Is MoviePass Sustainable?

In Featured, Industry Insights, Sam Hendrian by Impact Admin

Professors Vernon Mortensen and Kevin Culbertson discuss MoviePass’ Business Model

– By Sam Hendrian –

While founded back in 2011, the moviegoing service MoviePass has soared to new heights of popularity in recent days because of its bold new service enhancement: subscription holders can now see a movie a day for only $9.95 a month at any participating theater location. This makes seeing movies remarkably affordable, especially for those who see at least two movies a month. Is MoviePass a sustainable business model, or will it eventually collapse? Two JPCatholic professors, Vernon Mortensen and Kevin Culbertson, shared their own thoughts on MoviePass and its future.

1. Do you have MoviePass?

Mortensen: Yes, I do.

Culbertson: Yes. I activated MoviePass on November 24th, and I have yet to see a movie.

2. What do you think of MoviePass’s business model?

Mortensen: It’s very interesting. It just goes to show that one of the most valuable commodities today is “information.”

I think the first time I realized how powerful this business model really is was when a former KGB agent launched the “Magic Jack” VIOP phone service in the early to mid 2000s. Magic Jack existed to collect data. The VIOP was just the carrot for the consumer. Make all the calls you want for $19.99 a month! But the whole enterprise existed to collect your data and sell it to other companies.

Very ingenious.

Culbertson: There is an old joke in business that you can lose money on every customer but make it up in volume. MoviePass, in its current form, is unsustainable. I gave it nine months until they were out of business given their current business model. I was speaking with a senior Hollywood executive in mid-October. He gave it six months. We’ll see who’s closer.

The basic reasoning we both have is it’s unlikely there will be enough people who keep their subscription without going to the theatre in order to offset the number of people MoviePass needs to subsidize to provide the product.

The idea that studios will pay for the aggregated data of MoviePass users is unlikely since there is basically no information that cannot be gathered elsewhere, and the studios have most of it already.

The concept that with enough users (10 million or so according to the CEO of MoviePass), MoviePass will start producing their own content and compete with Netflix, et al, is questionable on many fronts. Again, how can spending additional money to produce content create profit if the current model is not profitable? How do they plan to compete as an OTT service with Disney’s entrance into this crowded space, especially if Disney acquires Fox, and Paramount and Sony also become acquisition targets. How many subscriptions can the average person maintain (Netflix, Hulu, Crackle, Amazon, HBO, Internet connectivity, traditional cable, etc.)?

3. What are the benefits of MoviePass?

Mortensen: For me, the consumer, it’s great. I’ve seen movies now that I might have never paid to see in a theater, which is probably where they should be seen in the 1st place. If you love movies, it’s awesome. Theater chains are already collecting your data anyway; MoviePass just manages to acquire a more robust data set by looking at all of your viewing habits, not just one single theater chain.

Culbertson: In the short term, MoviePass is a great value for end users who see at least two movies per month. It’s good for the theatre chains, as their revenue remains constant and may increase if people that didn’t go to the theatre choose to go. Ancillary, e.g. concession, revenue may increase as well.

Remember, MoviePass pays the theatre the full price of the movie you attend.  It’s good for the industry, as it may halt the decline in overall ticket sales and theatrical revenue.  MPAA research shows that revenue from frequent moviegoers has declined while revenue from casual moviegoers has increased. MoviePass may increase the total number of moviegoers, thus increasing both casual and frequent moviegoers.  However, with all the competing avenues for entertainment, and a limited amount of time, it is questionable if moviegoing will supplant these other leisure activities.  Further, as the industry continues to consolidate vertically and horizontally, is the theatrical movie experience the most profitable venture?

4. What do you see as potential drawbacks of MoviePass?

Mortensen: Privacy I guess, but then there really is no such thing anymore, unless you pay for everything in cash.

Culbertson: MoviePass may encourage end users to see movies they may have avoided, reinforcing poor quality content being produced. If you look at Netflix, Amazon Video, etc. and their original content, the quality of the product produced continues to decline as quality resources become scarce.

5. Do you predict that MoviePass will be around for years and years to come, or will skeptical movie theater chains eventually take it down?

Mortensen: I hope so. I know they may have upset AMC by beating them to the punch (I’ve heard that AMC was trying to launch a similar service), but now that many smaller chains are trying to get listed on MoviePass, I think it’s going to work.

Culbertson: The threat to MoviePass is not from movie theater operators, it is from the unsustainable business model.

MoviePass may become an acquisition target for a company that could cross sell SVOD, VOD, or downloads of films viewed in theaters, using the subsidy as a loss leader or as part of an expanded, not skinny, bundle of programming where the aggregator can receive payments from secondary program providers and additional advertisers in order to get extract value. Think Apple, AT&T, Comcast, Alphabet, etc.

About the Author

Sam Hendrian is a student at John Paul the Great Catholic University (Class of 2019) pursuing a double emphasis in Screenwriting and Directing.

About the Professors

Vernon Mortensen is a professor of film producing and distribution at John Paul the Great Catholic University. He is a filmmaker, businessman and a veteran of the international film festival scene. His many movies and television shows have been enjoyed by audiences around the world. As a filmmaker, his wide-ranging career has included writing, directing & producing the western/thriller ‘The Sorrow’ starring Kirk Harris, John Savage and Michael Madsen, as well as serving as an executive producer on ‘The Kid: Chamaco,’ starring Martin Sheen and Michael Madsen. He currently works for the motion picture production/distribution company Rogue Arts as a film and television producer and a distribution executive.

Mortensen has an MBA from Alliant International University; a Master of Professional Writing (screenwriting) from USC, where he studied under script guru Syd Field and was an Academy of Motion Picture Arts & Sciences Fellow. He earned a BFA in Film from the world-renowned Art Center College of Design and a received a BS from Excelsior College.

Kevin Culbertson is a professor of business at John Paul the Great Catholic University. He is a television broadcast executive with demonstrated experience across a broad range of disciplines with significant experience in the development and execution of strategic plans, team building and personnel management, fundraising, project management, and community relations. He has co-founded a broadcast television station and managed multiple TV studios, as well as large editorial, production, operations and engineering staff. He worked as a studio director at CNN; served as a member of the White House Press Corps and travelled extensively with President Reagan during his term. Kevin has his undergraduate degree from the University of Maryland and a Masters degree from the Arizona State University. He was Adjunct Faculty at Georgetown University and co-taught classes on media and its impact on foreign affairs.