“Do We Want to Be in Business?” The Strange, Never-Ending Saga of MoviePass
It was the greatest deal—or scam, depending on whom you ask—in movie history. And then it fell apart. Founder Mitch Lowe and his team insist that the movie-ticketing company can rebound from its disastrous 2018. But will the public and the industry forgive MoviePass?“Do We Want to Be in Business?” The Strange, Never-Ending Saga of MoviePass
It was the greatest deal—or scam, depending on whom you ask—in movie history. And then it fell apart. Founder Mitch Lowe and his team insist that the movie-ticketing company can rebound from its disastrous 2018. But will the public and the industry forgive MoviePass?
The Pacific Design Center juts out of the ground at the edge of West Hollywood in Los Angeles. Comprising three buildings—one firetruck red, one metallic green, and one a glossy blue that blends into the sky—the structure is sleek, abrupt, and commanding, if also a tad performative and obnoxious. In many ways it is the architectural equivalent to a Chevy Camaro.
Along North San Vicente Boulevard, pillars advertise the buildings’ tenants, a collection of companies that are currently, or once were, at the forefront in the collision of technology and media: Grindr; Whalerock, the company responsible for the Kardashians’ personal apps and Kimoji; and Den of Thieves, the production company behind Taylor Swift’s Reputation world tour; among many others. One company, however, goes conspicuously unmentioned.
I’m here because it’s where I was told I could find MoviePass, the company that in 2018 offered moviegoers a too-good-to-be-true subscription deal that quickly became too good to be true as the app faltered, users were shut out of most screenings, and anyone trying to cancel their subscription was met with a litany of questionable roadblocks, all while the company itself appeared to be very publicly going down in flames. “East Tower, 11th floor”—that’s where Mitch Lowe and Khalid Itum, the CEO and executive vice president of MoviePass, respectively, would be. But after figuring out which tower was the East Tower, and then taking one elevator to get to another elevator, and taking that elevator to the 11th floor, I found myself in the large entryway into the offices of Abrams Artists Agency. I turned right, which led to a small room with two chairs and a lone, Abrams-branded iPad meant for signing in; it was a doctor’s office, only for actors. I doubled back down the hallway, once again passing the entrance to Abrams, then taking a left, then another left, and then a quick right, before ending up in a communal kitchen area. What the fuck? I whispered to myself, growing anxious that soon someone would report that a man was wandering the halls of the 11th floor of the East Tower at the Pacific Design Center. Finally, I resigned myself to asking the receptionist at Abrams. “Oh, it’s pretty much right there,” she said. “Just walk straight ahead.” Straight ahead there was a nondescript door, the same color as the hallway walls. I couldn’t be sure that I had noticed it the first two times I walked past it; it looked like the door to a broom closet.
As I went to knock, two men opened the door and sauntered out, revealing a full office space behind them. “Is this MoviePass?” I asked. They nodded.
MoviePass does still exist. They’re just a little harder to find these days.
“We made a ton of mistakes,” Mitch Lowe tells me early in our conversation one January afternoon. We’re in a conference room that overlooks Melrose Avenue. Outside the room, several long, modern-industrial desks are lined up in parallel form, filling the office. One of the desks is covered in take-out bags from Zankou Chicken. The rest are empty. Lowe, who began the interview by professing a love for medieval history, goes on: “The hard part for me is how much we’ve had to learn from our own mistakes last year. The primary one: growing too [fast]. You would never think that growing too fast is a thing, but it really is.”
MoviePass was founded in 2011 by Stacy Spikes and Hamet Watt. From 2012 to 2015, the subscription cost between $30 and $45, depending on location. In 2016, new pricing was introduced, charging $50 for six movies a month, or $99 a year for unlimited movies. The high fees painted MoviePass as a service that appealed only to hard-core moviegoers. Unconnected to any theater chain or studio—MoviePass essentially bought tickets as a consumer and then resold to customers at a discount—it was an outsider in the industry, a business from San Francisco looking to break into Hollywood. And while its initial high fees didn’t exactly make it a threat to disrupt the industry, MoviePass prompted some fundamental questions about the commerce of going to the movies. Lowe, who cofounded Netflix and was previously the president of Redbox, was an early adviser to Spikes and Watt; in June 2016, he joined the company officially, buying a stake and taking on the role of CEO. For the first year-plus of Lowe’s tenure, MoviePass was on the brink of collapse, unable to find investors. “We were going to go out of business,” Lowe admits.
