My Quick Take on MoviePass Films

Because it is summer time, and I am a retired guy who likes to enjoy the beautiful weather in the Pacific Northwest, I am going to be making less frequent updates to the blog, and I will be keeping them a little shorter.  If something super significant happens, I will write a bit more about it.   You get what you pay for here.  And unfortunately, so far, that has held true for the entry point on MoviePass stock.

I will repeat again.  I am a buy and hold type of investor.  I don’t think you should buy any stock if you can’t stick with it for at least 3 years, and I prefer 5 years or more.   So as to the daily and weekly swings to HMNY and MoviePass, I don’t like them any more than anybody else.    And they are not meaningless for HMNY given they are selling shares to finance the scale out of the company.   Anyway, I remain long, until the story changes to the point where I don’t want to be invested in a company anymore.

OK – On to the MoviePass EFO – MoviePass Films news.   I will start here, obviously, I was hoping for Atom Films to be the acquisition.   I personally see a more immediate benefit to that marriage, and I was disappointed that was not the news.   I was wrong – again – on my prediction here.   I have found that it is fairly difficult to predict what HMNY and MoviePass are going to do next.   That keeps them interesting, but also I think makes things a little frustrating for investors.

Overall, I think that this arrangement is a solid move for both MoviePass and for EFO.   MoviePass knows that it wants to get into the exclusive content game sooner than later, this allows them to enter into that market, without expending much at all in the way of capital.   For EFO this deal makes sense because it helps them to put butts into seats for their movies, even if the movie is not reviewed well, it gives it a chance to find an audience via MoviePass audience and marketing.

Gotti will be the first really good test case for this phenomena.   Gotti, so far, has not been super well reviewed.  It got a couple real negative reviews at Cannes, and it was pretty risky to do the reveal there anyway, as Cannes is a snob fest, and the reviewers there tend to try to one-up each other on intellectual snobbery, so revealing a mob movie, that does not go down the high brow liberal reviewer path, is likely to have you end up with a long dissertation type review on how the movie missed the opportunity to make a bigger social statement.  Or some such thing.  The point here, the movie did not get a great set of reviews.   And to be honest, the movie has taken a long and winding road to release, indicating that even the studios and distributors have had at least some reservations about how well it might do at the box office.     So a deal was struck with MoviePass to be a partner in the distribution of the film, and, MoviePass, as part of the deal guaranteed promotion to their subscriber base.   This is how MoviePass got the deal with Orchard and American Animals as well, they ponied up their subscriber base as part of the deal.

This is why I have been saying for months now – that scaling up the audience and the subscriber base is the most important asset that MoviePass can build.  When you have a large audience, AND you have their personal information and moviegoing habits, AND you have their credit card number, AND you know what theaters they go to, AND what films they like, it is INCREDIBLY valuable!   As investors, we are now starting to get some of that value in the form of exclusive content.   Essentially EFO has made a deal to with MoviePass to extract some of that value.  The deal basically goes like this.

Future movie script:

MP: Hey – we have all these subscribers that love movies, and they subscribe to MP so they are not afraid to take a chance on a movie, even if it might be a bad one based on a review.  In fact, we have some subscribers who love bad movies, just because it is sort of fun.  And there is literally almost no friction to getting them to go see your movie.   We want to make money off of getting people to go to more films, and we would like a piece of the action as we make it happen.

EFO:  Well – we try really hard to make great movies, but sometimes they turn our just OK.   Sometimes we get burned by the critics, and those guys are like sheep, a couple bad reviews, and all reviews seem to go to shit – and there goes that film down the drain.  But we know a lot of people like our movies, they like our guys like Stalone, Wahlberg, and Travolta, even if the movie has a less than stellar review, we think there is a big audience for it.   But we need a bigger audience to get into more theaters and to stay in for longer windows.

MP & EFO – Hey – what if we teamed up the MP audience with EFO’s movie-making machine and made magic together?!    YES!

How will we do it?

EFO – well we have this big library of content, and we can’t just give that away into a new company.

MP – that’s fine, but down the road, we see value in that library and would like to have access to it so we can monetize it against our audience in different ways.  How about you give us an option on that?

EFO – Sure we can do that.

MP – How about we band together for all the new films you guys are going to make, and we share that 60/40.

EFO – I am insulted, we make the movies, we are Hollywood big shots!  We want more!

