
MoviePass couldn’t afford to pay for movie tickets on Thursday - gbear605
https://money.cnn.com/2018/07/27/media/moviepass-service-outage/index.html
======
legitster
If I am a traditional 'tech' company - I can afford to lose money when I am
investing it in my platform or technology. It's like borrowing money to invest
in your assets.

For MoviePass, they are losing money and passing it off to theaters - it's
like borrowing money to buy more ingredients for a failing restaurant. You
can't charge less than the marginal cost, it doesn't make sense!

I am trying to wrap my head around what MoviePass is trying to do - especially
given the number of friends I have who say they would easily be willing to pay
2x or 3x for the service. The data they are gathering cannot be more valuable
than the cost of a movie ticket.

I have to imagine they were making a play at building up a huge enough
audience to strongarm theaters into lowering their rates. Well the joke is on
them - everyone knows that they have no bargaining power. Plus, signing up was
so hard, their audience is skewed towards power users and people persistent in
their cheapness.

An emergency loan with no change to the service whatsoever? They are really
having a deer in the headlights moment.

~~~
acchow
> You can't charge less than the marginal cost, it doesn't make sense!

It worked for Uber tho. And now they've raised prices in markets where they
are established.

~~~
citrablue
Uber also plans to cut costs significantly in the future w/ autonomous cars.
May be a pipe dream, but if they believe in the successful widespread
deployment of the technology, that means they just have to stay afloat until
then.

MoviePass could start to make their own movies, but that would require a
substantial investment and isn't really comparable

~~~
jacobush
Wow that would be something...

what would happen if _Universal Pictures_ stepped in with a subscription model
(or whatever Moviepass does) for their movies?

~~~
reaperducer
Why build when you can buy?

Universal just has to buy MoviePass. Assuming it has the cash. From what I've
read over the last few years, the big Hollywood studios are not cash-rich.

~~~
mulletbum
I forgot where I read it, but I though Moviepass's ability to geolocate and
push money onto a credit card was considered a good idea and could sold.

~~~
stuckinarut
Hardly seems like a large barrier. I would think the biggest issue would be
finding the card company to partner up with, and then it doesn't sound like a
very high barrier.

For theatres it's even easier to offer an unlimited option since they can just
have the accounts internally. Studios can partner with theatres, though that
seems overly complicated (I went to Mission Impossible last night, so I need a
paramount account?)

------
gambiting
They still keep thinking that people will eventually treat it like they do gym
memberships - buy them, but ultimately not use them. But there is a certain
social expectation to have a gym membership and at least pretend you are doing
something about your physical fitness. I have one through work and the last
time I've been to that gym was over a year ago. But I can't be bothered to go
to HR and actually cancel my account. But going to the gym sucks - and going
to the movies does not. There is no reason to _not_ use the movie pass once
you have one. I'd be shocked if anything but an absolutely marginal percentage
of their users were actually paying more than they were using.

~~~
jonknee
And a critical difference, your gym doesn't lose actual money any time you
visit. They may not want everyone to visit all the time, but it doesn't drain
their bank account anytime you enter the door.

~~~
tjbarkley
They lose a little money on equipment maintenance over time, but it's nothing
like going to a movie.

~~~
kristianc
I’d imagine even a moderately engaged gym user would lose the gym money on
every visit, in staffing costs alone. The marginal cost of each user rises
too, as people that are unable to get on machine are more likely to churn. It
is however usually outweighed by the huge numbers of people who simply do
nothing with their subscription.

~~~
koolba
> I’d imagine even a moderately engaged gym user would lose the gym money on
> every visit, in staffing costs alone.

A gym user attending a gym doesn't incur significant additional staffing
costs. The work required to clean the gym may increase a bit but that'd be
nowhere near the price of even the cheapest gym memberships.

> The marginal cost of each user rises too, as people that are unable to get
> on machine are more likely to churn.

