Chapter and Lesson #12

 

 

“You want to know what it’s like to be on a plane for 22 hours? Sit in a chair, squeeze your head as hard as you can, don’t stop, then take a paper bag and put it over your mouth and nose and breath your own air over and over and over.” 

Lewis Black 

 

 

Anthrax  & Business Travel 

The next incredible, or maybe bizarre, experience happened on my next trip back to New York City just shortly after that fateful  9/11 trip.  This trip was to finish the meetings that had been canceled during the week of 9/11.  It was October 12, 2001, just a month after the 9/11 attacks.  Tensions in New York City were very high, new security procedures were in place at all the major buildings in Manhattan, of course, the airports were now like military zones.  Everything and everyone in the city was still on edge at that time.   

One of the meetings scheduled that day was with Saul Hansel, who at that time was an excellent and very influential technology reporter for the New York Times.  The meeting was held in a windowless building in the iconic old New York Times building on West 43rd Street.   Just as we were sitting down to talk, a loud alarm started blaring in the building.  Saul didn’t seem too concerned, so we just continued on with the meeting.  The alarm did not stop, and it was getting harder and harder to ignore.  After several minutes of this alarm sounding off, Saul was getting a little annoyed and decided to go find out what was happening.  Just moments after he left the room, a loud voice came over an intercom system telling everyone in the building not to move, the man on the intercom said. “stay exactly where you are and wait for further instructions.”   After what seemed like forever, but was really only a few minutes, Saul returned to the room to give us an update what was going on.  He informed us that there was a possible bioterrorist attack underway and he had been told to go back to the room and wait for further instructions.   Just a couple minutes later another loud voice came over the intercom system and blared, “anybody who is not of the 3rd floor of the building evacuate immediately!  If you are on the 3rd floor stay where you are and wait for further instructions.”  This time, it was bad luck!  Of all the floors in that building, somehow luck had it that I was on the 3rd floor!

The 3rd floor happened to be where Judith Miller’s desk was, a reporter who had co-wrote a recent best seller on bioterrorism, “Germs: Biological Weapons and America’s Secret War” she had opened a threatening letter containing a powder-like substance that appeared to be like talcum powder, when she opened the letter the powder came flying out of the envelope, which led to a scare that the envelope could have been one of a series of attacks that had been unfolding throughout that week.    

Those attacks became known as Amerithrax from its Federal Bureau of Investigation (FBI) case name, and it occurred over the course of several weeks beginning on Tuesday, September 18, 2001, just one week after the September 11 attacks. Letters containing anthrax spores were mailed to several news media offices and two Democratic U.S. Senators, killing five people and infecting 17 others. According to the FBI, the ensuing investigation became “one of the largest and most complex in the history of law enforcement”.  

The next set of instructions blared over the intercom, everyone who was remaining on the 3rd floor needed to slowly walk down the stairs to the lobby area of the building.  We picked up our stuff, headed out of the room and started walking down the stairs.   In the old New York Time’s building, there is a  large grand staircase that enters into the bottom floor of a large lobby area.  As we approached the lobby coming down from the stairs we were shocked to see that the doors of the building had been chained shut from the outside, emergency personnel were suiting up into hazmat suits.  We were trapped in the lobby – like of group of people who had just been exposed to an unknown contagion!

We were told to remain calm and stay in the lobby area.   We could see outside the front of the building, all traffic had been shut off to the area, there were only police, fire and hazmat vehicles out front.   At this point, everyone who had been locked into that building was feeling very rattled.   We were all thinking the worst, had we been exposed to Anthrax? or maybe something worse?  Nobody knew, the Health Department gathered samples from the desk of the reporter, and they would be flown immediately to a lab someplace in Virginia for testing.  Oddly, there was no place in NYC who had the capability to effectively test for Anthrax.   Panic in the lobby area kept going up, we were informed by one of the reporters who was locked in the building with us that a woman in the NBC offices just a few blocks away, who was Tom Brokaw’s assistant, had tested positive for Anthrax.   There was a very real possibility that this entire group had just been exposed to Anthrax, a lethal substance that can kill people with a horribly painful death. 

