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Movie Pass Case Analysis

Strategic management (SUNY New Paltz)

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Strategic Management

Jeremy Nunez

MoviePass Case Analysis

Final Exam Assignment

May 13, 2018

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Background Overview

The frequency of going to the movie theater has been seen on an steady upward climb

with big time movies like Black Panther and Avengers: Infinity War breaking box office records.

With the amount of success these movies have been accumulating there is no doubt companies

like Movie Pass is also a factor to the success. Movie Pass is a subscription-based service based

in New York that offers moviegoers the ability to see one free movie a day for a flat monthly fee

(between $24.99 and $39.99, depending on where you live). Founded in 2011 by Stacy Spikes

and Hamet Watt, MoviePass has been the considered the “Netflix for movie theaters,” as they

want to offer the same type of service as Netflix via a flat-rate monthly subscription (Long). For

the year 2017, according to the National Association of theater Owners, admissions were down

to levels not seen since the ‘90s (Seitz). MoviePass has reached popularity by changing its

current flat fee to $9.95, which resulted in a surge of memberships. Initially, Movie pass

conduced a beta in June 2011 in San Francisco, but had encounter resistance from Movie theater

chains like AMC, the biggest movie theater chain in the U.S, because they drastically had

different philosophies about how to get customers fill the seats of vacant theaters. As no

communication was established between MoviePass and other theaters, their initial pitch was to

have their flat fixed rate at $50 to see unlimited movies at 21 selected theaters in the metro area.

This plan was put to a halt, as many theaters were not interested as it had disrupted their own

programs like AMC “stubs” forcing them to go on a temporary hiatus until 2017(long). From

then on, Movie pass operated on a small invite-only scale, which promoted an eager waitlist of

75,000(long). MoviePass was able to report from its members that 64% started going to the

movies more often, which allowed money to be generated for concession stands.

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By October 2012, MoviePass launched themselves nationwide, with the use of their

MoviePass app that allows you head to any movie theater that accepts MoviePass, secure your

ticket on the app, and use your Movie pass card to redeem it (Long). MoviePass was able to do

so with a MasterCard prepaid card, which theaters were able to get reimbursed for the cost of a

ticket. If any theater would denounce the use of MasterCard they would be potentially put

themselves at risk because it will cost the theater at the box office and as well at the concession

stands (Long). Within a two-year period, AMC recognized Movie pass valued and decided to

join forces briefly and release “MoviePass Premium” in Denver and Boston. As a premium

service moviegoers were allowed to watch unlimited movies monthly in I-max and 3D on a

subscription based price, ranging from $35-$45 in those cities. This strategy was one that AMC

created with a similar program called, “AMC Stubs, ” where they allow participants to pay $20

to see Interstellar as many times as they wanted (Long). As this test was proven successful, it

was deduced that Movie pass could have the potential to be used in 90% of theaters nationwide

(Long). With announcing their new CEO, Mitch Lowe co-founder of Netflix, he decided to

change the pricing model and was able to influence an analytics firm Helios and Matheson to

purchase majority skate in MoviePass and convinced Stakeholders who wanted to invest in

acquiring and optimizing data. As a result in August of 2017, MoviePass announced a new flat

rate membership of $9.95 monthly to watch a new movie everyday and cancel anytime. By the

end of year, Membership had reached one million members 80% more of what they had the

previous year. AMC immediately took threatening legal action on MoviePass, as they called

MoviePass “a small fringe player” that use a business model that is detriment for movie theaters,

movie studios, and viewers. By not offering any discounts on the cost of tickets it pays to

reimburse, to counterattack MoviePass had decide to alienate its members from selected theaters.

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As this is a riskier way to go about the current situation MoviePass wants $3 for every ticket sold

along with 20% of concession sales. This may seem feasible to some, but AMC does not like the

idea of lowering their prices as they would rather increases prices for big-budget movies. As the

Movie industry struggles, MoviePass seems like the answer to help theaters get filled up at a

reasonable price, but major corporate feuding looks like they are going to have the movie-going

public out to dry.

