MoviePass CEO Says He Could Gut AMC’s Profits If It Doesn’t Cut a Deal

February 19, 2018, 7:33 PM UTC

MoviePass, the subscription service that lets members attend one theater screening per day for just $9.95 per month or less, has attracted a stunning 2 million subscribers over the last six months. In a new interview, CEO Mitch Lowe details how he’s leveraging that subscriber base to build a profitable business: by making theater chains an offer they can’t refuse.

MoviePass started playing hardball in late January when it removed 10 AMC theaters from its service. Lowe tells Recode’s Peter Kafka about the results of that experiment, and it sounds like a nightmare scenario for AMC.

“We [pulled the theaters], I believe, on a Thursday. Over the weekend, we looked to see, did those customers who typically would go to AMC, did they find another theater to go to? Almost every one of them found another theater to watch the movie.”

In other words, instead of being frustrated at MoviePass, or buying a ticket at the box office, customers just walked past AMC to another nearby screening where they could use MoviePass. Because MoviePass still pays full price for most of its subscribers’ tickets, that’s taking revenue away from AMC and giving it to competitors like Regal and Cinemark.

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The goal, Lowe makes clear, is to pressure AMC to sell MoviePass discounted tickets. MoviePass this month cut what it describes as ‘revenue sharing’ deal with over 1,000 independent cinemas and smaller chains, but AMC has firmly stated that it won’t get on board—despite the fact that, as Lowe points out, individuals can already get big discounts when buying AMC tickets in bulk.

If AMC doesn’t play ball, MoviePass is clearly prepared to go to the mattresses by pulling even more AMC theatres, and sending more moviegoers to the competition. “We identified locations,” Lowe told Kafka. “There’s many more than these 10, that have plenty of competition around them.”

The impact of such an escalation on AMC, which is owned by Chinese conglomerate the Dalian Wanda Group, could be dramatic. Lowe claims that tickets bought by MoviePass now generate 62% of AMC’s operating income—that is, income after major expenses. That would translate to nearly $35 million in revenue in the current quarter, or $135 million annually. And that doesn’t include concessions sales from MoviePass users, which MoviePass says add up to $68.4 million annually for AMC. (Fortune has reached out to AMC for comment.)

MoviePass made similar claims after its January power move, but AMC said at the time that MoviePass “greatly exaggerated its contributions to AMC’s profitability.” That’s because MoviePass gets its 62% number by measuring its contributions against AMC’s revenue after expenses, not overall sales. An analysis by tech publication The Verge found MoviePass sales make up just over 4% of AMC’s overall revenue.

So MoviePass is carefully packaging its numbers, but however you slice it, they’re not chump change—and MoviePass is still growing. That leaves a game of chicken worthy of The Fast and the Furious: MoviePass has to cut ticket deals to reach profitability, but pulling out of more AMC theaters to push for a deal could make its service less appealing. AMC doesn’t want a middle-man between it and its customers, but MoviePass is now sending it a huge number of ticket sales that AMC can’t be eager to hand to rivals. The question now is which company blinks first.

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