The post Seeking Alpha won’t let you see!  

Seeking Alpha would not let me post this to my blog on their site.  They sent me back the below note after I submitted the post.  While I know I will not win any future financial author awards, and also I realize I make the occasional grammar errors, I didn’t think my stuff was that bad.  With this stock, I actually know a lot about these types of businesses and have worked in this space for over 20 years. So I find it funny they won’t even let me post a blog posting on my blog about it.  I guess they think I am a pumper, or maybe they don’t like my ideas, or maybe they don’t like that I link to competitive sites. Who Knows? I have now had a few blog posts that Seeking Alpha has refused. I will continue trying to submit occasional things to Seeking Alpha – but with all my future stuff I am just going to post here on my own blog.    

 

Dear Bob Visse,

The blog post which you submitted has been declined for publication, since Seeking Alpha is a website which is focused on finance and investing.

If you’d like to submit another blog which is more suitable for our audience, we will review it accordingly.

Thanks for your cooperation.

Best wishes,

Seeking Alpha Moderation team

 

I think it is funny that they claimed my post was not suitable for their audience. Let me know what you think after reading it.  And I do appreciate anyone who takes the time to read it!  Even if you think I am a total nut job whacko!

Full disclosure:I have maintained that I am long on HMNY since I started writing about them about a month ago.  

 

So Here’s the Post Seeking Alpha wouldn’t let you see!  🙂

I think it needs to be said at the outset of this post, Moviepass is a very young company, and really does not yet deserve to be a public company at all.  Also it is important to note, this is in fact true- Moviepass IS NOT a public company! It receives investor attention like it is a public company, however due to its unusual and now hotly debated proxy ownership 80% ownership by (HMNY) Helios & Matheson.  But don’t forget, Moviepass is a private and still early stage startup.

In almost every way Moviepass behaves much more like a very early stage startup than it does a public or more mature company. If Moviepass was a well funded early staged company backed by a group of deep pocketed venture capitalists it’s unlikely we would see or even care about its every move to the extent that retail investors do.  However, this is what makes (HMNY) and MoviePass such a fascinating story for retail investors.  It is rare that a retail investor can participate in the sausage making of a new internet scale business and have an opinion, and even a share vote along the way.

MoviePass did something this week that no public company would ever do.  They removed their core product offering from the marketplace, and basically said nothing about it in their PR.  This major product offering change was buried in the small print of a new promotional offering launched with partner iHeartRadio.  The company made no effort in their PR to make it clear that this offer is now the exclusive offer being made from MoviePass.   The company has also made no announcement about how long this offering will be in place and when if ever the unlimited plan might return. They have only stated the new offer is for a limited time only.  Searching around on the MoviePass website, I can find no specific details as to when a customer will be able to buy the “unlimited” $9.95 –  1 movie per day pass again.

You have to think that management made a conscious decision to eliminate what has been MoivePass’s core product offering, the offering that created a major stir in the industry for the past several months!  The unlimited offer is what put the MoviePass brand on the map – and now poof it is gone?   And creatively it disappeared with a new bundled offer that restricts the number of movies to just 4 tickets a month.  

Moviepass’s promotional material places a $120.00 value to the new promotion.  That seems like an odd value to place on what would have previously cost a MoviePass customer only $30, the cost if a customers were to buy 3 months of the old, and more valuable MoviePass subscription, at $9.95 X 3 Months.  

I am not claiming that the new offer is not valuable, it clearly is a great deal to get 12 movie tickets over the course of 3 months for $29.95 and you get 3 months of iHearrtRADIO with it to boot.  But it is not the same value proposition as the unlimited offer, and it is the first clear signal that Moviepass is ready to move away from the publicity stunt of unlimited use, and move to a more sane but clearly valuable offering for consumers.

