Peak Pricing Appears to be a Direct Hit

I have been lax on writing about MoviePass for a while, but now that summer heat is here in full force in Eastern Washington I am taking a few hours inside to enjoy some A/C and think and write a bit more about what could be with MoviePass.

It has been an exciting couple of weeks, with new SEC filings that almost nobody can make any sense of, calls for pending doom from going belly up.  But IMO the most important and exciting development for MoviePass is the official start of Peak Pricing, or what many are calling Surge Pricing.

It appears from weekend reports across the Internet that MoviePass has done an implementation that is going to be quite good for HMNY stockholders, and ultimately will be very good for MoviePass customers, although many customers are still working through their various stages of grief and going through the old Kubler-Ross Model.   If not familiar, there is a well-defined model for how humans deal with unexpected changes, particularly when they are dealing with a change of something they love.

First is Denial – We saw that when the news first came out, there were a lot of people saying it was only a rumor, then there were people saying that MoviePass would not implement it because the backlash would be too much.  Well, that all passed, and nobody is denying that surge pricing is here.

Second is Anger – we still have some people in that stage.  We have seen a lot of that, especially from the heavy users.   Most will get over it, but the anger has been there on full display.

Third is Bargaining- this is normally praying the change away, or trying to find some way to make the change not happen.  It is the strong desire to go back to the way things were before.

Forth is Depression –  You might think that is a stretch for MoviePass, but when I read comments on the MP Fans site on FB, I think some people really have found some bleak moments knowing that the “too good to be true” free for all is winding down just a bit.  Maybe folks are depressed, but some are “pretty bummed out”.

Fith and Last – is Acceptance – Many MoviePass holders have already moved to this, but everyone moves at their own pace.  Acceptance does not mean you love it, it simply means that you accept it as the new reality and move on to dealing with it.   In the case of MoviePass I know people have moved on to acceptance when they start talking about how they are going to try and avoid Peak Pricing.   I see folks saying they will try and buy tickets early in the morning, or see the big movies in the middle of the weak or later on in the lifecycle or whatever they decide to do.    When consumers start talking that way, you know they have moved on to acceptance.

Again – different people react in different ways, and people take their own time and pace to move through these things.

So – we have Peak Pricing announced, implemented, and we are slowly working our way through to acceptance with consumers.   If you are holding on to the idea that this is going to cause a mass cancellation effect and churn is going to go through the roof.  Forget about it!   That is not going to happen.  Consumers ultimately do what is good for their pocketbook, even if slightly miffed.   You need only know that people will drive several miles to save .05 on a gallon of gas.  Or people will brave the crowded Costco to pick up cheap paper towels and great deals on meat.  Trust me when I tell you, very few people will actually quit MoviePass because of Peak pricing.  The deal is still terrific and everybody logically knows that.   Remember, sites like facebook, twitter reddit etc, they all have the vocal minority who love to bitch and complain and tell the world how terrible things are, and they make big claims about how they will quit and protest different things.  99% of the time it is just a bunch of noise.   I mean if you are being at all realistic, you know that people have issues with Facebook, Amazon, Google, Microsoft, Apple, etc., they have some small vocal minority that throws a fit anytime changes happen, and then of course things settle down, and ultimately more often than not the companies move on with whatever their agenda is.   OK enough about that, because Peak Pricing really is not that bad for consumers and they will get that over time.

With MoviePass and HMNY – these steps are quite important.  Firstly because often times Farnsworth and or Mitch say something is going to happen, and well, it either does not happen or does not happen quite when or how they said it would happen.   So that they actually got the work done and implemented this thing is no small deal.

Again – From what I have been seeing on Facebook, Stocktwits, and other boards, it appears that MoviePass has made a direct hit with their implementation of Peak Pricing.   Let me explain.

