What’s Behind MoviePass’s Latest Power Moves?

Credit MoviePass with continuing to confound Hollywood with grand gestures. Last summer, the app-based ticketing service stunned the industry by slashing its subscription price to just $9.95 — a ludicrously inexpensive and (for the company) certainly unsustainable monthly fee entitling subscribers to see one film a day, every day, at a time when the average ticket price hovers around $9. By early January, its customer base surpassed all expectations, growing to more than 1.5 million subscribers (500,000 added in just three weeks). And with its ticketing said to account for between 3.5 and 12 percent of a given film’s total domestic box-office gross, MoviePass has proven it can lure people back to the theatrical moviegoing experience even at a time ticket sales have been in a death spiral.

But over that same six-month period, AMC, America’s largest theater chain, essentially declared war on MoviePass, castigating the service as a “fringe player,” threatening legal action, and refusing to cut it in on any profits resulting from the surge in attendance MoviePass takes credit for creating. “AMC has no intention, I repeat, no intention, of sharing any — I repeat any — of our admissions revenue or our concessions revenue with MoviePass,” AMC chief executive Adam Aron said during an earnings call late last year.

Then last week MoviePass flipped the script again: At the Sundance Film Festival, the ticketing service made the unprecedented move of partnering with indie-film distributor the Orchard to buy North American distribution rights to the heist drama American Animals. The $3 million deal is set to include half the film’s prints and advertising costs but, more importantly, also changes the calculus of MoviePass’s business operation by shifting part of its focus to putting out movies — rather than just getting people into theaters to see them. MoviePass followed that power move (under the aegis of a new division called MoviePass Ventures) with a shot across the bow at AMC: Last Thursday, after the theater chain once again rebuffed MoviePass’s call for revenue sharing — specifically, a $3 cut of every ticket and 20 percent of concessions sales — the ticketing app blocked service at ten of the highest-traffic AMC theaters across the country, effectively driving business to AMC’s competitors.

To hear it from MoviePass chief executive Mitch Lowe, however, the service shutdown was more of a tactical display of strength than the onset of combat. Over the last month, he tells Vulture, MoviePass purchased 1 million tickets from AMC. And according to his own back-of-the-envelope estimation, the net result is at least $14 million in additional ticket sales and concessions profits for the theater chain — money that would never have materialized but for MoviePass. “We wanted to let them know that viewers have a choice,” says Lowe. “You can either work with one of the companies that’s reengaging and reenergizing moviegoers. You can get them to spend a lot more money with you. Or you can not work with them. We’d love to work with AMC! We would love to push tons of our customers to their locations.”

He continues: “If you take a small percentage of that increased profit and share it with us, that would ensure that we could continue to drive more activity to the movie theater business. But if you don’t, there are others who would love our business. And in fact, the majority of those subscribers who would’ve gone to AMC went to Regal and Cinemark.”

AMC declined to speak to Vulture but said in a statement: “AMC has taken no action to block the acceptance of MoviePass at our theaters. We have no further comment about MoviePass’s unilateral actions. We are, however, disappointed that MoviePass continues to make false statements about AMC, including recently when MoviePass greatly exaggerated its contributions to AMC’s profitability.”

One unexpected upshot: The partial AMC blackout took many MoviePass subscribers by surprise. And they, in turn, took to Twitter to vent about the unannounced discontinuation of service.

“We could have handled it better,” acknowledges Lowe, a founding executive at Netflix and the former president of video-rental kiosk service Redbox. “We’re learning as we go. If I had to do it all over again, I would definitely have notified my customers in advance and given them a link to the competitor theaters. So, yeah, I totally sympathize with those subscribers. But almost all of them found another theater to go to.”

MoviePass is owned by the data analytics firm Helios and Matheson, and is currently a substantial money loser; the company buys tickets from theaters at full price and aggressively subsidizes them for customers in a bid to build its base. The long play, of course, is that the collection of Big Data and surging market share will turn the ticketing service into a power player with Hollywood studios and theatrical exhibitors, compelling them to effectively share the wealth. But many industry observers remain skeptical of MoviePass’s ability to make good on that game plan before running out of money.

MoviePass’s foray into the content acquisition and distribution business, meanwhile, comes on the heels of recent marketing deals it struck with several studios that Lowe declines to publicly identify. They work like this: The company promotes films to its subscriber base via social media, direct email marketing, and targeted advertisements within the MoviePass app, doubling and sometimes tripling the number of tickets the service buys, according to internal estimates. And in turn, MoviePass is paid by the studios based on the strength of those sales.

“We’re typically buying about 3.5 percent of the tickets for an average title. When we promote it, we’re 5 to 12 percent of the U.S. box office. So that has had huge impact in terms of enhancing the value of a movie,” says Lowe. “We kind of looked at it as, let’s say you own a piece of land. You want to build a house on it. You hire MoviePass to build your house. You go out and sell it for twice as much as you paid us to build the house. We’re thinking, jeez, we should participate. Not only should we be aligned with you to drive awareness, we should participate in the downstream revenue and make more profits that way.”

At Sundance, MoviePass executives rented an 18,000-square-foot ski chalet and took meetings with film distribution executives from across the indie-film diaspora “all day long and all night long,” pitching the company’s newfound intent to co-invest in films with experienced partners. In an era when streaming services such as Amazon and Netflix backed out of buying anything at the festival and seem more focused on developing scripted series than two-hour feature films, MoviePass stuck to a tantalizing talking point. “We’re a partner that can actually get people into seats,” says Lowe. “The people making the film would love nothing more than to sell to someone who’s going to play it at the theater and can almost guarantee people will see it there rather than going straight to the iPhone.”

MoviePass Ventures plans to release movies across various platforms: streaming services, on demand, and DVD among them. And as an upside to customers, executives hope the company’s new relationships with content creators will yield unique promotional tie-ins. “Our subscribers are really looking for a closer connection with Hollywood and the creative community. We thought, if we co-fund these projects, we might be able to get advance screenings for our subscribers, we might be able to get some of the filmmakers and celebrities out to towns all across the United States. They could speak exclusively with our subscriber base.”

Still, there’s a nagging sense that MoviePass may be biting off more than it can chew by simultaneously taking on America’s biggest theater chain while branching out into the untested territory of film distribution. When I ask Lowe if things are moving faster than anticipated, he pivots and starts talking about MoviePass’s original raison d’être: taking down the sky-high price of movie tickets. “It’s driving people away,” Lowe says. “There’s a whole group of people — primarily millennials — who are value-conscious. They have all these other alternatives, and are going away from the theater. If they get out of that habit permanently, they’ll never get them back. That’s who we speak to.”