“I mean, a year and a half ago, two years ago, the narrative was ‘Moviegoing is dead,’” Itum jumps in. “There was no talk of subscription. The industry sucks. People forget what they were saying—it was doomsday scenarios a year ago.” That’s when Ted Farnsworth, CEO of the analytics company Helios and Matheson, agreed to purchase 51 percent of MoviePass. And that’s when the growing began. In August 2017, along with the announcement of Helios’s investment, Lowe revealed that pricing would be slashed from tiers ranging from $14.95 to $50 a month to one price: $9.95 a month, to see one movie a day. “We had already learned that a price point under $20 was the way to go,” Lowe says. But this was something completely different. Whereas MoviePass’s past plans had capped the number of movies a user could see in a month, the new subscription made it possible to see up to 30 movies a month for a fixed price that was already less than a ticket costs in most major markets. And with MoviePass on the hook for the full cost of each ticket a customer bought using their app, the company was practically renting out theaters and opening the doors to the public for free. On paper, the deal was nonsensical—and also too good to pass up.
“That day we sold 50,000 subscriptions,” Lowe says. “It was 150,000 in three or four days. By the end of the [first] week, it was like, ‘Holy cow, what have we got here?’ And all of that, in my mind, was incredibly positive.”
August 15, 2017—mark it down as the day MoviePass set off a chain of events that would lead to one of the most glorious stretches of moviegoing in history, followed by one of the most glorious burnouts in corporate history, defined by arrogance, pure foolishness, disappointment, and frothing schadenfreude.
The other important date in the MoviePass story is July 27, 2018—but we shouldn’t get ahead of ourselves. In the Bible, the book of Revelation comes long after the miracles of Jesus.
To use MoviePass in between those two dates—the era of MoviePass Paradise—was a unique feeling, not only because of the company’s disorienting process, which involved getting within the vicinity of your chosen theater, buying a ticket via the MoviePass app, then purchasing an actual ticket at the theater using a MoviePass-specific credit card. There was a special thrill in using MoviePass because it felt like getting away with petty larceny. Paying $10 a month to see one movie every day, when movies in major markets cost closer to $20? The price to see 30 movies in a month was somehow $5 to $10 less than the price a movie theater charged for one ticket. Which leads into the second part of the feeling of using MoviePass: the unshakable certainty that there was no way it was going to last; a pointed desire to exploit the clearly broken system as much as possible before someone inevitably realized it was broken. MoviePass was the guy who brought in free doughnuts on a Monday morning; we were the coworkers lunging over each other to get to the Boston creams before they ran out. And by June 2018, there were 3 million of us.
The cracks in MoviePass’s business operations began to show relatively early—many subscribers didn’t receive their MoviePass cards for months after signing up; screenings would sometimes disappear from the app with little explanation—but everyone was too high on free screenings to notice or care. “I was talking to our CTO,” Lowe continues, “and he said, ‘By the way, you know we can only ship about 35,000 to 50,000 cards a week, right?’ I said, ‘Yeah, I know that, but shouldn’t we be able to call MasterCard and increase that?’ The answer was no.”
Meanwhile, people were seeing a lot of movies. By March 2018, Lowe says, MoviePass was buying 3 million tickets per month, a number juiced by the company’s inability to rein in fraud—people sharing their MoviePass cards with friends and family, or using MoviePass to gain AMC rewards points, or purchasing multiple tickets using the app and then reselling them at a higher price. “People are really creative,” Lowe says. “Every time we’d fix one thing, they’d figure out another way.
“Over 80 percent of subscribers were great customers,” says Lowe—“great,” in this case, meaning rule-abiding and low-frequency. “We were roughly breaking even on that group. It was the 12 to 22 percent of subscribers who were using it a lot or abusing it that got us.”
