Steve Jobs Predicted A MoviePass Like Service One Year Before Passing – He Saw The MoviePass Business Model

One year before Steve Jobs passed he predicted a service like HMNY’s MoviePass would change how studios market their films. Now 8+ years after the marketing genius’s death, MoviePass stands.

Now 8+ years after the marketing genius’s death, Moviepass stands to deliver on Job’s prediction that technology would allow studios to efficiently reach audiences reducing their spiraling marketing costs.

At only 10% share of Studio Marketing budgets, Moviepass could stand to reap $230M a year in revenue from Studios. 10% is a conservative estimate given the efficiency of Moviepass.

Way back in 2010 Steve Jobs predicted at an industry conference a change from technology would emerge that would fundamentally change the way movie studios go to market and connect with their customers. His prediction was early, but is now being delivered via MoviePass.

Jobs stated “What the studios need to do is start embracing the front end of the business,” he said, “to start knowing who their customers are, and to start building mechanisms to communicate with them, and tell them when their new product is coming out.” Within two years, the Apple CEO predicted, selling films “is going to get a lot more interesting, more precise, cheaper, efficient.”

Jobs’ vision is now being precisely played out by Mitch Lowe, CEO of MoviePass. MoviePass is the ONLY service that can deliver the exact value Jobs prescribed.

MoviePass know’s their customer, in a way studios have never known who their customers were before. MoviePass can deliver a precise, efficient, and cheaper mechanism to get butts into movie seats, previously unavailable to studio marketing chiefs. And yes, they can do it in a way that is more interesting and exciting to the coveted millennial audiences studios are desperate to connect with. Only MoviePass can tell studios exactly who is going to their movies, and reconnect them with sequels, sell them add on products and introduce them to similar films. And only MoviePass has the power to do this on their mobile app platform, knowing the precise history of the users previously viewed movies, locations and times.

Mitch Lowe stated in his interview with Peter Kafka of ReCode

“..we have all these different ways that we make your life better as a customer. We know how to market films to you. You know, the studios are incredibly inefficient the way they market small films. Over the last three weeks, we bought one in every 19 movie tickets in the country, but when we promote a film, we’re buying one in 10, so we’re lifting. These are for subjective $50 million box office films. The studios are paying us to be a more efficient marketer of films.”

MoviePass is a dream come true to Marketing executives who knowingly waste billions every year on big TV advertising binges trying to ensure that big budget films don’t go bust at the theater. An increasingly big risk in the crowded movie marketplace, that has been seeing reduced attendance. MoviePass stands to be the single best way to ensure that a movie does not fizzle out in the all important opening week.

According to Variety Magazine,

Marketers know the power of digital media, but also are becoming more cognizant of its limits. Several executives say they are not convinced, for example, that trailers posted online aren’t just as readily avoided by consumers as are TV ads skipped in the age of the DVR.

“You only know for sure that the consumer saw the first second or two of your trailer. After that, it’s unclear,” suggests a marketing consultant. “And was the volume even turned on? We don’t know. We need better verification of who is really watching and hearing what.

MoviePass – is similar to – but better- than Google keywords for movie studios.  MoviePass takes all the guesswork out of connecting directly with prospective theater goers by utilizing their deeply personal and engaging mobile platform. Simply put, there is no surer way for studios to drive customers to movies than using MoviePass as marketing partner.  If and when MoviePass hits their 5 Million subscriber goal they have predicted to hit by the end of this year, that power of connecting to large scale theater audiences only continues to grow.

It is important to note, that MoviePass has already been extremely successful extending out the all important opening week for many movies as of late.  CEO Mitch Lowe shares details in his interview with ReCode here.

In that same interview Lowe answers Kafka’s question of-

“What’s an example of a movie that the studios have paid you to promote?”

“I could list a bunch of them. “Maze Runner” is one over the last couple of weeks. “Lady Bird,” “I, Tonya,” almost every film …”

So it seems that MoviePass is already enjoying success promoting films for studios.  We don’t yet know how much those deals are earning MoviePass, and it has been reported in SEC filings that many of the deals are performance based.  Meaning that MoviePass gets paid and bonused on the number of actual tickets they help to sell.   We will find out soon how material this is to MoviePass earnings, but because MoviePass is still private, (HMNY) has no right or even any good reason to share these details.  I think we all may end up surprised by how big this advertising business can be.

