MoviePass Custom Case Solution & Analysis

Evidence Brief

Financial Metrics

Monthly Subscription Price: 9.95 dollars
Average Ticket Cost Paid to Exhibitors: 12.02 dollars per ticket
Subscriber Growth: Increased from 20,000 in August 2017 to 3 million by June 2018
Quarterly Net Loss: 150.8 million dollars in the second quarter of 2018
Burn Rate: Approximately 40 million dollars per month during peak 2018 operations
Parent Company Performance: Helios and Matheson stock price declined from 38 dollars to less than 1 dollar within one year

Operational Facts

Fulfillment Method: Physical Mastercard debit cards issued to users for theater payments
Technical Infrastructure: Mobile application requiring GPS check-in within 100 yards of the theater
Inventory Access: Dependence on standard credit card processing networks rather than direct theater integration
Headcount: Rapid scaling of customer support to manage 3 million users
Geography: Primary operations focused on the United States domestic market

Stakeholder Positions

Mitch Lowe, CEO: Focused on aggressive subscriber acquisition to force industry cooperation
Ted Farnsworth, HMNY CEO: Provided capital through equity dilution to fund the subsidy model
Adam Aron, AMC CEO: Publicly opposed the model and described it as unsustainable
Major Exhibitors: AMC, Regal, and Cinemark refused to share ticket or concession revenue
Subscribers: Highly price-sensitive group attracted by the unlimited movie offering

Information Gaps

Specific dollar value of data sold to third-party marketing firms
Actual percentage of MoviePass users who purchased high-margin concessions
Contractual duration of the Mastercard processing agreement
Internal projections for the break-even subscriber count under the 9.95 price point

Strategic Analysis

Core Strategic Question

Can MoviePass utilize a loss-leader pricing strategy to aggregate enough market power to force theater chains into a revenue-sharing agreement before the parent company exhausts its capital reserves?

Structural Analysis

The movie exhibition industry is characterized by high supplier power. Three major chains control over half of the United States screens. These exhibitors view MoviePass as a threat to their own pricing integrity and loyalty programs. Buyer power is also high; subscribers have no loyalty to the MoviePass brand and only remain while the subsidy exists. The threat of substitutes is increasing as streaming services shorten the theatrical window. The current model creates a negative gross margin where every new customer increases the total loss.

Strategic Options

Option 1: Tiered Subscription Model
Rationale: Transition from unlimited movies to a capped system of 3 movies per month. This reduces the burn rate while maintaining a value proposition for the average moviegoer.

Trade-offs: Significant subscriber churn and negative brand sentiment.

Resource Requirements: Updated application logic and revised terms of service.
Option 2: Direct Independent Theater Partnerships
Rationale: Pivot away from major chains and form exclusive e-ticketing partnerships with small and mid-sized theaters. In exchange for driving traffic, MoviePass receives 3 dollars per ticket back from the theater.

Trade-offs: Reduced theater coverage for subscribers in major metropolitan areas.

Resource Requirements: A dedicated sales team to negotiate individual theater contracts.
Option 3: Data and Advertising Pivot
Rationale: Transform into a marketing agency for film studios. Use the subscriber base to guarantee opening weekend audiences for smaller films in exchange for direct studio payments.

Trade-offs: Requires a massive shift in core competency from logistics to media sales.

Resource Requirements: Advanced data analytics and a media sales department.

Preliminary Recommendation

The company must immediately implement Option 1. The unlimited model is mathematically impossible to sustain. Capping usage is the only way to extend the runway long enough to attempt the partnerships described in Option 2. Without an immediate reduction in the burn rate, the company will face bankruptcy within months.

Implementation Roadmap

Critical Path

Phase 1: Burn Reduction (Days 1-30)
Modify the application to limit all subscribers to three movies per month. Implement peak pricing surcharges of 2 to 6 dollars for high-demand films on opening weekends.
Phase 2: Revenue Diversification (Days 31-60)
Launch an in-app advertising platform for film studios. Negotiate bulk ticket purchases at a discount with independent exhibitors who agree to e-ticketing integration.
Phase 3: Operational Stabilization (Days 61-90)
Reduce customer acquisition spending. Focus on retention of low-frequency users who are profitable under the capped model.

Key Constraints

Capital Availability: The ability of HMNY to raise funds through equity sales is nearly exhausted due to the collapsing stock price.
Exhibitor Hostility: Large chains like AMC are launching their own competing subscription services, which removes the need for a third-party intermediary.

Risk-Adjusted Implementation Strategy

The plan assumes a 40 percent churn rate upon the removal of the unlimited plan. Contingency involves a total blackout of the service on high-cost days if the cash balance falls below a ten-day reserve. Success depends on the speed of technical deployment for the new pricing tiers.

Executive Review and BLUF

BLUF

MoviePass is currently a subsidy program rather than a sustainable business. The 9.95 dollar unlimited model creates a fundamental mismatch between revenue and variable costs. The company must abandon the unlimited plan immediately and transition to a capped, tiered service. The goal is to transform from a ticket buyer into a marketing partner for studios and independent theaters. Failure to execute this shift within 60 days will result in total capital depletion and business failure.

Dangerous Assumption

The most consequential unchallenged premise is that exhibitors would eventually be forced to cooperate once MoviePass controlled a significant percentage of theater attendance. This ignored the fact that major chains have the capital and infrastructure to launch their own competing products, effectively bypassing MoviePass entirely.

Unaddressed Risks

Regulatory Scrutiny: Changing terms of service for millions of prepaid customers may trigger investigations by the Federal Trade Commission or state attorneys general.
Technical Debt: The rapid growth has left the platform vulnerable to outages during peak demand, which will be exacerbated by the implementation of complex new pricing algorithms.

Unconsidered Alternative

The team failed to consider a full transition to a white-label technology provider. Instead of acting as a consumer-facing brand, MoviePass could have sold its check-in and payment technology to mid-sized theater chains to power their own private-label subscription programs. This would have eliminated the ticket subsidy cost while generating stable licensing revenue.