What MoviePass was doing was a gift from the heavens, as far as users were concerned. But in the eyes of business analysts, it was downright offensive. “They were selling other people’s services at a discount, while paying full price for those services themselves. It was like a bank giving you a dollar for every 25 cents you deposit,” says Wedbush Securities analyst Michael Pachter, who seems mildly upset that I even had the temerity to make him talk about MoviePass. Most subscription companies are founded on a breakage model, meaning their revenue comes from those who subscribe but never actually use the service. In 2018, MoviePass’s business plan, too, relied greatly on breakage, but Pachter says they were obviously never going to benefit from a lack of usage. “Nobody was dumb enough to sign up for MoviePass and not use it.” When I ask Pachter what MoviePass’s biggest mistake was in 2018, he doesn’t hold back: “Their biggest mistake was launching.”
In mid-April, still months before the doomsday event of July 27, 2018, MoviePass began making tweaks to stop bleeding money. The one-movie-per-day allowance was cut to four movies per month, while another rule was enacted to prevent users from seeing “select” movies—most often blockbusters like Avengers: Infinity War—more than once. (To apparently soften the blow of taking unlimited access away from its users, MoviePass threw in a three-month trial to iHeartRadio.) Lowe now says these changes were made not to save money but as an effort to curb fraud, though it should be noted that Helios and Matheson reported a net loss of $104.6 million between April and June. In any case, the adjustments were also a harbinger of things to come: a preview of a world where users could never be sure which movies they’d have access to on a given day.
On July 27, 2018, the day that Mission: Impossible—Fallout was released, subscribers were not able to access MoviePass. The app, according to MoviePass’s Twitter account, was “experiencing technical issues.” There was a little more to it than that. “Was that when the bank pulled our credit?” Lowe nonchalantly muses to the room when I ask about the weekend the dream died.
“The company that runs the card our customers use, they basically locked our account [that] Friday,” Lowe explains. “And that started this kind of snowball effect.”
That same day, Business Insider reported that Helios and Matheson had borrowed $5 million in cash so that MoviePass could “make certain required payments.” Itum, who at the time was the vice president of business development, and who is much more conscientious than Lowe about smoothing over the company’s past failures, disputes the way the loan was characterized in news stories. “It got picked up as an emergency loan and everybody said we were going out of business,” he says. “What people don’t know is that loan was from an existing investor.” Itum does admit that the company had been forced into an unenviable corner the weekend of Mission: Impossible. “The calculation we always have to make is ‘Do we want to be in business?’
“That weekend was a realization that we can’t necessarily provide the service we had been providing, which was unlimited, every movie all the time,” he continues. “We didn’t [shut out users] to punish someone, even though some of the industry viewed it that way. We had to make a tough call. [We had] to call the head of distribution and the head of marketing at Paramount and say, ‘We know you’re not going to be happy about this, but we have to do it. If we don’t get through the weekend, we’re not going to get through the month, or through the year.’”
After July 27, the utopia of MoviePass never returned. In the following weeks, subscription plans were cut back even more, down to three movies per month—with the ongoing caveat that tickets to certain movies might not be available. By mid-August, Helios and Matheson’s stock had dropped to 5 cents a share from $32.90 a piece the previous February. A Helios and Matheson board member resigned, citing objections to the manner of, and lack of communication surrounding, business decisions. Users began reporting that MoviePass wasn’t allowing them to cancel their subscriptions. The New York Attorney General’s Office launched a probe to investigate whether MoviePass had misled investors about its financial stability. A “director of barketing” was introduced.
The weekend of Mission: Impossible, the hashtag #moviepassfail went viral, as countless users posted screenshots of the MoviePass app telling them that, in the middle of a summer blockbuster weekend, “There are no more screenings at this theater today.” It went on like this for months, as screenshots gave way to tweets comparing Lowe to Michael Myers, Dr. Evil, and maybe worst, Michael Scott. Any updates were covered vigorously, leaped on by both journalists and former users with considerable venom—understandably so in some cases, as those who were angriest had been allegedly locked into subscriptions against their will. MoviePass had swiftly become a meme, an avatar for failure and Silicon Valley hubris. But as 2018 neared its end, the roar that constantly followed MoviePass dwindled into whispers. The persistent reporting on Helios and Matheson’s stock tailed off, the jokes got old, and as MoviePass itself made an effort to stay quiet, it almost seemed as if a collective assumption set in that MoviePass was over.
The common understanding of MoviePass, as it limps into 2019, is probably best summarized by this photograph of Mitch Lowe and Ted Farnsworth, standing underneath an AMC marquee holding MoviePass cards, laughing ghoulishly.
