MoviePass / Fail? : The Indicator from Planet Money If you pay MoviePass 10 dollars a month, you can go to the movies every day. Great for customers, but hard on a company's bottom line. Today on the show, what's the plan, MoviePass?

MoviePass / Fail?

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CARDIFF GARCIA, BYLINE: In a world where a movie ticket costs $15 and a small soda costs $9 and popcorn costs $15, somehow your spontaneous after-work trip to the movies has cost you $70.

(SOUNDBITE OF WOMAN SCREAMING)

GARCIA: A hero with a really weird business model will rise to save people from this outrageous price - MoviePass.

(SOUNDBITE OF EXPLOSION)

STACEY VANEK SMITH, HOST:

(Laughter) Cardiff Garcia, you have a gift.

DANIELLE KURTZLEBEN, HOST:

Do you need me to do a movie voice, too, or are we good?

VANEK SMITH: (Laughter).

KURTZLEBEN: MoviePass is a monthly service you sign up for. It costs $10 a month. And for that price, you can see a movie every single day.

ERIC MARK: "First Reformed," "Deadpool 2" "Pope Francis - A Man Of His Word," "Dark Crimes."

VANEK SMITH: Eric Mark (ph) works as a film industry consultant in Los Angeles. And he has always gone to the movies a lot. But ever since October, when he first got MoviePass, he has been going around three or four times a week. And he is seeing a lot of movies.

MARK: "Ocean's 8," "Action Point," "Adrift," "Show Dogs" - OK, I'm a little bit embarrassed about that.

VANEK SMITH: (Laughter).

MARK: "Summer 1993."

KURTZLEBEN: So with MoviePass costing $10 a month, Eric couldn't really afford not to join.

MARK: As the moviegoer, I was enthralled. As someone who talks to people on, you know, how they should run businesses within this industry, it seemed like a insane business model.

VANEK SMITH: (Laughter).

KURTZLEBEN: You buy the movie ticket through MoviePass, and MoviePass in turn buys the ticket at full price from the theater, which means every time Eric sees another movie...

MARK: "Avengers: Infinity War," "Wonderland," "Endless," "I Feel Pretty."

KURTZLEBEN: ...MoviePass loses money. In fact the more subscribers it has, the more money it loses. This is THE INDICATOR. I'm Danielle Kurtzleben.

VANEK SMITH: And I'm Stacey Vanek Smith. Spending money to make money - this has been an entrepreneurial mantra for a long, long time. But lately it seems like companies are stretching this idea beyond the logical limit. Today on the show, the curious case of MoviePass.

GARCIA: Forget everything you thought you knew about economics.

(SOUNDBITE OF MUSIC)

VANEK SMITH: When MoviePass started more than five years ago, the service cost about 40 bucks a month.

How many users did you have?

MITCH LOWE: Yeah, we had 20,000 subscribers.

VANEK SMITH: This is Mitch Lowe, CEO of MoviePass. When he took the helm of the company in 2016, it was kind of a niche company catering to real movie buffs. Mitch wanted to grow his customer base, and he was kind of looking around trying to figure out how.

KURTZLEBEN: And then he came across this data point - about 90 percent of Americans were going to the movies just four times a year, mostly to big-event movies like "Star Wars" or "Black Panther." Now, they were all watching tons of movies, but they were just watching them at home on Netflix or Hulu.

VANEK SMITH: But getting that group to come to theaters for regular non-big-event movies was hard because Netflix and Hulu are so cheap. They're, like, 10 bucks a month. And you can watch all the movies you want for that price. Also, no tall people are going to sit in front of you. And, you know, no one is going to take a phone call during the movie unless it's you...

KURTZLEBEN: Unless you do.

VANEK SMITH: ...And it's a phone call you want to take.

LOWE: So in order to attract that group, we needed to make it a price that just was, you know, kind of a no-brainer.

KURTZLEBEN: So Mitch matched the streaming services' price. Last summer, he cut MoviePass' subscription costs from $40 a month to $10 a month.

VANEK SMITH: That was going to mean losing money on most subscriptions. But Mitch's goal was to grow the service from 20,000 subscribers to 150,000 because once Movie Pass had more users, Mitch thought he could start using their data to target ads and movie recommendations and start making money in those ways. But then something kind of unexpected happened.

LOWE: I remember sitting in a cafe at a Starbucks right off Madison Avenue. And of course, you know, everything came crashing down. It was like we had built the system to be able to bring in about 50,000 new subscribers a week at the most. And we thought, boy, we have plenty of room. And of course, you know, we did that - we did three times that in two days.

KURTZLEBEN: Which is awesome, right? They blew right past that target. I mean, businesses dream about that kind of popularity.

VANEK SMITH: Except in the case of MoviePass, this was a little bit of a problem because growing that fast was costing them a lot of money.

And how many members do you have now?

LOWE: Well, we're fast approaching 3 million subscribers.

