MoviePass: Fallout

Just when you think MoviePass is dead and gone, The Ringer publishes an interview with MoviePass CEO Mitch Lowe and Executive Vice President Khalid Itum, where they detail their struggle to keep MoviePass afloat. At one point Itum remarked that the weekend Mission Impossible: Fallout came out was when they realized “…that we can’t necessarily provide the service we had been providing..."

You don't say.

My argument, from the beginning, was that MoviePass was an interesting idea, but one that was poorly thought out and poorly implemented. The fact that they didn't realize this until almost one year after announcing their "Unlimited Movies for $9.95 Plan" is, sadly, unsurprising.

“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.”

Like gyms at the start of every new year, MoviePass was banking on generating revenue from people signing up for the service and then never using it. But given the cost of the monthly subscription and the average cost of a movie ticket in the United States, I’m surprised that they were breaking even on 80% of their consumer base. The teensiest amount of research would have warned them about frequent moviegoers. They account for 48% of ticket sales in the domestic market and not only would they be the most interested in a theater subscription service, they would be the ones who would benefit the most from it. Or, to borrow Lowe’s own parlance: not great customers.

I, for one, fell into that ‘not so great’ category of customer. Then again – and I’ll admit this is entirely anecdotal — I ran into many people in LA who signed up for the service, and immediately began to see movies on a weekly basis. At $9.95 a month, MoviePass was cheaper than a matinee ticket at most area theaters, and you could go (almost) as much as you wanted. As analyst Michael Pachter noted when interviewed for the article:

“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.”

But not only did they not think through how their customers would use the service, they apparently didn’t think through how they should approach the exhibitors.

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.
...
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.”

As I wrote way back when: “[the exhibitors hesitance] doesn't mean that the exhibition industry isn't prime for some disruption, just that MoviePass needs to prove that it's the way to do it.” And evidently they did. But pissing off the distributors and exhibitors while doing it isn’t exactly the path to success. The history of MoviePass can be described as a a seemingly unending series of poor executions around a decent idea. And, as a user, that was evident from the beginning.

There is a UI design philosophy that Apple codified back in the 1980s on the Mac —one that is still used today on both macOS and iOS. You probably haven’t noticed it, but pay attention the next time you are prompted to choose ‘Yes’, ’Okay’, or ‘Confirm’. There’s a really good chance — as in 99% or higher — that those options will be on the bottom right of the dialogue screen. This means, assuming that the program adheres to the design philosophy that is suppossed to be implemented universally across the system, you shouldn’t need to read the options. You would instinctively know where it is: The bottom right.

When I first signed up form MoviePass, I kept running into an error where I would input my MoviePass card number into the system, and it would cancel out. I did this multiple times before finally realizing my error: The ‘Confirm’ button was on the left, not the standard right.

When I complained to my friends, they laughed and — fairly — pointed out that it was my fault for not reading the dialogue box. But that was beside the point. In a properly designed app, I wouldn’t need to read it.

MoviePass: Poorly thought out and poorly implemented, through and through.

MoviePass 3D: Attack of the A-Listers

If you work at MoviePass, you know your company's future is in question when Vanity Fair runs the headline "Enjoy MoviePass While You Can, Folks". Only a few days ago, Business Insider reported that MoviePass lost $40 million in May alone, and that it would need to raise up to $1.2 billion in additional funding. While they’ve taken actions to bring down their costs— such as blacking out new releases, allowing subscribers to only see a movie once, and will soon start charging you a fee to see a movie during 'peak hours'— conventional wisdom is that MoviePass will fail; it’s just a question of when.

But despite all this, tomorrow AMC Theatres is launching “Stubs A-List”, a new teir of their existing membership program centered on a MoviePass-esque subscription plan for $19.95 a month. With this program, AMC now joins Cinemark in offering a subscription service, which leaves Regal as the only major American theater chain without one. But why would they do this? You’d think given all the financial woes facing MoviePass, my own pessimistic appraisal of MoviePass would lead to an equally pessimistic appraisal of AMC’s A-List program. But, I think there’s more at play here than many realize:

