MoviePass Escalates AMC War as CEO Answers Critics

Courtesy of MoviePass

The company pays full price for the tickets, but said Friday it has excluded 10 AMC theaters.

It could be all-out war between AMC and MoviePass, the service offering a movie ticket per day for just $9.95 a month.

"Since the get-go, AMC has not been interested in collaborating with MoviePass — a move that is not in the interest of our subscribers and AMC theatergoers," Ted Farnsworth, CEO of MoviePass parent Helios and Matheson Analytics, said Friday.

MoviePass pays full price for the tickets it buys its subs, but said Friday it has excluded 10 AMC theaters. "We already know in past testing that MoviePass subscribers are not theater-loyal; they're happy to drive by a theater that may be closer to a theater that will accept MoviePass," said Farnsworth, who maintains that MoviePass could generate $34.4 million of gross profit for AMC in the upcoming quarter.

MoviePass CEO Mitch Lowe — who knows a thing or two about potentially disruptive businesses, given he was also on the ground floor of both Netflix and Redbox — answered his detractors in a Q&A with The Hollywood Reporter

Beyond Friday's statement from Farnsworth, what’s the latest in AMC’s threat of legal action to opt out of your service?

Well, you haven’t heard anything since their earnings call a few months ago when they basically said they’re happy to take our money, we just can’t figure out how they’ll make money. That’s a far cry from August when they said they want to figure out how they won’t have to take MoviePass. I spend literally millions of dollars buying AMC tickets and my subscribers spend twice what they were spending for concessions at AMC at 80 percent margins. I’d think at this point, if you were a good businessman, you’d be thrilled to take our money.

How much are you losing per subscriber?

We don’t reveal that, but you’d be shocked how little it is. In the near future, we’ll be sharing those numbers, and it’s going down — the longer a subscriber subscribes, the fewer movies they see in a month. Also, we started out getting a lot of heavy moviegoers, the 11 percent of the country who were seeing 18 or more movies a year, and now we’re getting more of the average moviegoer who sees four-and-a-half movies a year.

If they’re seeing fewer than a movie a month, why do they bother subscribing?

That’s a perfect question. They tell us they’re sick and tired of wasting their money on a bad film and MoviePass is like insurance: They know they risk a bad movie and even walk out early, trash it, and not feel like they wasted their money. They also like a fixed fee, so they can see five movies in December that are nominated for Golden Globes, then not see any in January, and see more when the Oscar nominations come out.

You say marketing movies is a path to profitability. But when one of your subs go to a movie you market, it costs you the price of a ticket, almost $10. How is that a good thing for MoviePass?

We’re collecting on average $2 from a studio to market their film and ultimately we’ll be getting a $2 discount from most exhibitors and eventually we’ll be getting $2 to $3 in increased concession sales. I know many say they don’t want to do that, but when we partner with a theater giving us a 20 percent discount, subscribers go to that theater four times more often than they did before and spend twice as much on concessions. We’ll also be selling advertising.

Do you have any big theater chains splitting revenue with you yet?

We have about 1,000 screens that give us a discount and we just signed our fourth studio contract. The names are confidential, but subscribers will see the promotions.

Any theaters splitting concession revenue?

No, but we don’t quite have the technology to make that work. Our subscriber would have to pick their concessions within the app and it would have to be integrated at the point of sale, and we haven’t built that yet.

You mentioned both marketing and advertising. What’s the difference between marketing and selling ads?

Advertising meaning banner ads within our application, not just for movies, for anything. We signed a deal two weeks ago with iHeart Media. They’ve become our non-exclusive reseller of advertising on our app and our site.

You also said selling data is a path to profitability. What data do you have that the studio marketers do not have?

It’s not so much selling the data as using it. For example, we know the moment you walk out of Star Wars that you’re emotionally charged and we know where you are, and we could hypothetically sell you all the previous Star Wars with a click, or tell you there’s a restaurant across the street where you’ll get a free appetizer with your MoviePass app.

Have you done that with any films yet?

We tested and got between 1 to 4 percent purchase rates without any discounts.

Did you test it with the permission of the studio?

Why would we need their permission?

I don’t know. What movie did you test it on?

Three or four months ago, and I don’t remember the title.

How long before you’re profitable?

We figure between 3 million and 4 million subscribers.

