Moviepass is a case study in how not to run a subscription-based business

One pass. One monthly fee. Unlimited movies. With a pitch as compelling as that, it was no surprise when the movie ticket subscription service MoviePass first launched its beta version in 2011 and thousands upon thousands of people signed up. It was not just consumers that were interested; investors were fond of the concept, too. In the beginning, MoviePass received backing from major industry players such as AOL Ventures, True Ventures and Lambert Media. However, after eight years riddled with turmoil, controversy and enormous losses, MoviePass has now ceased operation. So, what happened? With incredible consumer interest and faith from numerous investors, MoviePass seemed poised to become the Netflix for movie theaters and disrupt the market. Well, simply put, MoviePass had a great idea but poor execution.

To fully understand where things went wrong, it is important to first understand what exactly MoviePass was and why its creators believed they would be successful. At its core, MoviePass had a subscription-based business model. The idea of a subscription-based business model revolves around selling a product or service to receive monthly or yearly recurring subscription revenue. In MoviePass’s case, the company sold a card that would allow customers to watch an unlimited amount of movies from affiliated theaters for a flat monthly fee. The subscription model is appealing for many reasons: It creates consistent, predictable revenue streams for the company, it significantly lowers customer retention costs and it creates value for the customer in the form of convenience — a product trait that is in high demand in today’s culture of immediate gratification. Considering these benefits and the success of other subscription-based services such as Spotify and Netflix, it’s obvious why MoviePass opted to go with this route. 

However, for service-based businesses, there is one key to making subscription models work: breakage. In business, breakage refers to revenue gained by retailers through unredeemed gift cards or other prepaid services which are never claimed. In MoviePass’ case, this meant that the company was relying on having enough apathetic subscribers who did not watch enough movies to break even on the monthly price. For example: If the monthly pass was $15, MoviePass then relied on having enough customers watching less than $15 worth of movies a month to make money; the difference between the $15 fee and the monetary amount of movies watched was their revenue. 

And this is exactly where MoviePass ran into trouble. Namely, they underestimated how many people would actually use their Moviepass subscription to see movies every month. Way more often than not, the monetary value of movies customers watched exceeded the monthly subscription fee. People were watching three to five movies a month, a monetary value of $30-$70 depending on location and theatre, with some people watching as many as 10 movies a month. With a monthly subscription fee as low as $10 at one point, MoviePass incurred enormous losses. To its detriment, MoviePass incorrectly gauged demand within the market and priced poorly as a result. Over time, MoviePass tried to salvage the situation by adding restrictions to how many movies could be watched per month and what type of movies could be watched, and additionally created tiered plans — each with their own price according to the amount of movies that could be watched. But with losses as high as $4 million a month and big name theater chains like AMC threatening to refuse the MoviePass card, MoviePass was left high and dry. 

I do believe MoviePass was a good idea. In fact, theaters like AMC and Cinemark have essentially copied MoviePass’s idea and implemented their own subscription-based movie plans. AMC Theatres has a program called the Stubs A-List, which charges customers $20 a month and, in exchange, allows them to watch up to 3 movies per week. Additionally, subscribers are unable to roll unused passes to the next week. This plan is essentially a much more refined version of MoviePass. It has much more strategic pricing, limits the amount of movies that can be watched and ensures consumers cannot exploit the system by having movies roll over from week to week. So, although new programs like AMC’s Stubs A-List are much more successful than MoviePass, the fact that they implemented MoviePass’s idea into their own business models reveals the promise that MoviePass had. 

Going forward, MoviePass should serve as a cautionary tale for any companies looking to hop on the subscription-based business model trend. When done right, the model can lead to enormous gains and success with little to no cost, but when done wrong, it can lead to disasters like MoviePass. The key to success for the subscription model lies in pricing strategy, understanding the market and knowing what prices will likely create breakage. Even though MoviePass was initially known for its too-good-to-true deal of one pass, one price and unlimited movies, it will, instead, always be remembered as one pass, one terrible price and unlimited losses.