OnDemand WTP Pricing Research

Will MoviePass Have a Happy Ending? | Knowledge@Wharton

For movie fans looking forward to this summer’s blockbuster hits, MoviePass is making an offer that’s tough to beat: Watch any 2D movie at any theater any day for $10 a month. Thus far, more than two million people have signed up for the subscription plan, which is the brainchild of Netflix co-founder Mitch Lowe. But with a movie ticket costing $7 to $15, its one-movie-a-day subscription plan has many scratching their heads about the business model, since MoviePass loses money on practically every customer. Will it soon be curtains for the Netflix wannabe?

“It’s too good to be true,” says Wharton marketing professor Peter Fader. “Subscription models make sense, but they have to be economically sound; they have to fit with industry practices.” Here are the economics behind MoviePass’s business model: For every subscription, it pays the theater either the full or 20% to 25% discounted ticket price, said Lowe in an interview with Yahoo. So if the movie fan sees five films a month at a theater that charges $10 for a ticket, MoviePass pays $50 to the theater and gets $10 from the subscriber. If the ticket is discounted to $8, MoviePass pays $40 to the theater and collects $10 a month.

Moreover, MoviePass has flip-flopped on its offers to subscribers, which is not good practice. It started out by pricing the service between $30 and $50 a month, then dropped it to $10 a month. With losses mounting after many signed up, MoviePass yanked the one-movie-a-day option, curbing it to four films a month plus a free trial subscription to iHeartRadio’s streaming service. After an outcry, MoviePass brought back the popular plan. Meanwhile, the company has made other flubs, too.

“MoviePass is supposed to represent another example of an industry disruptor, but its prognosis does not seem very promising,” said Wharton marketing professor Jehoshua Eliashberg. Its missteps? “They are engaged in various tests that upset their subscribers. Those tests include prohibiting their customers from buying tickets to certain movies, modifying the subscription terms and adding services that are not directly related to moviegoers’ interests, such as radio music streaming.” On top of that, “they are running out of cash,” he added.

On May 8, Helios and Matheson Analytics Inc., the 92% owner of MoviePass, said in a Securities and Exchange Commission filing that it is burning through $21.7 million a month. It also only had $15.5 million in cash and $27.9 million on deposit with merchant processors at the end of April. The news tanked Helios’ shares by 31% to $1.45 that same day.

Read complete article here:

Will MoviePass Have a Happy Ending? – Knowledge@Wharton.