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MoviePass Business Model is ‘Highly Uncertain’ as the Company’s Owner Releases Stark Financials

In a SEC filing, MoviePass owners Helios and Matheson revealed they are spending over $20 million a month and quickly running out of cash.

MoviePass

The stock price of Helios & Matheson, which owns 92 percent of MoviePass, plunged by one-third today after an SEC filing revealed that it only had $15.5 million in cash at the end of April, while burning through approximately $21.7 million a month. The filing also stated that MoviePass had $27.9 million on deposit with several payment process vendors; those funds are used for ticket fulfillment and other general operating costs.

A Bloomberg report attributed the dramatic price drop to Wall Street speculation that the clock may be running out on MoviePass. Helios & Matheson CEO Theodore Farnsworth acknowledged in the filing that MoviePass’ business model is “highly uncertain,” and that the company was “unable to to estimate the actual funds we require.”

Since August, when MoviePass slashed their monthly membership to $9.95, MoviePass CEO Mitch Lowe and others with the company have maintained that the company’s business model accounted for it losing money as the business grew. In an interview with IndieWire back in early February, Lowe dismissed claims that the company faced cash-flow problems.

In the February interview, Lowe said: “We have a significant partner who has the ability to raise enough money to get to the profitability stage. It always surprises me when people ask me this, like I just always wonder why no one asks AMC why they had to borrow $4.2 billion dollars to stay in business, why Netflix has to borrow $5 billion to stay in business? When you are building a business like this, you invest in content. Our content is buying tickets. You invest in building a subscriber base, and that’s exactly what we’re doing, so believe me, we have enough money to support the business and we’re already way ahead of where we thought we would be at this time.”

MoviePass Mitch Lowe and Ted Farnsworth

MoviePass CEOs Mitch Lowe and Ted Farnsworth

Drew Osumi

However, MoviePass membership grew at a much faster rate than even Lowe and his team estimated, hitting 2 million subscribers in just over four months and on track to hit 3 million by May — 30 percent quicker than even the company’s initial lofty estimate. Beyond questions about the long-term validity of the MoviePass’ business model, most financial analysts questioned if Helios & Matheson had the funds to take on the necessary debt.

Signs that MoviePass was racking up too much debt first came in February, when Helios and Matheson increased its stake from 51 percent to about 78 percent and advanced the company more than $45 million to support MoviePass’ working capital and operational requirements. Then Helios & Matheson issued more stock in an effort to sell more shares and raise capital, but this massively diluted the value of each share.

There is also evidence that suggests MoviePass customers use their cards more than the company anticipated. AMC, the largest chain of theaters in North America and an aggressive MoviePass opponent, estimated on its quarterly earnings conference call May 7 that MoviePass customers went to the theater 2.62 times in March, and 2.75 times in April. Based on these numbers, AMC estimated MoviePass loses $20 per customer, per month. While AMC doesn’t have access to the MoviePass data at other theaters, and the company’s ticket prices are higher than the national average, they do account for approximately 50 percent of the theaters in the U.S. AMC earnings beat Wall Street expectations in Q1.

Last week, MoviePass briefly changed its policy terms, limiting customers to four films per month and preventing subscribers from seeing any movie more than once. Days later, MoviePass reversed itself to permit one ticket per day, although the restriction of seeing a movie only once remained. Today, Helios and Matheson estimated that preventing repeat viewings, as well as “a technological enhancement which prevents MoviePass subscribers from sharing their accounts with non-subscribers,” resulted in losses being cut by 35 percent in the first week of May.

The company also acknowledged that it expects losses to “vary significantly” month to month, based on ticket sales. In today’s filing, Helios & Matheson also admitted that without an injection of capital in the near future, they maybe forced to alter MoviePass’ business model and the company’s prospects.

Movie Theater

When IndieWire asked the company to comment on today’s filing, Farnsworth issued a statement that sounded a much more positive note: “To clarify, MoviePass’s growth has been unparalleled as a subscription-based service. We cannot put a number estimate on the amount of money that this growth will take to support, however we are confident that this growth can and will be supported by the HMNY ecosystem.”

The MoviePass business model depends on having enough time and runway to grow outside urban areas like New York, Los Angeles and San Francisco, which have much higher ticket prices and a wider offering of movies. Last winter, those three regions accounted for 28 percent of the company’s customers, which means higher costs: The national average for ticket prices is $9, while tickets in large cities can exceed $15.

Until MoviePass can build customer bases in towns with fewer theaters, fewer movies, and lower ticket prices, losses will continue to mount. Lowe and others have also stated the company will need time to strike theater partnerships, which reduce costs, and build other revenue streams; multiple distribution sources told IndieWire that MoviePass was highly effective in driving customers to theaters this winter.

HMNY’s holdings also include Waze competitor RedZone Map, a safety and navigation app for iOS and Android users, and a community-based ecosystem that features “a socially empowered safety map app that enhances mobile GPS navigation using advanced proprietary technology.”

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