MovieFone acquisition ups the anti on MoviePass advertising business potential.

When HMNY bought MovieFone – they upped the anti for their advertiser value proposition BIG TIME.  The addition of MovieFone brings MoviePass 6-8 Million additional monthly UU’s to market films to.  Taking the total addressable market for MoviePass advertisers to someplace near or above 10 Million people.  Additionally, the deal cut with Verizon to by MovieFone allowed for MoviePass to continue working with AOL’s Oath division for ad sales.  This is a big win for MoviePass because Oath has the largest display advertising salesforce in the business.  Oath sells ads for all AOL properties, Yahoo, and Microsoft.   This is a big benefit to a small company like MoviePass who would not be able to afford to build their own large salesforce early on.  Having worked in this space, I can tell you that getting a large company like Oath to agree to sell inventory for a small site is very hard to obtain.  When I was at Microsoft and we had a large ad salesforce, we were constantly asked by smaller partners to sell their inventory for them, but we would not do it because it created sales and channel conflicts for our own inventory.   This may sound like small details, but I can assure you this stuff is critical for building a large ad business.

It is estimated that as much 1/3 of revenue for a movie is achieved in the first week of a movie’s release, and further, it often can determine if an expensive film makes or loses money for the studio. This fact, along with tight windows that can’t be moved for movie release dates is what forces movie studio executives to spend $100’s of millions of dollars to “ensure success” of big budget films.

A quick look at the potential revenue MoviePass could score from this powerful marketing asset reveals a potential big windfall for HMNY the majority owner of MoviePass. It is easy to believe that when MoviePass hits its estimated 5 Million subscribers by the end of the year, they could nab a 10% share of total marketing spend, estimated at $2.36B. Or $230 Million in revenue conservatively estimated. MoviePass CEO Mitch Lowe has previously estimated a potential of $6 Per Subscriber Per Month. Simple math of 5M Subscribers X $6 = $30 Million a month, or a yearly revenue run rate of $360 Million. This revenue source could easily be delivered at a Gross Margin in the 90% plus range.


Put simply, within 20 months, MoviePass + MovieFone has the potential to deliver a quarter billion dollars in run rate revenue from studio marketing budgets at incredible gross margins.

Remember, that Mitch Lowe, CEO of MoviePass has stated that the subscription business would run at breakeven at approximately 5 Million Subscribers.

My model shows that is indeed possible for MoviePass to breakeven or profit by next calendar year.

A Detailed Revenue Model On How The MoviePass Business Can Succeed

As a former GM of Product Management for Microsoft I spent countless hours creating and reviewing complicated revenue models for large scale businesses.  Revenue models bring together all of the various revenue opportunities a unit/company expects to see.  The model makes assumptions for every aspect of the business – pricing, sell through, inventory, growth rates, competition, conversion etc etc.   They are complicated beasts – so complicated in fact a model with just slightly different assumptions can create radially different results and viewpoints of a business’s feasibility .

At Microsoft revenue models typically have multiple reviews, every assumption is talked about, tested wherever possible, debated by the best and brightest at the company, and finally submitted to executive management. The models are then used for funding specific initiatives for things like headcount, marketing budgets and other costs related to executing against a business plan.  The revenue models are eventually used by the company to make estimates for Wall St. on future revenues and earnings.

I spent more than 20 years in the sausage factory where these models are created debated and reported.   I can tell you with certainty, these models consistently have less than 50% accuracy.  All models have politics, specific agendas and bias baked into them.  The truth in models is almost always somewhere in the middle of the most optimistic assumptions and the most negative assumptions.  It is important to know when reading any model, what is the agenda of the person who created that model?   Is he/she looking to secure funding?  Is the person looking to kill the business because they would prefer some other initiative to succeed?   What does a person have to gain or lose if their viewpoint of the model is accepted as the “truth”.    I have witnessed many a Machiavellian business leaders purposely input wildly implausible assumptions into models to serve their own purposes and to advance their own personal fortunes.  It happens all the time.