Main Competitors

MoviePass is not the only subscription service as there are companies like Cinemark’s

Movie club that grants one movie credit per month at any Cinemark theater (Austin). Offering a

flat-rate fee of $8.99 per month you are able to purchase two tickets for $8.99 each after use of

monthly ticket credit, any unused movie credits roll over and do not expire, and also get 20% off

concessions, with the benefit of not paying any online purchase fee. However, the drawback is

that they only offer one film per month, the service only works at Cinemark theaters, and

premium formats like 3D or IMAX are subject to up charging (Austin). Sinemia is a combination

of MoviePass and Cinemark as they allow monthly or yearly subscription plan that lets you

watch up to three movies per month in any theater you want (Austin). Although you pay more

than both services you are included benefits like monthly premium format film credit, and the

ability to purchase tickets online beforehand. Its business model is comprised of two pans: one-

person plan starting at $11.99 per month for two movie days for one per month and Two-person

plans starts at $22.99 per month for two movies days for two per month. Though you can watch

any premium format films and have online tick purchasing support, you are only allows two

movies per month with no roll over of unused movie credits and no discounted concessions

(Austin).

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Central Problem

As it stands MoviePass dilemma is that without the collaboration between big movie

theater chains like AMC, the movie ticketing industry will decline. Both AMC and MoviePass

have the goal to revitalize the industry by increasing visitor appearance in movie theaters. As

stated previously, the movie industry has been at an all time low with expectations for the year

2018 even being worse (Seitz). Roughly 1.26 billion consumers bought movie tickets this year

the lowest since 1955 (Cowden). The theory’s as to why audiences are not showing up is because

ticket prices are at an all time high and frankly the quality of films does not meet the

expectations of most. The movies being produced don’t appeal to all because there aren’t enough

quality movies being made to see and people have strong opinions about the movies they watch.

Statistically speaking as of 2018 about 3% of American adults went to the movies weekly as

appose to 1930’s where more than 65% of the population went to the movies weekly (Cowden).

So for every people five you knew three of them went to the movies weekly. Below is chart of

how frequently one goes to the movie theater:

Over the years the price of tickets have risen dramatically as the average ticket price is

$9.99 compared to its $8.13 value back in 2013 (Cowden). What is also not taken into

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consideration is the mark-up pricing of concessions. A large tub of popcorn now goes for about

$8, and the price to make that product including the cost of container is about $1, which

calculates to a 700% mark-up. Lastly, as the rise of subscription services like MoviePass attract

hardcore movie lovers with their service of providing viewers the ability to watch one movie per

day for a monthly subscription of the average movie theater ticket price of $9.99. What AMC

considers “an industry disruptive”, MoviePass finds itself as being the bridge to create value for

moviegoers as they capture all the value of watching movies at a price well below what they are

willing to pay for.

MoviePass fails to create value because its business model lacks strategic commitment.

Though it is a fairly new company, MoviePass has inconsistently kept its pricing model the

same. In addition, due to their ongoing battle with AMC, MoviePass constantly engages in

various tests that upset their subscribers. For example, according to marketing professor Jeoshua

Eliashibeng, MoviePass “ prohibit customer from buying tickets to certain movies, modifying the

subscription terms and adding services that not directly related to moviegoers interests, such as

radio music streaming (America).” When it comes to seeking value within this industry

MoviePass cannot create any to the suppliers who are the movies theaters and the buyers who are

moviegoers because they do not have a strategic position that helps moviegoers pay extra for

something they would be willing to pay the theaters directly. As MoviePass claims, “ to represent

approximately 62% of AMC operating income, which equates to $34.4 million of gross profits to

AMC upcoming quarter not including concession sales from MoviePass subscribers (Bishop).”