KURTZLEBEN: Audrey Collins (ph) is one of those 3 million. She lives in New York. And since getting her MoviePass, she's noticed some changes at her local theater.

VANEK SMITH: Do you feel like there are more people in the movie theaters than there were?

AUDREY COLLINS: I definitely do. I would say that's one of the biggest changes I've noticed. And I know a lot of friends when I'm in line. Almost everybody I see in line pulls out a MoviePass card. Like, I very rarely see people without one.

KURTZLEBEN: According to Mitch, 5 percent of movie tickets sold in the U.S. right now are sold through MoviePass.

VANEK SMITH: But you guys are losing money on every ticket.

LOWE: Yes, there are some people who go to lots of movies, and then there's lots of people who go to very few movies. And in fact our average is 1.7 movies per month per subscriber.

KURTZLEBEN: So the company loses less money when people see fewer movies. And if the average user is only seeing 1.7 movies per month, then MoviePass only has to buy 1.7 movie tickets per month.

VANEK SMITH: But even if at 1.7 average - I mean, you're still losing with 3 million - you're still losing, like, $21 million a year.

LOWE: No, a month.

KURTZLEBEN: Twenty-one million dollars a month - that is today's indicator. That is the amount of money that MoviePass is losing every month - every month - because of its extreme popularity.

VANEK SMITH: MoviePass' parent company, Helios and Matheson, is madly trying to restructure its finances to weather the losses that have come with this extreme growth. Its stock price has dropped about 98 percent. But Mitch says this is all part of the plan.

LOWE: You know, remember; Amazon, you know, for - what? - 20-plus years lost billions...

VANEK SMITH: That's true.

LOWE: ...And billions of dollars...

VANEK SMITH: That's true.

LOWE: ...And today is now the most valuable company out there.

VANEK SMITH: But for every Amazon there are a lot of companies who do this upfront thing to try to get subscribers and then can't get over the hump. Like, why do you think you will be able to get over the hump?

LOWE: Well, there's a couple reasons.

KURTZLEBEN: Stacey, thank you for pushing back on that.

VANEK SMITH: (Laughter) I mean, the Amazon model - it gets quoted a lot.

KURTZLEBEN: Well, I mean, for any entrepreneur it's given them a new kind of logic, right? Like, well, Amazon lost money, and they're successful. Ergo, if I lose money, I'll probably be successful as well. It's perfect logic.

VANEK SMITH: That's true. And MoviePass does have an extraordinary number of subscribers. But they are spending an extraordinary amount of money.

KURTZLEBEN: But hold on. Let's hear Mitch out here. Like, here are the couple of reasons that he was talking about. So first, studios are paying MoviePass to promote their movies.

VANEK SMITH: Also, MoviePass is going to start using surge pricing for really popular movies. So customers will have to pay a little bit more for those.

KURTZLEBEN: But their big plan really is big data.

LOWE: You know, we're building up this whole thing called night at the movies where if you're going to the 7 o'clock showing at Lincoln Square, we know there's a couple great restaurants across the street. We know you might need child care from, you know, care.com. You might need a ride from Lyft. And so we're working with all those companies to, you know, give you discounts and specials by using it and then getting paid by those merchants to drive business to them.

KURTZLEBEN: Mitch says he expects MoviePass to break even by the end of the year. In the meantime, he says, the insanely low subscription price is keeping competitors away.

LOWE: No one is brave enough to do what we're doing.

KURTZLEBEN: That is, until this week. AMC just launched a subscription service for $20 a month. You can see three movies a week at an AMC Theater. Unlike with MoviePass, you can book movies days in advance, and you can see premium movies like IMAX movies. And MoviePass' stock fell 30 percent on this news. It's now trading at about 30 cents a share. But I mean, it's really about - can they just make money fast enough to cover their losses, which also seem to be building pretty fast?

VANEK SMITH: And was Mitch right about the $10 subscription fee? If Audrey the New Yorker is any indication, Mitch was right. She says $10 a month works for her. Twenty dollars a month is too much.

COLLINS: Especially when you consider, you know, Netflix subscriptions and Hulu and all of that. I feel like if I was going to do $20 a month, I would have to cut out one of those other ones.

VANEK SMITH: Point MoviePass.

KURTZLEBEN: Right. If we're in a world of Audrey's, MoviePass might just make it. But if we're in a world of Eric's, MoviePass might be in trouble. He says $20 a month would still be a great deal for him.

MARK: "Detective K: Secret of the Living Dead," "The Panther," "Loveless," "Peter Rabbit," "Early Man," "Entanglement," "15:17 To Paris," "The Shape Of Water," "Before We Vanish" - so now I sound a little crazy.

GARCIA: Two services - one will rise, one will fall. Only time will tell, which is a super cliche way to end a movie trailer or a podcast episode.

(SOUNDBITE OF MUSIC)

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