MoviePass fashioned itself as a disruptor, and thus, behaved disruptively. It demanded that exhibitors share profits with it on concessions; it demanded exhibitors provide discounts on tickets; boasting its marketing heft and ability to push users toward specific movies, it demanded deals from distributors. In January 2018, MoviePass briefly locked users out of using the service at AMC theaters in an aggressive attempt to force the chain into business; the company—or at least Farnsworth—then claimed to be responsible for 62 percent of AMC’s profits.
What they failed to anticipate, for some reason, was the way the industry—both exhibitors and distributors—responded to this behavior. “The cinema business is quite a small business actually,” says David Hancock, the director of research and analysis for cinema and home entertainment at IHS Markit. “It’s a relatively restricted number of people in there, and they know each other relatively well. You often get outsiders coming in, not understanding the business, and [they] say, ‘We’re going to impose this on you guys.’ Each time this happens, the business closes ranks. [And] the way MoviePass came in, they were just asking to be isolated.”
To their credit, Lowe and Itum both acknowledge this mistake. For most of our conversation, Lowe is pensive and resigned, often picking at the label of his water bottle and, when answering questions, holding onto the seat of his chair, as if he’s in a car that’s careening around a corner too fast. A veteran of the tech industry, he seems a tad ashamed of MoviePass’s 2018. “I personally underestimated how you build relationships with the other parts of the ecosystem,” he admits. “I underestimated the negative reaction.”
“The business model said, ‘You know what? We’re making everyone more money, we should make some money alongside them,’” Itum expounds. “We probably just went about it a little louder than we should have.”
“I probably could have avoided holding up the MoviePass card [under the AMC sign],” Lowe adds. “It’s weird how that happens. When you’re facing people who want to see your demise, you can react in a lot of different ways.” This, Itum acknowledges, only made MoviePass an even bigger target. “We talked about our leverage [so much] that everybody else started talking about it.”
It took the company a while to make this realization. When I mention the director of barketing—who “wrote” a stunningly lighthearted email sent to MoviePass users in October, at the absolute height of the company’s dysfunction—Rodes Ponzer, MoviePass’s head of marketing, who had been sitting in on the interview as an observer, hangs his head. “It was my second day,” he says. Before Ponzer came on at MoviePass, the arrogance of the company’s public persona made him “sick to my stomach.” He wanted to change that. “My first slide that I put to the company was a quote by Roger Ebert: ‘Empathy is civilization’s most important asset.’ Half the room didn’t even know who Roger Ebert was.” As the public danced on MoviePass’s recently dug grave, Ponzer hoped to recast the company in a far more humble light. “I said, ‘This is where we need to be. We have to send this email to everybody. It’s the right time to say what we’re really up to: We’re listening, we’re learning, we’re changing,’ which was totally true.” It was at some point in this ideation process that Ponzer was introduced to his colleague’s adorable terrier. “The team, who’s young, were like, ‘That’s so fun. We should put that in the email,’” says Ponzer. “I was kind of like, ‘Yeah, let’s have some fun.’ I could not have predicted that that would be under a microscope.”
“Mitch could’ve,” Itum interjects, as Lowe rolls his eyes. After all, Lowe was the face of this disaster—by October he probably could have predicted that his company responding to app blackouts and constantly changing terms of service with a low-level dog pun would backfire. He doesn’t explain why he didn’t step in at that moment, though it’s implied that he was too busy—and based on his demeanor, too worn down—putting out much larger fires. Such was the cycle of MoviePass dysfunction.
But despite the consistent tone deafness, the utter calamity that was the weekend of Mission: Impossible, and the (legitimate) questions wondering whether MoviePass was even a real company, there is another interpretation to MoviePass’s tumultuous year. 2018 was a record year for the box office, as domestic ticket sales reached almost $11.9 billion, a 7 percent increase from 2017. And for those who claim that inflation in ticket prices was solely responsible for the record-breaking total, admission was up 4 percent from 2017. This is not to say that MoviePass was the reason more people went to theaters last year. For one, Hollywood in 2018 was just simply better at making financially viable movies. Superhero movies like Avengers: Infinity War ($679 million) and Venom ($214 million) tapped into an audience that, after a decade, remains insatiable. Black Panther ($700 million) and Crazy Rich Asians ($175 million) proved the commercial power of movies made by and primarily starring people of color. Even Oscar hopefuls found success; films like The Favourite ($29 million) and Eighth Grade ($14 million) exceeded expectations, while A Star Is Born ($208 million) turned in the numbers of a blockbuster. On top of that, theater owners have made a concerted effort to make moviegoing a higher-value experience, defending themselves from the allure and ease of Netflix by installing better seats, better audio and visual systems, and better food options.
