Yes, the $9.95-a-Month Movie-a-Day MoviePass Works

When MoviePass first made it public that it intended to offer members access to one movie a day at over 90% of theaters in the United States for just $9.95 a month, the announcement was met with a lot of skepticism.

That was at least partly because the deal seems too good to be true. Since the average price of a movie ticket hit an all-time high of $8.84 in the first quarter of 2017, according to the National Association of Theater Owners, MoviePass loses money if members see just two movies a month.

The company, which was started by Netflix co-founder Mitch Lowe, told Motley Fool in an email that it plans to cover its deficits by selling the data it amasses. That seems a little far-fetched, but that's what Ted Farnsworth, CEO of Helios and Matheson Analytics Inc. (which owns MoviePass) told us.

For now, it's selling access at $9.95 a month. And while it seems too good to be true, it does actually work. And while it's not a particularly smooth system, it got me a ticket to a movie without too much trouble.

How does MoviePass work?

MoviePass, it's worth noting, has actually been around for a while at price points ranging from $30 to $50 a month. At those prices, it essentially had the same model as many gyms, where it offers just enough value that people don't quit even when they are not getting their money's worth.

To get and use MoviePass consumers must follow five steps:

  1. Download the company's app on an Android or iOS phone
  2. Wait 5-7 business days for your card to arrive
  3. Go the theater where the movie you intend to see is playing.
  4. When you are within 100 yards of the theater, you can check in and essentially tell the app you intend to buy a ticket.
  5. Use your MoviePass card (it's a MasterCard debit card) to buy your ticket at a kiosk.

When I first used the system I walked over to a theater owned by AMC Entertainment Holdings (NYSE: AMC), a company that came out strongly against MoviePass. The theater chain called the $9.95 offer "not in the best interest of moviegoers, movie theatres, and movie studios," in a press release and said it's pursuing legal strategies to block it.

So far, that has not worked. I was able to walk up to my local AMC-owned Muvico theater, pick a movie, check in, and buy a ticket. It wasn't a completely smooth process -- the check-in took a few tries, and MoviePass does not explain what to do once you complete that. I assumed that I would be using the "pickup pre-ordered tickets" feature at the kiosk. In reality, you go through as if you are buying a new ticket and simply use your MoviePass card to pay. Once you do that you get a ticket that looks no different from one purchased any other way.

It still may be too good to be true

MoviePass works well enough that I plan on seeing some movies I otherwise may not have. That's perhaps good news for some films that are not blockbuster hits, but it also shows how untenable the company's model is.

For every film I see, MoviePass pays my local AMC full price (roughly between $9 and $11 dollars) for any non-3D or IMAX film I want a ticket for each day. I generally see maybe 2-3 movies a month, perhaps more in the summer. With MoviePass I will probably see at least one each weekend, bringing along my wife and son. That's roughly $120 worth of movie tickets a month that MoviePass must buy on $29.85 in revenue without getting any sort of kickback from the most theater chains (the company does have deals with a few smaller players).

That's a big deficit, and the data MoviePass will gather has some flaws too. For example, the company will know that I was willing to see Despicable Me 3 for free, and lots of other movies I would not pay for.

It's hard to see this business model having any sort of long-term viability despite what MoviePass claims about monetizing its data. At some point the company will either go away, raise its prices, or be squeezed out by AMC finding a legal or technical angle to block it.

For movie fans, this is an enjoy-it-while-it-lasts situation that does work, but probably won't last too long.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends IMAX, Mastercard, and Netflix. The Motley Fool has a disclosure policy.