, making the service more akin to Sinemia than MoviePass itself.
The New York Attorney General is now investigating to see whether the company misled investors and is facing a lawsuit alleging the company did deceive investors, filled on behalf of shareholder Jeffrey Braxton.
In short, MoviePass is failing because of poor management at the senior level and a rash amount of changes that are alienating the people that the company needs to please most. When it lowered pricing from $50 to $9.95 per month, CEO Mitch Lowe was too confident that the company would be able to find a reckless investor to fund his ambitions — who did for a while before taking a reality check before realising it wasn’t paying off. Lowe needs to figure out a way for the company to be profitable without angering both investors and users alike, but since this hasn’t happened yet, people are going to pass on MoviePass.