Last week, when MoviePass lowered its “unlimited” moviegoing plan to just USD $9.95 per month, the ensuing news stories and their associated clickbait headlines could have written themselves. Each found it necessary to explain precisely what MoviePass is and remind readers of the company’s seven year history before detailing its most recent announcements. Trade publications were the first to jump on the news, naturally, with mainstream media following close behind.

Eventually publications with a wider business focus, such as the Wall Street Journal, began to point out some of the long term strategic thinking behind the move, however their insights overlooked a few lesser known technicalities of the modern exhibition industry.

Two Pieces of News and an Unhappy AMC
The MoviePass news from last week was revealed in one official press release that contained two separate, yet related announcements. The first was that Helios and Matheson Analytics Inc., a technology and big data solutions provider, purchased a majority stake (51%) of MoviePass for what we later learned was USD $27 million. The subheadline of this announcement mentioned that MoviePass, through its app (because who uses a real website anymore?), began offering a monthly, no-contract movie theatre subscription plan for USD $9.95. This is far below the average USD $45 MoviePass had been charging just a few days earlier.

Within hours of the MoviePass announcement, AMC Theatres, the largest cinema chain in the world, published a press release making it clear in no uncertain terms that they are not fans of the company’s new USD $9.95 per month pricing model. They claim the MoviePass scheme “is not in the best interest of moviegoers, movie theatres and movie studios” and that AMC was actively working with its attorneys “to determine whether it may be feasible to opt out and not participate in this shaky and unsustainable program.”

Ultimately, AMC’s attempt to condemn MoviePass may have suffered from the Streisand effect; drawing more attention to the announcement and prolonging its visibility in the daily news cycle. It is also a complete reversal of the stance the chain took when they announced a trial partnership in select markets with MoviePass in December of 2014.

The MoviePass Backstory
Previously AMC had butted heads with the company when MoviePass first tried to launch in 2010 through a private beta program with 21 cinemas in San Francisco. Chains such as AMC and Landmark quickly declined to work with the upstart “Netflix for movie theatres” company on their USD $50 per month unlimited viewing program.

This led to a series of ill-fated relaunch schemes that involved everything from subscribers printing vouchers at home to presenting redemption codes at cinemas. By 2012, MoviePass eventually found a model that clicked which used credit cards (basically a Discover card disguised as a MoviePass membership card). Subscribers, who signed a one year contract, paid between USD $25 and USD $35 per month to watch one movie per day in theatres, with each title being viewable only once. No 3D, IMAX or VIP screenings could be purchased.

Like all of MoviePass’s previous iterations, theatre operators were paid full price for any ticket purchased, just as they would be with any other credit card transaction. In short, MoviePass found a way to bypass the need to work directly with exhibitors by using the existing credit card infrastructure at movie theatres. Though MoviePass now uses MasterCard, rather than Discover, this remains mostly true today, which may be why the company doesn’t seem overly concerned over AMC’s current public rebuke.

In the five years since the relaunch of its relaunched relaunch, MoviePass went through a long string of dizzying price changes and rule amendments that were head spinning to keep up with and too convoluted to review here. Still in reports and white papers, such as the one published by Mather Economics in March 2016, MoviePass touted the incremental attendance its service attracted to cinemas through. This is a benefit MoviePass continues to promote.

Then in July of 2016 Mitch Lowe, a Netflix co-founder and former president of Redbox, took over as CEO of MoviePass. By December of last year Lowe had managed to cut his first major deal with an exhibitor when the Dallas based Studio Movie Grill took an equity stake in MoviePass.

However, with the company’s subscriber count flatlined at around 20,000 and certain theatre operators beginning to enforce daily ticket allotments, MoviePass has been struggling to make headway as a third-party service to exhibitors who found no overwhelming need to work with them. As the acquisition by Helios and Matheson Analytics clearly demonstrates, this is a problem the company now hopes to solve by significantly increasing its subscriber base until it’s a force that can not be ignored, while at the same time expanding the scope of its revenue generating products and services.