I called back home to Seattle to my wife to explain what was happening.  It was a hard call to make.  I tried to be as unemotional as possible.   I told her about the events that had happened up to that point, and that I didn’t know what was going to happen next, but to stay near the phone.  I told her I loved her and I would call back as soon as I knew more.  I can only imagine how unsettling that call must have been for her.    

After a couple of hours of waiting, and tensions getting higher and higher, with the people in the lobby including a host of New York Times reporters all locked in and now demanding that they be allowed to leave the building.   The Health Department finally hatched a plan to deal with the escalating situation.   They took down specific information of everyone who was in the building and was on that 3rd floor, where exactly they were on the floor at the time and numbers where they would be able to contact you as soon as they got back the definitive results from the tests of that spilled substance.   My group happened to be just around the corner where the envelope was spilled out, which did not provide me with any additional comfort.

Adding to the stress and confusion of the situation for me and my travel companion.  We had plane tickets scheduled to fly us home that evening.  We didn’t know if we should go ahead and take the plane back to Seattle, not knowing if we had been exposed to Anthrax or something else.   Would it be safer to stay in New York City, in the event that if we had been exposed to something we could seek more immediate medical care?  Nobody from the health department could give us a straight answer to that question.

Anthrax itself is a tricky substance.  It takes about 10,000 spores of Anthrax to make you sick.  It is worse if inhaled and it can kill you in about 2-3 days.  It can also contaminate you by contact on your skin,  that takes longer, up to 6 weeks to kill you.  It produces toxins in your system, and the symptoms are cold or fever like symptoms.     It is easily treated with Antibiotics like Cipro.  However, once you show signs of symptoms, it is already too late to treat it and there is nothing that can be done, you will die.   So timing is of the essence if you are exposed to Anthrax, you want to seek treatment immediately. 

It is not totally clear exactly how much time you have, but the health department official seemed confident that as long as I was back on the ground in Seattle within the next 12 hours, I would be fine to start treatment then if needed.  They would contact me via my cell phone and home phone as soon as they had results.  If the powder tested positive for Anthrax, I would need to contact the local health department and have them approve a prescription for the Cipro immediately when I arrived in Seattle.    

At the time of the Anthrax scare, all Cipro had been locked down by the health department and was being stockpiled for the possibility of a weaponized Anthrax attack.  There were all kinds of fears that a dirty bomb filled with Anthrax somehow could be set off in a crowded populated area as some kind of follow up a terrorist attack from 9/11. 

With that information I called my wife back at home, and asked her to get going on tracking down who at our local health department could prescribe Cipro upon my return if needed.   This turned into a nightmare for her.  She called the health department, and they treated her like a crazy lady, they knew nothing of the New York Times building incident and basically treated her like she was an insane person.

She called officials at Microsoft to try and get help, which they did try and help.  It was overall a big mess.  They kept telling her that nobody in Seattle had any exposure to Anthrax reported and there was nothing they could do for her.  It was crazy, there is no system in place to deal with things like this, I highly doubt there is any such system now.  In hindsight, I probably should have stayed in NY to wait and see what the results were and then get treatment there.  But when you fear you might risk dying, all you want to do home to see your family as soon as you can.  It was one HELL of a long flight back to Seattle, wondering, worrying, had I been exposed to this stuff, or something else, every hour that went by on that flight seemed like an eternity.

Finally, when we landed and my cell phone messages started buzzing in.  I called my voicemail, as you did back in those pre-smartphone days, and there was a message from the NY Department of Health, the powder had tested negative.  It was talcum powder, it was a hoax!  A terrible hoax and scare for me and my family.  Business travel is hard enough, getting stuck in DC on 9/11 and caught up in the Amerithrax scare 2 weeks later in New York was starting to kill my love of the road.   The joke around the office was don’t travel with Bob!  He’s bad luck, you’ll be risking your life..  I had to agree, my record was looking spotty!

 

Back on the Road this time with Bill Gates! 