I felt like it was important for me to introduce a new revenue model for HMNY investors to consider as the only detailed model currently floating around the web is the one published from Mark Gomes.  Gomes has been a consistent basher of MoviePass stock, he spreads a message of fear uncertainty and doubt about the company.  He has maintained that the company will likely end up a penny stock based on the business model and the need for continued capital needs that will come from dilution at bad terms.   I have reviewed Mark’s model (link below) and I believe it is both flawed, and contains some radical assumptions that would not be accepted by any experienced product manager or finance executive who has actually worked on a product like MoviePass.

In my model for MoviePass  (Link Below) I show how MoviePass can achieve profitability by the end of the year, as predicted by Ted Farnsworth CEO of MoviePass multiple times in the past.   My assumptions are relatively conservative across the board, and they align to the major assumptions that have been shared from Mitch Lowe (CEO MoviePass) and Farnsworth and they are outlined in the notes of the shared spreadsheet.   To create the model it is necessary to pull together public comments from both of the key executives of the company, and to research other various sources.   It is no simple matter, but with some time and thought a reasonable view of the company can be put together.

I invite you to compare Mark Gome’s model with my own.  It may well be that the truth is somewhere in the middle.   I am as my readers know, very bullish on MoviePass, so my view may be too rose colored.   I can almost guarantee that Mark’s view is way too pessimistic.

Mark Gomes MoviePass Model

2 Major Assumptions from Mark’s MoviePass Model of where I disagree include:

  1. Mark has a very radical assumption in his last two months of 2018 where Utilization Rate (# of movie tickets per month per sub)  jumps to 3.7 in November 2018 and  4.1  in December 2018.   Mark does this to account for high movie going season.   That would be acceptable if he dropped the rates lower in other months, but he does not.  That is likely not at all a realistic view of utilization rate and is estimated super high to make the cash burn look way worse.  It also does not consider new moves by the company to limit number of movies view on the new plans.  Mark even admits in his model that he uses a number of movies seen that “makes no sense” but was offered by Mitch and Ted, so he uses it anyway.  Mark has conflated some very important things here.  Mitch and Ted were likely including the “halo” effect that MoviePass has, where people bring friends and family members who don’t have a MoviePass.  At any rate, Mark cherry picks number here to make things look way worse than they likely will be for his November and December estimates.
  2. Mark assumes an $11 dollar Movie Ticket Price.  That is way above the $9 ticket rate reported by industry metrics.

Mark and I are reasonably close on other assumptions.  That makes sense, because utilization rates and ticket price are clearly two of the biggest factors in the models.  I hold my utilization factor constant at 1.4 movies per month – less than the 1.2 factor often used by Mitch.  I don’t factor in big seasonality jumps simply to show a simpler model, and because I believe subscription users are less likely to be as seasonal as normal movie going audience.   This is something I can adjust for later on as I fine tune the model.

Here is a link to the model.   I welcome your feedback, comments and thoughts.   I will be adjusting the model regularly as new information come available.   In summary, my model shows it is very possible for MoviePass to breakeven on a yearly run rate basis by the end of the year.  Meaning they could breakeven in 2019.

Bob Visse’s MoviePass Model


MoivePass Patent Contains Broad Claims That Span Well Beyond Theaters

MoviePass owns an incredibly valuable Patent (US Patent # 9135578) with wide ranging claims that span well beyond the theater industry.   In this post I will try to cover some of the key language in the Patent, how it protects MoviePass from potential competitors like Sinemia who MoviePass is currently actively litigating for Patent infringement.

There is a LOT of technical mumbo jumbo in all Patent applications, and Patent Law is extremely complicated.  I am not a Patent Lawyer, I don’t play one on TV either.   I have had quite a bit of experience with Patents – I have invested and led companies who had important Patent claims worth millions of dollars.  I have also served as a key witness in a very large Patent infringement case for Microsoft.  Unfortunately, we were the defendant in that case, we settled, for a LOT of money, even for Microsoft it was a lot of money.  I spend weeks on the case and I saw first-hand how valuable and important a good patent can be.

