July 5, 2011
An interesting new movie theater service called MoviePass was slated to launch over this past weekend, but fizzled out when, apparently, the movie theaters balked at their all-you-can-watch program.
The MoviePass concept allows consumers to pay $50 a month to see an unlimited number of movies at theaters that are part of the program. It was to be tested in the Bay Area over the July 4th weekend but was postponed at the last minute when popular chains like AMC, Landmark Theatres, and Camera Cinemas declared they would not honor the service since they were never informed of the all-you-can-watch part.
However, this article from The Street claims that one of the theaters in the launch plan included the AMC Cupertino 16. It’s hard to tell who was told what and who agreed with what. It seems like a bizarre situation and it is unclear if this means the end of the concept or if MoviePass has to go to (or back to) the negotiation table with the theaters in order to iron out the details and get everyone on board.
While the business arrangements get sorted out, let’s take a look at the concept. Many people are referring to this as the Netflix for movie theaters. If you look at the economics of the concept, $50 per month would mean that a consumer would have to venture out to the movies at least 5 times per month (assuming tickets are $10 each) to make it worthwhile. Also, if you have a regular movie-going partner, they would likely want to pony up for the service as well, so you’re talking about $100 a month for 2 people to watch a minimum of 5 movies, making it $20 per movie for two people.
Of course, my example assumes that a member of this program only watches 5 movies using MoviePass. That is the breakeven point, and people who watch 5 movies in the theater wouldn’t need MoviePass. To make it worthwhile for a consumer, let’s assume they need to see 6 movies per month, which is essentially a 20% discount on the price of 6 movies.
Don’t forget about the real money makers for these theaters: the ridiculously overpriced popcorn, candy, and soda that consumers inevitably buy as they walk through the lobby. Assuming each pair of movie goer spends $10 per visit, that adds another $60 a month spent on snacks. So the total cost per month for 2 people is $160.
Consumers now have many options for consuming movies, mostly from the comfort of their own home (and mobile devices). Netflix costs $7.99 a month for unlimited movies and TV shows. Granted, these are not current in-theater movies, and many movies still require a wait for mail delivery. But $8 a month plus free snacks from the kitchen cupboard is a great deal compared to $160 per month for 2 people via MoviePass. Even renting $5.99 a-la-carte HD movies from your cable provider is a much more convenient and cost efficient way to get your movie fix.
I’m curious to see the business case behind this service. From a consumer perspective, it feels awfully expensive. Even if they are targeting the serious movie buffs, there seems to be minimal incremental revenue. Maybe they are relying on breakage and assume people will not actually go to 5-6 movies per month. If that’s the case, there isn’t really a business model here.
From the movie theaters’ perspective, it makes more sense financially, so it’s odd that they wouldn’t at least agree to do a trial run. Movie theaters tend to keep about 25% of ticket sales in the first few weeks of a release, and the percentage they keep goes higher over time. However, over time, the audience dwindles and the movie gets closer to release on DVD, so consumers simply opt to wait and watch it at home. Theaters make most of their money on the calories they’re selling us at the concession stand. So for movie theaters, this would be an interesting service to try, as it could drive more traffic to your “store.”
It’s hard to tell what went wrong over the weekend when the theaters decided not to honor tickets from MoviePass. The idea of bringing a successful concept like Netflix into the theaters would be great to try out. It’s clear that work will need to be done on the target consumer market, how much money can ultimately be made, and the business development side of things. But let’s hope this concept launches eventually, because it will be interesting to see if the movie subscription model can expand outside the home and mobile environment.
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