As an Operations professor and a film-lover, I have always been puzzled by the hoopla around MoviePass. New York Times reported yesterday that MoviePass finally agreed to settle Federal Trade Commission that it deceived customers and made their service difficult to use.
Quelle Surprise!
Matt Levine’s summary is on the mark about the MoviePass subscription business model ($).
The model was:
1 You paid MoviePass $10 a month.
2 In exchange, you could see as many movies as you wanted, in theaters.
3 MoviePass had no particular deals with the movie theaters; it just went out and bought whatever tickets you wanted at retail prices.
4 The retail price for a movie ticket was about $10.
5 If you saw more than one movie a month — as you probably did, if you bothered to sign up for this service — MoviePass lost money on you.
6 But MoviePass supposedly collected data! Data is valuable! I don’t know.
Many companies in the valley are hopelessly lost in the “data is the new oil” kind of mantra, that basic economic calculations often take a backseat. It is easy to blame everything on covid, too. MoviePass shut down in 2019 (note: pre-covid). The covid depression on the movie business would have brought even healthy ideas down but it is worthwhile to note that Covid had nothing to do with the failure of MoviePass.
In general, subscription businesses fail because of two reasons: (1) It is costly to support subscribers who use them “too much”, or (2) there are not enough people interested in using the service at low levels. MoviePass had both these features.
Looking around basic data, the distribution of movies watched tells us a quick clean tale. In Feb 2019, just before covid, we have the following data from Statista ($).
46% of the adults did not watch any movie in theaters. About 32% watched one movie a month, 13% watched two movies a month, 5% watched three movies, 3% watched four, and 2% watched 5 or more movies in the same period.
The people who watched two or more movies a month (about 23%) are the bane of MoviePass. Even without MoviePass, they already watched more movies at a higher per-movie expense, so subscribing to Moviepass is an obvious deal! MoviePass was heavily subsidizing these subscribers since they had no backend deals with theaters.
46% of the adults did not see any value in movie watching. Maybe they have other interests in life. Maybe they are smart enough not to schlep to theaters, buy overpriced popcorns and watch all the annoying blue phone screens in darkened theaters. In any case, they thought it was not worth going to a movie even once in a year at a $10 movie expense. For a majority of those adults, getting an annual MoviePass subscription is a pointless expense. A small fraction of them might be “deal hunters” and may have subscribed to MoviePass.
Now, the meaty 32% of the adult population who watched movies once a month are a wash on cost/benefit. They would want to watch more movies by subscribing to MoviePass. As the thinking must have gone, precisely the suckers that Moviepass could make money off if only MoviePass could somehow stop those subscribers from watching more movies.
Why target only those folks? MoviePass could do one better! Maybe choke all subscribers from watching more movies, by sneakily denying them from accessing their service. Maybe change their passwords?
So, that’s precisely what MoviePass seems to have done — change customer passwords and deny them the ability to book a ticket while pocketing the monthly subscription fees. To be very clear, this movie clearly unethical and quite illegal.
Thanks to the Very Smart People on the US Supreme Court, who always know better than us, FTC has no way to penalize MoviePass. This issue was settled without MoviePass paying a fine.
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The end of the tale boils down to simple unit economics. If there is no scale in customer usage costs, “eat all you can” buffet models are a bad idea.