As streaming services like Netflix and Hulu surge in popularity, movie theatres have been trying to compete by rethinking the concession counter and installing seats that resemble beds. Yet attendance was flat at North American cinemas in 2015 and 2016, and analysts are predicting a 4 per cent decline in 2017, bringing ticket sales to a 22-year low.
Perhaps something more radical is necessary Mitch Lowe, a Netflix co-founder, certainly thought so when he took over a ticketing firm called MoviePass in June 2016. By August of this year, when MoviePass introduced a cut-rate, subscription-based plan — go to the movies 365 times a year for $9.95 a month — Lowe had been declared an enemy of the state.
“Not welcome here,” AMC Entertainment, the largest multiplex operator in North America, said in an indignant August news release that threatened legal action.
It may be time to get on board: MoviePass said that it had signed up more than 1 million subscribers in just four months. It took Netflix more than three years to reach that level when it started selling low-priced subscriptions for DVD rentals in 1999.
Spotify was relatively quick, at five months in 2011. It took Hulu 10 months to reach 1 million later that year.
“We’re actually shocked,” Lowe said. “We seem to have hit a nerve in America.”
Lowe and Ted Farnsworth, chief executive of Helios and Matheson Analytics, which bought a controlling stake in MoviePass in August for $27 million, celebrated the milestone by cheekily posing for photos at an AMC theatre in Times Square. Under the MoviePass business model, theatres get paid full price for every admission.
People who sign up receive a membership card that functions like a debit card. When members want to see a movie (no more than one a day) they use a MoviePass smartphone app to check in at the theatre. The app instantly transfers the price of a ticket to the membership card.
Members in turn use the card to pay for entry. It all works independently of theatres, sometimes to their chagrin. The blistering growth has prompted new criticism from theatres and studio owners — namely that MoviePass will never be able to make money by charging $9.95 a month when a single ticket can cost almost twice that amount.
They say that will cause MoviePass to either raise prices or go out of business, disappointing audiences and ultimately hurting the fragile multiplex business. Lowe, who previously sparred with studios as president of Redbox, the kiosk company that rents DVDs for $1 a day, believes that ticketing can at least be a break-even business for MoviePass.
The real treasure in this venture, he contends, is the trove of data about consumer tastes and habits that MoviePass can collect. It hopes to sell that data to studio marketers.
Farnsworth said, “When you apply computer science and machine learning to an industry that we believe has lacked significant innovation, useful patterns start to emerge.”
If MoviePass gets big enough, it could try to demand that chain theatres sell tickets at a discount or share a slice of their concession revenue. Helios recently raised $60 million for the expansion of MoviePass, which expects to have more than 3 million subscribers by the end of next year. Monthly subscriber retention is roughly 96 per cent, Lowe said.
About 75 per cent of MoviePass users are millennials, a group that Hollywood has struggled to turn into avid moviegoers. “Millennials understand us because they grew up on subscription,” Lowe said.
Dan Steven signed up for MoviePass in October. Steven, who lives in Orlando, Florida, said he had gone to “maybe one movie a month” before he became a subscriber.
In November, he went 12 times. “I used to only go if it was clearly worth buying a ticket — something big-screen worthy, a spectacle or a movie with a lot of effects,” he said. “I would skip the undercard movies. I would just wait until they came out on Netflix.”
During the last decade, theatres have spent billions of dollars to enhance the moviegoing experience. Improvements include the ability to reserve seats online, reclining seats, bigger screens, and better sound and projection systems. But the business has remained more or less the same for decades (sell ticket, serve popcorn, show movie) even as nearly every other area of media (television, music, publishing) has been forced to reinvent itself to contend with digital disruption.
As the popularity of MoviePass demonstrates, theatre owners may no longer be able to avoid fundamental change. In particular, studios are expected to force exhibitors in the coming months to loosen their grip on new movies. Theatres have typically insisted on a 90-day period of exclusivity.
Studios want to shorten that window and speed films to home video on demand services. “This is something that has to happen, in part because consumers are demanding it,” Jim Gianopulos, chairman of Paramount Pictures, said at an investor conference in September.
MoviePass, which has been around since 2011, struggled to gain traction in its early years because of pricing ($50 a month, later lowered to $35) and pushback from exhibitors, who worried that a subscription service would undermine per-ticket pricing.
By early 2017, MoviePass was trundling along as a fringe service; it had about 20,000 users in the US. When Lowe and Farnsworth drastically lowered the price, people started signing up en masse.
To a degree, the service depends on traditional subscription economics: More people pay than go. The model starts to get more complicated, however, when you consider the price of movie tickets.
According to the National Association of Theater Owners, tickets cost an average of $8.93. But theatres in cities like New York, Los Angeles and San Francisco charge as much as $16.50 for a standard ticket.
So far, none of the major studios have signed on as clients, and no studio executive contacted for this article would comment on the record. Lowe said MoviePass had been “making huge progress with content owners” and had signed up a small studio as a partner, but he declined to provide details.
The big theatre chains have held their ground, although AMC recently softened its stance. A bit. “We appreciate their business,” Adam Aron, AMC’s chief executive, said on a conference call with analysts last month.
But Aron added, “AMC has absolutely no intention — I repeat, no intention — of sharing any — I repeat, any — of our admissions revenue or our concessions revenue.”
— New York Times News Service
