MoviePass – Inevitable end

Too good to be true usually is.

• MoviePass had admitted the inevitable (see here) and closed its doors as the harsh weight of reality has forced its backers to realise, that without monetising the data, there was no chance of success.
• For the movie buff, MoviePass was the best thing since sliced bread as for a single payment of $9.99, the subscriber could see all the movies he or she wanted.
• MoviePass was Netflix for the cinema which on the surface sounded great but the business model was fundamentally flawed.
• Netflix pays a fixed price for the shows and films that it has whereas MoviePass was paying the cinema every time the user saw a film.
• When comparing the two, the Netflix model works as compared to usage it has fixed revenues and fixed costs whereas MoviePass had fixed revenues and variable costs.
• Furthermore, from looking at the simple economics of its model, it was clearly going to fail unless it found some other way to make money.
• Using US market data I concluded that: With 2m users, this equates to $17.6m gross losses (-88%) every month before any operating expenditure is taken into account (see here).
• This adds up to $211m in annualised losses which is clearly completely unsustainable.
• Furthermore, there was no way that MoviePass could grow out of this position because the more users it got, the more money it lost and the more unsustainable it became.
• This is very similar to the problem that WeWork has (see here) but fortunately for WeWork, it has very deep-pocketed and committed backers.
• Its unwillingness to track its users left and monetise the data left it with no option other than to raise prices.
• However, what the company tried to do was raise more money to fund its losses and I am not surprised to discover that no one was interested.
• The growth at any price approach is coming seriously unstuck and the mess of WeWork’s IPO has brought this into very sharp focus.
• Hence, the willingness of investors to throw good money after bad has run out, leaving MoviePass with no other option than to close down.
• This, combined with the market’s resistance to swallowing WeWork’s valuation in the public market leads me to hope that we are entering more sensible times.
• The net result will be fewer but higher quality IPOs of businesses that are more mature with profits and cash flow which can be objectively valued.
• This won’t make the investment banks and the VCs very happy but private investors and the long-term funds will be better off.