  1. They know more than we do — As the largest theater chain in the United States, AMC has a huge advantage, even over MoviePass, of determining the impact a subscription ticket service can have.
    All MoviePass cards are actually a MasterCard. Through backend trickery—and a requirement for customers to verify the purchase—these cards can only be used to purchase tickets at approved theaters. After MoviePass launched its $9.95 subscription plan, if AMC saw a significant increase in tickets being purchased using a MasterCard, and a similar increase in attendance, it would be a safe guess to attribute that growth to MoviePass. But they can even take this further. Because MoviePass can only be used for tickets, if MasterCard usage didn’t increase at the concessions stand, but, like attendance, there was a notable increase in concessions sales, those sales could also be attributed to MoviePass users. With that data, AMC could easily determine if launching their own service would be profitable. In other words: AMC has done the math. Some other foolish company paid tens of millions of dollars to prove the concept.
  2. Customer Lock In - With MoviePass, you can use it (almost) everywhere. If AMC noted an increase in attendance, it would follow that this increase wasn’t limited to any one theater or chain. I’m sure someone inside AMC corporate just sees that as potential lost sales. It's just a matter of convincing consumers that A-List is a better deal than MoviePass.
  3. The Middle Man - MoviePass is little more than a middle man. MoviePass pays the full price of the ticket, and they hope that in the future their losses will be offset, either through advertising partnerships with the studios or by receiving a cut of the ticket and concessions sales from the theater. In the already thin margin business of film exhibition, giving another vendor a cut of the sales isn’t appealing. This is greatest weakness of MoviePass's business plan—without these partnerships, they have no hope for profitability. And if you are AMC, why would you cut a deal with the middle man? You could launch your own program, and any (potential) increase in revenue would be yours to keep. 

The TL;DR — While MoviePass is doomed to fail, there is a chance that AMC’s program will actually succeed.

Let's Play A Guessing Game: "The Last Jedi" Edition

Back in 2015 I made a few predictions about the story and plot of The Force Awakens, and I ended up getting some right.

Unlike The Force Awakens, where I was watching and reading everything Lucasfilm put out in order to try and figure out as much as I could, with The Last Jedi, I've been actively avoiding trailers and errata in order to go in spoiler free. With that in mind, this time I only have three predictions, and only one concerns the plot:

  1. We won't get a solid answer concerning Rey's background. Some mysteries need a third movie. When The Force Awakens first came out, I was certain that she was a secret Skywalker. But the more I've thought about it, the less certain I've become. I think she's connected to the Skywalker's, but that could mean anything from being Luke's daughter or the theorized Kenobi love child. While I expect us to get hints to her parent's identity in this film, I don't think we'll get solid answers until the next one. [Watch as I'm wrong and Luke says "Rey, I am your father." in this movie.]
  2. Somebody loses an hand. It's tradition. In the second movie of a Star Wars trilogy, someone gets a hand chopped off by a lightsaber. If I was going to make a guess for bonus points, I'd say it's KyloBen. Because the last two times, it was the Skywalker who loses the hand. {Again, if Rey loses a hand...]
  3. Princess Leia's Theme will close out the end credits. A worthwhile tribute to the late Carrie Fisher.

As for the box office side of things, as I wrote awhile back, the average Star Wars saga film will open to $207 million, and would gross $705 million total in the domestic box office. I think The Last Jedi will perform slightly higher, and will open closer to $215 million, with a total gross of $730 million.

Predicting "The Last Jedi"

The trailer for The Last Jedi is out! Tickets are on sale! I've unsubbed from r/StarWars because I'm on spoiler alert! That means it's time to start guessing how much The Last Jedi is going to make at the box office!

Back when The Force Awakens came out, we all knew it was going to be big, but we were struggling with how to define it. When you're working on box office projections, you look at the soon-to-be-released film, compile a list of similar films to compare it to, and then use the box office performances of those films to come up with a guess of how the film in question will perform. For example, I would bet that 99% of people coming up with box office projections for Blade Runner 2049, a sequel to an 80s sci-fi thriller, compared it to Mad Max: Fury Road, a sequel to an 80s spec-fi action film.

There was nothing for The Force Awakens.

There was some who immediately wanted to compare it to Avatar. It too was a major blockbuster that had a December release, so surely The Force Awakens would perform similarly. A smaller opening weekend compared to your summer blockbuster—Avatar only made $87 million opening weekend—but it'll make up for that with long legs. But that comparison didn't feel right. Compared to The Force AwakensAvatar had been a quiet release. Star Wars hype was everywhere leading up to December. With every trailer, the fanbase would get more excited—from what we could tell, every problem and quibble we had about the prequels was being addressed. Industry tracking about audience awareness indicated that 100% of Americans knew that a new Star Wars film was coming out. You would've had to live in the mountains with no internet or human contact for at least five years to not know that a new Star Wars film was coming out. The hype was real.