This is a significant development for Moviepass (HMNY) investors.  For those who have followed both the bull and bear thesis of this stock, we all know that utilization rate is a huge and complicated issue for Moviepass.  In a long interview with recode’s Peter Kafka Mitch Lowe has explained how Moviepass envisioned how the company could be profitable with an offer that seemed to good to be true.  Lowe said

“Here’s the trick: 89 percent of American moviegoers only go to four or five movies a year. When they join MoviePass, they double their consumption and go to about 10 a year. That’s a little bit less than one a month. They balance out the 11 percent of the population that go 18 times before joining MoviePass and then after go three times a month. It works out. Over time, it actually works out to be about one movie per month per subscriber. Now, some people do go to 10, 15. We even have one guy who on this 40th birthday challenged himself to go to 40 movies in 40 days. We do have people with a fair amount of time on their hands.”

This has been Moviepass’s story on how they can make this offer work over time.  If they get enough people who are only casual moviegoers, they can offset the heavy users, who are like those people who load up at the buffet every single day.

Moviepass has up until now been willing to lose money on the heavy and unprofitable users because of the incredible word of mouth marketing they have provided for the service.  Mitch Lowe and Ted Farnsworth the CEO of Helios & Matheson have both consistently claimed great subscriber growth with zero marketing. This was all made possible because of the incredible value of Moviepass combined with people spreading the word of that value to friends and family – because who doesn’t want to tell you about a great deal they are getting!  This story has been amplified by the media, who loves a story about disruption, and particularly loves any story about a media company who is disrupting something as old and storied as the theater. Getting PR for this kind of story is as easy as bringing ants to a picnic. There is nothing the media loves covering more than media. So Mitch and Ted got a TON of free PR for this offer and were featured all over the business and media landscape with their new crazy offer for moviegoers.

Moviepass has entered the collective conscience of the consumer mainstream.  Some even call it a movement.  Here are a few stats to share on the burst of popularity of Moviepass.  There are 22,800 Videos on Youtube on Moviepass, everything from how to use it, how do they make money.   A Google Search on Moviepass now brings up over 4 Million results. A Google News search results in over 155,000 results.  There are facebook groups, meet ups on meetup.com, large and active reddit.com threads, instagram groups and more.   It is an amazing accomplishment for a small company that has spent almost nothing in marketing.  

But here’s the secret, there was a cost to that marketing, and that cost of marketing is now obvious, it was buying all that free publicity from passionate theater goers – the cost of sucking up to all those heavy MoviePass users who in turn told all their friends, who told their friends and so on.   There is no more powerful force in Marketing than word of mouth, and MoviePass bought a truckload of it! 

This is a classic marketing trick used by many upstart brands.  Find your passionate audience, get them hooked, make them your fan, get them to recommend your product, add fuel to that fire.  Moviepass played this very well, and now it looks like they have taken this play far enough and may be ready to begin the process of cashing in on that momentum.  

Think drink tickets now.  Its still fun and a good value – but the party is winding down…

The good times can’t go on forever!  Moviepass is about to reign in the fun on all those who are getting too drunk at the hosted bar. The new offers will look a lot more like drink tickets at your company party.  You can have a few drinks at a great value, but don’t get all crazy, and if you do want to go all crazy, you can pay for that yourself!  

This is a risky but necessary move, and it will likely take some time to pull it off. MoviePass has now shut the gates to the all you can eat deal.  They don’t sell it anymore. That doesn’t mean they will NEVER offer it again, but they are certainly testing the waters here.  That is the message Moviepass is giving with this new deal with iHeartRadio deal being their exclusive product offering for the company.   

The next step toward profitability.  Have you read the fine print in Moviepass Terms of Service?

There is a document that you agree to when you sign up for Moviepass called the Terms of Service.  By you using the service it states that you agree to the terms of the document. All software and services companies use these, and they are enforceable and legal.   

The Moviepass Terms of Service agreement is a doozy.  It is setup in a way that Moviepass could go instantly be profitable with a stoke of pen – or a keyboard.   Let me explain.