The most important part of a Patent is what is claimed, and if those claims can be adequately protected.   Again, I am not a lawyer, but have some experience in these matters.  After fully reading through the MoviePass patent it is my opinion the claims are sufficiently specific and broad enough to protect MoviePass from competitors offering a copycat service.  Further the claims issued cover many different potential future products that may or may not be developed or marketed by MoviePass.    Below you can read the full specific claims directly from the Patent.   Just for a  highlight here is one of the more potentially valuable claims made in the patent.

(A ticketing system comprising: a plurality of databases coupled via a network; a plurality of processors coupled to the plurality of databases; a plurality of electronic scanning devices coupled via the network wherein each of the electronic scanning devices is associated with a venue;) 

Now that is a lot of lingo.  But it is VERY important.  This essentially gives MoviePass a claim to connecting a cloud service ticketing system to a credit or debit card.  This is a very broad claim.  Think if Ticketmaster, Stubhub or any other number of ticketing companies wanted to deliver a similar method ticketing and transaction.  They would have to negotiate with MoviePass or risk violating this clear claim.   This alone could be worth many many 10’s millions of dollars over time.

The claims go on to cover a wide variety of features and application uses for the MoviePass invention and transaction system.   Claims include the activation of the subscription from a mobile device, to the activation of the credit/debit card, the location based check in, the clever way that MoviePass clears the transaction with the merchant for a specific predefined amount, and more.   I have read a lot of patents, and helped apply for many.  It is unusual to receive such a wide claim so clearly documented.  I have to believe that MoviePass had some very clever lawyers and made a very significant investment to obtain this patent.

To give you an idea of how potentially valuable a patent can be consider the patent settlement between Google and Yahoo! where Google had violated a search patent that had been obtained by Yahoo! when they had purchased Overture.  Overture was the originator of paid search, and the patent settlement was considered so important and valuable it was actually holding up Google’s ability to IPO back in 2004.  Google settled by giving 2.7 Million Shares to Yahoo – valued at about $300 Million.  It was a stroke of luck for Yahoo!  and that investment quickly skyrocketed above $2 Billion.   Yes, patents are very valuable!

You can also learn a lot about what a company may be planning and thinking by looking at patents.  Here are a few art exhibits from the MoviePass patent that show some feature ideas we have not yet seen in the app.  Some of which would be clearly valuable for marketing purposes.  And others that will help MoviePass create more commerce with the app.

Here you can see how MoviePass could make a simple change to limit consumption by only allowing a user to see a particular movie one time.

Here you see how MoviePass could market a DVD directly from the MP App.

Here you see a clever way for MoviePass to integrate with Facebook, allowing for a more social experience, and spreading the word of MoviePass


Here is an additional view of inviting friends to MoviePass.  A powerful marketing tool.

In summary, MoviePass has a very valuable patent, which it is already seeking to defend vs. competitors.  The claims from the patent are surprisingly broad and apply beyond just going to the movies.  This creates a strong moat for the MoviePass business by protecting the MoviePass experience from easy copycat competitors.   Finally, you can see that MoviePass has a lot more cool ideas on the back burner that will improve the service and create new revenue opportunities for the company.



The full language of the claims from the patent are here:

What is claimed is:

