MoviePass and Network Effects
MoviePass was a subscription-based service that provided customers with a movie ticket a day (any standard movie in any theater) for a fixed rate per month. It was launched almost a decade ago in 2011, where it was largely unsuccessful in disrupting the market until bought out by the analytics firm Helios and Matheson in mid 2017. So what caused the sudden rise in popularity of MoviePass? Upon acquisition, Helios and Matheson Analytics slashed the monthly subscription price from $50 to $10, lowering the cost of entry by 80%. As we have learned with network effects, lowering the cost of entry (p*) moves the low equilibrium or tipping point, z’, to the left making it easier to overcome the critical point and moves the high equilibrium z’’ to the right, further increasing user population. During the summer of 2017, the number of subscriptions to MoviePass skyrocketed. MoviePass quickly gained a stake in the theater industry and the attention of rivals such as AMC Theatres.
Of course, at such a low price the price p* was set below the cost of operation and Helios and Matheson Analytics was losing money with every subscription. While they were burning through their venture capital, they believed that the early losses would be overturned by later profits after building brand loyalty and influence within the theater industry. MoviePass hoped to turn a profit by brokering deals with major theater chains to get a cut of the revenue that would come with the increase in theater attendance. That is, MoviePass wanted to buy tickets in bulk at a large discount and getting a cut of concession profits. In addition, they collected location data of users before and after attending theaters in the hopes of building an advertising business for companies in adjacent industries. This ties with sponsored search markets that we learned in class, where MoviePass would be able to sell ad slots to high bidding advertisers.
Unfortunately for Helios and Matheson Analytics, they could not turn a profit and stanch the “bleeding” within a year after their rise of popularity. While the obvious idea would be to increase prices to turn a profit in hopes that only a few customers would leave, MoviePass held fast to the $10 monthly fee. Instead, MoviePass attempted to retain its customer base while placing heavy restrictions on ticket availability. In return, MoviePass faced backlash from users due to the change of product quality, not to mention the unpredictable and constant outages in their app and increased privacy concerns. MoviePass CEO Mitch Lowe constantly assured customers that a new business plan would soon solve these issues. However, this solution never actualized, and it was clear customers were not willing to spend more than $10 now more than ever. MoviePass shut down for weeks on end to save money and eventually in September 2019, the company announced its closure.
What can we learn about the failures of MoviePass? Operating at a loss while offering a product that is fundamentally not unique/irreproducible with competitors is bound to fail. MoviePass didn’t offer anything that was different about the movie experience, just lower prices than its competitors. Customers weren’t loyal to the brand but rather were “loyal” to the low price of the value-oriented product; and it showed when quality started to slip and customers left in droves. In the end, Helios and Matheson Analytics lost half a billion dollars in this venture due to inability to turn a profit while retaining customers.
https://www.theverge.com/2019/9/19/20872984/moviepass-shutdown-subscription-movies-helios-matheson-ted-farnsworth-explainer