The New (and Possibly Improved) MoviePass Strategy
In announcing the acquisition of MoviePass, Helios and Matheson CEO Ted Farnsworth said the goal is to have 100,000 subscribers by the end of the year as it ramps up to what is ideally millions. To achieve that MoviePass is lowering its monthly price to USD $9.95 with no-contract (previously, subscribers had to agree to an annual contract). MoviePass’s website crashed within hours of the price reduction, which may have been the first indication they were well on their way. Earlier this week, Helios and Matheson published a press release that confirmed MoviePass had signed up over 150,000 new subscribers in since the original announcement.

Presently 75% of MoviePass subscribers fall into the much coveted millennial category. Getting millions of subscribers on board is needed to reach a volume of scale in which they can be used for marketing purposes. There is, of course, an obvious problem with this plan.

As many business analysts (and AMC itself) mentioned last week, at its new price level MoviePass will lose money on most subscribers that buy tickets for more than one film in a given month. That is if you think the only way MoviePass can make money from a subscriber is through charging a low monthly subscription for the purchase of movie tickets, rather than monetizing them in other ways. And let’s face it, as anyone who has been to an exhibition industry conference in the past year can tell you, it’s all about the data; specifically what is known as Big Data.

That’s where Helios and Matheson Analytics comes in. Aggregating and analyzing big data is their speciality and they are hoping to monetize the moviegoing habits and purchase history derived from millions of cinemagoers and turning around to sell it to the exhibitors themselves, studios or other interested parties. Most advertising driven content owners work through a similar model; provide the content for as little money as possible in order to gain a large audience and then sell that audience to those who want to reach them.

Put another way, MoviePass subscribers may see movie tickets as the company’s product, however the company views the subscribers themselves as the real product.

A larger subscriber base could also help MoviePass push its Open Tab concept. The program allows its subscribers to not only pay for a movie ticket, but also their concessions, a meal, cocktails or anything else at a cinema, right through the MoviePass mobile app. If Helios and Matheson is successful enough in growing MoviePass and gleaming its data, their idea is to go one step further and use the app to allow subscribers to pay for items at restaurants and retailers near cinemas. Date night, entirely paid for through the MoviePass app, and with the company taking a small percentage of each sale.

Lowe was even quoted in Variety as saying, “We’re hoping that if we can drive a meaningful increase in attendance we can share in that success.” Translation, we would like a piece of the incremental revenue from the increased attendance MoviePass generates. As many third parties who have entered the cinema space have discovered the hard way however, dipping into box office may be a step too far.

Likewise, if MoviePass finds it difficult to come in between a theatre operator and its box office receipts, it will soon find the same thing is true of coming in between an exhibitor and its customer data. Larger chains like Cinepolis, Regal Entertainment and others have already figured out just how valuable such data can be. Reading between the lines of AMC’s press release on MoviePass, one can see them tipping their hand about the usefulness of customer data:

While AMC is not opposed to subscription programs generally, the one envisioned by MoviePass is not one AMC can embrace.

Keep in mind that Odeon in Europe, which is a subsidiary of AMC, has a similar “all-you-can-watch” subscription plan called ‘Limitless’. But in that case, the subscribers are Odeon’s direct customers, and the exhibitor can benefit from the data generated from their behavior. The reason AMC can’t embrace MoviePass as a subscription service is because the customers would not be their own, as they are with Odeon.

As for subsidizing the sale of movie tickets to grow a user base, no media outlet last week brought up an obvious and recent example of where this had been done successfully; China. Approximately 80% of movie tickets in China are sold through mobile apps provided by the likes of WePiao, Mtime, Maoyan, Gewara and others. Before these services began consolidating over the past two years, they subsidized the cost of movie tickets, making them much lower for customers and artificially inflating the country’s box office.

