MoviePass has vaulted in popularity because of an unbelievable offer: Watch a new movie every day in theaters for just $9.95 per month. That’s just pennies above the price of the average U.S. movie ticket of $9.16, according to industry trade group information cited by the Wall Street Journal.
Just eight months ago, when the company introduced the subscription program, it had less than 20,000 subscribers. Within 30 days, that had jumped to 400,000. Now it’s 2,700,000.
That may sound like a booming tech company that would be a great investment, but as college football analyst Lee Corso is fond of saying, “not so fast my friend.”
Financially MoviePass is in crisis mode. The shares of its parent company, Helios & Matheson, peaked at more than $30 late last year but are now a mere 61 cents. The company brought in about $49 million in the first quarter – but spent nearly $147 million. That’s a massive loss that has caused an independent auditor to find there is “substantial doubt” it can continue to operate.
How can a company that has grown its paying customers 135-fold in less than a year be struggling to keep the doors open? The answer is that simple economics still apply, even in our wacky, tech-hungry economy. MoviePass takes a massive loss on subscriptions because it pays theaters the full price for tickets, the Journal reported. Its plan was to make it up by selling advertising and talking theaters into giving MoviePass a cut of the revenue. It hasn’t worked.
Let it be a lesson to other technology companies, who often put growing the number of users and dollars brought in above profit, figuring they’ll figure out a way to make money eventually if they get big enough: The price of any product must reflect the cost to produce it. Technology ever changes, but that truth never will.
— Charlie Smith