Yet people still persisted in comparing The Force Awakens to other December releases. No December release had an opening weekend over $100 million, they'd say. Maybe Star Wars can, but there's no way in hell it'll cross $200 million. The most it could do was $175 million, and that's if the pun-intended stars aligned. r/boxoffice was convinced that anyone who thought it could hit $200 million on it's opening weekend was a fanboy, and had no idea what they were talking about. It's not that these people were necessarily wrong or foolish. They were trying to apply conventional wisdom to a film that increasingly looked like it would have an unconventional performance. I bucked the conventional wisdom. and sometime in November I had settled around a $215 million opening weekend. But as the opening day approached, I had good reason to doubt my numbers. A contact in-the-know offered insight into Disney's internal numbers: The Force Awakens had already sold $175 million in tickets for opening weekend, and we were still a week-and-a-half from release. After the initial sale of tickets in October, ticket sales had seemingly flatlined, but as we approached opening day, people were buying tickets almost as fast as theaters were putting them on sale. To this day I'm surprised this info never leaked—there's a reason why I noted that my $215 million estimate was conservative.

A few weeks before The Force Awakens opened, I was talking with the theater's then programmer and its former programmer—these were the guys who scheduled the showtimes and did the internal box office projections for our location1—and one posited the theory that we needed use a "historical comp" for The Force Awakens. Conventional box office prediction looks at recent releases; anything older than three to four years is out of date. Even comparing The Force Awakens to Avatar was pushing it, and the only reason Avatar was even brought up was that people were struggling to come up with recent films that felt like an accurate comparison. During our conversation, we concluded that the only film that had the same cultural awareness and hype was The Phantom Menace.

The only thing you can use to predict Star Wars is Star Wars.

When Rogue One was getting closer to release, I decided to test this theory. Management at the theater was prepping for Rogue One to be only slightly smaller than The Force Awakens. I argued that The Force Awakens was a statistical outlier. Since we couldn't find good comparisons for The Force Awakens, we then shouldn't use it to make predictions. It was its own beast, and to even think that anything would come close again in the near future was foolish. I decided that the best comparison film was, of all things, Revenge of the Sith. I felt that Revenge of the Sith had two things going for it. 1) It had been received warmly by the fanbase. 2) The latter two prequel films had little appeal in the general audience. Rogue One's marketing, and Disney's own expectations, made me think that they were expecting this film to appeal mainly to the fans, and not so strongly with the general audience. And since the fans had been energized by The Force AwakensRogue One would be greeted by an appreciative audience.

BoxOfficeMojo has a handy little feature that lets you adjust a film's box office gross as if it had been released a different year. The tool is by no means scientific, but it's good enough for what I needed. I adjusted Revenge of the Sith to get a 2016 estimate and got this: Star Wars: Revenge of the Sith - $380,270,577 Actual / $513,157,600 Adjusted to 2016Rogue One would go on to gross $532,177,324, a variance of $19,019,724, or 3.574%. So, while not perfect, it's pretty damn good.

At the time, I hadn't thought to try and use Revenge of the Sith to estimate an opening weekend gross for Rogue One. How audiences see movies has changed since 2005—over time, opening weekends have increasingly represented larger and larger chunks of the total gross. So, instead of looking at Revenge of the Sith's opening weekend numbers, a better idea would be to apply a multiplier to the anticipated total gross. If you've never followed box office results before, a multiplier is basically another way of saying how much of the film's total was made on opening weekend. For example, a multiplier of 2 would mean that a film's total gross will be double what it made opening weekend. A multiplier of 3 would mean its total gross would be three times the opening weekend numbers. In short, a higher multiplier is better. The average 'well-performing' blockbuster typically has a multiplier in the 3.0-3.5 range. So, if we take the adjusted Revenge of the Sith gross, and divide it by your average multiplier, 3.3, you would get an approximate opening weekend total of $155,502,300Rogue One made $155,081,681. So while the math is by no means perfect, it can at least get us in the ballpark.

