MoviePass offered an unlimited movie watching experience to consumers, but the experiment has largely failed. Majority shareholder Helios and Matheson saw their stocks rise to around $32 in October 2017. The stock is valued at less than $0.02 right now. Let’s take a look at how one of the hottest tech stock purchases in 2017 has transformed into one of the worst investments of 2018.
Humble Beginnings
Helios and Matheson Analytics Inc. (HMNY) became the majority stakeholder in MoviePass last year. In order to expand the service, the firm began advertising MoviePass as an all-you-can-watch buffet for avid movie goers. For $9.95 a month, members could see an unlimited number of movies. HMNY offered the tantalizing treat to attract new members and investors who believed MoviePass would do for theaters what Netflix did for TV. MoviePass only had 20,000 subscribers when HMNY acquired their majority share. HMNY slashed the monthly membership price from $50 a month down to $9.95, and the subscribers flowed in. By June 2017, the service had more than three million subscribers.
Burning Cash
The company was burning through its cash holdings faster than it was generating revenue. A filing with the SEC revealed that MoviePass was running a cash deficit of $21.7 million per month from September 2017 to April 2018. Michael Pachter, an analyst for Wedbush Securities famously said the company was “giving away dollars for quarters. “Because most movie tickets are priced below the $9.95 per month membership fee, MoviePass found it impossible to turn a profit with the new business model. The company repeatedly said that it wasn’t going to rely on subscriber revenue as its main source of income. Instead, HMNY is hoping to use the MoviePass aggregate data in the same way that Spotify collects user data about how its users interact with music. This user data can help sell directly targeted advertisements to help drive more box office revenue.
New Revenue Models
The concept was novel enough that many investors were intrigued by the idea. MoviePass owners HMNY became one of the most talked about stocks on the StockTwits platform. A quick StockTwits review found that many investors had questions about how long the company could stay viable while shedding money hand over fist. Many analysts believed that MoviePass launched with a price that was too good to be true and the subsequent price hikes on services caused customers to flee the service. The hype around MoviePass also caused competitors to take notice. AMC Theaters announced their movie subscription service through its Stubs program to let moviegoers see up to three movies a week for only $19.95 a month. The service is twice as expensive as the MoviePass offering with more restrictions but has steadily gained subscribers.
Since AMC operates theaters all over the United States, they don’t need to pay the entire price for each ticket. Instead, the company only needs to fork out about 54% of the ticket price. That means AMC only pays around $11 for the moviegoer seeing two movies a month, while MoviePass would lose $10 for the same two movies per month. AMC’s A-List option is slowly choking the life out of MoviePass, which has reorganized its subscription model at least three times since 2017.
2018 ·
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