China also offers evidence of what can happen to a market when subsidies disappear after a lengthy period of time and prices for a product rise to their natural levels. Mobile ticketing services in China stopped subsidizing tickets earlier this year, and the country’s box office growth has significantly suffered as a consequence. The fear AMC has is that moviegoers will get used to paying USD $9.95 to see movies in cinemas and, should MoviePass disappear, refuse to visit their theatres when they have to buy tickets a la carte.

Another way MoviePass could reach profitability is through breakage; customers paying for a subscription but not purchasing any movie tickets, thus subsidizing heavier users of the service. Health club memberships work in this manner. The reason MoviePass hasn’t raised this concept publicly is probably because it’s unreliable and is no way to quickly increase a subscriber base.

Indeed, the real obstacle for MoviePass in executing its aggressive growth strategy is landing a large investment so the company has enough runway to reach a significant subscriber base before it runs out of money. Lowe admitted to Variety that MoviePass is counting on Helios and Matheson to bankroll the plan, “This is about getting funded in order to launch our new price point.”

Meanwhile, Helios and Matheson is looking to raise money for its big MoviePass plans by taking their newest acquisition public on the Nasdaq Stock Market or the New York Stock Exchange by the end of March 2018. Like any good tech company worth its salt, they’re not waiting for profitability before selling the potential of a market disruptor to shareholders. News of the acquisition has done wonders for Helios and Matheson’s own stock price which has risen over 11% in the week following the announcement.

The same was not true for AMC, whose stock price declined 2.57% on the day MoviePass lowered its pricing, and a total of 5.51% in the week since the news broke.

Past Performance Makes For An Uncertain Future
These days, AMC is used to the price of its shares falling. Since the beginning of the year the company’s stock has slid 63.17% from 34.75 to 12.80, losing USD $2.36 billion in valuation dropping from a market cap of USD $4.04 billion to USD $1.68 billion as it stands today.

Along with its share price, MoviePass is just the latest in a laundry list of concerns for AMC, including some, like premium video-on-demand (PVoD), that have become a perpetual annoyance. As it works to integrate the three cinema chains it has acquired around the world, such as Carmike Cinemas, it will have to determine if the best way to take on MoviePass is head on by implementing their own in-house “unlimited” movies scheme. Unlike in the United Kingdom, the market dynamics in the United States may prevent the exhibitor from launching such a program.

If it does however, look for Regal Entertainment and Cinemark to quickly follow suit. Right now both chains are taking a wait-and-see approach on MoviePass. Even if other circuits don’t fast-follow on the concept, given its size AMC could effectively torpedo MoviePass by getting into the unlimited subscription game.

In the meantime, if MoviePass’s strategy winds up being successful and grows their user base to such an extent AMC and other cinema operators are forced to deal with them, exhibitors will be putting a middleman in between themselves and their customers. It wouldn’t be the first time this has occurred, as Fandango and Moviefone could tell you, but it would be happening at a time when content owners are looking for opportunities to eliminate intermediaries and go direct to consumers; just ask Disney, which recently announced plans to start their own subscription streaming service.

Should MoviePass actually increase attendance at AMC theatres, the exhibitor may find itself in a conundrum. The additional box office revenue would be desirable, but it would likely come with the side effect of losing control of its purchase experience and customer data, while making MoviePass larger and more of a necessity. At a certain point MoviePass would know more about moviegoer purchasing behavior than AMC since it would be aggregating data from more than one chain. Even worse, it could take the knowledge and insights gleaned from selling tickets to movies at AMC locations and use it to help competitors.

This is precisely the outcome that Helios and Matheson Analytics is banking on. They’re willing to lose money on subsidizing ticket sales as MoviePass grows, provided the service can get to a size where the company’s proprietary predictive data analytics can be used to better market movies and ancillary goods and services.

MoviePass, with help from its new owner, is betting the farm on this strategy.  If the company can’t manage to scale their subscriber base to a level useful for mining big data or if after having secured the millions of new users this will require MoviePass can’t convince exhibitors, studios and associated businesses to work with them, their revenue streams will be squeezed and their business model unsustainable.