So now, for The Last Jedi, the trick is figuring out what exactly we should use as a comparison. So let's look at all the Star Wars films, in release order and with adjusted grosses:

Star Wars: The Force Awakens - $936,662,225
Rogue One: A Star Wars Story - $532,177,324
Star Wars: Revenge of the Sith - $380,270,577 Actual / $513,157,600 Adjusted to 2016
Star Wars: Attack of the Clones - $302,191,252 Actual / $449,906,100 Adjusted to 2016
Star Wars: The Phantom Menace - $431,088,295 Actual / $733,743,200 Adjusted to 2016
Star Wars: Return of the Jedi - $252,583,617 Actual / $700,506,300 Adjusted to 2016
Star Wars: The Empire Strikes Back - $209,398,025 Actual / $682,158,400 Adjusted to 2016
Star Wars: A New Hope - $307,263,857 Actual / 1,234,649,200 Adjusted to 2016

Here's that info as a handy dandy chart:
 

"Star Wars" Box Office Grosses (Adjusted)

Total Grosses adjusted using BoxOfficeMojo.com

While we might be quick to jump on the first obvious trend—that the second film each trilogy sees a considerable drop—I think using that to deduce potential box office numbers for The Last Jedi is a trap. The drop from A New Hope to The Empire Strikes Back is a whopping 44.75%, and Attack of the Clones sees an equally stunning 38.78% drop from The Phantom Menace. If The Last Jedi were to see a similar drop from The Force Awakens, the box office gross would only be $545 million. There are easy explanations for the earlier drops. Not only did The Empire Strikes Back receive a mediocre response upon its releaseA New Hope was such a massive hit, anything following was going to see a considerable drop. And Attack of the Clones was not only poorly received, but many in the fanbase felt like they’d been burnt by The Phantom Menace. However, a $545 million gross would align this film with the performances of Revenge of the Sith and Rogue One. If this ends up being the final result, I see two possible reasons: Critics and the fans find The Last Jedi to be lacking, or the potential gross of the average Star Wars film is around $550 million. Either way, a result like this would be troubling for Disney and Lucasfilm.

However, I think we can take a more optimistic appraisal. First, both The Force Awakens and Rogue One were well received by fans and critics alike, so there's definitely more goodwill going into The Last Jedi. Secondly, Deadline already has tracking indicating that presale tickets are outperforming Rogue One, and are "just under" The Force Awakens. Finally, I think we should look more closely at the box office performances of The Empire Strikes Back, Return of the Jedi, and The Phantom Menace. Why these three films instead of any of the others is simple. Both A New Hope and The Force Awakens are such extreme examples, that it's best to consider them to be statistical anomalies—including them would only skew the results. Attack of the Clones and Revenge of the Sith had been released to a leery fanbase and disinterested public after The Phantom Menace. While there is definitely an instinct to lump in The Phantom Menace with the other prequels, from a box office perspective, the film was largely unaffected by the scorn it developed among the fanbase. And Rogue One was intended to be a "smaller" release compared to the "Saga" films. That leaves The Empire Strikes Back, Return of the Jedi, and The Phantom Menace. If these three films are indicative of the average performance of a Star Wars saga film, than the average potential domestic gross is around $705 million.

But how about the opening weekend? The Force Awakens had a multiplier of 3.78 and Rogue One had a multiplier of 3.43. I would hazard a guess that The Last Jedi will perform closer to Rogue One than it will to The Force Awakens—it was the sequel many had been waiting over 30 years for, it was destined to over-perform. So let’s guess that a typical Star Wars film performs with a 3.4 multiplier. So, a $705 million gross with a 3.4 multiplier gets us an opening weekend number of $207 million.

The method used to get these numbers is by no means scientific, but this gives us decent guidance for The Last Jedi, and possibly for future Star Wars releases.

Your Movie Tickets Aren't Too Expensive

In the August episode of The Blue Post Podcast, we discussed if it's still worth going to the movie theater. Inevitably, we spent some time talking about how much it costs to go see a movie today. I have studied ticket pricing in the past, and think I should have actually made this point in the episode, so consider this blog post an addendum. Your movie tickets aren't too expensive. Let's look at the data.

