Is MoviePass too good to be true?

That’s the question analysts, investors and skeptics have posed since the startup, which allows subscribers to see one free movie per day at almost any theater, lowered its monthly dues in August.

But as the company, led by former Netflix and Redbox exec Mitch Lowe, announces it has surpassed 1 million subscribers, there is no sign the bubble will burst any time soon.

“We are excited and proud to have reached the one millionth subscriber level in such a short time while still early in the consumer adoption curve,” Lowe said in a statement. “Our focus on creating the best movie theater subscription service experience for our subscribers has propelled our growth to date.”

Lowe, who joined the company in June 2016, explained that through updates to its application — which is core to the service — as well as fostering relationships with movie theaters, he expects MoviePass to continue to grow.

MoviePass’s announcement comes just a month after the company unveiled a limited promotion, which cut the average monthly cost of the service to less than $7 per month with an annual commitment. The company has since ended the promotion, returning the monthly dues to $9.95.

The company said since it lowered its monthly subscription cost to $9.95 per month in August, it has increased its subscriber base by more than 6,500 percent, allowing it to reach the 1 million-subscriber mark “in less time than Spotify, Hulu and Netflix.” The company’s subscriber base ballooned from less than 20,000 subscribers on Aug. 14, to 400,000 in the 30 days following the price drop.

“MoviePass has accumulated more than 1 million new paying subscribers faster than many of the best known paid subscription services,” said Ted Farnsworth, CEO of Helios and Matheson Analytics.

MoviePass Growth

MoviePass’s path to 1 million paid subscribers (Photo: Business Wire)

HMNY, a publicly traded data firm, acquired a majority stake in MoviePass just ahead of the announced price drop. Farnsworth touted that since it shifted its subscription model, the company has accounted for “increased movie theater revenue this year.”

“We know this is what it will take for people to enjoy the experience of movies again, and we’re thrilled that movie-goers are embracing a new and exciting era for cinema,” Farnsworth said.

The theaters are taking notice, too. Earlier this month, Cinemark, which owns around 250 theaters in the United States, announced Movie Club, an $8.99 monthly plan that offers its subscribers one 2D movie ticket per month. The service also allows subscribers to purchase additional tickets for a discounted price of $8.99.

Locally, Marbles IMAX in downtown Raleigh has long offered a membership program that discounts Hollywood features and documentaries by 50 percent off the ticket price. It should be noted that MoviePass cannot be used to see IMAX features, nor can it be used for any film at Marbles.

Still, while MoviePass seems like a win for consumers, skeptics say the company’s business model is not sustainable. Perhaps the loudest voice among its detractors is AMC Theaters, who infamously said the service ultimately will set consumers up for “disappointment down the road if or when the product can no longer be fulfilled.”

“AMC also believes that promising essentially unlimited first-run movie content at a price below $10 per month over time will not provide sufficient revenue to operate quality theatres, nor will it produce enough income to provide filmmakers with sufficient incentive to make great new movies,” the company said.

AMC has had a love-hate relationship with MoviePass since the service launched its beta program in 2011. At the time, as MoviePass looked to recruit theaters to participate in its test, AMC declined to take part, citing that the program was developed “without AMC’s knowledge or input.”

“As MoviePass is currently designed, it does not integrate well into our programs and could create significant guest experience issues,” Stephen Colanero, chief marketing officer at AMC Theatres, said at the time.

Just three years later, after MoviePass unveiled $45 per month pricing for a premium subscription and $35 per month for a standard subscription, AMC proudly announced it was “joining forces” with MoviePass to “deliver [an] innovative, guest-friendly subscription service” in two pilot markets.

“This pilot will provide more convenience for our guests, and responds to the preference of many consumers for monthly entertainment subscriptions such as music and magazines, which we believe will increase the frequency of moviegoing,” AMC SVP of Corporate Strategy and Communications Christina Sternberg said in announcing the partnership.

AMC’s tune, of course, changed with HMNY’s acquisition of MoviePass and the subsequent slashing of the subscription cost.

With the average movie ticket price hitting a record high earlier this year at $8.84 per ticket, it’s difficult not to sympathize with AMC’s argument. Even if all 1 million MoviePass subscribers only attended one movie per month, the company’s net is just $1.1 million, which doesn’t even cover the company’s operating expenses.