MP – OK fine – how about we take 51% and you take 49%.  We both will thow in some cash, and we will throw in some stock to sweeten the pot for you hollywood big shots.  We want you to be incented to stick with us for the long haul anyway.


So now we have MoviePass films.   Content is still KING!

Think about every company that started off in the content delivery business and figured out that it made sense strategically and financially to enter into the content creation business.

HBO – NetFlix – Amazon – Showtime – Microsoft – even Apple has entered the exclusive content business in one way or another.   They do this in order to continue to grow their huge audiences and subscriber bases and to offer unique content that is exclusive to their brands.  In some ways, it is a necessary evil of being a major player in the media business.    Content creation is expensive and can be risky, but without it, you are much less relevant to your subscriber base.

Now – read the Press Read  carefully:  I will insert a few comments in it here:

LOS ANGELES–(BUSINESS WIRE)–Helios and Matheson Analytics Inc. (Nasdaq: HMNY) (“Helios”) announced today that Emmett Furla Oasis Films (“EFO Films”) has granted Helios the exclusive option <<<Read -we have the exclusive right to their old stuff and new stuff, it’s an option to work with Hollywood Big Shots – we don’t have to take it >>> to acquire the entire film library and current production slate of EFO Films. The EFO Films library includes acclaimed titles such as Lone Survivor and Broken City and features A-List actors such as Mark Wahlberg, 50 Cent, Sylvester Stallone, Bruce Willis, Arnold Schwarzenegger, John Travolta, Denzel Washington, Nicolas Cage, Robert De Niro, Al Pacino, Kate Bosworth, Leelee Sobieski, Anna Kendrick and Ellen Burstyn. The EFO Films library also includes the upcoming titles Boss Level starring Naomi Watts, Mel Gibson and Anabelle Wallis, 2Guns, Escape Plan 2 and Escape Plan 3 starring Sylvester Stallone and Dave Bautista, The Irishman starring Robert De Niro, Al Pacino and Jesse Plemons, and The Iconic Video Game ASTEROIDS by ATARI, including others in production, with the goal of 12 to 15 films over the next year.

“To have such a well-known, quality production company join forces with the Helios/MoviePass group of companies is truly remarkable”<<Read –  we are psyched that we are big enough and have enough momentum that Hollywood big shots are willing to partner with us to do deals, not everybody gets to do this!! >>>

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Helios also announced today that it has formed MoviePass Films LLC (“MoviePass Films”) with Emmett Furla Oasis Films (“EFO Films”). Helios owns 51% and EFO Films owns 49% of MoviePass Films. MoviePass Films will focus on studio-driven content and new film production for theatrical release and other distribution channels. Hollywood veterans Randall Emmett and George Furla will serve as Co-CEO’s of MoviePass Films; MoviePass Films’ Chairman of the Board will be Ted Farnsworth. Mitch Lowe will hold a Board seat as well, and Farnsworth and Lowe will work together day-to-day to execute the strategy between MoviePass and MoviePass Films. Terms of the deal were not disclosed, however both parties agreed on a payment in the form cash and stock.<<< Read – we are setting up a new company together so we can make movies and promote them to MP sub base – we are BOTH putting in money and stock to get the thing up and running>>

Helios plans to capitalize on the unique capabilities of its subsidiary, MoviePass Inc. (“MoviePass”), to market future MoviePass Films productions to millions of MoviePass subscribers and moviegoers everywhere. MoviePass Films will pay MoviePass for any marketing services provided to market MoviePass Films productions. MoviePass Films will own and control all revenue streams from theatrical release, domestic and foreign distribution rights, streaming, retail, DVD sales, transactional sales, etc.  <<<Read – MoviePass Films – the new company, will still have to pay MoviePass to market the new movies – we can’t just give it to them for free.   But I bet they get a sweetheart deal!   MoviePass Films gets all the revenue from the Movies, but then 51% of that is owned by MoviePass, so MoviePass has controlling interest in the new company, and gets their money when it rolls in from the new movies they make”

“To have such a well-known, quality production company join forces with the Helios/MoviePass group of companies is truly remarkable,” << Read- again even we are surprised we can get Hollywood Big Shots to partner with us so early in the game, we are stoked!!>>>>said Mitch Lowe, MoviePass’ CEO. “Since we began disrupting the movie industry with our unprecedented low-cost movie theater subscription service, MoviePass™, we have envisioned owning and developing our own studio content and using the power of our several million subscribers to bolster the success of the box office for our films. I believe MoviePass Films will accelerate those efforts and demonstrate the power of MoviePass to drive movie theater attendance and downstream sales, for the benefit of moviegoers, movie theaters, studios and the film entertainment ecosystem as a whole,” concluded Mr. Lowe. <<<Read – we were always going to do this, now we can get started right away – watch as we become an entertainment juggernaut!>>>

