Adam Aron’s (AMC CEO) Bizarre Responses to MoviePass Subscription Questions

AMC had a pretty good quarterly report today.   Box office – and ticket admissions did better than expected.  Not so surprisingly Adam Aron took a few shots at MoviePass – a service he would love to see go away as it threatens AMC in a way they don’t like and don’t fully understand.   Aron seems to revel in the better than expected Ticket and Box office numbers beat for the quarter, while also tacitly acknowledging that MoviePass was a significant driver of his business.    While at the same time trying to deny the popularity and acceptance of MoviePass, all while trying once again to throw the company business model under the bus.  Desperately, and probably stupidly,  wishing they entire thing would just go away.

First, let’s just take a look at some of the numbers here.

As you can see, US Market Attendance was actually down to 61.5M from 68.8M.  Aron raised ticket prices from $9.27 to $9.78.   All underlying Aron’s strategy of reducing seats, upgrading some of AMC theaters and get more money out of every moviegoer.   It is his strategy to actually REDUCE moviegoing.  And I give him credit there! – he has achieved his goal of fewer people going to his theaters.

Now – here are some quotes from the conference call, that demonstrate how far a CEO can delude himself from a near-term reality he must face.   And that is, like it or not, MoviePass success at AMC, has become the success of AMC.  That is, Aron can’t have one without the other.  He knows it and is having a harder and harder time dancing away from it.

From Today’s Conference Call

Ryan Sundby

And then I guess I hate to be the one to go here, but I am surprised we haven’t hit on subscription this late into the call. Any color you can provide on what subscription services going to add to the quarter? And then any thoughts on how you see that evolving now that we see a new entrant into the subscriptions game as well, I guess?

Adam Aron

I have been waiting for that question the whole call. So thank you for asking it. We have had a very successful subscription program for three years in the United Kingdom, called Limitless in the Odeon circuit. And our views about subscription have not changed 1iota since the August press statement that we put out on the first day of movie passes, in my opinion, ridiculous price reduction. We said go back and look at our statements. We said that there’s nothing wrong with subscriptions programs. They can be quite positive actually if they’re done rationally and intelligibly. But they have to be done at a price that is sustainable. And it was our view that 995 for up to 30 or 31 movies a month is not enough money to spread around MoviePass, Hollywood studios and theater operators, so that Hollywood can make quality movies and theaters can operate quality theaters.

Fast forward to today, in March and April, MoviePass paid AMC $12.02 per ticket on hundreds and hundreds and hundreds of thousands of tickets each month, hundreds of thousands of their subscribers came through AMC theaters to enjoy our product. They did so at a frequency of 2.62 times in March and 2.75 times in April. Now, I took the calculator out and I multiplied 2.75 times $12.02, and I got to a number that was considerably larger than 995. So just as we were hearing that — the MoviePass price point was unsustainable in August, we have the same questions today. And apparently we’re not alone in that view. Our doubts are now shared and articulated by MoviePass’s orders.

OK, Aron – we know you hate MoviePass! – you have made that very clear, and you hate that it has a model that can result in lower prices and you refuse to acknowledge that the lowering of price can result in higher demand – even as it seems to be showing up in your theaters and driving better than expected attendance numbers at your theaters.   (Hitting my head against the wall now!)  But at the end of your statement, you now claim that your doubts are now “shared and articulated by MoviePass orders”?!    And you back it up with no data whatsoever?   And what do you mean by “shared and articulated by MoviePass’s orders?”  I mean seriously, what do you mean?   Are you saying MP subs are down?   Because that is a pretty bold claim – given MP has not backed down from their sub growth #’s at all.    Or is Aron saying that AMC is seeing fewer ticket sales from MP?  That seems counter to his other previous claims of hundreds and hundreds of thousands of tickets.   Is it just me, or does it seem like Aron has a hard time splicing all of this BS together to a coherent argument on why MoviePass sucks, other than he hates it, and does not believe in lowering prices to drive up demand?