1. A ticketing system comprising: a plurality of databases coupled via a network; a plurality of processors coupled to the plurality of databases; a plurality of electronic scanning devices coupled via the network wherein each of the electronic scanning devices is associated with a venue; and at least one user device coupled to the processors and the databases via the network, wherein the at least one user device comprises at least one of a smart phone, a handheld mobile device with communication capability, and a personal computer; wherein the plurality of processors are configured to, via the network, register a subscriber-user for a subscription in exchange for a subscription fee, wherein the subscription comprises a predetermined number of events in a time period, wherein the subscriber-user is associated with the at least one user device; via the network, from the at least one user device, receive a subscriber-user request to book a ticket for an event; determine that the subscription is current; determine a venue and a time for the event; communicate with the venue to reserve the requested ticket booking; associate a pre-paid credit card with the subscriber-user, wherein the pre-paid credit card is associated with an account; automatically detect, in real time, a location of the at least one user device at the determined venue to determine that the subscriber-user is at the determined venue; immediately fund the account with sufficient funds to pay for the requested ticket only if the location of the at least one user device is detected at the determined venue; determine, a predetermined time after funding the account, whether the sufficient funds remain in the account; detect a physical location of a scanning device via the network when one of the plurality of scanning devices is used to scan the pre-paid credit card; and collect and store data related to the subscriber-user in the databases, wherein the data comprises names of events attended by the subscriber-user, venues of the events attended by the subscriber-user, types of events attended by the subscriber-user, times of day of attendance by the subscriber-user, and frequency of attendance by the subscriber-user, and wherein collecting data comprises automatically receiving the data via the network.

2. A computer-implemented method for targeted selling, comprising: a processor via a network registering a subscriber-user for a subscription in exchange for a subscription fee, wherein the subscription comprises a predetermined number of events in a time period, wherein the subscriber-user is associated with at least one communication device; the processor communicating with a financial institution to set up a subscriber-user account for funding ticket purchases; the processor receiving and storing subscriber-user data comprising a name, an age, a gender, a home address, an email address, a phone number, product preferences, and names of friends in a database coupled to the processor; the processor receiving a request from the at least one communication device of the subscriber-user to book a ticket for an event; the processor determining a time for the event and a venue for the event; the processor communicating via a network with a venue system to reserve a ticket for the event; the processor sending the subscriber-user a ticket token to the at least one communication device, wherein the ticket token is scannable from the at least one communication device at the venue to give the subscriber-user access to the event; the processor automatically detecting, in real time, a location of the at least one communication device at the venue to determine that the subscriber-user is at the venue; the processor immediately funding the subscriber-user account with sufficient funds to pay for the requested ticket only if the location of the at least one communication device is detected at the venue; the processor determining, a predetermined time after funding the subscriber-user account, whether the sufficient funds remain in the subscriber-user account; after the end of the event, the processor detecting whether the ticket token was redeemed, comprising determining via a network whether the subscriber-user account has been debited for a price of the ticket; if the ticket token was redeemed, the processor collecting event data, including a time of the event, a type of the event, a name of the event, and a location of the venue, wherein collecting comprises collecting scanned electronic data from scanning the ticket token; the processor associating the event data with the subscriber-user data; and the processor storing the event data in the database.

3. The method of claim 2, wherein detecting whether the ticket token was redeemed further comprises, if the ticket token was not redeemed, the processor allowing the subscriber-user to request to book another ticket for the same event.

4. The method of claim 2, further wherein detecting whether the ticket token was redeemed further comprises, if the ticket token was redeemed, the processor disallowing the subscriber-user to request to book another ticket for the same event.

5. The method of claim 2, further comprising: the processor sending the subscriber-user an electronic message inviting the subscriber-user to associate via a social networking site to become a networked subscriber-user; the processor providing a networked subscriber-user a facility to invite friends to an event via the social networking site; the processor receiving a list of friends invited to the event by the networked subscriber-user; the processor collecting friend data regarding invited friends of the subscriber-user, comprising which friends accepted invitations, and which friends are also subscriber-users; the processor associating the friend data with the subscriber-user data; the processor storing the friend data in the database.

6. The method of claim 5, further comprising the processor generating data reports from the subscriber-user data, the event data, and the friend data.

7. The method of claim 2, further comprising the processor allowing the subscriber-user to book a predetermined number of events over a predetermined time period for a fixed price.

8. The method of claim 7, further comprising the processor tracking a number of events booked in the time period and disallowing requests to book events over the predetermined number of events over the predetermined time period.

9. The method of claim 2, further comprising, after the event is scheduled to be over, the processor sending an electronic message to the subscriber-user with a request to review the event.

10. The method of claim 2, further comprising, after the event is scheduled to be over, the processor sending an electronic message to the subscriber-user with at least one offer to purchase items related to the event.

