In a fascinating Press Release today highlighting Moviepass’s new strategy where they intend to focus on tight integration with their content arm and advancing their tech platform with Moviefone. The release states they will no longer rely on revenue from Studios and Theaters. That makes sense, because none of these guys were not interested in sharing any revenue with Moviepass anyway! And frankly it was only hurting Moviepass by claiming they could get rev share deals which angered big and small theaters alike. Studios were largely indifferent to Moviepass. If a studio thinks spending money with Moviepass on advertising will help them, they will do it. If not, they won’t, it’s black and white with studios.
So what does this new strategy really mean? I think it is an attempt to turn theaters into dumb pipes. Which is essentially what theaters really are in the end.
Let me explain. In the world of media and technology, there is always the fear of being the dumb pipe, that is a low margin commodity type play. Cable companies, mobile phone networks, chip makers, they constantly fear being “dumb piped” by technology leaders. Technology companies always fear media companies will dumb pipe them.
So for example, Microsoft had a big fear that AOL Time Warner was going to make Windows irrelevant. I have written about this in my book (still unfinished) you can get more details here on how wildly Microsoft chased AOL years ago and the massive spending that occurred there.
Apple has essentially dumb piped all the mobile operators. This is not a claim that all mobile operators are stupid or even that they have an inherently bad businesses. It is just a simple fact that the majority of the value derived from your mobile phone comes from the software Apple and its ecosystem provides. Verizon might be a little better or worse than ATT or TMoblie. But the difference in value is minimums – they are just the pipe. The consumer really care about the software and service provided by the iPhone.
There is an old age battle of Software vs Hardware. Which is King? Software has won that battle over time – every time. Even in the case of Apple, it was their superior software combined with their hardware that has won they day. And even Apple now is making a move to generate more revenue from their services business, as they recognize that it is software services that ultimately provide the lasting high gross margin revenue opportunities.
When I was working at Microsoft we witnessed first had what happened to PC Hardware manufactures. Many kids won’t remember the names of all the PC makers of the past. Does anyone remember Gateway computer? Does anyone think about Dell PCs anymore? How about Acer? There were about 20 decent size PC manufacturers 15 years ago. There are now less than 4 or 5 now that even matter. This happened because PC Makers were dumb piped, they were commoditized by Windows. They had terrible margins, high capex, and lumpy sales. They turned out to be horrible businesses for most of the companies involved.
Google of course is a software company. YouTube is platform software, and Google is slowly looking for a way to deliver content software of their own to that business.
Amazon, it’s a software company. Prime – you guessed it, it’s about software content.
Netflix- always a software company. It moved up to content software. It started out as technology software.
So how does any of this relate to what Moviepass said today? Moviepass essentially said that theaters are Hardware. They are big boxes with seats that show software. Theaters are not technology companies, and they are not content companies. Simply put, theaters are hardware companies living in a software world.
Moviepass is saying, we are going to take our software – which includes our subscription technology platform, our Movifone asset, and our content asset with EFO MP Films and we are going to try and dumb pipe the theaters.
Well they actually did not say that, but it was heavily implied.
Will it work? Maybe. It really depends on execution more than anything. The software has to be really good. All of it from the technology to the media (movies). If Moviepass can create a model where they efficiently deliver compelling content at a improved margin over other studios, it could be interesting. If they can utilize the network effect of their platform where as they add more users, and then add more content, the incremental value of the network keeps going up as more of each is added. Think about how this worked with YouTube. More users equals more content, more content brings more users. They could indeed have real success if execution is done well.
Would Disney or any other studio follow suit? Probably not for a while. Disney is so worried about Netflix and launching their own streaming service it’s highly doubtful they would do a Moviepass subscription type play. Really I don’t think any of the other studios would even care to try this at this point. This is a gamble, and one that has many risks.
If Moviepass demonstrates real success here, others of course will try and follow. The hope would be Moviepass can lead and network effects will help it build a moat. Time will tell.
One thing for sure. Moviepass ain’t dead yet. Like a Phoenix rising, or cockroach running, the old girl has some software life in her!