Is Netflix Co-Founder’s MoviePass Bad News for Movie Theaters?

Shares in the country’s two biggest movie theater operators dipped on Tuesday after a startup led by a Netflix co-founder announced a plan to sell subscriptions allowing moviegoers to watch one film daily for a monthly price under $10.

Called MoviePass, the company’s subscriptions offer moviegoers a cheap alternative to ever-rising movie theater prices, with a monthly fee of just $9.95 allowing users entrance to one film showing per day at any U.S. theater that accepts debit cards, excluding any 3D or Imax screenings. MoviePass, which claims availability in 91% of U.S. theaters, debuted in 2011 with a higher flat monthly fee (starting at $24.99 and ranging higher) and a business model that depended on users going to few enough movies to allow the startup to turn a profit. Tuesday’s announcement came with the news that MoviePass sold a majority stake in itself to New York-based data firm Helios and Matheson Analytics for an undisclosed amount.

Also on Tuesday, shares in movie theater operators AMC Entertainment (AMC) and Regal Entertainment Group (RGC) both fell, ending the day down 2.6% and 1.2%, respectively. Investors may have been worried that MoviePass could hurt profits for U.S. movie theater chains, whose sales have already suffered as more people skip theaters’ high ticket prices in favor of the surplus of streaming entertainment options at home. The number of domestic movie tickets sold last year declined slightly, with higher ticket prices making up the difference in terms of total revenue, while this year’s summer box office gross ticket sales is down more than 12% in the U.S. compared to this time last year.

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With a MoviePass monthly subscription costing little more than the average U.S. movie ticket price ($8.89, according to Box Office Mojo), it stands to reason that the service may be attractive to moviegoers looking to save some money on their next trip to the cinema. But, MoviePass CEO Mark Lowe, who was among the executives who helped launch Netflix and later served as president of video rental-kiosk operator Redbox, said on Tuesday that movie theaters should welcome MoviePass’ new subscription model because the company still pays movie exhibitors face value for the tickets its users claim with their subscriptions. “It should be made clear that MoviePass pays movie theaters full price for every movie ticket purchased,” Lowe said in a statement.

The CEO also said MoviePass believes that people want to go to movie theaters more often, but the cost of tickets can be prohibitive. “We’ve seen a 100% increase in movie-going, including a 50% increase in midweek attendance, and a 123% increase in concession revenues,” Lowe said of MoviePass members. “Movie theaters have everything to gain from this deal and investors should understand that.”

As Bloomberg notes, MoviePass is likely to lose money with its cheaper subscriptions, especially if users go to several movies per month. But, the company’s new data-focused owners are more interested in growing a large customer base from which they can extract valuable user data to better understand moviegoers’ viewing habits while also opening the door for tailored marketing opportunities. The company said its plans to generate more revenue from data- and artificial intelligence-based services is still far down the road. But, in the meantime, MoviePass hopes to spur higher movie attendance enough to gain the leverage to encourage theater owners to partner with them and share the profits.

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