But it’d be foolish to argue that MoviePass didn’t have any effect on the massive year at the box office. According to the company, MoviePass accounted for 6 percent of ticket purchases in the first half of 2018. The service changed the way people saw movies—in a survey conducted by The Hollywood Reporter in April 2018, 83 percent of the MoviePass subscribers questioned said they were seeing more movies than they had in the past. Of course, as Pachter said, no MoviePass user would’ve been dumb enough to subscribe and not go see a bunch more movies for what essentially cost zero dollars, but still, in bursting on the scene in 2018, MoviePass raised important questions about how the moviegoing industry functions and where it should go in the future.
As companies like Netflix load their library with an onerous amount of content to consume—and as companies like Apple and Disney plan to do the same in the coming year—the moviegoing industry is in constant battle with the fact it is increasingly easy to not go to the movies. “The industry has a vacancy rate of 88 percent,” Itum says. “It’s unheard of; airlines aren’t 88 percent vacant.”
Itum is planning on MoviePass being the solution to that problem, but even if it isn’t, what the company did in 2018 proved that there was another way; that there is a massive group of people—into the millions—who are interested in moviegoing subscriptions. It’s no coincidence that in the months since MoviePass’s explosion, multiple other subscription-based services—most notably AMC Stubs A-List and Sinemia—have popped up. The tech industry is littered with early disruptors who ultimately flamed out but built a foundation for profound change. As The Ringer’s Rob Harvilla wrote last April, “Spotify was not the first music-subscription service.” Despite the ongoing efforts of its executives, MoviePass may well die. But movie subscriptions will not.
MoviePass has not yet become Hollywood’s Rhapsody (which, for those who don’t remember, was one of the first music subscription services). They plan to be around for years to come, which will necessarily involve structural changes—such as Itum taking over day-to-day operations from Lowe, who is now focused on long-term strategy—a completely new business model, and a totally different attitude. “We’re basically doing surgery on this airplane that’s continuing to fly,” says Itum.
A big part of the plan is simply apologizing—to exhibitors, to distributors, to customers. This, I suspect, is why both Lowe and Itum tout a quasi-altruistic, for-love-of-the-movies ethos throughout our conversation. “This was always intended to be a way to get America to fall in love with going to the movies again,” says Lowe, a saccharine statement that conjures images of brilliantly buttered popcorn and delicious, bubbling Coca-Cola, while feeling odd coming out of the mouth of the man whose company once quoted Mark Twain to slam the haters.
“It’s a more humble MoviePass,” says Itum, before putting things into more capitalistic terms, as he’s wont to do. “Moving forward, we’re not looking for a discount and we’re not looking for a revenue share on concessions. … We’ve learned lessons about how to go about making our business model work with regards to pricing the products correctly and doing business in the industry the right way. It’s on us to accept it—not just be like, ‘Screw everybody.’”
Contrary to the position the company took in 2018, exhibitors and distributors don’t need MoviePass more than MoviePass needs them. As Itum now realizes, “AMC is not the enemy; the enemy is the movie theater business going out of business.” (AMC declined to comment for this story.) MoviePass is even, at least outwardly, welcoming the competition from its imitators because, as Lowe says, “they’re accomplishing what we always set out to accomplish,” that being getting people to see more movies. “They’re just another way to help get the theater industry back in gear.”
At the risk of putting a halt to the “Kumbaya” singalong, competition may benefit MoviePass for others reasons as well, ones an entity constructed to make money might find attractive. “Competition normalizes their business,” says Hancock. “It normalizes the concept of a subscription to the cinema.” The existence of competitors also lessens the size of the target on MoviePass’s back, while at the same time providing customers with a relative set of expectations. Back when MoviePass cut its deal from $9.95 for unlimited movies to $9.95 for three movies, it seemed like a rip-off, because the only thing to compare it to was unlimited movies. When AMC set its price point at $19.95, it allowed MoviePass’s terms to be seen in a different context.