That's not a cost, it's a factor for the overall churn rate and marginal cost
for acquiring a new user. It'd limit the max profitability of a gym (i.e.
getting to churn = growth equilibrium) but it's not an operational cost.

~~~
SilasX
>A gym user attending a gym doesn't incur significant additional staffing
costs. The work required to clean the gym may increase a bit but that'd be
nowhere near the price of even the cheapest gym memberships.

But that's not the right way to gauge "cost per member-usage". If you get a
lot more usages, you will have to pay noticeably more for staff, maintenance,
replacement, etc.

For comparison, how would you gauge the actual cost of sending a letter in the
mail? Naively, you would say "well, you can't detect the cost of sending it in
labor or fuel costs, so it's zero".

But that would be wrong. The right way is to say "how much would it cost to
send a million more letters? The cost of one letter should be treated as one
millionth of that" because, in the large, your marginal costs will scale that
way as letter transmission goes up and down.

So yeah, the gym is, for all relevant purposes, bearing a small cost each time
you use the gym.[1] It's just that, for the vast majority of members, all
those usages cost them much less than the membership fee.

[1] I've heard figures of $1/visit but can't find at the moment.

------
Jasper_
First, they tried to strongarm AMC into getting a portion of ticket and
concession sales [0]. When AMC said "lol no", MoviePass blocked AMC and tried
to pass it off as AMC blocking MoviePass. They then lied about how much money
they made AMC [1].

[0] [https://deadline.com/2018/01/moviepass-lack-of-amc-
theatres-...](https://deadline.com/2018/01/moviepass-lack-of-amc-theatres-
coverage-1202269412/)

[1] [https://variety.com/2018/film/news/amc-blasts-moviepass-
fals...](https://variety.com/2018/film/news/amc-blasts-moviepass-false-
statements-profitability-1202678478/)

~~~
scarface74
And then AMC turned around and did thier own subscription service. Yes it cost
more, but it’s sustainable, you don’t have to jump through hoops to use it and
I’m really enjoying it.

~~~
dwighttk
>it’s sustainable

Is it? 3 movies/week for $20/month is about $1.67/ movie.

I think it is just around until movie pass kicks the bucket (at least at that
price)

~~~
scarface74
AMC doesn’t show 12 different movies in a month. At most, they probably have a
turnover of 5-6 movies per month.

As I said earlier, the price they pay for the studio for each movie a
subscriber sees is around $4-$6. They still make a lot of money on high priced
concessions.

~~~
uxp100
I looked at an AMC I've been to. They have 20 movies listed as available to
see today. Many only have 2 showings or something, but they have 20 screens,
they seem to turnover more than 5 or 6 movies in a month.

~~~
scarface74
I didn’t say they only have 5 or 6 movies showings at once. By turnover, I
meant after you catch up on all of the movies they have now, you won’t find 20
new movies next month. Over the course of the year, they won’t have 156 movies
in the theatre (52 x 3)

~~~
dayofthedaleks
191 films were released by the top 10 US studios in 2015. I bet most 24-plexes
screened them all, plus more.

~~~
scarface74
[https://stephenfollows.com/how-many-films-are-released-
each-...](https://stephenfollows.com/how-many-films-are-released-each-year/)

The best I could come up with - 93 wide release movies in 2016.

AMC does restrict the subscription service so it doesn’t cover the Fathom
Events movies.

------
Waterluvian
Was the entire play of MoviePass to pay for people's movie tickets until they
make it and then jack up the prices + negotiate with cinemas for better deals?
What was the "make it" condition?

Is this a common strategy?

It also loosely reminds me of the dotcom era strategy. It doesn't matter if
we're not making any real money, we have a lot of users. Surely that can be
converted into money somehow. We're worth billions of dollars because we have
300 million users!

~~~
ChuckMcM
I think of Moviepass as the pets.com of 21st century VC madness. That said,
they clearly had a great pitch, I'd love to see their series A pitch deck.

~~~
Spooky23
I guess the upside is that they will fail fast!

~~~
mi100hael
I'm not sure 7 years and a mostly-acquisition counts as "fast." Quite frankly
it's impressive their charade has lasted this long.

~~~
vonzeppelin
They were a lot more expensive until recently though.

------
Axsuul
Ouch. Now that MoviePass subscribers are aware of its impending demise,
they're likely to use the service even more to squeeze out any remaining value
before it goes kaput, further exacerbating their money woes.

~~~
ironjunkie
Also known as a "Bank Run".

As soon as people think it is going bad, they go to squeeze their money out,
making it even worse.

------
tompetry
I think the subscription model for theatres makes a lot of sense for all
involved. Getting more people to the theatres (where they buy other stuff) and
creating larger audiences who didn't previously visit theatres. The pricing
and terms of MoviePass are unsustainable, but I think there will be more
subscriptions for theatres that are tried.

~~~
legitster
Agreed. I think their general conceit is that people enjoy the movie-going
experience, but they are put off by the price. There is truth to this.

That said, they really botched the strategy - they could have bootstrapped the
whole thing and slowly come down in price.

~~~
AmericanChopper
I’m not sure how you could bootstrap this idea. The only way to undercut the
theatres is to lose money.

~~~
humanrebar
Provide childcare, undercutting babysitters.

