Exhibitors Reach Their WSHDT (We Should Have Done That) Moment

If you remember, the rise of on-demand car services such as Uber and Lyft was met with a chorus of existing taxi and cab companies screaming about how they could totally have done that if they wanted to and maybe they would. Drivers were seeing the value of the medallions they’d leveraged themselves and their families to buy drop precipitously, something that’s lead to more than a few tragic incidents driven by desperation and hopelessness. Cities like Chicago have tried to regulate this new classification of service, but the companies always seem to just keep going until the issue is dropped, usually at the same time it virtually shuts down existing players.

That same pattern seems to be playing out with Moviepass. After a week of bad news including how it’s hemorrhaging money the company hit CinemaCon by playing up how not only are new members signing up in droves but that these members are seeing a whole lot of movies, including more during weekdays than they otherwise would have. Even more specifically, they’re heading to theaters to see movies they would have skipped if the financial risk weren’t essentially zero. To put it simply, they went ahead and headed out to Daddy’s Home 2 because it’s not going to cost them anything extra, so ¯\_(ツ)_/¯.

Tellingly, no actual dollar figures are shared in the most recent report on user activity. Still, before we continue we can do some back-of-the-napkin math, remembering that Moviepass as a company pays the full ticket price even if the subscriber doesn’t, based on comments made in February of this year.

10 (movies per year) X $8.97 (2017 average movie ticket price) = $89.70/year

12 (months in a year) X $9.95 (monthly Moviepass subscription) = $119.40/year

$119.40 – $89.70 = $29.70 (rough theoretical Moviepass margin)

That first number isn’t perfect as the survey cited in the THR story reports subscribers are more likely to head to opening weekend showings, which often come at a premium price. If we up that ticket price up to $12 (still below what it cost to get into an evening show in the Chicago suburbs), the economics begin to tip out of being in Moviepass’ favor and become more advantageous to the subscriber. In this way it’s the same issue that plagued Netflix when it was still primarily in the “mailing DVDs” business: The more people watched, the more it cost the company. The most active and loyal customers become the ones bleeding you dry.

However, since Moviepass pays the full ticket price for the movies its subscribers see, the economics remain consistently in favor of the exhibitors. So using the adjusted $12/ticket number, here’s how that looks:

With Moviepass: 10 (movies per year) X $12 (ticket price) = $120/year

• Moviepass sees $119.40 (base subscription)
• Theater see $120, plus the average $15/person the study says is still being spent on concessions. So at 10 trips/year that number goes to $270 per person per year.

Without Moviepass: 5 (movies per year) X $12 (ticket price) = $60/year

• Theater sees $60, plus $75 in concessions over the year, for total of $135.

So…explain to me where the economics aren’t working out for theaters? If anything, it’s Moviepass that’s coming out with the fuzzy end of the lollipop as their already sketchy or non-existent margins are made even thinner.

Still, building on my original point, exhibitors are mad that Moviepass is horning in on their turf and are beginning to talk about creating a subscription service of their own. Such a system is unlikely because, just as with the taxi industry, it would require those with a vested interest in maintaining control to work with other parties with similar aims on a system that works across companies.

That’s not going to happen. If you need proof you have only to look at the state of the internet, where walled gardens have replaced open standards, as well as the airline industry, which continues to see every airline manage its own frequent flyer program.

It comes down to this: Whatever the industry might build itself is not going to be one designed to encourage people to see more movies. It’s going to be designed to encourage people to see more movies *at one particular chain.* Most exhibitors already have their own loyalty programs and that’s exactly what works for them, just like it does for other players in the retail space. If you spend enough at Kohl’s, you get Kohl’s Cash you can use for future purchases. If you spend enough at Ace Hardware you get a coupon for $5 off next time you’re there. If you spend enough at AMC Theaters, you get a similar coupon.

Moviepass, for all its faults and obvious financial issues, is trying to be a cross-platform player. The real problem the exhibition industry has is that it’s then hoarding all the data, which each company wants for itself.

The exhibitors are right: Moviepass, along with Netflix and others, have trained a generation that the incremental costs of seeing more movies are essentially zero. Anything beyond a flat subscription fee is increasingly too high and not worth it. That’s bad news for that industry. It’s important to remember, though, that one industry does not have a monopoly on film exhibition, despite recent comments about how important theatrical exclusivity is.

The notion shared by an exec in that story that Disney is a great champion of the exhibition industry and that the Disney/Fox merger would then be a boon for that industry is kind of laughable. Disney hasn’t fought off Premium VOD efforts to date because it has some deep philosophical belief that theatrical distribution is essential or inherently good. It’s done so because it didn’t control the platform. Disney+Fox in a world where the former has its own OTT subscription service means, once that platform reaches a critical mass of users, it’s going to start experimenting with putting higher profile features there instead of theaters. It’s a mortal lock.

To co-opt an old bit of conventional wisdom, the hand that controls the data rules the house. Everyone is vying even more for exclusive access to user behavior data than they are for the actual users themselves. We’re seeing that in every aspect of the consumer market, not only with tech companies but with the rise of direct-to-consumer brands that see more value in owning the customer relationship than in outsourcing it to department stores or other retailers.

Chris Thilk is a freelance writer and content strategist who lives in the Chicago suburbs.