Aron also states that MoviePass is paying $12.02 per ticket while also claiming in AMC’s own reports that the average ticket price is $9.78.   I am starting to smell a rat here.   How could MoviePass be paying more than $2 over AMC’s average ticket price?  Particularly when MP does not allow for 3D or Imax viewing?  Something stinks here.  Either Aron is lying, or he is knowingly ripping off MoviePass.  I don’t see how either of these things can last.  I know some will say the price difference is for regional higher prices where MP is more dominant, but I don’t buy that argument, not when you take out 3D and Imax.

Now – if MoviePass paid for “hundreds and hundreds and hundreds of thousands of tickets each month” what would have been the result had MoviePass aggressively redirected those subscribers to other theaters?

Let’s do some conservative math on that statement against the reported numbers.   Since we Aron won’t give a real number beyond hundreds and hundreds of thousands.   I will pick some conservative numbers to work with.

If you assume that MP brought in the mid-range of “100’s of thousands” of tickets each month, at the $12.02 price point Aron claims. If you add to that a conservative Halo effect of 20% (For friends who go with MP subscribers that probably would not have done otherwise)  That would amount to about $23M in tickets sold by MP in the QTR.   A significant amount for the company to be sure.  If you add to that the average $5.04 concessions the company claims, it amounts to another $9.6M.   This is all VERY conservative estimates.   And the total estimate here would be just over $32 Million for the QTR that can be DIRECTLY attributed to MP.    And for those people who say that these people would have gone to the theater anyway without MP, I say, you are nuts and delusional to think that way.  The data is absolutely 100% clear MP customers double their movie consumption after signing up with MP.

Ticket Revenue Concessions
MP Tickets Sold Halo Effect 20% Total Ticket Sales  $                12.02 $5.04
Jan           500,000            100,000               600,000  $    7,212,000.00 3024000
Feb           600,000            120,000               720,000  $    8,654,400.00  $ 3,628,800.00
March           500,000            100,000               600,000  $    7,212,000.00  $ 3,024,000.00
Totals        1,600,000            320,000            1,920,000  $  23,078,400.00  $ 9,676,800.00  $ 32,755,200.00

 

The question is would this relatively small estimate of increased revenue make a difference to AMC’s results.  And the very clear answer to that question is absolutely yes!!  In a very big way.  AMC posted earnings of 14 cents per share, topping the Wall Street consensus estimate of 9 cents per share by 5 cents per share. Net earnings were $17.7 million for the period.  That’s right net earnings were $17.7 Million.    So does $32 Million of additional revenue make a big difference to AMC?!    I think the answer is obvious.   Without MoviePass AMC almost certainly would have missed Wall Street consensus, and instead of seeing a nice lift in stock price, they likely would be getting crushed in tomorrow’s trade.

And for those who say, you can’t just add that additional revenue straight to Net Earnings, I say, you must consider that MP sells perishable inventory that AMC likely would not have otherwise sold.  Meaning a HUGE amount (almost all of it) goes straight to higher profits for AMC.

So while Aron continues to hope that MoviePass goes away, he also must secretly be thankful that MoviePass is saving AMC’s bacon by goosing their numbers.  Aron can’t seem to wrap his head around the idea that a whole lot of people would like to see more movies at a more reasonable price.  He is blind to his own strategy of raising price, reducing audience, and slowly killing off all but the most passionate theatergoers.

I have seen this movie before, where the old laboring incumbent just can’t wrap their heads around a new business model that is likely much better for them.  The disrupter just keeps charging forward, and finally deals a crippling blow to the old guard.     AMC is now very vulnerable to MoviePass, Aron knows it, and it is why his statements continue to get more bizarre and more paranoid.   The more Aron continues to bash MoviePass, the harder it will be for him as CEO of AMC to walk back his comments and do a deal with MoviePass under his watch.

I believe MoviePass is nearing or already at a point where they could do serious damage to any one of the major chains by seriously reducing consumption at any one of them for a sustained period of time.  That is a nightmare scenario for Aron, who has come out swinging hard against MoviePass and shows no intention to back down.

I expect a showdown soon enough!