The main obstacle for MoviePass in 2019 and beyond is whether anyone is willing to pay MoviePass anything considering what happened in 2018. “We have to win back customers one at a time,” Itum admits. The current services, though cheaper than those of AMC or Sinemia, will not be enough to bring everyone back—the cheapest of MoviePass’s three current options, at $14.95, doesn’t include 3D or IMAX screenings and only lets users choose from a set schedule of movies, which by rule never includes first-weekend releases (though Itum says that, in some form, an unlimited plan will return in the future). More important to MoviePass in the fight for rebirth is merely stability; the capability to provide users with reassurance that their date night won’t go up in flames because the credit card company came calling; a guarantee that MoviePass wasn’t just faking a company all along.
Itum gets a little fired up when you ask him what he thinks about people saying MoviePass was a grift. Thanks to a couple documentaries by Netflix and Hulu (the former of which MoviePass apparently considered acquiring), Fyre Festival is fresh on everyone’s minds. “It’s completely wrong,” he says.
“Is Amazon a grift when they send you a 250-pound barbecue at no cost if you pay $99 a year?” Lowe speaks up. “They lost money for what, 20 years?” (Asked about this comparison, Hancock says, “It’s a bit like a bloke comparing himself to Jesus, you know?”) “The only reason anybody has issues [with us] is that, eventually, we failed,” says Lowe. “We failed to deliver the service we were trying to deliver.”
Itum says that isn’t going to happen again, and at this point seems slightly annoyed that I remain skeptical. “Our model always showed we would get there. We underestimated fraud. There were mistakes lots of people in business make. Everything was headed in the right direction, just too slow.” He adds: “I think we’re sitting on something that could have 10 to 20 million subscribers in three to five years.”
How MoviePass plans to make enough money to offset the price of purchasing tickets and remain in business for three to five years is somewhat murky—Itum talks about convenience fees, pay cuts (“our management team were heroes”), partnerships with distributors, the acquisition of Moviefone, and something he calls the “red-label solution,” which would see MoviePass license their platform at a fee to exhibitors looking to launch their own subscription services.
The question of whether the movie-subscription business is a 20-million-person endeavor is even murkier. According to the Motion Picture Association of America’s 2017 report, 12 percent of moviegoers in North America accounted for 49 percent of tickets sold. That 12 percent is the group whose habits movie-subscription is made for—but 12 percent of moviegoers in North America in 2017 is only 3.16 million people. “Most people, on average, go to the cinema one, two, three times a year,” says Hancock. “It’s quite a high-volume business. But if the average person is going, say, once every few months, then that doesn’t actually provide a basis for the subscription model. You could argue, really, how many people are there left to get?”
“Sounds like we have to go,” Lowe says in the middle of someone else’s sentence, popping out of his chair to shake my hand before chasing after someone who’s just brought Starbucks into the office.
“Can we show him the video?” Itum asks. “The video” is what they’ve recently been showing distributors and studios in meetings, part of their apology tour. It looks like a commercial, but it’ll never be a commercial, if only because paying for the rights to all of the movie clips they use in it would cost more than buying 3 million movie tickets a month. “Watch it,” Ponzer says to me. “This is meant to represent who we really are.”
The video plays like one of those compilations the Oscars make every year to remind us that, yes, movies are quite good. Tom Hardy demanding we dream bigger in Inception abuts a clip of Gal Gadot as Wonder Woman; Willy Wonka waxes poetic while a voice-over speaks of first kisses stolen away in the darkness of a theater, the shared experience of being frightened by a movie.
As more of the most classic scenes from the most classic movies continue to flash on Itum’s laptop, my mind wanders. Have Lowe and Itum really learned from their mistakes? Will Hat Damon be part of their future plans? Is MoviePass a villain or a benevolent try-hard overcome by inadvertent success and batted down by an industry averse to change? Have we really figured it out, this moviegoing thing? Are we hampered by greed and the desire to have the most for the least? Does evolution always require bodily sacrifice? And if I come back here tomorrow, and knock on that blank white door again, will anyone even be behind it to answer?
An earlier version of this piece misstated MoviePass’s subscription fees from 2012 to 2016. Also, the piece misstated Helios and Matheson’s stock price in mid-February 2018; it was $32.90, not $2,000.