Moviepass reminds me of Groupon

Older readers might not have heard of the company MoviePass but millennials likely have, as they account for half of the 2 million subscribers (link).

Moviepass is basically Groupon, which we debunked on this blog years ago. Scratch that. Moviepass is worse than Groupon. At the start, Groupon had at least some cheerleaders but Moviepass sounds dead on arrival.

Recall: Groupon is the digital coupon startup that offered an incredible deal to consumers - a typical coupon for a restaurant will let you dine there at half price or more. So for a $100-meal, the restaurant gets paid $50, but Groupon also claims it is bringing diners to the restaurant and takes a revenue share, meaning the restaurant takes in $25 before paying rent, food costs, people costs, etc.

Groupon definitely has a great deal for consumers but the restaurants got the short end of the stick. The deal only makes sense if the coupon users would otherwise not have dined at the restaurant. If the coupon users are regular diners, then the restaurant loses $75 for every such table! You'd need three new diners to cover the loss of one regular diner (that only gets the restaurant to break even on the offer cost). In Numbersense, I use this example to illustrate counterfactual thinking.

Worse still, the regular diner has a higher chance of wanting that Groupon, just because s/he already likes the product.

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What is Moviepass? It is a monthly subscription plan for movie-going. It made the news in 2017 when the company dropped the monthly subscription price to $9.95, and grew subscribers 100-fold to 2 million. For $9.95 a month - roughly the average price of one movie ticket, subscribers are allowed to see one movie a day. Yes, this is insane.

It is even more insane. Moviepass pays the movie theaters full price for the tickets so the only way it makes any profit is if the subscriber does not watch even one movie a month. They would need subscribers who pay them monthly but don't watch movies.

Exactly the opposite should happen. The more movies one watches, the more lucrative is this subscription plan, and the more likely one will sign up. If movies is not a big part of your life, you're just not going to buy a subscription in Moviepass. If a subscriber watches one movie a day (the maximum allowed), then Moviepass loses $290 each month for that customer, month after month. I also know a subscriber who has a habit of just booking tickets and not using them. Just for giggles, he says.

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There is speculation that maybe the cinemas eventually will strike a deal with Moviepass to sell them tickets at a discount. If cinemas were to do that, they become like the restaurant owners who bought into the Groupon scheme. The cinemas might think this brings them new customers. The reality is that it's their most loyal customers who will sign up most enthusiastically.

For each loyal customer who sign up, the cinemas would lose revenues on the discounting. If they gave Moviepass a 50% discount, then instead of getting $10 a ticket from these loyal movie-goers, they get $5 a ticket. To pay for that discount, Moviepass has to deliver one additional ticket from a newbie who would otherwise not have gone to the movie. But the loyal customer may watch say one movie a week but the newbie might watch one movie a month. So the cinemas might require four newbies to pay for the discounting of one loyal customer!

Moviepass is no doubt a great deal for movie lovers. But how long can this last?

 

 

 

 

Comments

[Glen DePalma]

You have to be within 100 yards of a theater to book a ticket to movie pass. This brings into question the person who actually books tickets but doesn't use them. Either way they are a huge loser.

[Glen DePalma]

I don't think this is as bad as Groupon. Movies make a lot off concessions for one. Plus if I go to an extra movie with the pass that I would not have gone to otherwise, assuming the movie is not sold out, the theater doesn't lose any money.

[Kaiser]

GdP: At the moment, the theaters are doing fine since they are getting fully reimbursed. But if the theaters don't chip in, Moviepass can't make money. The concessions angle is interesting: if the profits from concessions are enough, we should see theaters run targeted campaigns to get you to see a movie for free, hoping you'll then spend on concessions. That was a Groupon argument too. But here's what the restaurant owners discovered: the type of people who use coupons are really cheap, and would try to not spend an extra dime above the coupon amount! One of the key factors to consider here is that the dealseekers are not your average customer.

[Ken]

The problem with Groupon is that it worked in a way that didn't make commercial sense. Many restaurants are booked out on a Friday and Saturday so there is no point in offering cheap meals then. What makes sense is to offer cheap meals on say a Tuesday when they have few customers. The way that restaurants run is that the fixed costs are all paid for by the busy days, so they don't have to be paid for by customers on a week night and they account for about half the price of the meal.

Of course, if it works it will give the landlord an excuse to push up rents, as they see the restaurant being more heavily used and expect that profits are higher.

[Kyle Crocco]

I think the plan is also to make money off the user movie data for watching movies.