MoviePass Valuation Comparisons to Other Unicorns

After watching this most recent YouTube video of Mitch Lowe being interviewed specifically on details around MoviePass’s ability to survive, I kept thinking to myself how ridiculous it is that the valuation for HMNY is so incredibly low.

As the interviewer points out in the video.  MoviePass is essentially priced like a company that is going out of business.  Mitch does an excellent job defending the value of MoviePass.  If you have not watched the video yet and you invest in MoviePass/ HMNY, I highly recommend viewing it in its entirety.  At one point in the interview, the guys both get real and fully acknowledge there is some real value in what MoviePass has accomplished to date.  It is damn hard to get 3 Million people to hand over their credit card and say “bill me” every month for a service.   There are a LOT of companies that will find this group of consumers very attractive.   So if it comes down to is there value here, in the case of potentially an acquisition, the answer is clearly YES!

Also, it was clear, that if MoviePass wanted to turn profitable in a hurry, they certainly have to the means to do it now.  Mitch revealed 12% of the MP users represent 40% of the cost.  With Peak Pricing now coming, it will be fairly easy for MoviePass to essentially kick heavy users out, or tax them to a point where they are no longer a problem.   As I have said for a long while, MP has all the levers it needs to control its own destiny, and it seems clear that they are intent on doing so.

It has been such an odd situation to watch the value of HMNY/ MoviePass drop so low while other private and public Unicorn companies continue to raise money via VC capital and debt financing,  And do so at incredibly large valuations.   I felt like it would be a worthwhile exercise to look at some well known Unicorn companies and compare some key data points.  These companies share a lot of similarities, they are building disruptive new business models at large scale, they are competing with entrenched incumbents, they are spending capital and incurring losses to build these new businesses.

The numbers here are a little rough, I scoured the web to get as accurate as I could, and because all of these companies are growing very fast, and they are either private or just recently public, it is hard to get precisely accurate data.   I think what I have here is reasonably close for each company, and it works well for comparison to MoviePass.

If you look at the comparisons what will jump out to you is a few things.  First, the market is currently valuing MP at almost nothing, it is assuming MP is going out of business.  As I have said before and will say it again, MoviePass is not going out of business, and they are NOT going BK.  Second, while it may sound scary when we here about the need for potentially over $1B more of capital to get MoviePass totally off the ground, by comparison, MoviePass has built a great revenue stream on relatively little capital thus far, way less than many other Unicorn companies.   And the total expenditure of capital is certainly not out of line with others who have market caps that are very generous.   There is also the constant fear of dilution that overhangs the company.  Will they really need to issue a billion shares or more, swamping the demand side?   It is possible that these fears, even if irrational, and only temporary could continue to depress the stock until the company shows a more clear line of sight to breakeven, or the sentiment for the company and its stock improves.  Those two things could be integrally tied together as well.  Only time will tell.

When looking how far the comparisons to other Unicorn diverge, it doesn’t make much sense, and I fully expect to see some revision to the mean here.   By that, I mean that I fully expect to see MoviePass move up closer to the valuation of other Unicorn companies within some reasonable timeframe.  I believe that this will likely happen toward the end of this calendar year, or sometime into the spring of next year.    I am not predicting any specific price, and this reversion to the mean could take longer.   However, I firmly believe the market is rational in the long term, and these great divergencies won’t continue.

Of course, you could also argue that these Unicron companies themselves are seriously overvalued, (many do believe so) and we could see valuations move more toward MoviePass.   I don’t believe that is going to happen, at least not in any major move.  This is different than the old Dotcom blowout of the 2000’s, these are real companies, and they are creating real value in what they do.   It is the incumbents who need to worry more than any other group.  Old firms like Merrill Lynch will be disrupted by new entries like Robinhood.   Taxis and other transportation companies will be disrupted by companies like Uber and Lyft.   Theater chains like AMC will be disrupted by MoviePass.  etc etc.

Here is the link to some interesting data and comparisons looking at ARR’s, VC Funding Totals, Accumulated Loss Estimates, Market Cap Evaluations and a few more things.   Take a look yourself, and ask yourself, shouldn’t MoviePass be worth more than a single Costco store?

If you don’t want to click to the sheet – here is a embedded one.  Sorry I could not get the formatting to work perfectly.  Again, you get what you pay for!