The third big adventure on the road was on October 24th, 2002, I was now the head of PR for MSN, and on that day we were launching our latest competitive threat to AOL called MSN8.  It had all kinds of new features, better personalization, improved email experience, parental controls, and other good features we were proud of.  It was the first time that we really had something that was as good as or better than what AOL had been offering.    

We had planned a big elaborate launch event in New York City.  The event was at the height of our spending, we erected a huge bubble in the middle of Central Park – imaging a bubble like you see that cover swimming pools in the winter, only 10 times the size.  Inside the bubble, we would host over 300 press people, partners, industry dignitaries and the like.  Michael Eisner, the chairman and CEO of Disney would make a special announcement with Bill Gates where the companies would partner to deliver special Disney content via the newly minted MSN 8 product.  To celebrate the launch Lenny Kravitz would play for the press, and Bill was the host and keynote speaker.    It was a big event for the company and a big deal for me personally. 

I was assigned to accompany Bill Gates for the day’s press meetings.  In the morning we had a long list of press engagements.  I was nervous and excited to have a chance to spend a day with Bill.  It was for sure going to be a unique opportunity. We were all staying at the W hotel.  Bill had come in the night before on his private plane.  The rest of us all flew in the day prior, economy class of course!  I got up early that morning, I was told to meet Bill in the lobby of the hotel.   Bill, his driver, and a small security and PR entourage showed up right on time.  Bill seemed to be a little groggy but ready to go.  We walked out to the busy New York street, where there were two cars waiting for us.  I never knew this prior, but Bill’s security and medical people followed in a car behind Bill wherever he went.  The other care would contain a driver, another security person, Bill’s full-time PR person, and myself!  to ride in the SUV that would lead the two-car caravan.

Making Bill Gates Ride hump!

So here I am with the richest man in the world and a business and technology icon, trying to sort of act like this was not a big deal.   Once we all gathered on the street next to the cars everybody started loading in the cars, it was all very routine to them where they would ride, they had done this hundred of times together.   In Bill’s car, which was a big SUV, the driver and security person both jumped into the two front seats.  Bill’s PR person, and Bill jumped into the back seat.   I was sort of standing there waiting awkwardly to see where I should sit.  Bill Gates deadpanned me and says “get in” and scoots over to the middle and I get in and shut the door.   I immediately think to myself, “oh shit” I just made Bill Gates ride hump!   Not a great start with the CEO I thought to myself… 

Luckily, I had some fantastic news to deliver to Bill that morning.  Walt Mossberg of the Wall Street Journal, and the most important technical press reviewer of all time, and probably the most important tech journalist ever, had published his competitive review of MSN8 vs. AOL8 that morning, and MSN had won big!  It was a huge win, and as the head of PR for MSN I could not have been happier to hand that newspaper to Bill.   I asked him, “have you seen the Walt review yet?” He said “no”.  I smiled and handed it to him.  I said, “I think you are going to like this one”.    As we raced through Manhattan to our first meeting, Bill quietly sat and read the review.  The review headline read. New MSN Online Service Outshines Its Rival AOL” He read the article in about 3 minutes time, he put it down, and said, “that is the best review we have ever had from Walt”.  Bill was in a great mood for the rest of the day.   

It was fortunate that Bill was now in a good mood because the rest of the day turned out to be much more challenging.   Our first scheduled PR meeting was booked with the ABC morning show hosted by Charles Gibson.  Unfortunately for us, there was a huge news story breaking that day.  Earlier that same morning authorities had finally apprehended the infamous Beltway Snipers.   

The Beltway sniper attacks were a series of coordinated shootings that took place over three weeks in October 2002 in Maryland, Virginia, and Washington, D.C. Ten people were killed and three other victims were critically injured in several locations throughout the Washington, D.C., metropolitan area and along Interstate 95 in Virginia. The rampage was perpetrated by John Allen Muhammad (then aged 42) and Lee Boyd Malvo (then 17), driving a blue 1990 Chevrolet Caprice sedan. Their crime spree began in February 2002 with murders and robberies in the states of Alabama, Arizona, Florida, Georgia, Louisiana, Texas, and Washington, which resulted in seven deaths and seven injuries, bringing the total victim count to 17 deaths and 10 injuries.  It was a huge news story, and every news outlet was covering it 24/7.  It gripped the nation in fear.   

