David sends in the news about a startup called MoviePass, which has a plan to get you out of your comfy chair and into the theater. Being touted as a possible savior for the theater industry and the “Netflix of local theaters,” MoviePass promises “unlimited movies” at theaters nationwide starting at $29.99 a month.
As plans go, it's not bad. All-you-can-eat-pricing and an integrated app might prove tempting to film buffs. But these same film buffs pose a major problem for MoviePass. The customers the service will most appeal to — frequent moviegoers — are the same customers that will make it very tough for it to turn a profit. Theater owners may have partnered with MoviePass for the potential uptick in sales, but it's unlikely that much of a discount has been applied, as the profit margin just isn't there. Generally speaking, tickets are loss leaders for theaters. The real profit comes from the concessions. MoviePass can get more people through the door, but whoever's eating the loss on the ticket sales is going to be hurting if members take full advantage of the service.
This business plan needs a wide variety of customers to pay off. It needs a number of “subscribers” to pay a minimum of $360 a year while rarely using the service in order to subsidize frequent filmgoers. The problem is that casual viewers can do the math and realize that they're losing money unless they attend more movies. And so, they'll attend more movies, making the situation better for them, but worse for MoviePass. It’s what the economics kids call adverse selection.
Another hitch is that MoviePass requires you to sign up for an entire year, which is the sort of thing people shy away from. Once again, those who dive into a one-year contract will likely be those whose heavy usage will make it tough for MoviePass to turn a profit. Memberships can be cancelled, but MoviePass assesses a $20 fee and, if you've used more than $29.99 worth of tickets, you're responsible for paying the difference.
There are other stipulations too, all of which are in place to keep MoviePass from getting completely screwed. First, the $29.99/month is the starting price. Most people will be charged in the “and up” range. You're only allowed to buy one ticket per day and only one ticket per specific movie. No repeat viewing. No cruising the theater all day, waving around your MoviePass card. No 3D, XD, IMAX, etc.
How MoviePass plans to turn this into a profitable venture remains to seen. Assessing it from the information available makes success seem unlikely, mainly because the people who want it most are the worst for the business.
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