Chapter 2

“Winners quit all the time.  They just quit the right stuff at the right time”  

Seth Godin  

 

In 1994 I finally woke up and realized what the birth lottery had gifted to me!  I lived in the Seattle area, in the midst of the PC revolution, and we just happened to have the leader and the most profitable company of that revolution right under my nose called Microsoft!! So, when I finally clued in and figured out that PCs were going to be big, really big!  I thought, what the hell, I better find a way to join Microsoft again.   While I was incredibly stupid, at least I was smart enough to see that this PC thing was really starting to catch on!     Add to that, my young beautiful wife had already started working at Microsoft in sales, where she had run into an old High School friend of mine who was working there as a manager in Product Support, and one thing led to another I was hired back to Microsoft 2 years after my first contract job with the company had ended.  

Now I was starting over at Microsoft, with a job that may have even been worse than the first one I had started with!  At least at this point, I had the good sense to quit the dead-end job I had in Aerospace and move on.  It was sort of a second chance for me to make something of myself.   

This was not the worst path for me to take.  After bumping around in the Aerospace business for a couple years, I saw how difficult it was to grow a career in a mature industry.  I was working for a sales manager who had been in aerospace for more than a decade already and had only moved up far enough to be my boss.  He was a nice guy, but his spirit was waning, and he knew his boss had to quit or die before he was going to get another bump up the old corporate ladder.  The environment was depressing, the old-timers at the company had that glazed look in their eyes, of a life wasted.   

As it turned out, the Aerospace company I was working for was going through a rough patch of their own.  The company had just lost their most important patent while I was working there and was about to lose their largest customer as a result.  Unfortunately, the very day that the company’s most important patent expired, their biggest customer, The Boeing Company, called up the CEO and told him that they were now going to take all the product they had been buying from us in the past and do the work “in-house”.  Boeing told the CEO that they had been waiting for this day a long time and that they had felt they were been being ripped off for the past 20 years!   It was a hard day for everyone at the firm. 

That very same day, the CEO of that small aerospace company called an emergency company meeting, it was just before Christmas and he broke the news to the entire 120-person company.  For many of them, their careers were over, about half of the staff would have to be let go, there would be no end of year bonus, and the Christmas party had been canceled.   It was a grim day for the people who had spent a good part of their life working for the company.  Some were crying, some were mad at the CEO for not steering the company in a brighter more prosperous direction.  It was a wake-up call for me.

I was sort of glad that the company was likely going to lay me off.  I couldn’t stand the job, and I could see that whatever my future was going to hold, this job was not going to make it very bright.  Also, the CEO and founder of the company was a greedy and grouchy old guy.  And I thought to myself,” if this guy is the best that one can aspire to here, I really need to think hard about getting out this place”.  

One of my favorite stories of working at that company was a time when I had gone to the breakroom to cook up some microwave popcorn.   I then brought the popcorn back to my desk to snack on while working.  As soon as I got back to my desk a fellow sales trainer/corporate slave came running up to my cubicle in a bit of a panic.  He told me that the “old man” (that’s what we called the owner and CEO of the place) HATED the smell of microwave popcorn!  He had a strict rule about not bringing it into the offices from the break room area.  This guy was dead serious and seriously worried about me, I could be fired for eating a bag of popcorn at my desk.  I laughed, I sat down and ate the entire bag of popcorn, and I thought to myself, I am not going to last very long at this place.  I quit Friday of that week same week.  I told my boss I planned to start my own company.  But really I did not have a plan.  I just knew that I could not stay at that company any longer, it was never going to go anywhere, and I did not like the work anyway.

This all made me appreciate the Microsoft opportunity so much more than I would have if I had not had this experience.   I think it also motivated me to try to be a much better employee and work harder to impress my superiors when I had a good opportunity.   Yes – I was slow on uptake, but the learning lesson was a valuable one.