What other initiatives are in the works to monetize your business?

Those are the big ones. We’re signing five contracts a week with independent theaters where we get a lower cost on tickets and that will ultimately lead to a piece of concession sales, and we have a team in L.A. striking deals with studios.

How much cash do you have?

Plenty.

Is there a point when you’ll just not be able to afford more subs because you’re buying them too many tickets?

No. I don’t know why everybody believes that our customers are watching so many movies. At some point we’ll share more data with you and you’ll be shocked. In the meantime, we’re investing for the future and our subscribers are going to the movies twice as much as they did before.

But when you say things like that it seems to indicate they’re going more than once a month, and that’s all it takes for you to lose money, no?

The primary subscriber is one of the 200 million people who see four-and-a-half movies a year and when you double four-and-a-half you get to nine, and that’s three quarters of a movie a month.

If you’re going to be marketing films to people and your whole pitch is that they’ll see more films, then what happens when your average subscriber is seeing two films a month?

If that happens for any length of time there will be a lot of people who benefit and they’ll have to decide: Do they want us to continue to do this and will they share a small portion of their incremental profit?

Is there a point where you’ll need to raise the price of a sub?

We don’t need to raise the price. I spent a year studying how I can get people who spend $50 a year going to movies to spend $120 a year, and $9.95 is the price point that gets them into the theaters more often.

Is there a point where you’ll need to restrict tickets to off-hours, like weekdays and matinees only?

I don’t know why we’d need to do that, because that happens to be the primary way our subscribers use the service. They know it’s not a luxury product and they may not get a seat on opening weekend because with MoviePass you can’t reserve a seat until you get to the theater. So our subscribers naturally go after opening weekend and during the week and during the day. That’s a byproduct of the way the service works. You can’t expect all the bells and whistles, and theaters like that because we’re filling seats that would go empty.

What’s your answer to the claim by AMC and others that your service devalues the moviegoing experience by making it dirt cheap?

How are we making it dirt cheap when we’re taking someone who only spent $50 a year on movies and getting them to spend $120? It’s almost un-American to think that their method is the right one. Their method is, every year 3 percent fewer people go to the movies, so we’re going to raise prices. That’s a dead end. They’ll do what they’re already doing, which is drive people to streaming.

Walk me through the mechanics of being a user.

You sign up and we send you a MasterCard debit card that has no value and you then upload our app that lets you click on the movie you want to see and the theater and showtime. You will click “check in” when you get 100 yards from the box office and that card will become good for 30 minutes at that theater only with enough credit to buy one ticket, and you can do that once a day.

Is there a way to troubleshoot if it’s not working when I get to a theater?

Like any service, we can have problems with the internet, but we’re in the process of rolling out live phone help. But the theaters we do partnerships with, like Studio Movie Grill, you don’t use your card because a barcode comes up on your phone.

Are you considered one of the founders at Netflix?

Technically, I’m a co-founding executive. I hired Ted Sarandos. I owned a chain of 10 video stores in Northern California and he was my rep. When Reed Hastings wanted me to move to L.A. and run content, I couldn’t do it, so I talked Ted into joining.

Do you regret not taking the chief content role at Netflix, which has made Sarandos very rich?

Well, I got plenty rich, but I couldn’t have done anywhere near the job that Ted has done. I love movies and content, but Ted’s just a genius. Three years later I was recruited by McDonald’s, which had this crazy idea that if you put movie kiosks in their restaurants they’d sell burgers and fries when you had to return the movies, and that’s when Gregg Kaplan and I founded Redbox, funded by McDonald’s.

What’s one more thing you want consumers to understand about MoviePass?

It’s a way to see all those great movies you want to see in theaters that you’d normally wait for on video, and it’s the same price as Netflix.

What’s one thing you’d like to say to put the movie industry at ease?

That I’m a big believer in seeing movies at theaters and want nothing more than to make the entire ecosystem healthier and stronger. There’s nothing else out there that has had a more positive influence on theaters than MoviePass.

Jan. 26, 2:30 p.m. Updated with the following statement from AMC: "AMC has taken no action to block the acceptance of MoviePass at our theatres. We have no further comment about MoviePass' unilateral actions. We are, however, disappointed that MoviePass continues to make false statements about AMC, including today when MoviePass greatly exaggerated its contributions to AMC's profitability."