HMNY Naked Short Selling – What is it? Why it is Bad, And How Investors Can Fight Back

It is well known that HMNY has had a historically very high short interest, I have written about this a lot here, and how it’s expensive to short this stock.   I am not against short selling generally (however I personally never short stocks as I am not comfortable with uncapped losses) it serves a purpose in the market, and in some cases can provide needed increased liquidity for certain shares and market transactions.

I am however very against Naked Short Selling -with the intention to manipulate a stock price downward.   For those who don’t know what Naked Short Selling is – it is defined as.  “the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale.”

So if you are already familiar with short selling, which is –the sale of a stock that the seller does not own. The seller makes such a sale by borrowing the stock in order to deliver it to the buyer.   The obvious big difference here in Naked short selling is the seller has not borrowed the stock needed for delivery when it is time to cover.   Traders can use Naked Selling to manipulate the price of a security by selling more shares into the marketplace than there are shares available to cover, thus putting heavy selling pressure onto the stock.

Naked Short Selling for the purpose of manipulating a stock price is illegal, and I believe it is immoral.  First I will talk about the illegal nature of it.

The SEC has made it clear in their ruling on SHO regulations “abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.”   You can’t be much more clear than that, it is absolutely against the law to manipulate a stock to depress the price of a security.   There is no wiggle room on that ruling.

Now on to why I think it is immoral to attack a stock with naked short selling.  In America, we are trying to build new companies, to innovate with new technologies and new business models.  We lead the world across many industries, our technology, and our innovation as a nation is the envy of the world.  Many are trying to replicate, but none of have been as successful as the great old USA in terms of building long-term wealth and prosperity through hard work innovation and commitment to building new and better industries. This land of opportunity we live in, the rising tide that has lifted the boats for so many of us in this country, it relies on fair market and trust.   I believe it is wrong, immoral, and frankly unAmerican, to try and crush a company and manipulate its stock price for personal gain.

Unfortunately, I believe HMNY / Moviepass, has been a victim of Naked Short Selling to manipulate the stock price lower.  Before I get into that.  I want to talk about an example of where this has happened in the past, and how a brave CEO fought back against it.   I say he was brave because you must understand, it is very hard for a CEO to fight against the machine of Wall Street.  If a CEO turns on Wall Street, they know that it could likely be very detrimental to their company and their career going forward.  You don’t bite the hand that feeds unless you are very brave indeed.  It takes a real whistleblower mentality for a CEO to fight for what is right above what might just be good for him, or even his company.

Overstock CEO Patrick Byrne was just the type of CEO who was willing to fight against naked short sellers.  His story is amazing, and it highlighted that great difficulty and expense involved going after the Wall Street machine.  Way back in 2004 Byrne was upset with what he felt were vicious attacks on his company and his stock.  Byrne filed suit in California and even managed to get laws passed in his home state of Utah limiting large volumes of naked short selling and fining brokers who did so up to $10,000.00.   This, of course, infuriated Wall Street, and accusations back and forth intensified and lawsuits multiplied.  Wall Street continually poured cold water on Byrne, claiming he was a poor leader, and should not focus on short selling, but on running his business better.  Byrne claimed that big firms were spinning phony negative research through nefarious 3rd parties while making it look independent, all while naked short selling the stock, manipulating it downward, so they could profit from the fall.

Ultimately, Byrne settled all of the cases against the big brokers, the largest settlement was with Merrill Lynch who paid $20 Million dollars to end the misery.  Here’s a fantastic snippet from the Press Release Overstock issued when finalizing the settlement.  ”

“Overstock.com feels the fight was well worth the effort.  Bringing this conduct to light has caused useful changes in the way the SEC regulates close-out requirements for stock trading. In short, Overstock believes the effort has helped reform the US Capital markets and lessened the opportunities for illegal stock manipulation.

Commenting on today’s settlement, Overstock.com CEO Patrick Byrne said, “Lao Tzu wrote, ‘In war’s victory keep to funeral ceremony.’  Though I am under no obligation to say so, I want to make clear that Bank of America had nothing to do with the behavior documented in this case. Even with Merrill Lynch, the individuals at issue are no longer employed there. I do not feel like bayonetting any more of Wall Street’s wounded today. Because we fought long and hard to get so many of the documents public, the true story of this decade-long battle can and should be told by an objective journalist. Res Ipsa Loquitur.”