First- It seems that AMC Theaters are taking direct hits on Peak Pricing, while partner theaters and other non-AMC theaters appear to be seeing less surge pricing.   MoviePass is now clearly at WAR with AMC.  Mitch and Ted have taken the gloves off and I think they’ve given up any hope of getting a deal done with AMC anytime soon, so now they are going to hit them where it hurts.  Ted has been vocal in his jabs at AMC lately, telling The Street that he thinks AMC is trying to put them out of business.   Mitch has long been saying nasty things about AMC,

so it is clear that the dynamic duo is more than ready to stick it to AMC as hard as they can.   I have seen many screenshots like the one below where AMC is the ONLY theater showing Peak Pricing for a particular location.   That is less true in NYC and LA where there is more widespread Peak Pricing.   But it seems obvious now that Partner Theaters are going to see lower or maybe zero Peak Pricing, and AMC is going to see a lot of it.   The effect of this will likely be that heavy users who really love AMC will likely jump to the more expensive AMC Stubs plan.   That is actually a good thing for MoviePass, the more heavy losers (I mean users sorry for the slip up there) that jump over to AMC’s plan, the less money MoviePass has to lose on them.  This brings down the utilization rate, which of course is key to getting MoviePass toward that Breakeven goal near the end of the year.   This will also punish AMC further, as they will be getting the worst type of users, the heavy users, that are paying $20 a month, who are very motivated to get their full value from the subscription.    So from MoviePass’s position, I am sure they are more than happy to bid farewell to those Movie Hogs, and maybe pick them up later as things change over time.   Some of the really heavy users are going to be happy to have both the AMC program and the MoviePass subscription, as over -time MoviePass will introduce exclusive benefits that movie fans will find irresistible.

Now onto why Peak Pricing is actually sort of good for consumers, and they just don’t really know it yet.   Peak pricing is doing something that no other theater company could do before.  It is using variable pricing to smooth out the demand curve.   And that IS actually good for consumers.

You see if MoviePass can successfully help theaters to reduce their perishable inventory by changing the demand lifecycle of a film, this will help MP help the theaters to make more money.   You have to think about a movie seat like an airline thinks about their seats.  Once the plane takes off, any seat without a butt in it is a loss for the airline.   Same of course goes for Movie seats.   If the movie plays to an empty seat that is a lost opportunity to sell an additional ticket.  OK I know that is super basic.  But the less basic part is, Movie Theaters make more profit on the tail end of movies lifecycle in the theater.  That’s right, movie theaters keep more of the sale on a movie ticket in the last week of a films showing than it does on opening weekend, where the studios take the lions share of the revenue.    So if MoviePass can show the theaters that they can actually get people to change their behavior and see movies a week or two into the release cycle this helps the theaters make a lot more money.

So how is this good for the consumer?  Well in a number of ways.  First, it gives consumers more choice on how to enjoy films in the theater, and do so at a great price.   By spreading out the demand, everyone can win.

Second, it gives smaller indie films a much better position to make some money.  Take this weekend, for example, maybe wait on Ant-Man, and instead see “Three Identical Strangers” a Movie that MoviePass is promoting.   As a consumer, you still get to see a new release, you get to see something maybe a bit more interesting than the movie everyone else is seeing, and it does not mean you can’t see Ant-Man later on in the theater.

By flattening out the lifecycle of blockbuster films, it helps the theaters make more money, it helps the independent movie producers make more money and thus produce more movies for theaters, and thus it helps consumers have more choices of more films, for significantly less money than they were seeing films for before MoviePass.

This is why I think Peak Pricing is the most significant move yet by MoviePass, and why I believe ultimately anyone who loves movies, or anybody who has invested in HMNY/MoviePass will look back at this weekend as a watershed moment for the success of MoviePass, and a very direct hit on AMC.

What I Learned About and From Mark Gomes

One of the great things I have found since starting this blog is that it is a great way to meet new people.   Most of the people I have met are quite interesting, have successful backgrounds, and have a high level of expertise in their respective areas.   Aside from the occasional troll, the vast majority of people that I have communicated with have been great, well-meaning people who simply want to exchange ideas and thoughts about MoviePass, retirement, investing or other topics that I touch on here and there.   Mark Gomes is one of the people I met through this blog.  Mark and I started exchanging thoughts and ideas around MoviePass several months ago.   And as some of the people who follow us know Mark and I did a debate online where we shared our respective opinions on MoviePass and HMNY.