The Bill Gates entourage was now sitting in the green room waiting to go on the ABC Good Morning Show.  We  sat watching the TV’s in the room as details of the capture were unfolding.  Soon Bill’s scheduled time to go on had slipped by.  Bill waited patiently, and his time slipped again.  Finally, Charlie Gibson came into the green room and graciously said to Bill, “I can’t believe I am doing this, but I have to bump the richest man in the world”.   Bill and all of us were obviously disappointed, as Bill had come a long way and taken a lot of time to come out and do these meetings, and he had a lot of positive news about Microsoft to share that day.  That said, Bill was also very gracious to Charlie and made some good small talk with him, as we left the studio we walked through the set with Charlie on the way out, and Charlie promised he would someway make it up to Bill a later date.   It was incredible experience for me to see all of this take place.  Subsequently, the entire rest of the day’s of PR meetings were canceled, all coverage from the big networks was moved to 100%  focus on the Sniper shootings.   So we headed off to Central Park, where Bill could get some privacy backstage before leading the big launch event, and the rest of the team could prepare for the evening’s festivities.    

Bill ended up doing a fantastic job at the launch event, and the positive reviews set up the evening and the ensuing news coverage for a big momentum shift in favor of MSN.    It was an incredible day for me, one I will never forget.   The day also reinforced for me that the world is a very unpredictable place.   You can have plans laid out for months, and have done everything possible to make things go smoothly, and at any moment a new event can enter into the fray and change everything in a literal New York minute.   I also learned that year that traveling on business is difficult and exhausting, sometimes you can get too much of it, and that is a mistake. 

 

Learning Lesson # 12 –  Avoid jobs with too much business travel – business travel starts out as a fun and provides incredible experiences, but it also can become a terrible grind over time.  When you are early in your career, embrace all the travel opportunities you possibly can, seeing the world and visiting customers directly is a very valuable experience.  But be very careful not to commit to a lifetime of being a road warrior.   The first time you visit great cities like London, Paris, New York or whatever fabulous city you travel to for business, it is very exciting.  Meeting customers and partners directly face to face are invaluable for your career and building up your network.  Take whatever free time you have when doing business travel and play tourist visiting all the awesome places in whatever city you happen to be in.  It really is a fantastic experience. 

Unfortunately, after you have been to these cities 15-20-30 or more times, you have pretty much seen all of the top tourist destinations.  If you are lucky enough that your company will pay first class or fly you privately, most of this does not apply.  But believe me when I tell you, your enthusiasm for flying 10-18 hours on an international trip and then being expected to work hard for 3 to 5 days will wear down your body, mind, and soul.  You will start to really miss your family and friends, your house, your own bed, and your dog! Try to avoid any job that claims over 50% travel.  Those jobs are for suckers, and people who travel that much rarely move up the ranks very far.  Oddly I found that people who travel more than 50% of the time are often resented by their managers, co-workers, and employees.   The people who work at HQ’s are tribal, almost pack like animals.  If you are gone and away from HQ you will start to lose your connections with people, and they will start to think you are traveling just to get away from the office.   Don’t be fooled into thinking you will be a hero for all those hours spent on the road.  The more likely outcome is you will move up the ladder slower, and you will alienate the people who are the most important to you.    

What I Personally Learned Investing – or umm Gambling – on HMNY/Moviepass

Wow did Moviepass and HMNY really humble me as an investor, or should I say gambler, on stocks.   I learned a lot and man oh man did the experience humble me and make me a bigger skeptic than ever before on Wall St. and buying individual stocks.   I have always accepted that buying individual stocks is risky, and have always tried to advise people who read this blog to not invest more than 1% or possibly 2% of your portfolio in ANY single stock.  I sure stand by that advice as we head toward the end of the year.  With Moviepass in a literal death spiral that looks very unlikely to correct, I am very grateful this Thanksgiving that I stuck to that rule.