Though the results seem promising, the gross profit is actually its operating income the money

left over after the companies operating cost have been considered. According to a reference point

from AMC’s Financial report for Q1 of 2017, though the company posted $55.4 million which

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62% of that is MoviePass $34.4 million, the cost of maintaining and operating physical locations,

and fees paid to studios, MoviePass doesn’t help offset any of those operating cost for theater

owners in general (Bishop). With an unsustainable and deceptive business model, MoviePass

competitive advantage over other streaming services does not outweigh AMC ability to use

MoviePass in its operation, as it does not deem successful for them.

Recommendations

What can be done though in order for MoviePass to become sustainable in a dying

industry is that they can increase buyers willingness to pay by providing subscribers additional

products or services like bundling food and early access to movie premieres. Furthermore, by

convincing movies studios to give theaters a discount, MoviePass and the theaters could split the

savings. However, it will be difficult to achieve since people are willing to pay to watch

blockbuster movies like Deadpool, and Marvel’s Avengers (America). What can also be done is

that they can change their pricing model so that when there are days that theaters aren’t busy

charge a lower fee and do opposite on days at peak timings, like on Friday’s at 8:00PM.

MoviePass mobile phone application gives the company the ability to access ones location, this

information is crucial because it will enabled them to target and provide its customer

recommendations based on their viewing history. On a larger scale, MoviePass can sell this

information to movie studios, as it will beneficial for them when they want to find out why

movies are underperforming.

Updates on MoviePass

Though MoviePass has a lot to figure out before it could be profitable, as of today, it

continues to change its pricing model as of now you can choose the $7.95 plans that allows you

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watch 3 movies per month and get a free 3 month trial of IHeartRadio. Furthermore, MoviePass

parent stock has fallen to an all-time low of 79 cents share; a valued that some may say it has its

doubt that MoviePass will ever profitable (Hayes). Recently, MoviePass has acquired

MovieFone, an American-based movie listing and information service, that it hopes it will help

generate 3 million subscriber from its current amount (Hayes).

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Work Cited

Cowden, Catarina. “4 Big Reasons People Aren't Going To The Movies Anymore.”

CINEMABLEND, CINEMABLEND, 31 Jan. 2017,

www.cinemablend.com/new/4-Big

Reasons-People-Aren-t-Going-Movies-Anymore-68955.html?story_page=1.

Long, Christian. “A Brief History Of MoviePass And Its Feud With AMC.” UPROXX,

UPROXX, 30 Jan. 2018, uproxx.com/entertainment/moviepass-amc-history/.

America, May 08 2018 Strategic Management North. “Will MoviePass Have a Happy

Ending?” Knowledge@Wharton, 8 May 2018,knowledge.wharton.upenn.edu/article/will

happyending-moviepass/.

“Frequency of Going to the Movies in the U.S. 2018 | Statistic.” Statista, 8 May 2018,

www.statista.com/statistics/264396/frequency-of-going-to-the-movies-in-the-us/.

Austin, Lucas, and Patrick Lucas Austin. “Here's How MoviePass Stacks Up to Its Competitors.”

Lifehacker, Lifehacker.com, 29 Dec. 2017, lifehacker.com/here-s-how-moviepass-stacks

up-to-its-competitors-1821654012.

Hayes, Dade. “MoviePass Parent's Stock Hammered As Cash Reserves Dwindle To $15.5M.”

Deadline, 9 May 2018, deadline.com/2018/05/moviepass-parents-stock-hammered-as

cash reserves-dwindle-to-15-5m-1202385294/.

Bishop, Bryan. “MoviePass' Claims about Its Importance to AMC Theatres Are Grossly

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Deceptive.” The Verge, The Verge, 26 Jan. 2018,

www.theverge.com/2018/1/26/16936952/moviepass-amc-theatre-feud-movie-tickets

deceptive-earnings-statement.

Seitz, Dan. “Movie Theater Attendance Has Hit A 24-Year-Low, And 2018 May Be Worse.”

UPROXX, UPROXX, 18 Jan. 2018, uproxx.com/movies/movie-theater-attendance-2017/.

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