Before doing the debate with Mark, we spoke at length about Mark’s background, about life, about our investing ideas and strategies.   We found that we shared more things in common than we differed.   I always find it interesting that more often than not, if you really try to understand a person and understand their personal journey, you will find that you can find many common threads that bind you.   I found that to be quite true with Mark, as we shared a story of early retirement, the desire to give back something to the world, we both feel very fortunate and blessed with where we are in life, and like any lifetime spent working, we had our share bumps bruises and battles along the way.

One bump that Mark has on his record is a dust-up with the SEC.   Specifically, Mark was served a cease and desist order based on what the SEC saw as a series of pump and dump trades.  Mark settled with the SEC, as part of the settlement he was barred from working in the financial industry for 5 years. (at least essentially barred – you can read the specifics in the filing).  I talked to Mark about this entire episode at length.   I wanted to make sure I was doing my DD before agreeing to do anything publicly together, so I wanted to get the full story from him about what had happened between him and the SEC.

Like any story, there are two sides to the Mark Gomes and SEC story.  Personally, I am not picking sides here, but I do believe that Mark’s side of the story stands up pretty well.   Let me explain a bit of Mark’s history and I will get into why I believe Mark deserves the benefit of the doubt, and further why I believe Mark is a very good analyst.

Mark’s history started out as a grunt at International Data Corporation (IDC) – Funny enough, Mark and I had similar grunt jobs, being essentially fax boys back in the old days when fax machines were considered expensive and essential equipment to running a business.  Mark was savvy and smart enough to start helping out doing research, learning what needed to be done, and eventually climbed his way up to being a very respected senior researcher for IDC and later AMR research.  His career working for those two respected companies lasted for 10 years, from 1994 to 2004. 

Mark then decided to break out on his own.  He has an entrepreneurial spirit, and he could see an opportunity to take his craft and make money providing research to various hedge funds utilizing his knowledge and contacts in the industry.   Mark started a company called Pipeline Data LLC and ran that from 2004 to 2009.  Mark then semi-retired, did some volunteer work.    He also kept busy doing some blogging on Seeking Alpha.

Then according to Mark’s story, he had a close friend who was diagnosed with breast cancer in 2013.    Apparently, this friend did not have a lot of money, and Mark wanted to help her out.   Mark told me he would have gladly just written a check to his friend, but the couple he was trying to help had a lot of pride and did not wish to take any handout.   So Mark offered to do a partnership with his sick friend’s husband to create a new research firm.  Mark was going to do the research work and lead the analysts, and the friend was going to do the website and do promotion of selling the premium research.   Essentially the premium research was early access to Mark and other analysts calls on certain stocks.  The company was named PPT research.

Again, according to Mark, he discovered in 2014 that his partner (the sick friend’s husband) had done some nefarious selloff of the company’s assets without his knowledge or permission, he also found out that his partner had made some errors in clarity on disclosure that Mark felt was going to be bad for the company.   Mark, of course, felt burned by all of this and took steps to back away from the company and start shutting it down.

In 2015 the SEC started an investigation of PPT Research.   They alleged that PTT Research’s disclosures did not properly inform investors of their trading practices/intentions. They also alleged that PPT’s newsletter service was in actuality acting as an unregistered investment advisor (all investment advisors must be registered by law).  That investigation was ultimately narrowed down to determine whether Mark himself was releasing stock reports with the sole intent of scalping – pumping a stock’s price up to profit by immediately selling the shares at a higher price.

As part of the investigation, the SEC requested every article Mark had written and compared them to the nearly 5,000 trades he had made.  He was also hauled in for an 8-hour deposition at the SEC Miami office.  In total the SEC looked at approximately 400 different stocks were involved.   Mark’s attorney warned him that the SEC could seek millions in disgorgements and penalties, along with possible imprisonment in the event that Mark gave any false testimony or information during the investigation.  So Mark was motivated to prove his case! 

