In Q1 of 2018 MoviePass hit 1.5 Million subscribers and was taking off like wildfire, yesterday my MoviePass stopped working and the stock is worth less than $1!
Mitch Lowe, CEO of MoviePass had a revolutionary idea, but had some budget miscalculations to say the least. While this entertainment industry disruptor looks to be defeated, there are some great takeaways that you can apply to your business.
What is the Offer to Conversion Ratio?
In the marketing world we often talk about conversions. This is the action or behavior you want the consumer to take after exposure to marketing initiatives. In this case MoviePass was looking for subscribers and was the only service of its kind initially.
How did MoviePass determine the price it should charge for this unlimited theater pass subscription? Here are the general factors we can consider to determine the subscription price. As you can see below it’s not as simple as you’d think, and our speculative MoviePass business model is getting quite complex fast.
- How many movies on average will customers attend in 1 month?
- Cost of Goods Sold (Negotiated Bulk Theater Ticket Cost),
- The more you buy the better the price?
- Traditional Marketing Budget Per Subscriber
- Is this offset by lowering the subscription price? By how much?
- Subscriber Lifecycle? How long will they remain subscribers, at what price, and will their use of the service decrease over time to offset costs.
- Sales of Demographic Data Income
Above are some speculative numbers based on forecasted consumer habits. Typically, when you charge less for a product or service it’s easier to sell and your customer acquisition cost will decrease. MoviePass started at around $50 when it first launched and kept decreasing down to $6.95 to dramatically increase growth. And growth increased, it seemed to work as planned.
Here we see how the customer lifecycle likely fared. Selling a subscription at $50 is only appealing to hardcore moviegoers. More importantly, a $50 expense is much more visible than $6.95 on the household budget. The 6.95 price point is a nominal amount, making it almost invisible on most bank household budgets, but is that really sustainable?
How much was MoviePass paying theaters? My local theater told me they got full price…that’s a hefty sum and can spike when popular movies are released. The MoviePass App went down during the release of Mission: Impossible – Fallout as well as during Opening Weekend of Disney/Marvel’s Ant-Man and the Wasp. Something tells me this wasn’t a software glitch.
The chart above explains speculated consumer behavior based on the price they paid for MoviePass. The more a consumer pays for the pass the more movies a consumer likely feels they need to attend to get their money’s worth. At the $6.95 price point, the hope was many consumers would forget about the pass after a few months and only attend the few big movie releases per year thus reducing costs of goods sold.
Stick With The Plan (And Actually Have One)
A workflow I use with my e-commerce consulting clients is based on offering an amazing deal, getting some conversions, then backing it off till sales slow down. It’s a pretty simple idea to creep back the offer value till consumers decide it’s not good enough, conversions slow down and you find that sweet spot.
MoviePass basically did this from both ends toward the end which caused user confusion, dismay, and wrecked the model. They started at $50 a pass and ended up at $6.95 but haphazardly added a bunch of restrictions and price surges which alienated a huge piece of their customer base.
With a little more foresight MoviePass could have seen AMC and other large theaters stealing their model. What was the market advantage of MoviePass to begin with? MoviePass may have had a better chance if it stuck to a more realistic value $20 mark and didn’t implement the strange restrictions.
People Don’t Value What They Don’t Pay For
I purchased MoviePass at $10 and personally didn’t believe it was real till we used it. We were so surprised when it worked that we told all our friends. Many of them didn’t believe it was real and didn’t buy it because it seemed too good to be true. Even after we told them it worked, most of our friends thought it was short-lived or fraudulent and never signed up.
At a higher price point like $20, consumers would definitely see it as more valuable and legitimate and subscribership would likely increase.
How Much Is Your Audience Worth?
The premise of MoviePass was to sell cheap Theater seats under the guise of harvesting demographic data for marketing. How much is that really worth and how much can you sell the data for? Looking at the numbers MoviePass was trying to crunch there was no way selling demographic data could offset their losses at $6.95 a subscriber.
Many huge companies like Netflix publicly state they are operating at a loss but are worth billions largely attributed to their reach and audience. There is a ton of power having access to huge audiences, but it didn’t sound like MoviePass was leveraging it at all. As a subscriber, I was never solicited for anything other than what movies I should see and the recommendations were awful.
Thanks For the Great Idea MoviePass!
The long game and true market advantage in this category go to AMC. They can leverage physical locations for promotion and can include onsite food and drink offers to control consumer behavior. AMC will have deeper access to their customers through subscribership and can monetize further through ads and co-promotion leverage. Thanks MoviePass for generously laying out the idea and business model for them. Their $20 (3 Movies a week) pass is a more sustainable (and believable amount) and AMC can afford to take a bigger hit since they are selling $10 popcorn and cola.
The bigger lesson here is, if you have a disruptive big idea, make sure you have a clear market advantage and do it right the first time, otherwise, someone might just take your idea and do a better job of it.
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