Learning Lesson #2 –  If you find yourself in an obvious dead-end situation, QUIT!   Had I not had the good sense to quit what was a decent but dead-end job in Aerospace, I would never have had the chance to have my incredibly fortunate and lucky run at Microsoft.    The old saying “winners never quit” IS WRONG! —winners do quit, and quitters do win.  Quit often and start over when it makes sense to do so.  Timing is important, and so is luck.   If you are having trouble knowing if you should quit.  I recommend reading The Dip by Seth Godin

  Throughout the rest of this book, many of the learning lessons I write about are meant to help you identify if you are in a winning or losing situation.   And to help you find your way to areas and scenarios where you can win.  Believe me, there were a lot of people who were better at timing and getting luckier than I did at Microsoft, even when I was damn lucky to get what I did! 

Others I knew at Microsoft were even more amazing at timing.  Those who left to join Google, as an example, just as Microsoft’s hypergrowth was ending, were particularly impressive to me.  It’s hard to know just when the right time is to jump to a new opportunity, but if you really watch for the signals and ACT on them, you will be better off for having left a job that is dead or dying and take that jump toward moving to a better future.   

Incredible Positive Interview Fox New & Maria Bartiromo

MoviePass Investors should be very excited today.    An absolute home run interview with Mitch Lowe & Maria Bartiromo.  She calls it a “Movie Lover’s Dream”.  Says it the momentum is “incredible”

  • Mitch talks about exclusive events with John Travolta at 5 different locations to promote the Gotti film
  • Mitch says multiple 10’s of thousands of new subs yesterday alone.
  • Maria says she is excited to see the Gotti film
  • Maria says that people “LOVE” their MoviePass
  • Mitch reiterates the experience and getting out of cocooning – a new PR message they are pushing

“Oh my god,” he told FOX Business’ Maria Bartiromo during an interview on Thursday. “I think tens and tens of thousands of people have just subscribed since yesterday.”

Folks – you can’t buy an ad this good.  I mean literally, you can’t buy this type of endorsement from a major media show host like Maria Bartiromo.  I was in the business and I can say without a doubt these people will not sell an endorsement like you see in this interview.   Incredible value here!

Mitch is doing a great job in these interviews.  He comes off as personable, excited about the product and the business.   I have done a few video interviews in the past and worked with many different executives in prepping for TV interviews including Bill Gates, it is not easy.  Mitch is a natural.   It is rare to have a CEO leader this comfortable in front of a camera.   A tremendous asset to a young company like MoviePass.

 

Mitch Lowe CNBC Interview – GREAT NEWS!

Mitch Lowe finally broke the silence on the MoviePass news cycle today on CNBC.  Masterfully creating huge attention by bringing back the $9.95 unlimited program.   A beautifully played PR move.  Bringing back what customers love, with limitations now in place that makes the model much more effective.

Watching a film on your phone is a lot less than going to the theater: MoviePass CEO from CNBC.

Key News Bits

  1. $9.95 Unlimited is back – shows fine tuning is working
  2. The share of smaller markets is going up- average ticket price going down.
  3. “Around 30% cost reduction”  This is absolutely key.  30% utilization reduction has a HUGE impact on Gross Margins – Updated model coming soon to reflect
  4. All but one independent theater said “send me a contract” to get a deal done with MP at CinemaCon
  5. Move shows confidence in model- no chance they would reintroduce unlimited if they feared near-term bankruptcy

Just when people were thinking there may not be a strategy here.  It turns out they are working an incredible PR strategy of manipulating the media to stay out front and center and top of consumers minds.   Yes, it seems haphazard, but I believe MP is playing this very smart, they know what they are doing and these somewhat bold plan moves are part of an overall strategy to keep media buzz high.    And it seems to be working!

Want some proof of how MP thinks about PR strategy?   MP and HMNY use PPMG Corp as their PR Firm.   These guys are good at what they do.  They have been organizing the PR blitz for MP since the beginning and looking for ways to leverage and sustain the initial PR Buzz from the first unlimited announcement.     

Data and analytics company Helios and Matheson Analytics purchased a majority share in Netflix co-founder Mitch Rowe’s company MoviePass, allowing the subscription service to drop its fee to $9.95 monthly for unlimited movie theater viewings. The explosive news disrupted the industry as the agency worked with HMNY CEO Ted Farnsworth and MoviePass CEO Mitch Lowe on a week-long New York City media tour and blitz, ranging from top tier national broadcast outlets such as CNN to national movie trade outlets such as Variety. The MoviePass news escalated further when AMC Theaters publicly denounced the service, enabling the agency to prolong coverage and take both companies into another editorial cycle in national and local news nationwide.