Through a long process with the SEC, they narrowed down from the original list of near 400 stocks, down to 4 stocks that were still considered to be in question.   Mark’s lawyer argued that 99% of the trades in question were found to have no wrongdoing.   And that the remaining 4 stock trades in question could likely be explained by coincidence alone.   Mark shared with me that he could have mounted a very good defense for the remaining 4 stocks, and he felt he had documentation and a good case.  Mark explained the few trades in question to me, and I must say, he has the details, timestamps, and good reasoning for why he made the trades when he did, and how those actions did coincide with his research in a way that most traders would accept as ethical.  (Note – I am NOT a trader, I am a long-term buy and hold guy, I don’t trade daily news events, and I only buy a stock if I feel like I can stick with it for many years – so I can’t really speak for how heavy traders would feel about Mark’s work with 100% confidence and conviction)

Mark consulted with his lawyer and ultimately decided that it was a better decision for him to put the matter behind him, settle and pay the approximately $275,00 fine to the SEC.

The logic was that it could have cost him several times that amount to fight the battle in court.   And when fighting a branch of the US Government, you are battling an entity that has essentially unlimited resources to throw at you.

The SEC is like any government agency, they have a certain number of cases they have to get through, and they basically throw the book at you, and hope to settle.  They want their money, and they want to make it appear as if they are getting results.  So you are best to stay out of their crosshairs.   Mark learned a lesson on all of this.   And you will see how very careful Mark is on his disclosure statements if you look at his site or any of his material or research.

So like many stories – it helps to hear both sides.  With context, it seems obvious that it would not be at all wise to write off Mark as simply a pump and dump artist with a bad SEC record.   Mark does detailed research, he believes in his methodologies, and he has been schooled and trained by some of the best in the business.  I am confident that Mark is right on his trades more often than he is wrong.  Beyond that, Mark is a decent guy, and impressive in other areas of his life.  He is a world-class accomplished track and field athlete.  He made a dream comeback to win the 400 MeterTrack & Field Championship Masters event while shedding 50lbs in preparation for it.   And he holds the World Record in the event.

I have had the privilege to work with a lot of really smart and amazing people throughout my career.   And IMO Mark stacks right up well with these A Type personalities.   He is very intense, highly driven, and one of those people who you don’t just “turn off”.  They are always doing something, they don’t like to be bored, and their minds are always going.  That may have got Mark into some trouble – that intensity can do that to a person, when you are a fully charged one-man wrecking machine, you have to make sure those powers are used for good and not evil.  I think Mark took one on the chin with the SEC, and I have seen that kind of thing before.   It is not making an excuse for him, and I am sure Mark learned his lessons

I learned a few things from Mark and was reminded of a few things I already knew.  In my passion for Moviepass and the opportunity for HMNY, it would have been better for me to have slowed down and head some warning on the fears of dilution that Mark was banging his fist about.  I knew that the company was going to raise money through secondary offerings, but what I did not know was how wildly negative that market was going to react to those events.  I don’t blame Mark in any way for pointing out the risk of the ATM and the dilution.  And, I don’t believe either Mark or I have the power to materially move HMNY stock over the long term, or the short term.   What I do know, is Mark’s experience and his research told him that the dilution would spook Wall St.   He was right about that.    Mark has called the stock moves & trades of HMNY almost to a tee.   So much so, he is probably on the SEC’s short list of who to go harass over the unfortunate and huge declines that stock has suffered.   I don’t believe Mark has any insider knowledge at all, he was just calling things as he saw them, based on his experience, and his knowledge of Wall St.

I could have found a better entry point to this stock had I been more open to Mark’s viewpoints.

I remain a committed bull on MoviePass and HMNY.   But I sure as hell would rather have started my investment at $0.18!  At this point, I think Mark is wrong on his call to further short the stock.   I think the stock is basically priced to go out of business, and I don’t think that is going to happen.   This stock has been on death watch for a couple months now, but really shows no sign true sign of rolling over completely.

I am glad for having met Mark, and I hope we can continue to talk about stocks, stress test each other’s ideas, and keep doing what we both like to do.

I hope by reading this, you learn a bit more about Mark, and when you see people (trolls) bashing him, you think twice before dismissing his POV.

My hope is that Mark switches over to the bull side of HMNY soon, and we can ride this together to great gains!