MoviePass

Have you heard about MoviePass recently? There’s a good chance you or someone you know has recently joined:

I’ve been thinking a lot about the growth of SaaS businesses in recent months, and as of late it has become increasingly hard to ignore MoviePass. Particularly, the service has grown from around 20k monthly subscribers in August 2017 to more than 3 million today — a mere 10 months later. This growth is almost entirely attributed to a price drop from $50/month in big cities to $9.95/month nationwide. According to an NY Times interview with the CEO of MoviePass’ parent company, Helios and Matheson, they did not expect the phenomenon that has occurred:

“We set the expectation for MoviePass to achieve at least 150,000 subscribers 15 months down the road.”

MoviePass signed up 150,000 new monthly subscribers within two days of announcing their price drop, and they’ve averaged roughly 10,000 new paying users every day since. Now that’s what I call growth. But this growth leads to a variety of questions around the soundness of the business:

  • Are the new subscribers sticking around?
    • According to documents filed with the SEC last Fall, yes, they are. 4.2% month 1 and 2.4% month 2 churn, leading to a life expectancy of 47 months.
  • How often do subscribers use their subscription?
  • Who’s leading the product vision?
    • Mitch Lowe, formerly President of RedBox and founding team at Netflix
  • Who’s running the show?
    • Theodore Farnsworth, CEO of Helios and Matheson
  • Why’s the stock down more than 90% since it’s high in October 2017?
    • Their cash in the bank has reached dangerously low cash levels in early May 2018 by Wall St standards — less than $15.5 million, with $27.9 million in accounts receivables. Keep in mind they also reported at this time that they run a deficit of about $21.7 million per month at the time, meaning they could very well run out of cash within weeks without significant changes.
  • Did changes occur in May 2018 to improve the cash emergency?
    • Yes, they introduced rules such as no-repeat visits to any single movie, one movie visit per day, and surge pricing of $2 per ticket depending on the movie and location.
    • Last week they also started bond sales in exchange for 20,500 shares of preferred stock, hoping to raise $164 million.

 

What will happen next?

Theater chains such as AMC are already introducing their own subscription services– making MoviePass’ strategy even more risky. But MoviePass indicates their product is superior because users can visit any theater instead of a select few, and they will be able to sway movie-goers to one theater over another with surge pricing. Finally, once a certain critical mass is reached, 5 million subscribers Farnsworth claims, profitable revenue channels such as digital advertising and high profile partnerships will open up.

Will the tables turn for MoviePass?

I’m optimistic there is a lot more to come with this story by the end of 2018. Stay tuned…

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John Marbach

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06 2018

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