While I was researching movie theater attendance data for my piece on MoviePass, I happened upon NATO's (that's the National Association of Theatre Owners, not the North Atlantic Treaty Organization) tracking of the average movie ticket price in the United States. I decided to do a little test. Take the average price for a ticket in, say, 1948, and then use inflation to adjust that price over time. We get this handy little chart that shows us the difference between inflation, and the actual ticket price.


Average Price per Movie Ticket (United States)

Date from National Association of Theater Owners. Inflation calculated with http://www.usinflationcalculator.com


According to this, I'm wrong. Tickets are overpriced! Theaters have been gouging us since 1958! But, before we commit to that assertion, let's add in another variable: minimum wage.


Average Price per Movie Ticket & Minimum Wage (United States)

Minimum Wage data from the United States Department of Labor
Minimum Wage listed in italics.


As we can see in this chart, the average price of a movie ticket has been playing statistical tango with the minimum wage from 1948 to now. So, historically, we can see that 1 movie ticket is roughly valued at 1 hour of work at minimum wage. But even this chart isn't telling us the full story. If the average movie ticket price is still relatively close the the minimum wage, why does it feel like the theater is more expensive now than in the past?

There are two things working against the movie theater. The first is other forms of entertainment. Netflix has three streaming options–$7.99, $9.99 and $11.99–and it gives you the ability to stream more content than you ever could consume in a lifetime. Same with YouTube, and YouTube is (mostly) free! And as movie ticket prices have doubled, the suggested retail price of a major new video game from 2000 to present has consistently been between $49.99 and $59.99, effectively becoming less expensive over time when you factor in inflation (this is a good read if you're interested in video game pricing). And let's not forget the bargain $7 Blu-ray bin at Big Box Mart. Here, the competition has undercut the value of the ticket.

But to truly tell how much more (or less) expensive the movie ticket prices have been over time, we need to also consider what MeasuringWorth.com calls income value, which they define as the "relative average income that would be used to buy a commodity." Basically, income value doesn't tell you the inflation rate of money, but gives us a better idea of how much shit you could buy with it over time. This is the second thing that makes ticket prices seem too expensive.


Minimum Wage Purchasing Power in 2016 Dollars

Income Value calculated by MeasuringWorth.com.


As the chart shows us, as time has passed, the purchasing power of one hour at minimum wage has decreased dramatically over time. At it's peak, that $1.00 minimum wage in 1958 would enable you to buy roughly $20.70 worth of goods or services in 2016 dollars. So a job paying minimum wage today doesn't get you half as far as a job at minimum wage at its peak in 1958.

The reason why the movie theater feels more expensive now than in the past is simply the fact that Americans’ purchasing power has decreased over time. By extension, their disposable income—which includes the money spent to buy that movie ticket—has decreased as well. In essence, something as inexpensive as a movie ticket has become more costly. 

And if you think that this is just liberal drivel about the minimum wage, here's a more depressing data figure:

In 1990 the Median Household Income in the United States was $52,684. Its income value in 2015 dollars would be $124,000. The Median Household Income in 2015 was only $56,516. 

In short:
It's not that tickets are too expensive. You're paid too little.

MoviePass 2: Electric Boogaloo

Just wanted to share a few things that were cut from yesterday's post, mainly because they didn't fit in or were irrelevant to the topic at hand. Also, a bit of follow up.

First, even though it's a few months out, my friends and I have already started discussing our plans to see The Last Jedi. For large groups like us, I've found that it's easiest to have one person collect the money and buy the tickets. But, MoviePass is only good for one person, and can only be used day of. If you're going to want to use your MoviePass and see The Last Jedi opening weekend, I hope you like the front row. For large releases—like a Star Wars—I can see MoviePass arguing that the average subscriber will still go out and buy tickets in advance. For Star Wars in particular, I know I would. But the more I thought about it, the less certain I am that this will stick. Outside maybe Marvel, I don't think any franchise other than Star Wars demands that you get your tickets in advance if you are hoping to catch a screening the opening weekend. And even then, when I worked at a theater, I'd say most Marvel films had decent seats available for walk-ins starting Sunday afternoon or evening. I've heard one suggestion that MoviePass could block the opening weekends of certain releases in order to help drive sales to later in a film's box office run, but deciding which films get blocked could be another big can o' worms.

