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MoviePass May Fail, but Subscription Services Are Here to Stay

It’s been roughly 12 months since MoviePass upended the exhibition industry with its bargain-basement movie-a-day subscription plan. But what began as a year of triumph has become an annus horribilis. The company is low on cash, its stock is languishing at roughly 10 cents a share and customers are griping about service outages. Indeed, the future looks bleak for a company that once aspired to be the Netflix of moviegoing.

But even if MoviePass goes away, it will have left its imprint on the theater business. Subscription services look to be a permanent staple of the cinema landscape. AMC and Cinemark have both embraced the new way of selling tickets, and though Regal, the country’s other major chain, hasn’t announced a subscription service, it seems likely to do so. Cineworld, Regal’s new parent company, already offers monthly packages in Europe; insiders in the exhibition space believe it likely will unveil a domestic version. It’s an unprecedented period of change in an industry that has long resisted tweaks to its business model.

“We’ve evolved into a more subscription-based culture,” said Eric Handler, an analyst with MKM Partners. He notes that customers have become accustomed to shelling out for services such as Spotify and Netflix, so it stood to reason that the exhibition business would move in that direction.

“It was inevitable,” he said. “But MoviePass helped accelerate it.”

Of course, MoviePass may not be around to see the next phase of the ticketing revolution it helped ignite. It appears to be running on fumes, its stock is trading at a dime and its decision to limit the number of films its customers can see for their $9.99 plan from one a day to three a month could result in subscriber defections. The company is also flirting with barring customers from seeing Hollywood blockbusters during their first two weeks in theaters — it claims these moves would drastically reduce its cash burn rate.

“It’s tough to know how much financial cushion they’ve got,” said Eric Wold, an exhibition industry analyst at B. Riley & Co. “But these changes they’ve announced are detrimental to their offering and to the attractiveness of it.”

But MoviePass doesn’t have much choice. It doesn’t have many levers left to pull beyond bringing on a venture capital firm. It has already floated some 5 million shares and orchestrated a 1-for-250 reverse stock split that briefly had shares trading at $14. The plummeting value of its stock signals that investors have little appetite for what MoviePass is selling.

Last summer, exhibitors cried foul when the company unveiled its movie-a-day for $9.99-a-month plan. AMC railed that the model was unsustainable and dismissed
MoviePass as a “fringe player.” At the same time, AMC chief Adam Aron and his team were working on a response to MoviePass. They met with all of the major studios, trying to bring them on board with their own subscription plan. No one joined up. Ultimately, Aron moved forward without the studios’ endorsement, informing them that they would be paid a bulk rate for the tickets sold through AMC’s offering.

Unveiled last month and christened A-List, the AMC subscription service gives users the chance to see three films a week for $19.95. Customers can reserve tickets and watch films in Imax and 3D, features MoviePass doesn’t offer. On a recent earnings call, Aron declined to mention MoviePass by name, but he made it plain that A-List wants to be there to scoop up MoviePass customers who have grown disenchanted with the service’s changing rules.

“The free enterprise system is all about competition and giving consumers a choice,” said Aron. “Today AMC is giving consumers a choice and providing anybody else who is trying to sell movie tickets a new, determined competitor.”

With competition intensifying, MoviePass may struggle to attract new customers and keep building its market share. That’s a major issue given that the company’s entire business model was predicated on its ability to amass such an enormous list of users that studios and theater chains would have no choice but to cut it better deals for the tickets it sells. Unless it can keep growing, its leverage over these players will vanish entirely.

Even though MoviePass had monthly losses of $40 million in May and $45 million in June, it said it is not considering filing for Chapter 11 protection. “The company has implemented several elements of a long-term growth plan to protect the existing community and set it up for future sustainable growth,” MoviePass CEO Mitch Lowe said in a statement.

However, if it is forced into bankruptcy, experts say it will have difficulty reorganizing or finding a motivated buyer.

“There aren’t a lot of assets there,” said Paul Labov, a partner at Fox Rothschild. “All they really own is their subscriber lists and any contracts they have with movie chains.”

Moreover, it’s unclear how simply cleaning up its books would allow MoviePass to continue to operate as a going concern. The math of subsidizing moviegoing and making it up on advertising or by selling customer data just didn’t pan out.

“At the end of the day, there needs to be a viable business there,” said Robert Marticello, a bankruptcy attorney at Smiley WangEkvall. “If the business model doesn’t work, it doesn’t work. No provision of the bankruptcy code is going to change that.”

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