Why Behavioral Economics Makes Helios & Matheson’s (HMNY) Moviepass a Misunderstood Buy


HMNY and Moviepass is a hotly debated battleground stock.  Moviepass provides a product that seems too good to be true. It is loved by consumers who see a fantastic value proposition, and it is despised by those who think it diminishes the value of going to the movies and will hurt the industry over the long term if the company does not survive. 

The key reason the company has been so hotly debated by investors is the divisiveness of its unusual business model.  Investors either see it as a product that is too good to be true – and thus will not exist as soon as the company runs out of capital.  Which on the surface, using simple math models, makes a lot of sense.  When you consider that a MoviePass subscriber with enough time and love for going to the theater can see a movie every day of the month for the small monthly subscription fee of $9.95.  If a customer took full advantage of that 1 movie per day offering they could rack up COG’s to MoviePass of $300 or more.  Too many heavy using subscribers on Moviepass could make the company go bust in a hurry. Bears have covered they story well and the stock price of HMNY has suffered as a result.  

On the other side, there is the Bull case who believe in a more nuanced view of how Moviepass can turn a profit and save the movie industry from itself.  Movie theater attendance has been in decline for years as theaters have steadily raised prices in the face of those declining attendance numbers.  Theater owners have defied basic and traditional economic supply and demand models, leading them venerable to a disruptor with a clever new pricing scheme and business model.   The nuanced view is a little harder to understand than the simple math model, but if understood and validated it offers investors of HMNY a misunderstood buying opportunity.  If the model ends up being proven successful, MoviePass could end up on the fast track of being the next major $billion dollar tech unicorn. 

The Law of Supply and Demand

I believe that the Moviepass business model works, but the nuance in the model is that it takes advantage of behavioral economics over classical economics.  Only simple math that would say it is doomed. With key behavioral economics concepts fully considered, investors might find it easier to take that leap of faith needed in order to believe the business model for Moviepass can and will work.

Daniel Kahneman the founder of Behavioral Economics

Behavioral Economics is a “relatively” new field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.

According to conventional financial theory, the world and its participants are, for the most part, rational “wealth maximizers”. However, there are many instances where emotion and psychology influence our decisions, causing us to behave in unpredictable or irrational ways.

Moviepass is a poignant example of behavioral economics and demonstrates several of its key theories in practice.  Let’s consider a few of the well researched concepts of Behavioral Economics and how these might apply to Moviepass consumers.

Mental Accounting. is the tendency for people to separate their money into separate accounts based on a variety of subjective criteria, like the source of the money and intent for each account. According to the theory, individuals assign different functions to each asset group, which has an often irrational and detrimental effect on their consumption decisions and other behaviors.  There are many examples of how people use mental accounting. People tend to spend more of their bonuses or tax returns on frivolous items because they treat it as “found money”. We can all relate to our friend who wins big at the casino and becomes suddenly generous in buying everyone drinks and dinners until the buzz of that found money wears off. Logically of course, money should be interchangeable, regardless of its origin. Treating money differently because it comes from a different source violates that logical premise. Where the money came from should not be a factor in how much of it you spend – regardless of the money’s source, spending it will represent a drop in your overall wealth.   

How does this relate to Moviepass?  Moviepass customers fully admit that they spend more on concessions than they normally did in the past without Moviepass.  The reason for that can be attributed to mental accounting. A Moviepass customer likely has a mental account or budget for how much they are willing to spend going out on any given night.  Maybe that amount is $40 or $50 for a couple. If the couple goes to the theater and pays for the ticket price that night, they have already expended somewhere between $18 and $25 dollars – just to get into the show.  Leaving them with only $20 to $30 dollars left for the entire evening. Other expenses could include a babysitter, uber, dinner out beforehand etc. When using Moviepass, the mental accounting for the evening does not include the cost of going to the theater, so Moviepass subscribers will “feel” as though they have spent less so far for the evening and can much more easily convince themselves that they have the necessary budget to spent $5 on a soda, or $7 to $10 on a popcorn.   Mental accounting helps theater owners sell significantly more high margin concessions. It is a win for theaters, and for Moviepass, and for the consumer who feels like they are getting a high value night. Of course the consumer is paying for the Moviepass subscription. But that Moviepass subscription is in a different mental account, and it also connects into another important behavioral economic concept – Sunk Cost Fallacy explored below. It is clear that Mental Accounting concept is a winner for Moviepass.

