The MoviePass Effect: How the Subscription Model is Influencing Exhibition

The subscription model looks to have finally caught hold among U.S. moviegoers. The concept isn’t uncommon in Europe, where several of the continent’s top exhibitors have already rolled out their own in-house versions, enabling consumers to see a higher number of films at a low monthly or annual cost. Third-party solutions, however, are harder to find; while being exhibitor-agnostic gives consumers more choice, it requires the third party to subsidize the cost of the ticket. This might not be a big issue in most parts of the United States, where the ticket price averages close to $9, but in urban areas—with higher ticket prices—it can be a costly endeavor without the right strategy in place.

It’s a risk that permeated China’s nascent digital-ticketing market, which saw a boom as third parties subsidized the cost of a ticket in order to gain market share—a trend that proved to be unstable, leading some analysts to name the eventual repeal of those ticket subsidies as a factor in China’s 2016 stalled box office growth. China’s digital-ticketing revolution led to the inevitable: consolidation that no longer forced third-party providers to consistently undercut one another in their appeal to consumers.

The example from the Chinese market, however, doesn’t exactly apply to MoviePass, the third-party subscription service that helped break the concept to U.S. consumers. Covering roughly 91 percent of the U.S. theatrical market, MoviePass allows consumers to buy one 2D (standard) ticket per day for a monthly price. With little to virtually no competition from other third-party subscription services, MoviePass inhabits a unique niche among other digital-ticketing companies in the United States.

MoviePass isn’t exactly a newcomer to the industry. The company has made several attempts in its mission to appeal to consumers, dating back to a 2011 beta launch in San Francisco at a $50-per-month price point that encountered resistance from some in the exhibition community. The different iterations that followed were met with varying degrees of support, including geographic pricing tiers that drove the monthly price from $20 to $35, and a pilot program with AMC in Boston and Denver that included premium-format tiers.

A change in strategy came with the naming of former Netflix and Redbox executive Mitch Lowe as chief executive officer in 2016. Little more than a year after Lowe’s involvement with the company, big data firm Helios & Matheson announced the acquisition of MoviePass—along with a new, aggressive pricing scheme to target new subscribers: lowering its price to $9.95 a month for the right to claim one 2D ticket per day.

Subscribers poured in—and the rapid growth came with its own share of speed bumps. The company found itself scrambling to scale the business with the influx of new subscribers. New members found themselves waiting for their MoviePass card to arrive in the mail until the company could sort out the backlog. Consumer criticism also focused on the user experience with the MoviePass app—the cornerstone of the company’s connection with subscribers. On the corporate side, AMC—the largest exhibition circuit in the world—released a statement rebuking the $9.95 price point, calling it “unsustainable” and warning it could lead to “ultimate disappointment down the road if or when the product can no longer be fulfilled” to consumers. Notably, AMC didn’t state an opposition to the concept of a subscription model, limiting its criticisms exclusively to MoviePass’s low monthly fee. The tension between the companies has yet to be resolved; AMC has stayed firm in its opposition to the MoviePass model, and in January MoviePass announced it would stop covering 10 of the circuit’s locations.

MoviePass introduced a $90 annual pass in November; a month later it rolled out a limited-time offer for an annual pass packaged with the movie streaming service Fandor—available to Costco members for $90 and to the general public for a 5 percent surcharge on the same price. MoviePass hit 1.5 million subscribers in January 2018—a half million of whom joined in the period between December 12 and January 9.

Mitch Lowe says he believes MoviePass was in a unique position to help the concept break through in the United States—precisely because it is a third-party provider with the support of a larger firm like Helios & Matheson. “I don’t want to call it ‘adversarial,’ but it’s a very difficult relationship between studios and exhibitors,” says Lowe, telling Boxoffice he believes a neutral third party helped avoid any direct conflicts between exhibitors and studios over the concept. “Of course, we couldn’t have made this happen without significant funding. Because when you put your money where your mouth is, at this scale, it’s a lot of money. I think it hadn’t happened before because there wasn’t a neutral party willing to put their money where their mouth is. And there wasn’t ever an opportunity for studios and exhibitors to work together in very risky new business models up until now.”

The funding Lowe refers to was vital in order to finance the lower-priced plan and therefore target a much wider consumer base. “Up until August [2017], our subscription was focused on the 11 percent of moviegoers who go to 18 films a year. The product was priced for that,” admits Lowe. “One of the lessons we learned from other subscription models like Netflix, Hulu, and Amazon Prime is that you build the business by bringing all those people who aren’t going a lot, who have been going two or three times a year, but really would love to go more often if there was such a thing as a subscription.” By pricing their service at $10 a month, MoviePass conformed to the benchmark established by the previously named companies—and turned consumers who might spend $50 a year on the cinema into ones who were committed to spending up to $120.

Internal studies from MoviePass claim incremental attendance among their members. One of those studies, a member survey conducted over Labor Day weekend, found that 75 percent of its users would not have gone to the movies over the holiday frame without the service. Studio Movie Grill (SMG), an early adopter of MoviePass that signed an equity partnership with the company in December 2016, echoes those findings. “I was very keen on when the attendance was coming. A lot of our analytical focus has been around questions like, can we push off-peak? Can we fill up during the week? Can we get another visit and increase the frequency? All of those stats have been very positive for us,” says SMG founder and CEO, Brian Schultz.

The circuit has found its most positive results with MoviePass when it comes to increasing frequency and off-peak visits—key upticks for any movie house, but more so for a cinema eatery like Studio Movie Grill that must factor food service into their day-to-day operations. For some titles, particularly in the case of A24’s Lady Bird, the circuit attributed a double-digit-percent increase in total attendance to MoviePass. “We’ve noticed that there is really great content out there that people either don’t get to see or that we can’t keep in our theaters long enough,” says Schultz. “When we started talking with MoviePass, we figured it could be a way for people to discover films they might not see otherwise.”