Later, in an interesting twist, Goldman Sachs was fined $15 Million dollars by the SEC for not actually providing borrowed shares their customers thought they were receiving, thus putting Goldman’s own clients unknowingly in a naked short selling situation.  Goldman ultimately was settled out of the Overstock case.  If you want some very entertaining reading on the subject read the Press Release here.

Now mind you, there were plenty of Wall Street brokerages who loathed Overstock and their CEO for all this trouble and mischief caused by Byrne.  It cost both Overstock and the brokerages lots of time and money to deal with all of this fighting, and there really was no clear winner, other than maybe the lawyers who got paid a ton of money.   But the point here is that if we want or expect our boy Ted and HMNY to start fighting Wall Street, you can forget about it.   Ted needs Wall Street big shots one heck of a lot more than he needs retail investors to be happy.  Ted might be mad as hell about the short selling & naked short selling going on, but there is little he can do, he certainly doesn’t want to fight the same fight Byrne did.  Not only is it a big distraction, it costs lots of money, and the fight pits you and your company against Wall Street for years down the road.  So that just is not going to happen.

Now, why do I think that HMNY has been a victim of Naked Short Selling and manipulation?  Well, for the lawyers here or fans of law movies, we have the classic means, motive, and opportunity.

Who is my suspect?  Well, it is AMC of course!  AMC wants MoviePass dead, and while that may seem stupid idea for AMC, this is more about control of American consumers from an old-time puppet CEO in Adam Aron, who does not want to see a challenger company disintermediate his theater and come between AMC and the consumer.  MoviePass has already begun that irreversible disruption, and Adam is fighting mad.   It has been nothing less than all-out war with AMC, with Adam taking the unusual step for a large company CEO of blasting MoviePass at nearly every opportunity, even on AMC’s earnings call, even when AMC had clearly benefited from MoviePass related increases in attendance and sales revenue.  So motive is established and clear – AMC wants MoviePass dead!

Does AMC have the means to manipulate HMNY stock?  You bet they do, AMC is owned and controlled by Wanda group, Aron downplays the Chinese connection, but the facts are clear -AMC is a Chinese majority owned and controlled company.   In fact, the last 2 Board Chairmans have been appointed by Chinese company Wanda, and Adam Aron, is really just a bit of a stooge for Wanda, running the US AMC, while bigger things are happening back in China.

The newest Chairman of the Board for AMC is John Zeng, Zeng is also the President of Wanda Film Group, Zeng is the Chinese conglomerate’s most senior executive in charge of all film-related activity. That includes Wanda Cinemas, Wanda Films and the Qingdao Movie Metropolis in China.  So, yes, AMC is Chinese owned and run.  Aron takes his orders from Wanda.  There is no doubt about that.

Now back to the means.  Wanda has two very large backers, and in a  “you can’t make this stuff up” kind of way, one of them is none other than the Chinese government, and the other is Alibaba!  That’s right, AMC is actually owned partially by the Chinese government, let that one sink in just a bit.  The pockets behind AMC are let’s say, as large as the mother earth itself.

Now, do you think for even a minute that the Chinese like to play fair when a little startup American company is starting to mess with one of their investments?  History proves that China will do what it has to do to protect its interests.   Yes- AMC has the means to naked short sell HMNY into oblivion should they want them dead, and we have established already, AMC wants MoviePass dead.

Now, onto the opportunity.  Just because AMC wants to kill AMC, and would love to see the company stock shrivel up and die, and they have the money to do it, is there really any opportunity for AMC to make that happen.  OF COURSE THERE IS!

Naked short selling really is very loosely monitored by the SEC.  As you have seen with the Overstock story, even if a company suspects it is happening, they are reluctant to defend against it, because they don’t want to risk pissing off Wall Street.  Further, short sellers have very little reporting requirements.  Have you ever noticed it is almost impossible to find out who is shorting a stock and how much?   To make matters even worse, institutional sellers use something called dark pools, which are trades handled outside of the major exchanges to conduct short selling arrangements where there is total lack of any transparency.   And of course, the big firms like Goldman and Merrill are complicit in all of this, because they don’t care if they can make some quick money off doing a short sell deal, even if they neglect doing their part in providing the borrowed shares.  (Note: I am not saying GS or Merill is doing this here, just using them as examples).   So, the opportunity to commit the crime is there, AMC could easily utilize institutions, dark pools, and even offshore traders to execute all kinds of crazy short selling activity.   They could do it through connections via Wanda, Alibaba, or the Chinese Government.