------
tjbarkley
24% premium on a loan that will last them until August 1 is insane. I don't
think they're going to make it past August or September at this point.

------
JazCE
In the UK, 2 of the biggest chains offer subscription passes... Cineworld,
which is the one I use, allows me to see any movie at any cineworld (there's a
2 tier system for London, but ignore that for now) at any time for free based
on me paying £17 a month. I live in London and the average cost of a ticket is
roughly £12, if i see 2 movies a month i'm quids in. It seems insane that
moviepass isn't operated already by one of your big chains (AMC? i guess).
There's normally at least 2 movies I want to see a month, and even if there's
not if i have nothing better to do i'd likely go and see something.

~~~
haldean
There's an AMC equivalent now, 3 movies a week (in the nice Atmos theaters,
too) for $20/mo:
[https://www.amctheatres.com/amcstubs/alist](https://www.amctheatres.com/amcstubs/alist)

------
code4tee
Lending $5 million to MoviePass at this point is probably as close as you can
get to literally throwing your cash on a burning heap. Must be some term
sheet!

~~~
izzydata
Perhaps they are secretly working for major movie theater companies like AMC.
The trick is to get more people to go back to movie theaters and then when
they can no longer use their movie pass service they will still want to go to
the movies.

------
listenallyall
If MoviePass fails, it's a failure of the Nash equilibrium due to stubbornness
and lack of communication. MoviePass drives traffic to movies, benefiting both
studios and theaters. Despite the existence of other subscription plans, if MP
goes away, the majority of those tickets will never be purchased. MP could
certainly have evolved into a sustainable plan, that restricted its users to
seeing movies at off-times with low demand, at nearly 100% marginal profit to
the theaters, even if those tickets were sold at a significant discount that
MP could reasonably afford.

Instead, theaters, especially AMC, refused to negotiate and in doing so, shot
themselves in the foot. AMC's subscription plan is especially attractive to
high-volume users on which it will likely lose money, further, it encourages
them to use their free tickets at peak times for the most popular movies in
the most expensive formats. When an AMC subscriber in NYC reserves a seat for
a Marvel film in IMAX on opening weekend, that's a $20+ ticket that AMC can't
sell to a paying customer because the theater is sold out. AMC's profit margin
is already quite thin, and getting worse, according to its financial filings.
Its CEO is very full of himself but doesn't seem like much of a strategist.

~~~
chrisseaton
> MoviePass drives traffic to movies

Does it? Were those people going anyway? Would they go if they had to pay one
cent more?

They’re just a middleman aren’t they? How are they driving anything or adding
any value?

> that's a $20+ ticket that AMC can't sell to a paying customer

But the subscribers are paying customers aren’t they? Do you mean they can’t
sell it to another paying customer? So you’re just saying they can’t sell
things twice?

~~~
BOBOTWINSTON
It is an anecdotal response to your first point, but since you didn't place a
threshold I'll say it anyway.

I have two friends who I'd describe as average theatre goers. Maybe a movie
every 2 - 3 months. Since using MoviePass they both average about two movies a
month during 2018. I am not sure how sustained that behavior will be, but at
atleast in this early stage it is lasting.

As for the second point, he is arguing they never sell the ticket once. AMC
does not get the money if the subscriber does not attend the film. So by
fighting with MoviePass (as they have been), they never sell the ticket once.

~~~
chrisseaton
So the studio gained audience but (excluding the MoviePass susididy) not any
money so what’s the benefit of that? In fact they might be setting an
expectation that film tickets should be lower in people’s minds!

If you give me free tickets to the cinema I might go. If you say now I’m in
the habit can you charge me $1? No thanks not worth it now.

~~~
crooked-v
The benefactee in this scenario is the theater chain, not the studio, as they
make most of their real profit from concessions, not selling seats.

~~~
goostavos
Is the thrifty MP user the same one that buys overpriced stuff from concession
stands, though? I suspect the old candy in the pocket ahead of time trick
would be in use.

------
mdrzn
A couple months ago there were optimist articles about how they'll "make it in
the long run", having "enough money to keep going before being profitable".
Cinemark even announced something similar.

Guess it didn't last THAT long. I'm scared for other services with the same
pricing scheme.

~~~
calyth2018
It's eye-opening that there are companies that forgets about cash-flow and
profitability...

~~~
gorbachev
Uber, Spotify...plenty of other examples, I'm sure.

~~~
okmokmz
Soundcloud as well. They have something like 175 million users but almost
shutdown last year

------
pc86
They just underwent a 250:1 reverse stock split and the stock is barely 10% of
what it was after the split. It's lost over 60% today alone. This company is
going bankrupt and quickly.