In this post, I want to share some of the biggest lessons I learned and really relearned after investing in HMNY.  I think it is important to write these things down so I am less likely to repeat the same mistakes, and I figured I might as well share them with others in hopes that maybe they can learn from my mistakes and save them from making the same.

First big lesson – I did not do enough due diligence on the management of this company.   I was aware that Ted Farnsworth had a less than stellar record, but I did not truly understand what a total crook and fraud that guy was and still is today.  It is just about impossible to do well with a stock if the leadership is dishonest, self-serving, and has a bad past.   I overlooked Farnsworth because I really believed in Mitch Lowe, that also turned out to be a mistake.   While I still believe that Mitch Lowe has some good qualities, I believe I heavily misjudged him as well.  While Mitch did play a role in Netflix and he also did a decent job at Red Box, it appears that he is not investible on his own right.  He really spent a relatively small amount of time at both of those companies, and it now seems more likely than not he had little to do with their success.  Mitch and Ted together was a toxic management combination, bringing together greed, entitlement, carelessness, hubris and all kinds of bad things for shareholders.   I should have listened more closely to what others were saying about Ted, the signals were there, it was my mistake not to listen to them.  I truly hope Ted lands in jail someday.   His deceit caused many individual investors to lose a lot of money, some have said that people potentially committed suicide over their losses related to this company.   I sincerely hope that is not the case.   I think Buffett and Charlie say something like that greatly prefer a talented management team, but they would take honesty over talent any day.  Because if you are both talented and dishonest, you are very dangerous.  It may be giving too much credit to Ted to say he has any talent at all, but he most certainly is dishonest.  It was a big mistake to trust him with a single penny of my money.

My second big learning lesson.  I was arrogant and put on blinders.   This one really gets me as I have had enough training and experience to know better and to be more thoughtful and fully consider other people’s ideas and opinions.  In this case, it was even worse because there were good people who knew more than me about the potential pitfalls of this stock, that I should have listened to more carefully and with much more respect.   Mark Gomes was one such person, but there were others who also warned me that this was a risky bet and that dilution and potential lack of funding were serious potential roadblocks with the company.  Obviously, they were right, and had I listened and really sought to understand their arguments and weighted their experience and opinions equal or better than my own, I would not have bought a single share of HMNY.   I have always loved Warren Buffet’s simple baseball analogy for picking stocks.   There was enough wrong with HMNY that I was a fool to swing at that pitch.  The bad and dishonest management history and the fact that others with solid stock picking experience were waving red flags over the company’s dilution and ATM plans.   Those were more than enough to toss this one on the heap of “I am not sure, maybe later maybe never pile”.  Unfortunately, my own arrogance and bullheaded nature enticed me into believing what I want to believe about Moviepass, I was stupid enough to also believe what dishonest management was saying about their business.   I used management’s lies to reinforce my own arrogant tunnel vision on the positive prospects for the company.  This made for a fool and his money – being easily parted.  Shame on me for not fully listening and considering more viewpoints.  That was a rookie mistake, and I know better.  Damn it!

Third learning lesson.  Wow is this an obvious one, if it is too good to be true – it is!  That was definitely the case with Moviepass, both the consumer deal and the business story really was too good to be true.  I can almost give myself a pass on this one because Mitch Lowe, in particular, was so convincing with his pitch, he had his song and dance on how they had years of data that proved that people would “settle down” and on average utilize Moviepass less than one time a month on average.  That was total bullshit of course, and only now after making the product totally impossible to use have they been able to get utilization rates anywhere near where they had promised they would be with the unlimited once daily plan.   But I can’t give myself a pass on this one, because

Fourth learning lesson.  This is really an aside, but may be useful for some.  Generally people on stock boards like stock twits, yahoo etc. are really horrible people.  Not all, but most.  I have bumped into a few good people on these boards, but for the most part, these boards are full of angry, strange, rude, petulant trolls who seem to be miserable most of the time.   I regret almost all the time I have spent on these boards, and regret engaging in similar conduct from time to time on them.   These places bring out the worst in people.  They are like the Vegas strip full of losers, gamblers, and hustlers – only they are worse because it is all virtual and almost entirely anonymous which means that it is rare to run into anyone with even a modicum of civility.   I am pretty sure that an eternity in Stocktwits is what hell would be like, just add the fire.  I highly advise people to totally stay away from these boards, and if you do go to them, visit them sparingly.   The advice is generally bad, not trustworthy, and the environment only leads to bringing out the worst of human behavior and it is hard for it not to rub off on you.