So there you have it, Means, Motive, and Opportunity on manipulative naked short selling.   AMC has them all at their fingertips and has been unusually vocal about it.  What or who could stop them from carrying it out?  The SEC! ha fat chance! They are slow, understaffed, and have nobody complaining to them about it anyway.   

Unless… We long shareholders of HMNY start to complain.  We are the only party in this mess who can fight back!   We have nothing to lose, and everything to gain.   Not only does it serve us longs financially to get the SEC off their butts and start investigating this debacle.   It is our moral duty as Americans to fight against the evils of naked short selling, trying to destroy American industry and ingenuity!   To not complain to the SEC about this would be – well – downright unAmerican!

So I urge you go to the SEC website, fill out their complaint form, they have a specific area in the form identifying naked short selling, let them know you stand against this, and if you have lost money on it, let them know that too!  If they hear from enough of us, they will act!

Heres the link to file your complaint https://www.sec.gov/tcr

Let’s fight this together.  Do it for your pocketbook, do it for your country! Do it for your children!   FIGHT BACK!

 

 

 

 

 

Why Did HMNY (MoviePass) File That Alarming 8K?

We all now know that HMNY filed an 8K that set off alarm bells, causing a media panic claiming MP was close to running out of cash, sinking the stock 60% in two days.

The specific statement read.

As of April 30, 2018, we had approximately $15.5 million in available cash and approximately $27.9 million on deposit with our merchant processors for a total of approximately $43.4 million. The funds held by our merchant processors represent a portion of the payments received for annual and other extended term MoviePass subscription plans, which we classify as accounts receivable on our balance sheet and which we expect to be disbursed to us during the course of 2018. We believe that our average cash deficit has been approximately $21.7 million per month from September 30, 2017 to April 30, 2018. By the end of April 2018, we implemented certain measures to promote the fair use of our MoviePass subscription product, which we believe should reduce our monthly cash deficit significantly. These measures include a technological enhancement which prevents MoviePass subscribers from sharing their accounts with non-subscribers and allowing subscribers to see a movie title only once per subscriber using the MoviePass subscription. We believe these measures enabled us to reduce our cash deficit during the first week of May 2018 by more than 35%. In addition, by returning to our $9.95 per month unlimited MoviePass subscription, enabling subscribers to see up to one new movie title per day, we believe our subscriber acquisitions and subscription revenues will continue to increase for the foreseeable future. However, we will need proceeds from sales of our common stock pursuant to our Equity Distribution Agreement with Canaccord Genuity, or other sources of capital, starting in May 2018. Further, if we use all or a portion of the anticipated net proceeds from sales of our common stock pursuant to our Equity Distribution Agreement with Canaccord Genuity for acquisitions of other companies or financial interests in additional movies (through our subsidiary, MoviePass Ventures), we will need additional capital to offset our monthly cash deficit. In 2018, we expect our cash deficit from month to month will vary significantly based on the amount of movie tickets MoviePass is required to purchase for its subscribers during the month, the amount we spend on acquiring financial interests in additional movies through MoviePass Ventures, the amount we may spend on any other types of acquisitions, and our ability to develop the MoviePass business model in the near term generally, including developing and growing sources of revenue other than subscription revenue. Because the length of time and costs associated with the development of the MoviePass and MoviePass Ventures business model is highly uncertain, we are unable to estimate the actual funds we will require. If we are unable to obtain sufficient amounts of additional capital, whether through our Equity Distribution Agreement or otherwise, we may be required to reduce the scope of our planned growth or otherwise alter our business model, objectives and operations, which could harm our business, financial condition and operating results.

But many of us could not figure out WHY the company came out with this statement, and why NOW?!  There was very little new news in the statement.   If you break it down, the company said they will need to raise more cash, which they have already said they had planned to do by selling shares, and they said they would do this as they needed the funds.  So that was nothing new.   The cash burn level reported was also not new news.  Mitch and Ted have both said that they were burning in the $20M a month range in several previous interviews.   The statement also said that management had taken steps to reduce COGS, and that by adding the limitation of only seeing a title one time, and enforcing photos of ticket stubs, had reduced usage and fraud, helping to bring usage down more than 35%.   This was great news, but it had also been mentioned in prior interviews earlier in the week.  Nothing really new again!

