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.

(Source Variety.com)

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.


MoviePass Just Had Its IPO Moment!

Big News! Helios & Matheson is doing another public offering – utilizing their shelf registration.  I view this as  long term positive very bullish.  It looks like Ted Farnsworth is likely seeking to finalize HMNY’s ownership position and fully takeover the company.

Once completed HMNY can officially become MoviePass!  With a stock ticker of MVP (or some equivalent).  This will be positive for the company.   Aligning the name of the company with its primary branded service is a positive for retail investors, and will go a long way to sort out the confusing ownership position Helios and Matheson has had on MoviePass.

Also very important and BULLISH!  – many large money managers and hedge funds have very strict policies banning any investment in passthrough companies.  Once this proxy situation is finally settled, it will allow bigger institutional buyers to more fully participate in MoviePass as an investment.

Think of this as MoviePass’s IPO Moment!

 

 

HMNY10K – A Few New Items – Overall Story Remains Unchanged

Helios & Matheson released their 10K this week  revealing a few interesting new developments on MoviePass.

Of primary importance, the company revealed that it now owns 91.8% of MoviePass.  Up from the previous 82% holding from the company.

The increased position taken by Helios (HMNY) removes a great deal of uncertainty related to the passthrough structure and proxy battle that has been a concern for investors.

Separately, Ted Farnsworth was quoted in a new cover story for  Variety where he took an IPO of MoviePass off the table.  In the article it says,

“Farnsworth rules out spinning off MoviePass from Helios and orchestrating an initial public offering. “We’re so busy doing what we’re doing that we don’t have time to do that,” he says. However, he is considering rebranding Helios’ public listing to reflect its ownership of MoviePass because he believes the subscription service is a better known brand.”

I see this as a bullish development as it clears up confusion on corporate structure going forward.  It also demonstrates that MoviePass will soon be the leading brand for the company, and it won’t be long before they rebrand the Company name, Helios & Matheson, to MoviePass, and they will likely change the stock ticker of HMNY to better represent that new brand. Maybe it will be MVP or something like that.    As silly as it may seem, a stock ticker that represents the company brand helps a stock by attracting more retail investors.  So it is a good plan for the company to move forward with a new branding.

Finally, it was also revealed today that Helios does not face any near term liquidity meltdown that many have feared given the massive spending taking place to build the MoviePass subscriber base.  In the Variety story Farnsworth has this to say about running out of money.

“Since day one, people have been saying we’ll run out of money,” says Farnsworth. “I assure you that capital is not an issue. I’m sitting on hundreds of millions of dollars of dry powder, and I’ve got bankers and debt-financing companies calling me all the time. They know they’re looking at an Uber or an Airbnb. This is a unicorn company.”

There was also a bit of a dust up surrounding Farnsworth claiming the company had secured a $375 Million line of credit to float the company’s cash needs.  It turned out that the company did not have a line of credit secured, rather it was a reference to a shelf offering that company had already executed, but has not yet sold into the market.

I continue to remain bullish on the MoviePass opportunity.  While the business model is not easily understood using simply math and accounting methods.  A longer term view that considers the disruptive nature of the company as they take advantage of more nuanced behavioral economics concepts continue to make this company look like they indeed do have a shot of becoming the next tech unicorn.