My fifth and most important lesson – or reaffirmation in this case.  It is almost impossible to beat the market, and it makes no sense to try.  I know this and have known it for many years.  There is so much overwhelming evidence of this fact that it smacks of total stupidity to try and pick stocks that will help you do better than the market.   I will write another post that goes into this in more depth soon.   I will also talk about why I think many people just keep on trying, even when they know that can’t beat the market.  It’s something like a gambling addiction, but worse because it is so delusional.   But it is important to reflect here that this was another insane attempt to beat the market that backfired for a lot of people.  As a group, we know it is stupid to try, and if you don’t know, I will spend a good amount of time trying to convince you that you are not the 1% or less of people who can beat the market.  If you are reading this, I can guarantee you that you are not the type of person who will likely ever beat the market, so you should just put down the mouse and turn off your trading screen before you hurt yourself, or your financial future.

In the end – I promised myself and readers I would hold on to this stock for 5 years.  I have about 4 years left to hold this heavy bag, and there is a cold day in hell scenario where this stock does return some value, it will never ever get back to its all-time high.  But there are some possible scenarios where this POS gets a bit back.  They are highly unlikely of course, and I absolutely do not recommend this stock to even my worst enemy on Stocktwits.  – Well maybe to them, but nobody else 🙂

Is the Worst Over for HMNY?

There was a very strong market reaction to Ted Farnsworth announcing he had secured $65 Million in “Financing” for Moviepass today. Farnsworth also boasted that Bankruptcy was “off the table”. He continued to state that he is looking for acquisitions and to find new ancillary revenue opportunities.

All this happening at an event called The Grille.

Can we believe Ted this time. Unfortunately, probably not. Ted has proven too many times that he gets confused about what “securing finances” really means. Because the company won’t comment on who, how or why anyone would give them additional financing, it seems very unlikely that there is any new real support. It is possible the company stuck another toxic deal for shareholders with Hudson Bay, and combined with some further dilution from their long running ATM offer they may have $65 Million in the bank. But if the history even rhymes with what we are going to find out about this new round of financing, get ready to find out the worst deal you can imagine for common stockholders. It’s simply the way Ted does business.

If somehow Tee did pull a hat trick and secured a reasonable debt deal, that would be a great thing for the company. I doubt that happened however, as Ted said the company still has no debt. Or maybe they do now? Who knows – this is Ted we are talking about here.

At any rate. The big jump from today is probably NOT going to last, and almost certainly won’t survive another big reverse split. If there is no other news than Ted haplessly announcing more toxic deals with sharks like Hudson, you can forget any long term rally.

If there is new real sound financing. Why would Ted and company not issue an official statement? Why would there be no SEC filing? It makes no sense. Yet nothing at HMNY ever makes sense.

I guess one silver lining. If he does have $65 in the bank now, that is nearly 3X the market capitalization of the company.

Unfortunately, even with all that, Ted will likely find a way to piss that money away faster than you can say reverse split!

I hope I am wrong, history says I am right. I hold my slightly less worthless shares, praying the company will find a way, and get rid of Fraudsworth.

The HMNY Bull is Dead

Ted that little bastard did it again. A 1:500 share Reverse Split.

It’s impossible to say anything other than Farnsworth is a total scam artist.

I am officially done with HMNY and with Ted Farnsworth.

The ONLY hope – and there is pretty much zero hope left now – is that Ted gets sacked- or that Moviepass posts some kind of big surprise.

The chances of either happening are probably less than being struck by lightning.