So what may feel like random changes, and potential uncertainty around the business model, in fact turns out to be a very organized campaign to sustain the media attention needed to keep interest in MoviePass extremely high.

I have worked on campaigns similar to this, it is not easy to keep the momentum going, CNBC and other big TV News outlets don’t just take anybody on the show.  You have to have news to share, and it has to be something the producers think will be interesting.   MP and Mitch have done a fantastic job here keeping the buzz going, and keeping people talking about MP.   As I have written in the past, these media impressions are worth Millions for MP, it is advertising they don’t have to buy.

Here’s the link to my updated model with the new information today.

Chapter One

Chapter One

 

“The first duty of a human being is to assume the right functional relationship to society – more briefly, to find your real job, and do it.”

Charlotte Perkins Gilman

 

My first Microsoft Job:

My very first job at Microsoft was as a temporary worker or what they had called a “contractor position” it was the year I graduated from College, 1991; I landed a job on the DOS 5.0 sales hotline.  The only reason I got the job was my brother’s x-girlfriend had taken a job at a temporary staffing agency that was placing lots of bodies inside of Microsoft.   Microsoft was growing very fast in those days and frankly could hardly hire people fast enough.  If you had a college degree, a pulse, and could work on the telephone for 8 hours a day, you were pretty much qualified “enough” and you were in.  There may have been a basic typing test involved as well, I have a hard time remembering it all now.  I knew quite a few people who got their start at Microsoft this way over the years.   Many of whom went on to have very successful careers inside the company and out.

It was not a glamorous start.  The specific job I was assigned was taking telephone orders for a new version of DOS, which is short for Disk Operating System.   This particular release of DOS had some new stuff- or “features” as they say in the software business.   The release was notable as it was the first time that Microsoft made an effort to sell an Operating System to retail customers as an upgrade.    So, DOS 5.0 kicked off a big business for Microsoft, selling upgrades of computer operating systems to their installed base of somewhere around 60 Million users at that time.   The installed base of Windows PC’s is in the billions now.

The office park where they set up this temporary sales order desk I was working in was not on the main campus of Microsoft. It was about 3 miles away near downtown Bellevue in a nondescript office park called “Ridgeway Campus”. Microsoft had taken a lease there and occupied 3 of the buildings.   Pretty much all of the employees in these outpost buildings were temporary or contract employees.   They did not officially work for Microsoft.   It was mostly a bunch of young kids in their early 20’s getting a start in the job market.   The only “benefits” offered with the job were free soda and a pretty nicely stocked kitchen with decent snacks.   I remember that pretty well because I was coming off of being a starving student, and while I was only making about $5.50 an hour with no “benefits”, I thought it was great that I could drink a lot of free soda and eat a LOT of free snacks.   For the temps, it was always clear that you were a 2nd class citizen of Microsoft, there were no health benefits, stock options, gym memberships or any of the respect shown to full-time employees, but you did get the free soda and snacks, and the people were generally nice enough.

It was a good place to get some experience in the business world when you were fresh out of college with no real prospects.  The job market in 1990 was not very strong, and it was particularly slow in the Seattle market.  I was just happy to have a job.

My days consisted of sitting in a very small cubicle all day for my 8-hour daily shift. The workspace was really too small to even call it a cube; it was more like one of those long row desks that you see at a library with little privacy walls in-between each sitting area spaced out at about every 3 feet or so.   It was adequate space to get the job done.   And for the most part, it was all young kids who were just out of school and it was not all the different than studying in a crowded library.  Everyone there was just looking to make some money, get some experience and move on.