Secondly, a small note on the box offices of 2000 and 2015. As I had noted yesterday, in 2015, the top 10 averaged 33% of their total gross in their opening weekend, but in 2000 the top ten only grossed 21.4% of their total take on opening weekend. However, there was one notable outlier in 2000: X-Men. It grossed 34% of it's total on opening weekend. I doubt anyone realized it at the time, but it definitely was a hint at the future of the box office.

Finally, a note on the concessions stand. One argument you will hear—and I even had someone bring it up to me last night—is that movie theaters make most of their money through concessions sales, so anything that drives attendance must be a good thing. Eh, it's not so simple. While concessions are incredibly profitable—like super, mega profit margins profitable—tickets are a volume business. Yes, theaters only see a smaller percentage of the ticket sales, but it adds up quickly. I don't remember any specifics—and if I did I probably couldn't share them—but I'd say it's a safe, educated guess that at the theater I worked at, 30% of the net profit came from ticket sales. Again, this is based on my own experience at one theater, so your mileage may vary. But, if I was an exhibitor, something that threatened a significant percentage of my profits—like, say, a subscription service that undervalues my tickets and is of questionable profitability—it is something I'd be very leery of. So, what I said about attendance, also applies to concessions. A 1-2% increase in concessions sales coming directly from MoviePass subscribers won't be enough to allay those concerns. So, unless MoviePass subscribers buy concessions in significantly greater numbers than the average theater goer, the concessions stand is ultimately a moot point. MoviePass still needs to provide a dramatic change.

Let's All Go to the Movies

MoviePass, the nifty little subscription service everyone's abuzz about, recently slashed the price of its service. It used to be as high as $45 a month, but now you can get it for the low, low price of $9.95 a month. So, for what it costs you to stream Netflix in HD, once a day you can go to the theater and see a 2D, non-IMAX screening of the latest film. And for those of us in major metropolitan areas, it's a steal. Here in Los Angeles, $9.95 is only a few dollars more than a matinee ticket at the cheap theater closest to my apartment.

Now, the battle to put butts in seats is one that the theaters have been fighting and losing since the 1940s, so anything that could possibly bring more people in is a good thing, right?

Right?

If that were the case, why would this be the headline in the Los Angeles Times the same day that MoviePass announced their new pricing:

See unlimited movies for $10 a month? Not so fast, says AMC Theatres

AMC Theatres has publicly declared their intent to find a way to block MoviePass at their theaters. And as Polygon reported, AMC Theatres stopped participating in a MoviePass pilot program that allowed subscribers to see 3D and IMAX films. All this despite The Hollywood Reporter headlines such as  "Moviegoing Slows to a Standstill Amid Historic August Slump" and "Summer Box Office Suffers Historic Decline in U.S."

To understand why the exhibitors aren't on board with MoviePass, we need to examine the realities of movie theater attendance. As much as the industry and the press would like you to think that attendance is in free fall, if you were to dig through the data and chart the annual ticket sales from 1980-2016, you'd get this:
 

North American Ticket Sales 1980-2016

Data from the National Association of Theater Owners

As the handy little trend line indicates, ticket sales in North America are currently trending downward, but are roughly in-between the high point and the low point of the 35-year period. So, while theater chains are experimenting with adding restaurants and alcohol to compete with Netflix and your big screen TV, they aren't desperate enough to need an outsider to help spur overall sales. At least not yet.

But the real concern the exhibitors have about MoviePass becomes readily apparent when you read this report about the 2016 Box Office by the Motion Picture Association of America:

"Frequent moviegoers – individuals who go to the cinema once a month or more – continue to drive the movie industry, accounting for 48 percent of all tickets sold in the United States and Canada."

The moviegoer that MoviePass is best for is the frequent moviegoer. This is the concern of the exhibitors. It's not that MoviePass undercuts their ticket prices; it's that MoviePass appeals most to their best customers—the very ones keeping the industry alive. MoviePass is quick to point out that they pay the theater full price for each ticket, but the exhibitors are right to feel antsy. How do you think those customers might feel if MoviePass fails and they have to pay full price for tickets again?

In order to assuage these fears, MoviePass has to prove that it will be profitable all on its own. Someone, somewhere, is going to pay for those movie tickets, and it won't be the theaters or the studios. Our first hint at MoviePass's plan for profitability comes from Bloomberg:

Ted Farnsworth, chief executive officer at Helios and Matheson [the majority stakeholder in MoviePass], said the goal is to amass a large base of customers and collect data on viewing behaviors. That information could then be used to eventually target advertisements or other marketing materials to subscribers. “It’s no different than Facebook or Google,” Farnsworth said. “The more we understand our fans, the more we can target them.”