I now recommend staying away from the stock.

It’s time for me to accept that this stock is a scam. And I don’t want to risk having others get hurt by this scam.

My only advice here is to stay away – even from the lotto ticket idea. You are likely just throwing away your money.

It is with deep sadness and regret that I have come to this conclusion. I was such a deep believer in this company, the idea, and the potential to change an industry for the good.

It’s not just losing money that hurts here. It is the fact that I decided to pick this stock of all stocks to get behind and to write about.

It’s crazy for me to even think about it. I am mostly – 95% plus – an index ETF investor. I don’t like penny stocks and never intended to be involved with one at all. That I picked this stock with a lying thieving CEO, an idiotic management team, and a cavalier toxic view against shareholders absolutely sickens me. It is toxic – so I am done.

I believe a better and more honest management team possibly could have pulled this off. But for HMNY it was not to be.

In full disclosure – I am going to hold the shares I have for the 5 years I committed to earlier. I have about 4 more years to go. With this next RS it will be a minuscule number anyway. And I suppose if they go BK before that I can take the tax loss when it happens.

I may poke my head up and write something if there is a really big new development on the positive side. Otherwise this is my last post on HMNY.

So with that – my final apology for those who caught HMNY fever from me or with me. It was fun dreaming, and an interesting case study. Ultimately it was a case study of how management can and will lie to stockholders for their own personal gain.

3 Counterpoints to Silly Motley Fool Story on Moviepass

I take it as a bullish sign that Motley fool has the one big nasty hit piece out this weekend on HMNY.  The article “3 Reasons AMC Is Beating MoviePass at Its Own Game”     is so bad that I felt like a counterpoint to each of their reasons would make sense.

Motley Fool has helped more people lose money than just about any site out there, they are pumpers, dumpers and make horrible calls on a regular basis.  I called it quits with Motley Fool after they made multiple very bullish calls on 3D Printing Stocks.  I was a sucker and believed the hype on that one.  Not that 3D printing isn’t amazing and holds a bright future.  They were just bad picks and bad timing for Fool readers.

The fools and the Fool pumped these dogs like crazy, the hyped never delivered.   I have seen the Fool website be wrong so often, I can hardly recall a time where they have been consistently right.

Now, of course, I have to acknowledge I have been wrong on HMNY to date.  I get it!  My call on Moviepass sucked even worse than Fool’s call on 3D printing!  But I must say, it is a bit different here.  These were established companies with years of revenue and profit behind them.   While by no means were they “safe” investments – you don’t expect to see the bottom fall out of companies of this size, with such huge projected growth.

OK – on to the matter at hand.   Motley Fool contends 3 Reasons AMC is “winning” of Moviepass.   Let’s take a look at each claim.

Claim #1- AMC can do Marketing in their own theaters.   That is true, AMC owns the theater, and they can promote whatever they like on their screens.  Now, does anybody think for a second that Moviepass has a hard time getting publicity?   No- me neither.  Unfortunately, as of late, most of that PR has been negative.   I fully expect that when Moviepass turns the corner, the PR will change for the positive, and will do so with a massive comeback kid story.  The amount of free marketing that Moviepass has received as a startup has been nothing less than mind-blowing.  There are still plenty of people who loath AMC for being hyper negative and aggressive against Moviepass.   If Moviepass does make a comeback I expect the free PR to continue.   If they continue to grow larger than AMC – expect the press to start covering Moviepass as the leader and innovator in the space.

Claim #2 – MoviePass has devalued itself this summer.   Hard to argue that Moviepass didn’t have to change their plans to kill the hogs and abusers.   And the summer was obviously a rough ride. But does that really mean AMC is winning?  I agree that heavy users who have a viable AMC option can see more movies for less on the AMC plan.  As many have argued, AMC actually did a great service to Moviepass by sucking away a big chunk of the most costly Moviepass users.  It was like a gift to Moviepass.  They could not get rid of these people fast enough.   Remember – AMC has something like 23% market share – the vast majority of the moviegoing public does not have a good or viable AMC theater option available to them.  Customers like choice, and having the option to choose whatever theater they want to go to remains a valuable feature for most moviegoers.