MoviePass claims it is currently purchasing about 3 percent of the domestic box office. The company states its biggest impact, however, has occurred when leveraging a title’s presence within its  app and marketing efforts—something it claims has contributed to purchases in excess of 10 percent for independent and awards-season titles like The Post, Three Billboards Outside of Ebbing, Missouri, Call Me By Your Name, and The Shape of Water. By marketing titles to its growing consumer base, MoviePass can draw on studio-driven revenue for further expansion—helping reduce its reliance on subscriber fees as the company continues to evolve.

A big part of that future will be to add more exhibitor partners and further implement its Open Tab concept, which allows moviegoers to buy their tickets digitally through the app, as well as order and pay for their concessions. MoviePass already has a partnership in place with cinema point-of-sales leader Vista, easing any associated barriers for integration with Vista clients.

This fully integrated approach represents a significant improvement in user experience when compared to how many MoviePass subscribers get their tickets today: same-day, in-person purchases at a theater’s box office after first checking in to a specific show time using the app. It can take a couple of visits to get used to, but Lowe puts a positive spin on the matter. “One of the benefits to both theaters and the studios is that for sold-out weekends, the fact [users] can’t reserve a seat and they can’t reserve a ticket until the day it drops, means that the majority of our customers—when it comes to opening weekend for a big title—go the following week … we see a big increase in our subscribers going to the films in the second week, as opposed to the opening weekend.”

For Lowe, the current MoviePass model plays a specific role within the wider industry—one that accommodates advance sales, pre-show advertising, and pent-up demand for opening-weekend crowds. “Because you can’t guarantee a seat, you need to get there early,” he continues. “Our subscribers tend to get there earlier and tend to go during the day, tend to go more often during the second week of release. That’s all a real positive for the studios and the exhibitors. We don’t want to lose that benefit.”

Other potential MoviePass features—reserved seating, companion tickets or a tier for premium formats like IMAX and 3D—might be on the horizon. “It may be that for an extra buck, you can reserve your ticket in advance. Right now, these things are in the works for next year,” says Lowe. “It’s all kind of in the theoretical stage at this time. But we definitely have a lot of subscribers who want to see a film on an IMAX screen.”

Another clue about the company’s future ambitions was revealed during the Sundance Film Festival with the announcement of MoviePass Ventures, a subsidiary established to co-acquire films with distributors for theatrical distribution. While headlines have focused on the company’s subscriber growth, it’s also important to step back and look at the full picture of its work in the film industry. In the first 18 months of Mitch Lowe’s tenure, MoviePass has gotten the backing of a big data firm, Helios & Matheson; an equity partnership with one of the nation’s top 15 circuits, Studio Movie Grill; a commercial partnership with an OTT streaming service, Fandor; and launched a subsidiary to help acquire titles at the world’s top film festivals.

“Just like going to the gym in January, going to the movies is a trend,” says SMG’s Schultz. “We find an uptick after big movies like Star Wars, for example. People come in and are pleased by the experience—reserved seating, leather seats, in-theater dining. You get momentum from it, and that’s something MoviePass contributes to. If you can create an underlying foundation of frequency, that helps us promote moviegoing. Just like with any disruptive technology, there’s going to be a lot of different [versions] at first—so I think that what Cinemark is doing is really great.” Schultz is referring to Cinemark Movie Club, the first in-house subscription program launched by a major U.S. exhibitor, which was announced in December 2017. The observation touches on a compelling question that American exhibitors have been asking themselves in recent months: what’s the best way to institute a subscription plan at my theater?

“It’s exactly the question hotels, airlines, and other travel services asked when Expedia and Orbitz and all the other travel intermediaries work directly with the customers,” answers Lowe. “If you can do it yourself, you should do it! If you can figure out ways to get your customers to go more and more often, then you should do it. Every single hotel, every single airline, would much prefer you to order your service directly off their website or directly from them. But consumers like to shop. They like to find the best deal for themselves. Meanwhile, we are taking the risk of over-usage—someone going 10 times, 12 times [in a month]. We take that risk and bear that cost,” says the MoviePass CEO. “I would say, yes, you always want to be directly interfacing with your customer, but you also want to drive more profit. So it’s a balance between those two things.”

Cinemark, having already launched their aforementioned in-house subscription service, might be joined by other large exhibitors interested in keeping control of their own pricing and consumer data. AMC’s UK counterpart, ODEON, already has its own in-house program in place. Regal, recently acquired by Cineworld (which itself has its own in-house solution in the UK) has previously shown interest in developing its own dynamic pricing solution with digital-ticketing partner, Atom Tickets.

The pricing conversation isn’t limited to offering lower price points to audiences looking for an “all-you-can-see” service. Amenities like 3D, premium large format, VIP auditoriums, and immersive seating have all helped exhibitors institute ticket surcharges as upgrades to the moviegoing experience. Other circuits have achieved the balance Lowe describes through instituting discount days; Marcus Theaters, for example, now offers two days of $5 admission throughout the week—on Tuesdays for the general public and Thursdays for students.

No matter which solution exhibitors adopt, the MoviePass effect sheds light on one of the biggest challenges facing American exhibitors after a 2017 marked by a downturn in attendance. After years of upgrades to the moviegoing experience, what can the industry do to drive more people to the cinema? And what can be done to have them come back more often? For SMG’s Schultz, services like MoviePass are part of the solution. “It’s helping get loyalty to our particular locations,” says the exhibitor. “We have reserved seating and luxury recliners in most of our locations, and as we transition to that, it takes down any barrier to coming. Taking away price from consumers’ choice, it’s down to the theater they like going to the most.”

Daniel Loria

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