Helios believes its acquisition of the current production slate of EFO Films and the leadership of MoviePass Films by veteran producers Randall Emmett and George Furla will accelerate Helios’ plan to produce its own movies for theatrical release, create new revenue opportunities for MoviePass’ marketing services, fill theater seats throughout the United States for MoviePass Films productions to the benefit of exhibitors, and enable MoviePass Films to participate in box office and downstream revenues from its proprietary content.  <<Read – we are saying it again – this was always the plan, and now we are going to show you how we can make money up and down the entire value chain, this is why we needed to spend money to build scale, and this is how we are going to kick some ass making money while we get people back into the movie theaters.   We are not stupid like AMC, we actually believe it is better to have more people going to the movies, and find more ways to make money on that.  It’s a different strategy than just making people pay more money for tickets and rip them off for popcorn.  But we like our chances>>>

“To do a deal with Helios and MoviePass is epic for us,” said Randall Emmett of EFO Films. The MoviePass™ subscription service has totally disrupted the movie industry, for the better. When we worked with MoviePass Ventures on the movie Gotti, starring John Travolta, which premiered at Cannes and is set for release this coming June 15 – I immediately saw how revolutionary the MoviePass™ service is. I have never seen any player in our industry move so quickly and gain such a large following in such a short period of time. What impresses me the most is that MoviePass can guarantee box office attendance, which is a game changer. I don’t believe anybody else can do that,” concluded Mr. Emmett.  <<<Read – I am a Hollywood big shot, and I think MoviePass is a game changer because they have a direct connection with the consumer, and they can get people out to see movies with no fear.  Mitch is a smart guy, and he figured out this Movie Insurance idea, and now people are going to movies like crazy people!   Where have these guys been all my life!   It is a new dawn for movie makers!>>>

“Ever since we co-acquired our first film with MoviePass Ventures, American Animals, which is set for release June 1, we’ve been looking for an opportunity to acquire and produce studio content on a larger scale and prove the power of the MoviePass™ service in the process. We believe we’ve found that opportunity with Emmett Furla Oasis Films. Along with MoviePass Films, MoviePass Ventures, our studio driven production company and our independent film investment division, will play an integral role in our business strategy,” said Ted Farnsworth, Chairman and CEO of Helios. “We believe the track record of Randall Emmett and George Furla over the last twenty years speaks for itself. For MoviePass to have the opportunity to jump in the middle of new high-caliber productions that are already underway, becoming a part of that, is more exciting for Helios and MoviePass than I ever could have imagined,” concluded Mr. Farnsworth.  <<<Read – When we used our audience size to get a piece of the action on American Animals, we figured out that we have a big idea here, we could make our own damn movies and sell them.  But then we also knew that we didn’t know how to make movies, so maybe we could find a Hollywood big shot that saw our big idea and would partner with us.  EFO said yes!  and we got married!>>>

So that might friends is how to read this deal.   For the rumor mongering fear generating short sellers they will howl that this is too expensive, that they are giving up a ton of money to this new venture or that a big additional dilution is certain because of this new deal.   That is all horse pucky.   I am certain that this cost HMNY very little to set up this structure.  Both sides protected themselves adequately.   This thing is obviously written with a prenuptial agreement.   Hollywood knows divorce all too well.

So I think it is a great start and could end up serving MoviePass very well.  Like all things, it has some risk that it won’t work.   You can’t push too many bad movies, because people realize their most valuable resource is time, and even for free, a bad movie is still a bad movie.   Also, there are a lot of egos in all of this, and these guys tend to be real bastards when things don’t go as planned.  So any kind of drama could unfold in the future.

I think the deal works well if MoviePass doesn’t overdo it pushing films that people don’t want to see.  That can be achieved be staying closes to the customer, using data to suggest films that MoviePass knows you might like.  This is where the data, and soon the integration of reviews into the MP app becomes critical.    If MoviePass can elegantly promote specific movies to specific subscribers and get a piece of the action through the entire value chain, while delivering on their strategic vision of bringing people back to the theaters, this will turn out to be a very positive deal.

Maybe ultimately we will say – HMMM how did that do that?