The most important point here is that most people don’t see more than 3 movies a month.  They simply don’t have the time or the desire to go to the movies that often.   So why pay twice as much to lock yourself into AMC if you really don’t see yourself going all that often as a casual moviegoer.  And that is the key, Moviepass wants to get the casual moviegoer, they guy or gal who normally sees around 4 movies a year, and try to get them to go more like 8 times a year.  This is where the business model works the best.   And it works best here for a few reasons.   First, because it keeps utilization rates lower for the Moviepass subscriber base – which helps keep COGS down.   Second, this group of casual moviegoers is attractive to Hollywood for marketing purposes.  Heavy moviegoers are great for Hollywood, and Hollywood loves them.  But for marketing purposes, when you are trying to move the needle on a film, getting the next group down from heavy users is really important.  It is sort of like going after swing voters in an election.  You spend your money on those who are undecided, who might not bother getting off the couch and going to the theater.  The guys that go all the time, they will likely show up anyway, the casual user, they need a little more prodding to get them to turn up to the theater.   This makes that casual group a sweet spot for Hollywood to deals with Moviepass to push that group to go see a particular film.   If Moviepass can keep their numbers in the millions, and use their Moviefone audience to push audiences to certain shows, it will be an advantage over AMC.

Claim #3 – Sustainability “The fatal flaw with MoviePass’s original model is that it doesn’t have full control of its input costs. It has to pay retail for the movie tickets it’s buying for its members, and that easily adds up to more than $9.95 a month.”  This reasoning has been claimed over and over again by the bears and bashers.   When the service was unlimited and had a lot of really heavy users, the argument held a lot of merit.   Now the argument is much weaker.   It is true that Moviepass has been slow to get to deals with theaters – they have admitted as much.  But it is a lot less clear that having physical assets is a big strategic advantage in today’s marketplace.   The argument that “controlling all the operations” is a big winning strategic position seems like an idea from yesteryear.   You don’t see Uber very concerned about not owning the Yellow Taxi companies.  You don’t see AirBnB very concerned about not owning hotels, resorts, or vacation homes.  Even lowly Amazon seems fine not holding all the inventory for items they sell online.  The argument that Moviepass can’t be successful without owning the theaters seems suspect, if not downright ridiculous.

Final thought.  With the recent changes, Moviepass is not playing a very classic disruptor role.   Moviepass is now IS NOT for the high-end heavy user, and that is a GREAT thing.  It follows the disruptive innovation model much closer with the new plan.  

The offer from Moviepass is now a classic move of coming in at the very low end.  They are offering a lesser service for a low price, that only appeals to the lower end of the market.  Naturally, this market and these customers are less appealing to established players like AMC.  AMC is looking to maximize profit and to do that they look to create more margins by offering fancier options to their most loyal customers.  In fact, it actually makes perfect logical sense for AMC to ignore Moviepass as they move into the low end of the market where there is little profit to be had.  From AMC’s perspective, the logical move is to move higher upmarket and leave the low-end low-profit space to new entrants.   This is classic disruptive innovation.    None of this is to imply that AMC is purposely doing something wrong or stupid.  AMC is trying to save and optimize their profits – that is what management is SUPPOSED TO DO!   It will feel to AMC and some others that AMC is actually winning.  But what they are missing is that the incumbent just allowed a new entrant to get a toehold in their marketplace.

What naturally happens after a new entrant moves into the low end of a market is they continually innovate and find new ways to move upmarket and take increasingly large pieces of the market.  At the same time, the incumbent keeps trying to optimize more and more upmarket in an ever increasing race to find fatter margins in the highest end of the market.   Eventually, time runs out for the incumbent and they are overtaking by the new entrant.   This pattern repeats time and time again across multiple markets.    Steel, Automobiles, TV’s, Computer Chips, – even Netflix vs. Blockbuster and then HBO, –and many more industries have experienced this exact phenomenon.  There is really no reason to believe that moviegoing is immune from this well know theory.