------
slg
On what terms would you actually lend MoviePass $5m? It would seem surprising
at this point if MoviePass makes it to September.

~~~
ChuckMcM
You would no doubt be surprised. High risk lending is a thing in the Bay Area
at least, I attended one of the VC lunches and at my table was a person who
did that for a living for hedge fund. Sort of like really really big payday
loans, but with worse terms.

He mentioned that one of the most unusual notes they had written was backed by
obligations on future projects by the CEO of the company, so if the company
folded and the CEO went on to start a new company the hedge fund could convert
that defaulted note into a percentage share of the next company. Very creative
stuff.

~~~
gorbachev
What are the chances the CEO will disclose those terms to prospective
employees of his new companies? Near zero?

That's a serious landmine for employees who get part of their comp as stock
options.

Edit: edited to reflect what I actually wanted to say (future companies
instead of current company)

~~~
ChuckMcM
Absolutely but once you're in the situation where you are securing high risk
debt financing you're employees should already reset the future value of their
stock to $0. While I don't know if it is a hard and fast rule, it has been
true in my experience over the last 30 years in the bay area that when a
company is doing this sort of move to survive it has never left any value in
the common stock.

~~~
gorbachev
I actually meant the employees of future companies of that CEO. Poorly drafted
comment on my part.

~~~
ChuckMcM
Yup, it is always a good idea to research the CEO/Founders of a company you
are considering joining to see as much of their history as you can. And if you
see that they sold their previous company at firesale prices ('or undisclosed
amount, not material to the acquiring company') you know that they missed
their execution target that time. So a conversation with them is in order.

I have declined a number of offers over the years when my research into the
CEO showed they were not the people who could get a company over the finish
line, and have generally been pretty accurate in the eventual fate of those
companies. Correlation isn't causation, but the CEO is the biggest win/lose
variable in the mix.

------
acd
A lot of startups has not sound business ideas. Rather they have been fueled
by cheap below real market central bank interest rates seeking higher return
than zero.

Some startup founders are hustlers.

The children story by hc Andersen about the emperor without clothes. trying to
convince he has clothes comes to mind.
[https://en.m.wikipedia.org/wiki/The_Emperor%27s_New_Clothes](https://en.m.wikipedia.org/wiki/The_Emperor%27s_New_Clothes)

There will be a shake down of real pegususes versus so called unicorns. One
magical creature has wings the other does not.

Of course people will be attracted to services selling services below market
rate but it is not long term economically sustainable.

------
christianmunoz
Links from the SEC website about this $5m loan:

Promissory Note:
[https://www.sec.gov/Archives/edgar/data/1040792/000121390018...](https://www.sec.gov/Archives/edgar/data/1040792/000121390018009741/f8k072618ex4-1_helios.htm)

8-K Filing:
[https://www.sec.gov/Archives/edgar/data/1040792/000121390018...](https://www.sec.gov/Archives/edgar/data/1040792/000121390018009741/f8k072618_heliosmatheson.htm)

~~~
ironjunkie
From the Promissory note:

> the principal amount of Six Million and Eight Hundred Thousand Dollars
> ($6,200,000)

Is this a gross mistake? Or am I missing something ?

~~~
arzt
No, this is what's termed an "Original Issue Discount" in debt parlance and
allows for a lender to earn interest without a cash coupon on the loan.
Basically they give them $5mm, but the "par value" of the loan is $6.2mm. So
MP actually owes $6.2mm, but only got $5mm in cash up front.

~~~
jmgao
I think they were referring to the "eight (2)".

------
clircle
My wife and I are so frustrated by the movie going experience in the US. In
Taiwan, everyone is permitted to bring food and drinks to the theater and
that's pretty common. In the US I'm forced to pay an absurd amount of money
for awful junk food. No thanks, I want to drink tea while I watch a movie. We
always have to smuggle in drinks because the theater just doesn't provide any
good options.

None of the movies is the US are subtitled. I am a native English speaker, but
I really prefer to watch every movie with subtitles. Reading the dialogue
while I hear it helps me remember the content of a movie, helps to understand
what characters are saying while there are explosions going on in the
background, let's me lower the volume for the sake of those around me, and so
on.