Realistically though, we can safely assume many of the service’s subscribers are attending more than one screening a month, easily negating the monthly cost of the service. Therefore, it’s also safe to assume that MoviePass operates in the red, especially considering the company says that it accounts for more than two percent of North America’s movie tickets purchases.

A regulatory filing shows MoviePass reported almost $5M in subscription revenue for the nine months ending Sept. 30, however it reported $5.3M in operating expenses.

“Without additional capital or additional sales of its services, the company’s ability to continue to operate will be limited,” the Nov. 30 filing reads. “If the company is unable to obtain adequate capital, it could be forced to cease or reduce its operations.”

The bottom line is that as much as Netflix and Redbox where disruptors to the retail movie rental industry (R.I.P. Blockbuster) and iTunes was the CD’s death knell, MoviePass is serving to fundamentally change the value consumers put on movie tickets.

Why pay $8.84 per ticket when you can pay $9.95 for 31?

And therein lies the question. If MoviePass’s business model is not sustainable, what then happens to those theatergoers who now value the movie-going experience for sub $8.84?

But MoviePass’s value, at least from a business standpoint, isn’t its bottom line. It’s the data it gathers its subscribers. Don’t forget, HMNY, the company that owns a majority stake in MoviePass, is a data firm with a business intelligence clientele. HMNY also owns a safety and navigation app called RedZone Map.

According to SeekingAlpha, MoviePass has generally been unprofitable since 2011 and the recent shift in strategy relies on quantity of customers rather than providing a premium service.

Originally, MoviePass’s monthly subscriptions were priced around $50, limiting the subscriber base at 20,000 for years. The company claims the pass is accepted at more than 4,000 theaters nationwide. According to Statista, there are almost 6,000 theaters total, so 67 percent market adoption is nothing to scoff.

Coming off an 11 percent decline in movie theater attendance in 2017, Hollywood perhaps could use new methods of getting people off their couches and in the seats. Reaching the 1 million subscriber mark offers a plethora of potential insights.

MoviePass has a record of every movie those subscribers attend. It knows when its subscribers like to go to movies, and it knows where they like to see them. This is not inconsequential data.

MoviePass subscribers use the service’s app to “check in” to a movie at a participating theater.

No one can explain the value in big data better than HMNY’s CEO himself.

“If you get a trailer right now for Spider-man on Facebook, Facebook can’t tell if you ever actually go to the movie. We can,” Farnsworth told Wired. “We can tell if you look at Spider-man and look at Wonder Woman and Mission: Impossible, we can tell you exactly what movie you went to out of all three trailers.”

In fact, MoviePass’s CEO outlined why hitting 1 million subscribers is such a big deal more than four months before the company reached that milestone.

“By using our data and our relationship with the customer — and this isn’t meaningful unless we have millions of subscribers — but when we have millions of subscribers, we can help studios turn a movie that is a hit or a miss into a hit,” Lowe told Wired. “We can get the right people into the theater.”

The payoff is already evident. For the Nov. 17 opening of Sony Pictures’ Roman J. Israel, Esq., starring Denzel Washington, MoviePass accounted for 13.21 percent of the opening weekend box office.

More telling, MoviePass said its active promotion of The Man Who Invented Christmas realized a 48.3 percent lift to ticket purchases compared to a control group outside of the marketing campaign.

“The data speaks for itself — our data shows that MoviePass has a demonstrable impact on revenue figures and percentage contributions to overall box office receipts for both major studio releases and independent films during opening weekend,” Lowe said.

Lowe said through partnering with studios and theaters, MoviePass has proven its business model “will continue to expand beyond subscription fees.”

“Studio and distributor executives are increasingly understanding our impact on box office receipts,” added Khalid Itum, VP of Business Development at MoviePass. “But we’ve moved beyond ideological discussions in Hollywood to the tactical — how we can partner with studios and distributors to actively influence moviegoing behavior in order to have our subscribers select and buy tickets to their titles over other movie options.”

So is MoviePass too good to be true? It depends on which marketer you ask.

— Jason Eder, analytics and audience specialist for CBC New Media, contributed to this report.