Sunk Cost Fallacy   Consumers commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort) (Concept was demonstrated by Arkes & Blumer in 1985). This fallacy, which is related to status quo bias, can also be viewed as bias resulting from an ongoing commitment. For example, individuals sometimes order too much food and then over-eat ‘just to get their money’s worth’. Similarly, a person may have a $50 ticket to a concert and then drive for hours through a blizzard, just because she feels that she has to attend due to having made the initial investment. If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are held in a different mental account than the one associated with the ticket transaction (Thaler, 1999).  

How does this relate to Moviepass?  Sunk Cost Fallacy relates to Moviepass in two important ways.  One which is immediately and obviously positive and mentioned above in the Mental Accounting concept.  When a Moviepass consumer goes to the theater, they view the price of the ticket as a sunk cost. They have already paid for their Moviepass, and in many cases they paid upfront for the year and it may well have been several months ago that they spent that money.  Because of mental accounting, the price paid for Moviepass now has no bearing on what that consumer is willing to spend for their evening out at the movies today. This is why a Moviepass customer is so much more likely to spend money on high margine concessions, their mental accounting is free from the sunk costs of the Moviepass subscription long previously paid for.  $5 Sodas thus don’t feel like such a bummer, nor does overpriced Popcorn or Candy.

The second implication of Sunk Cost Fallacy could be good or bad for Moviepass depending on the customer segment you are looking at.  Here is where Sunk Cost Fallacy intersects with the all important utilization factor of Moviepass. A quick primer on utilization factor is necessary here to fully explain these implications.   Moviepass CEO (Mitch Lowe) has explained that 88% of existing subscribers are profitable, and only 12% are heavy users.

Heavy users are unprofitable – because their utilization factor – AKA how often the user goes to the movies and uses Moviepass surpasses the amount that the subscriber pays each month for their moviepass subscription.   (This is a bad thing for Moviepass Cost of Goods- potentially very bad to the point where Moviepass economics don’t work).

Here is where things get tricky, and where Mitch Lowe and Ted Farnsworth need to be pretty close to the mark with their data and utilization predictions.   For the remaining 88% of Moviepass customers who exhibit low utilization rates, the best outcome is that these customers go the movies more often than they did  prior to having Moviepass, but not so often that they tip the scale to being a high user who is unprofitable. The stats that Mitch and Ted use are from the MPAA, they state that the average moviegoer sees a movie 4 times a year.  When the average moviegoer buys moviepass that number of outings doubles to 8 times a year. That is pretty much the PERFECT scenario for Moviepass. This is perfect because Moviepass needs to demonstrate to theaters that they can both increase attendance and increase consumption of concessions.  If they can prove this out, they can legitimately claim they are making a big increase not only in attendance, but they are also driving up the real profit making machine for theaters – concessions! If they can prove this out, it could lead to one or more of the big chains doing a deal with Moviepass where Moviepass gets both a reduced rate on ticket prices for Moviepass customers, and they would also get a cut of the juiced up concession sales.  Moviepass reports positive progress with independent theaters who are more progressive and buy into these economics already.

So back to Sunk Cost Fallacy – how does that concept help make Moviepass customers who were previously only seeing 4 movies now step up to seeing 8 movies a year.  Take the example of the person who buys the concert ticket for $50 who will risk driving through a blizzard and a traffic jam because he bought the damn ticket already.  The ticket is a sunk cost, the money was already spent, it should have no logical connection in the consumers mind if the costs outweigh the benefit. But that is not how the human mind works.  The concert goer will risk life and limb not to lose the $50 bucks they already spent! Similarly with Moviepass, if a consumer is already paying for a subscription, they will feel more compelled to go see a movie, even if there are few attractive movie options available.  The consumer will figure that they have already purchased the Moviepass, so they might as well go ahead and use it so they can derive value from that sunk cost. Think about people who have a seasons ski pass, they are more willing to ski in less than ideal conditions for the same reason, it is a sunk cost, they might as well use it and get whatever enjoyment they can out of that sunk cost on the seasons pass.