So, you might subscribe to MoviePass, but ultimately, you will be the product. While they won't directly subsidize the ticket prices, studios, theaters, and advertisers would love to get even more information about the viewing habits of their customers. MoviePass would be another tool in their arsenal.

Secondly, there's the whole gym membership metaphor. Get tons of people to sign up, and hope that the vast majority don't use it. There is obviously some demand for the service. As Deadline noted, "In the two day period after the movie ticket subscription service announced a drop in price to $9.95 a month, it raised its sub level to more than 150,000..." But this is no guarantee of success. America has a built-in annual 'buy a gym membership' holiday, theaters don't.

But, MoviePass is also banking that infrequent moviegoers will outnumber the frequent. In this CNET interview, Mitch Lowe, CEO of MoviePass, stated that their "primary subscriber is someone who, today, is only going to between 3 and 6 movies a year, and now they'll go to between 6 and 9 instead."

If Lowe turns out to be correct, and the average subscriber only goes—at most—nine times a year, MoviePass does have a chance of turning a profit. In 2016, the average price of a movie ticket in the United States was $8.65. If the subscriber sees nine movies, the total cost of tickets would be $77.85. The annual subscription will cost $119.88, leaving $42.03 for MoviePass. But, this is all based on their hopes—we won't know for sure until we watch this experiment play out. If Lowe ends up being wrong, and the average subscriber is more akin to the frequent moviegoer and attends closer to 12 films a year, MoviePass's profits could vanish in a poof of ticket stubs.

But let's say, for argument's sake, that MoviePass ends up being right. The average person ends up seeing nine films, and it's up from their normal three-to-six. It's that audience that MoviePass hopes can deliver the biggest impact. From the CNET interview:

"We think there's a group of customers out there who've stopped going to the movies as often as they used to -- particularly between the ages of 18 and 39 -- who'd love to go to the movies more often, but have two problems. One is the risk of seeing a bad movie, and the second is they already belong to Netflix and Amazon and they can just wait and see it later. Usually people talk themselves out of going. 'I've gotta get there. It might not be a great movie. It's going to be 10 bucks. If I'm already paying for Netflix, I'll just wait until it comes out.'
We think that's hurting the movie business. By giving people the insurance... if you see a bad movie you can just walk out and trash it to your friends the next day, and not feel bad that you wasted 10 bucks. That way, it can actually be fun to see a bad movie. Or see a movie you didn't think you'd like and fall in love with it. We think we can expand people's interest in film, make it more enjoyable and result in more people going to the movies more often."

This is where MoviePass has an opportunity. As much as the chart above shows that tickets sales aren't in some catastrophic collapse, theaters do have an attendance problem. It isn't getting people to come to the theater, it's what people are choosing to see, and when they choose to see it.

2015 North American Box Office Gross

Data from BoxOfficeMojo

In 2015, the North American box office grossed $11 Billion. The top ten films of the year made up almost 40% of that total. If you include the next ten films, all told the top twenty films would make up 51.72% of the box office gross for the year. According to BoxOfficeMojo, there were 705 films released in 2015.

But, for the theaters, the news gets even worse. In 2015, the top ten films, on average, grossed roughly 33% of their total domestic take during their opening weekend. Compare that with 2000, where the opening weekend for top ten films averaged only 21.4% of their total gross. Film rent—what the theaters give the studios for "rental of the film print"—is the most expensive for the opening weekend of a film. So not only is the box office more and more dependent on blockbuster releases, as the audience has become more inclined to catch a big release opening weekend, the theaters have started to earn less revenue overall.

To get theaters on board, not only does MoviePass need to help increase attendance, they need to increase attendance for the other 675 films and they need to help drive attendance later in a film's box office run. If the average subscriber is primarily using their pass to see the same top-20 films on or near opening weekend, the biggest problem the theaters face won't be addressed and the theaters have no incentive to play ball. And If I were an exhibitor, I'd want to see a dramatic change. A 1-2% increase in traffic isn't going to be enough. But all that will be for naught if MoviePass isn't profitable. 

This doesn't mean that the exhibition industry isn't prime for some disruption, just that MoviePass needs to prove that it's the way to do it.