So why then did HMNY – MoviePass -feel the need to release this 8K at all?   I have researched this, and the answer is that this is a requirement that they must fulfill by SEC regulation based on that fact that they are operating under a “going concern” audit finding.    The going concern part of this is nothing new.  In fact, it has been known for some time now.   What most investors do not realize is that once you have this finding attached to your company, the disclosure rules for the company change.

This is a complicated bit of accounting rules and regulations and if you want all the details you can read them here.  But the cliff notes version is that any updates both positive and negative that could significantly impact the “going concern” status of the company must be announced as they occur.    So the changes to MoviePass to reduce cash burn had to be disclosed.  And with those changes, the change to the cash position, and the intention to stick to the plan of raising more money with additional stock, also had to be disclosed.  Regardless of the fact that both of these things were already known by investors who were closely following the company.

To put a fine point on it – new developments that are POSITIVE – that will help reduce the “going-concern” issue with the company, must be disclosed.

Specifically —-

“The going-concern standard explains that these disclosures may change over time as new information becomes available and that disclosure of how the substantial doubt was resolved is required in the period in which substantial doubt no longer exists (before or after consideration of management’s plans). In addition, the going-concern standard states that the mitigating effects of management’s plans to alleviate substantial doubt should be evaluated only if (1) the plans are approved before the financial statement issuance date and (2) dboth of the following conditions are met: a. It is probable that management’s plans will be effectively implemented within one year after the date that the financial statements are issued. b. It is probable that management’s plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.”

It is reasonable to believe that Mitch and Ted actually believed that the filing was routine and that there was some substantially positive news in the filing that had only been mentioned one or two times in TV interviews, and this filing would make it official that MoviePass is making great progress in moving toward a more profitable future.

Unfortunately, the 8K hit within less than 24 hours of AMC CEO Adam Aron throwing MoviePass under the bus.   Adam made a bunch of nasty and false comments on how MoviePass was certain to be in a death spiral.  And made a bunch of false assertions on usage amongst other bizarre comments.

The timing could not have been worse for HMNY to release the 8K, it set off a literal $hit storm of bad headlines, causing retail investors to panic sell the stock.

Was this bad execution on the part of HMNY?  Probably – however as SEC forms go, it takes a few days to file them and companies may not know exactly what day the form will hit the SEC website.   So maybe it was just unfortunate bad timing.

Should HMNY and MoviePass do more to stop the stock price from falling?  Maybe, but there could be other restrictions they are under for releasing information.  We are close to ER, where there is normally a quiet period prior.  Also, we don’t know what is happening with the final acquisition of MoviePass and the rebranding of HMNY to MoviePass.  Also, we don’t know what is happening with the spinoff of Zone and if there is a quiet period there.

It is actually possible that this entire episode is very much ado about nothing.  And that Mitch and Ted both have their hands tied in how much more they can really say to calm investors fear of near-term Bankruptcy.   Afterall, Farnsworth and Lowe have both stated in separate interviews that they are confident they have plenty of options for additional funding and that they at least are not worried at all about insolvency.

My conclusion, the drop was scary and shook out a lot of early shareholders and retail investors who just don’t have the stomach to take these kinds of losses, even if they are just on paper until you sell.  The series of events was a great gift to the short sellers who are paying big money to short this stock because they don’t believe in the model, or they have ulterior motives for wanting to have HMNY not be successful.

It seems unlikely that HMNY is headed for Bankruptcy anytime soon given they have virtually zero debt, and a lot of options to keep on trucking as a “going concern”.

My view – if you liked this stock at $7 or $4 or even $2 – you should love the stock NOW at .85 cents!

Nothing significant has really changed!   Go review all the video interviews I have cataloged here.   You will see that the story has been consistent, that there was really no big new news at all, and that Farnsworth and Lowe consistently have said they would need to raise more money as they built out a 5 Million user subscriber base.

Don’t let greedy Wall Street hedge funds and sneaky short attacks from competitors like AMC scare you out of what will be a great long term investment!   Hang in there, average down if you can stomach it.

As Mark Twain once said.

“The rumors of my death have been greatly exaggerated”

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.