Of course this same Sunk Cost Fallacy can work against Moviepass for high consumption users.  There will be people who were already going to the movies 8-10 times a month, who will now go twice that amount, and those people will be unprofitable for Moviepass.  Even if they buy a lot of concessions and Moviepass gets a cut of them, they will be money losers. They may be good evangelists for the service, but over time, they will be a problem that needs to be dealt with.   

Loss Aversion  Finally, there is one last concept to consider.  Loss aversion is an important concept encapsulated in the expression “losses loom larger than gains” (Kahneman & Tversky, 1979). It is thought that the pain of losing is psychologically about twice as powerful as the pleasure of gaining. As people are more willing to take risks to avoid a loss, loss aversion can explain differences in risk-seeking versus aversion.  Loss aversion has been used to explain the endowment effect and sunk cost fallacy, and it may also play a role in the status quo bias.

How does this relate to Moviepass?  This concept has its roots in something investors are very familiar with, the pain of losing hurts more than the pleasure offered from gains from an investment. A concept all to familiar to longs on HMNY.  In this case the concept is stretched to the fear of going to a bad movie, and losing money from taking that action, as well as the loss of your free time that you spent viewing that movie. We have all been there…  We got the babysitter, we took the trip to the theater, we bought the ticket to the show, and you sit down and the movie is a dud! You hate it, yet because of sunk cost fallacy concept, you sit through the movie anyway. But in the back of your mind you are angry.  Angry that you wasted the money and your precious free time, angry that the theater is so expensive, and now resentful that you spent that $5 bucks for a soda. It feels like a loss when you see a bad movie, and after you experience it, you seek to avoid that loss and pain in the future.  As Mitch Lowe has pointed out, Moviepass helps you to avoid that risk. With Moviepass, you can take a chance on a film, and if you don’t like it, you can simply walk out! This is possible because you are protected by sunk cost fallacy – you feel like you didn’t really “pay for that movie”.  And of course if you leave quickly, you get your time back to do something more fun.

Similar to Sunk Cost Fallacy, Loss Aversion can rub both ways for Moviepass investors.  On the positive side, the concept can get people going back to the movies again, driving up movie attendance from those who only attend the average 4 times a year, to a higher number.  The obvious downside for MoviePass is that it could drive utilization too high with over consumers which can negatively drive up Cost of Goods sold. It seems however more likely that Loss Aversion works more in favor for MoviePass than against it.  Heavy MoviePass users are likely already going to as many movies as they can, and don’t view it as a possible negative experience. Disenfranchised moviegoers are much more likely to have experienced a bad movie going experience, and have decided to avoid theaters for other less “risky” entertainment options.   Many Moviepass customers on social media have reported that Moviepass has brought them back to the movies again, and I believe the elimination of Loss Aversion is a big part of that new found enthusiasm for going back to the movies.


A long position on HMNY & Moviepass requires a basic understanding of behavioral economics concepts to validate its proposed business model. Key Behavioral Economic concepts appear to favor Moviepasse’s presribed business model.  While traditional simple business and economics models would point to an obvious failure for Moviepass based on simple traditional models. The less traditional, and even “illogical” view offered by Behavioral Economic concepts point to a successful model that takes advantage of consumer behavior not easily predicted by simple explanations.  Mental Accounting has the potential to drive significant high gross margin concession sales, Sunk Cost Fallacy and Loss Aversion concepts can drive up movie attendance from infrequent moviegoers making more money for the entire Movie ecosystem. In doing so Moviepass stands to help save the movie industry and profit handsomely by providing that value.

Final Note:  This is a post I wrote a about 10 days ago.  Since writing this post MoviePass has at least temporarily ended the unlimited subscription offering.  I wrote in an earlier post why I believe this is a significant development for the company.   Later I will make an update on the potential implications of the change and how the new capped offering could impact the behavioral concepts discussed in this post.

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, large and active 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!