MoviePass Changes Business Model after Heavy Losses

August 7, 2018

At the beginning of the year, we looked at how MoviePass planned to disrupt the multiplex by allowing subscribers to see as many movies as they liked for just $9.95 per month. Since the company paid theaters directly for every ticket obtained by its members, critics wondered how long MoviePass could operate before it ran out of money. In fact, the company was losing $45 million a month as it tried to amass a large user base. These losses unnerved both investors and vendors, causing the latter to demand faster payments as the stock price tumbled.

MoviePass didn’t have the cash to settle its debts, however, which led to service outages across its network last week. Along with obtaining a $6.25 million loan to stay in operation, the company also made sweeping changes to its business model. For instance, many subscribers were angry to discover that they couldn’t get tickets to the latest Mission Impossible film on its opening weekend. Later, they learned that members would not be able to use MoviePass to see a new release during the first two weeks of its run. The company made a number of other unwelcome announcements, including a $5 increase to the monthly subscription fee as well as additional surcharges to watch the most popular titles.

While these emergency measures temporarily solved the company’s cash flow problem, they also managed to make users even more upset. As the cancellation rate at MoviePass doubled, its parent company’s stock price plummeted from an $8,000 high in October to just pennies currently. After enduring a week of customer backlash, MoviePass decided to ditch its recent changes. But that doesn’t mean the company is reopening the all-you-can-watch movie buffett. Instead, MoviePass subscribers are now limited to just three screenings a month. Executives hope this latest change won’t have too much of an impact on the company’s user base since 85 percent of members see three or fewer movies a month. Nevertheless, some analysts say the value of MoviePass could continue to drop as it faces stronger competition. AMC Theatres, for example, recently launched a service that allows members to watch up to three movies a week for a $19.95 monthly fee.

Questions:

  1. What could MoviePass have done differently to respond to its recent crisis?
  2. Do you think subscribers will stick with MoviePass now that its business model has changed? Why or why not?

Source: Ben Fritz, “MoviePass Slashes Offering to Three Films a Month,” The Wall Street Journal, August 6, 2018.

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