I, and the group I worked with actually had a lot of fun doing that job.   I remember that we had a script which we had to follow when we answered prospective callers.  We were told to answer the phone saying.  “MS-DOS 5, No PC should be without it!  My name is “Bob” how I can help you!”    To entertain ourselves during the day we would make up fake names and accents when we answered the phone.  The guy sitting next to me was hilarious, he would do an entire call with a very deep southern accent.  He would answer the phone using this long drawn out southern hillbilly sounding accent, “M…S…..D-O-S ..FIVE…, No dang PC should go without it, this is Alligator, how the heck can I help ya!   He would keep it up for several calls in a row.  His hijinks encouraged us all to come up with our own characters.  You would never know who was going to use what character next, it was like a zoo at times.    It was fun having a job where you could have some laughs and goof off a bit.

About half the time the customers calling in had absolutely no clue why they needed or wanted this newfangled DOS 5.0 operating system.  Luckily, we had a script that had some basic features and selling points we could read to persuade these eager callers.   In those days memory constraints were a big deal with PCs.   PCs were not the awesome multifunction devices we think of today, where you can play games, socialize with friends, buy anything on earth etc. etc.  PCs were for serious stuff like watching a green blinking cursor and trying to figure out what bizarre command you could input to make the PC do something interesting.  There were, of course, some programs out there like Word Perfect, Lotus 123, and lots of different business apps for the PC, a big problem people had back in the early PC days was literally running out of RAM memory and the program you were using would just stop working.  So, DOS 5 had a memory saving feature, it also had an undelete feature for the first time, and was the first time that DOS was sold as an upgrade.   This dorky video was made for training salespeople and the retail sales channel.   Watch it for a good laugh…  https://www.youtube.com/watch?v=dmEvPZUdAVI

Funny enough, none of us in this sales group actually had a PC at our desk and almost nobody really had a PC at home in those days.  So, we had pretty limited knowledge of what it was we were actually selling.   Microsoft did provide PC rooms where you could go and learn more about PC’s and the various programs.   That would prove to be very valuable to me as I would spend my break time and time after work playing around with the PC and with various programs, as I was naturally curious about how things worked and figured it would be useful for me to actually know what it was I was trying to sell.   I learned some pretty decent PC skills in those labs, and it turned out to be very valuable later on as my career started to blossom.

Oddly, none of us had PC’s at our workstations, PC’s were still very expensive, and networking them together in a meaningful way was just starting to take off.  So, while we were on the phones we used paper forms to fill out orders as they came in, and we read our sales scripts straight off of good old-fashioned paper.   At the end of the day, we would pile up all the orders we had taken and put them into a big bin, where somebody would plug them into a PC and I never knew what happened after that… To me, the day was done, there was no homework, no stress thinking about the next day, no worries, I just clocked out, and went home to have fun, play a game of tennis, or do something fun with friends.  There was no evening email to check, and there was no sense of things “piling” up at the office while you were away.  It was a nice way to live.  Even if I was still living like a poor college student.

The DOS 5 job was a short-term assignment, it lasted just a few months my first summer out of college.  I was offered a fulltime job at the end of that contract to work at Microsoft’s inside sales call center.  Incredibly and stupidly, I declined the offer, for two reasons.  First, I thought the work was pretty damn boring, so signing up to do inside sales of whatever the next version of DOS was going to have seemed like a great way to kill myself with boredom, even if it was relatively fun and easy, I could not imagine signing up for 2-3 years of that kind of work.  Second, I had another offer on the table for a couple thousand dollars more, and I wanted to buy a car!  Microsoft offered stock options, but I thought those things sounded like total bullshit!  J  In my idiotic view, I needed some cash now for a new ride!  So, I took a competing job at a small airplane parts manufacturer in South Seattle and proceeded to waste about 2 years of my life selling specialized plane tools to airplane manufactures and airline repair shops.    It was a bad move, of which there were others to follow…

Learning Lesson #1 – For those who are early in career – Always think long-term when making a job choice!   The best thing you can do is find an early stage growing dynamic company, start anywhere they will have you, & create your own luck by working hard & being at the right place at the right time.    For my part, I could have listened to the many people who gave me this same advice, but I first chose a less than mediocre company that was going nowhere so I could make a few extra bucks in the short term.  THAT WAS A DUMBASS MOVE!  And it probably cost me several hundred thousand dollars in lost opportunity and stock options!!  Uhgg!