While I have long been a relentless bull for MoviePass and its disruptive business model, I have at the same time been fairly negative, or at times, downright nasty in my opinion of Ted Farnsworth the CEO of HMNY and 91% owner of MoviePass. My opinion is starting to change.
In this latest news cycle where MoviePass has announced their 3 Million Subscriber benchmark, Ted Farnsworth has done an admirable job of highlighting the multiple points of progress made by MoviePass, and he has done it without putting his foot in his mouth.
I have had my complaints with Farnsworth, and I believe he made an epic PR mistake by not clearly communicating exactly and precisely how he planned on funding the subscriber growth for MoviePass with an ATM offering. And Farnsworth made matters exponentially worse by allowing that now infamous Variety article to quote him as saying he had a $300 million equity line of credit, when in reality he was speaking about the ATM. This verbal vomit caused more confusion and distrust from retail investors, at a time when AMC and others were actively trashing the company’s business model. It was disastrous for the stock price and created a lot of angry early shareholders who became bagholders very quickly.
This entire episode could have been handled so much better and would have saved the company and stockholders millions of dollars and shares of dilution had Ted and Mitch executed a better communication strategy. To be fair, Mitch and Ted have both openly communicated that they love the fact that nobody believes in their business model, and that it is not attracting many viable competitors. While I love the strategy of trying to operate a business in a sort of stealth mode of an unviable business model, they took that game too far to the edge. You don’t want potential partners & consumers to have to question if they are about to do business with a company that could be failing imminently. And, if you are trying to raise money with an ATM offering, it would be much more efficient to sell shares for $3-4 vs .30-.40 cents. This was not handled well, and it wasted a bunch of money for a lot of people, including Ted and Mitch.
I know people are still angry with Farnsworth, and I know Farnsworth has a history of failures that share some similarities to MoviePass. It is understandable to me why many people want Farnsworth out of the picture. I get it.
Let me explain why I think Farnsworth probably deserves a little more slack than many of the angry longterm investors have been giving him, and how I see him starting to improve.
First, let me address the known facts that Farnsworth has had more than his fair share of wipeouts in the past. Farnsworth’s ugly past success record affords him little in terms of bragging rights or the benefit of the doubt. That said, he has not been a total failure his entire life either. One of the most wonderful, yet most difficult things for investors to deal with, in the American entrepreneurial system is we allow and embrace total and abject failer. The wipeout, for better or worse is part of our system of capitalism. We have decided as a society that it is better to allow our entrepreneurs, inventors, & dreamers to take huge risks, to bet it all and to win or lose on a grand scale. We have also decided that failure should not result in a life of indentured servitude. This is why we have bankruptcy laws that protect both businesses and individuals who take risks and fail from spending a lifetime of paying it back.
Collectively, we have decided it’s better to punish, forgive, learn, and move on in business. Farnsworth has taken advantage of that core principle of our entrepreneurial system, and while we can despise him for doing so, it is the system we have created in this country, and there is a very long line of entrepreneurs, inventors, investors, and motivational speakers who will tell you that embracing failure, learning from it, and continually improving is the ultimate road to successful outcomes.
Additionally, Farnsworth appears to be the prototypical example of the “male hubris-female humility effect.” This is a long-standing body of research that basically explains why there are more male entrepreneurs than females. I know this is a hot topic in the #metoo world, and frankly, I don’t give 2 shits where you stand on all of that stuff. The research here is sound. Men tend to exhibit hubris about 3 times the level of women. We know inherently this is true, men tend to do stupid shit all the time, and when it goes badly, they don’t blame themselves or think about why it was a stupid idea in the first place. They blame circumstances that were out of their control, or they blame their wife, or they blame the weather, the dog, or anyone but themselves. The research also says that men tend to pick themselves up over and over again after failure and try again. Which makes sense, because the failure was not their fault in the first place, duh! Of course none of this means that men are better than women at identifying opportunities or executing well against a given opportunity, it simply means that they get up to bat more often, and as a result, they get more hits.
Now with Farnsworth, do you think he might be full of hubris? You bet your ass he is! This guy has launched more companies and failed more times than you have gone on and off your favorite weight loss program. When Bloomberg asked him about his total wipeout of his crazy energy drink he said, “it was bad timing. Purple was a premium health beverage and we could not make it through the worst recession to hit the country since the 1930s,” No matter that many business studies show that recessions are an optimal time to start a business because of lower labor costs, less competition and other advantages. In Farnsworth’s head, it wasn’t his lack of execution or any other number of things he did to screw Purple Beverage up, it was just the bad economy! If it had not been for that, it would have been a huge success :-), Yeh, sure – right Ted 🙂 It was the recession that killed Purple.
Now it may sound like I am being a harsh on Farnsworth here… again. No – not really. I am simply making the point that it takes a bit of hubris, and some big balls, to keep on coming back failure after failure, to get to a place where you are now sitting on top of one of the most interesting disruptors of the movie media marketplace. Theodor has balls!
But it is not just that Teddy has balls, and that he has managed to fail his way into one of the most interesting jobs in media that impresses me. What has impressed me most, is that it appears that Ted is actually learning and improving. I don’t know if his improvement comes from learning hard lessons from his past failures, or if it is from his apprenticeship he seems to have willingly accepted from Mitch Lowe. It really doesn’t matter why- what matters is that he seems to be improving.
If you read through the last couple of interviews Ted has done on the latest news cycle – they are very solid. (Screen Rant, Vice) Ted gives a very confident update of the numbers, while also painting a compelling future vision for where MoviePass is headed. He avoids nitty-gritty details of the finances and dismisses any theories of impending doom quite elegantly. These are smart interviews, that offer enough details on the business to be interesting, but they leave out any silly future claims of news coming or details specific enough to incite a big debate or backlash. It is like he is becoming a grown-up CEO!
Am I 100% convinced that Ted is the right guy to lead MoviePass to the promise land? Not really, at least not yet. But I do think Ted is improving, and I feel like he is less of a liability than I had thought in the past. And after all, without Ted, and his crazy bet it all move on MoviePass, none of us would be able to part of this ride. And with some level of hubris on my own, I still believe this is a ride of a lifetime!