MoviePass was down this week because it ran out of money

Though the signs have been apparent for a while now, MoviePass has refused to admit defeat — from major stock drops and constant financial issues to a surge of new users eating away at profits — until this week when the service suddenly went dark because it ran out of money. To keep customers happy and the service running, parent company Helios and Matheson Analytics Inc. had to borrow an emergency $5 million from Hudson Bay.

Essentially what happened is because the company wasn't able to pay for the services it uses, they stopped processing payments for MoviePass which was the reason for the service interruption. MoviePass is looking to raise up to $1.2 billion through stock sales and debt, showing that the company is struggling to stay afloat.

The company later issued a formal apology, framing the cash-flow issue as nothing more than a back-end issue. "We have handled the issues on the back-end, and our app is now up-and-running with stability at 100%," the company wrote.

MoviePass was founded in 2011 and shortly after it was aquired by Helios and Matheson’s, it lowered its prices to $9.95 per month with customers being allowed to see one movie per day. Though the company has gained millions of new subscribers since lowering prices, it has failed to raise money in a way that can cover the costs of users who actively use the service (for reference, in many markets the $9.95 per month payment is equal to or close to the price of one movie ticket).

In April, the service attempted to quietly make changes to its plans, reducing the one-per-day movie deal to four per month and by adding restrictions against seeing the same movie twice. Surge pricing has since been added in another attempt to make money, charging viewers more to see movies on opening weekends.

Public outrage caused MoviePass to re-introduce its one-per-day movie policy, but the company has managed to burn through more than $21.7 million each month, on average. In May, news that the company only had $15.5 in the bank caused its stock to plummet and a 250-for-1 reverse stock split that was supposed to boost stock price failed miserably.

Helios and Matheson stock in USD

In December, the company initially partnered with Costco to offer a year of MoviePass and Fandor for $89.99, only to release it to everybody one month later with a 5 percent fee added for non-Costco members, and then finally they hiked the price to $135.30. In March, it lowered the cost of an annual subscription to $89.95 and then introduced a package deal with iHeartRadio to include a three months of music streaming and a three movie per month membership for $7.95 while discontinuing the unlimited plan, only to revive it weeks later.

There's no issue with companies testing out new prices, which allows to see what works for both customers and the business. But what's interesting is the frequency and scale at which MoviePass is testing different prices and services, which it is doing in established markets instead of ones it is looking to enter.

The future doesn't look overly promising for the company and the assumption is that the current business strategy will never work in the long-term, which recent financial news only seems to support. News reports about the service is damaging for MoviePass because it hinders the public's assumption that the service will remain open and that they will be able to get their money's worth.

These issues are popping up as other companies introduce their own versions of the unlimited movie pass, including Sinemia, Cinemark and the largest theatre chain in the US, AMC. Each service will offer a discount on movie tickets for a discounted monthly price, with Cinemark and AMC having a head-start because of their large presence throughout the country and big wallets.

📸: Associated Press