First as I already stated, all Moviepass customers have agreed to these terms and conditions, and they have written in protection from any class action lawsuits residing from changes to the agreement.  So not even an angry mob can do anything if they don’t like changes that may come down the pipe. Moviepass is in complete control of every aspect of the offering. That includes pricing, the number of movies you can see per month, the theaters and the actual movies that Moviepass customers can see.  Below is the specific clause

2.4. MoviePass reserves the right to change or modify the Service or subscriptions at any time and in its sole discretion, including but not limited to applicable prices, at any time, without prior notice.

MoviePass reserves the right to change the rules of movie-going attendance and ticket availability to members in connection with the Service at any time. MoviePass reserves the right to change from time to time the number of eligible movies a member can see per month. MoviePass reserves the right to offer members a new price option if they exceed watching a certain amount of movies per month.**

So you see, Moviepass has very thoughtfully crafted a Terms of Service agreement that puts them in total control of the service.  Not only can they limit the number of movies you can see with the pass you have already purchased, they can raise the price any time they like, and they even have a clause specifically targeted at those heavy users.  “MoviePass reserves the right to offer members a new price option if they exceed watching a certain amount of movies per month”.  I think this clause says a lot, they will likely launch a new plan and price for heavy users, it will be a good deal, but not as good as before.   Then they will move forward with a more sane 4 movies a month plan for ordinary customers.  I think that is a perfectly fine deal, albeit not nearly as exciting as the old offering.

This move to change the core value proposition of MoviePass is not without risk.  I personally signed up for the MoviePass deal because I was so intrigued by the unlimited concept.  It was easy to understand, it seemed to provide a crazy good value, and after all it was offered from my favorite store (COST) Costco!  I trusted the Costco brand far more than MoviePass, and I would have never bought the service or found out about this stock if it were not for that promotion.  The trust of Costco Brand with the incredible perceived value of MoviePass was a one two punch my little consumer brain could not resist!

The risk of moving away from the all you can eat unlimited deal for MoviePass is that people will start to do a lot more mental math. They will think harder about how many movies do they really see today, do they really care about committing to x# of movies per month.  It could give customers a reason not to buy it.  I don’t think that will happen though, NETFLIX had at various stages had different #’s of CD’s you could have at certain time when it started out, and the pricing tiers were different.  ATT and Verizon both had unlimited data schemes and ratcheted them back.   There are now enough people using MoviePass that if feels “real” to consumers.   And MoviePass can still offer a terrific deal to the 80% of customers who now only go to the movies 4 times a year.   

Unlimited is an exciting offer and people are irrational in now they make purchasing decisions. When they hear and think unlimited, they see a lot of value, even if they don’t use it, they could! And for many that is enough to get them to take the deal.  Now that the MoviePass name is becoming well known, and Theaters accept it widely, Moviepass does not need to offer unlimited to get the word out nearly as much as they did.   Of course, if MoviePass moves away from the unlimited deal more completely, the PR and free promotion will dwindle.  So that is a risk that they have to thread the needle with very carefully.  It is why this iHeartRadio promotion is so important. 

For now, they have turned off the spigot, and that is a BIG MOVE for this small company.  If they can thread that needle to keep enough existing customers happy, slowly wean off the over users, and add plans that work for the broader base of moviegoers, this company could have a very bullish future.  

Mark Gomes – One of MoviePass’s biggest bears wrote and video casted that the big moment to reconsider MoviePass and HMNY stock is when they make a move to reduce their cash burn and take control of their utilization rate.  I think we have now witnessed that pivotal moment.

Wisely I think, MoviePass did not come out and broadly with PR or advertise this significant change in their product offering.  Like a Trojan Horse – they snuck the new deal into the market where nobody was looking, and slyly snuck the old unlimited deal out of existence. (at least for now).  We will know more soon on what their future plans and offers may look like. I expect there to be more movie # limit caps on most if not all new offers going forward.  If MoviePass does a deal with Verizon, which I fully expect to happen, you should expect the offer will also have a cap limit on # of movies per month similar to 4 limit with the iHeartRADIO deal.

This will be another exciting week to watch for HMNY – Hope you call come back and read more of my posts!