And then there's the friggin' cell phones... but I suppose this isn't really a
US specific problem.

~~~
gamblor956
Movie theater food is expensive because theaters in the US make almost all of
their profits from the food. The movies are just a vehicle to get you to buy
the popcorn and soda. On big blockbuster releases, like Star Wars or Mission
Impossible, the movie theater may only get 10% of the gross ticket price on
opening weekend, with the remainder going to the distributor.

Overseas distributors Asia have less leverage because these markets are
generally so much smaller on a dollar value basis that it's not worth the time
and effort to push for 90% instead of 60% of a relatively tiny pot. In China,
terms are dictated by the government. In Europe, audiences prefer more avant
garde films (read: bad films which pretend to be about something) so theaters
have significantly more leverage overage distributors.

~~~
smofnoopttzzaaa
I sometimes fear that, like bookstores and Toys R' Us, if you don't patronize
these businesses, they will go away. As a kid I couldn't imagine a world
without bookstores, now there aren't any. Same with Toys R' Us. Kids will
never have that experience again. Yes, movies are expensive, but would you
rather them not be there at all?

~~~
coverband
Indeed, when the home video/DVD usage was at its peak around the '90s, movie
theaters were assumed to be a dying business by most people. Then
consolidation and marketing to a younger generation breathed new life into the
industry, with ticket prices going up alongside.

~~~
grawprog
I wonder if the proliferation of high definition and TVs with screens 2 or 3
times the size of TVs in the 90's for the same price will make a difference
this time around. Back then, theaters were still the best way to see a new
movie. Now though, I know a few people who's living rooms are far superior to
a movie theater in every way, from the screen, to the sound, to the seats and
honestly company and environment. Going to a theater used to be worth it even
if the movie wasn't very good, just to get to see a movie on something
different than a tiny 20" crt TV. Now it's really only worth it for great
movies.

------
ulfw
Why did 'opening a business without an ever working business model' become a
thing? Investor-money can only take you so far if you can literally not ever
become cash-flow positive.

------
brianbreslin
In my mind moviepass is proof that the current pricing of tickets is too high.
5M people were willing to fork over $300M a year in subscription fees to go
pay likely $20+/visit in concessions ($1.2B if they only go 1x a month).

Moviepass plan was to control as much leverage as they could in relation to
the movie industry as quickly as possible. Betting they could borrow against
this growth. They started producing their own films and doing all sorts of
things to own that chunk of the ecosystem.

------
sspencer
I would love to see the terms for that emergency 5 million in cash. Probably
eye-watering interest rates.

~~~
jld
Via Bloomberg...

"Terms of the loan are onerous. Investment firm Hudson Bay Capital Management
can demand repayment of more than $3 million of the loan on Aug. 1, and the
rest on Aug. 5. Proceeds from a planned stock sale must also be used to repay
the debt.

If Helios and Matheson Analytics fails to pay, it will be subject to a 15
percent annualized late fee until it makes good on the obligation. If the
company is 48 hours late in its payment, Hudson Bay can require the company to
repay the debt at 130 percent."

[https://www.bloomberg.com/news/articles/2018-07-27/moviepass...](https://www.bloomberg.com/news/articles/2018-07-27/moviepass-
parent-borrows-6-million-to-end-service-interruption)

~~~
pc86
I've never had a physical reaction to reading loan terms before. That is
painful, I have to wonder if they have any plan to turn it around using this
money or if it's literally a Hail Mary to buy just a little more time.

------
chriselles
I could possibly imagine MoviePass working IF:

MoviePass can predict: Who(subscribers) What(movies) When(what movie showing
subscribers will attend) Where(which theatre) Why(Netflix like
recommendations) How(um, non tech cliche use of “algorithm”)

And then MoviePass can bulk pre-purchase tickets at steep discounts to solve
movie theatre excess capacity problem(if it is a problem).

With how tenuous things are now, I suspect MoviePass is NOT Netflix circa
2002.

------
shalmanese
Oh god, get ready for the onslaught of endless thinkpieces on "What the
failure of Moviepass reveals about the nature of Silicon Valley".

------
tylerchilds
Cancelled my account today since it renews shortly, but definitely going to
keep my card as a nostalgic trophy to look back on ten years from now.

------
tiatia123
Theaters make their money on drinks and food, no?

What bothered me in the US is that I can't buy a beer in the cinema. I always
had to bring my own :-)

~~~
btian
I can buy beer at Bay Area Century cinemas

------
cwyers
How is this a business?!?!?

------
noja
How many movies a month does their average customer watch? Is there a small
group of users costing them the most money?

~~~
alew1
I’ve seen 30 since signing up at the end of November. Not sure how typical
that is, but my friends with MoviePass also see a bunch!

~~~
chillydawg
Gotta love a bit of wealth redistribution. Let's just hope they don't turn
into a horrendous monopoly and force very anti consumer behaviour.

