According to reports, MoviePass is consuming its funds, even as it continues to grow. An independent auditor for the owner of MoviePass, Helios and Matheson Analytics, said he had "substantial doubts" about the company's ability to continue in business, according to a Business Insider report.
In the annual report of Helios and Matheson, the auditor writes that MoviePass has "negative cash flows from operating activities," according to BI. While it is very common for startups to operate at a loss, the concerns frustrate previous predictions by MoviePass CEO Mitch Lowe that the company would be "cash-flow positive" in 2019.
Helios and Matheson CEO Ted Farnsworth told BI that MoviePass needs to raise more money to stay in business, which MoviePass has already passed on to investors.
The subscription service, which allows users to watch a movie per day at participating theaters for a flat rate, was launched in 2011, but increased in size after its prices drastically decreased in 2017. In February, the company reported that it had grown to more than 2 million subscribers. In August 2017, MoviePass sold a majority stake to Helios and Matheson and changed its pricing model, from a staggered rate starting at $ 15 to a fixed monthly rate of $ 9.95.
The fall in prices attracted thousands of new subscribers, especially in big cities, where the cost of a movie ticket is usually higher than the monthly cost of MoviePass. At the end of last year, the company announced that it had more than 1 million subscribers. Nick Statt of The Verge saw 14 movies for just under $ 30 in San Francisco with MoviePass, when it would normally have cost the same amount to watch just two movies. But that also means that MoviePass is losing money on every ticket purchase because it pays the full price of the theaters.
"MoviePass currently spends more to retain a subscriber than the revenue derived from that Subscriber and MoviePass other sources of revenue currently are not adequate to offset or exceed subscriber retention costs," the report says. "This results in a negative gross profit margin." MoviePass expects its negative gross margin to remain significant until MoviePass can sufficiently increase its other revenue streams to offset losses or achieve substantial economies of scale.
Currently, MoviePass's movie-by-day model is not available to new subscribers, as the company is promoting iHeartRadio with an integrated subscription, which only allows four movies per month. A MoviePass representative says that the previous version of MoviePass will finally be available to new subscribers.
In recent months, MoviePass has offered some different explanations about how it plans to make money. Last year, Lowe told Variety that the company needed to get more subscribers in places like "Kansas City and Omaha," where average ticket prices are lower than in Manhattan and Los Angeles. Farnsworth told Wired that MoviePass can sell the data it gets for marketing efforts aimed at film studios. In the past, MoviePass has sent subscribers promotional emails and push notifications for movies like I, Tonya and Death Wish, while blocking movies like Red Sparrow for users in some markets.
The company also seems to be relying on user loyalty and trying to use its subscribers as a lever to share revenue with big theater chains like AMC. According to Deadline, MoviePass has been trying to get a $ 3 cut of tickets sold at AMC theaters, plus 20 percent of the concession's profits. But, as Bryan Bishop of The Verge wrote in January, MoviePass's claims about its importance in theaters have been significantly exaggerated.
Helios and Matheson reported a loss of $ 150.8 million in the last financial year, compared to only $ 7.4 million in 2016. Farnsworth told BI that the "gross loss" was really only $ 10 million in cash, and the rest in " derived accounting ".