The Value of Moviepass – Something to Ponder

Moviepass even with all of its hassles continues to be a great deal. That much is obvious when considering that for $9.95 a subscriber can save money by going to the theater just one time, and if they use the subscription to the max, they can get somewhere around $30 to $50 in value depending on when and where the pass is used.

I thought it might be fun to compare Moviepass to other ways consumers might blow their cash to entertain themselves. So here’s a short list of of entertainment options compared to the value of Moviepass…

We could go bowling… as Gaffigan says. But bowling these days is generally around $20 or more per bowler. For that you could buy 2 months of Moviepass and go out to the movies up to 6 times.

If bowling is not your thing – how about golf? Apparently the average green fee is around $34 for a public course. But you have to have clubs and the fancy pants and shoes to really get out there. For that you get 3 months of MP or 9 Movies. And you would have some money leftover to buy a popcorn and a drink!

Golf a little slow? How about a day skiing? According to “Snow Online” the average cost of a lift ticket in the US is now up to $94. And if you think movie concessions are expensive, try ski lodge concessions! And don’t forget the 2 hour drive, the expensive equipment rental or purchase. It’s enough to make you want to just go see a movie! And for that price, you could see at least 27 movies or have 9 months worth of Moviepass! With plenty left over to take a friend or two or three!

Maybe you prefer to do something less active? How about a concert? Well we all know that is going to set you back some real money. For good seats at a good show we are talking about $120. Or a full year of Moviepass, or 36 movies! Now that’s a lot of entertainment hours by comparison:-)

Well, how about a Broadway show! Turns out that is going to hit your wallet hard as well. According to statisa that will be $127 big ones!

Do you like Speed? How about a day at the races? NASCAR perhaps? Average ticket there $96.14. Plus parking, plus a LOT of hassle getting in and out. Let’s just call that about a year of Moviepass again. And that is being kind on the hassle charges.

How about an NFL game? Forget about it! No matter where your favorite team plays – it’s more than a full year of Moviepass!

We can talk about other entertainment options that are cheaper than Moviepass. Going on a walk is free! Sex can and should be free! You can share a Netflix account for less. Or you can buy a digital TV antenna off Amazon for about $30 bucks and get your locals for free!

Let’s face it, the cost of Moviepass is super low, and it is a fantastic value compared to just about any other entertainment option.

So as we sit and ponder if Moviepass subscriber numbers will flame out or continue to grow under the new 3 movies a month value proposition. It’s worth considering, do consumers have a lot of better options for the money?

Tomorrow is IT! 8/15 Change Over Day!

Tomorrow will mark the beginning of the end of the Moviepass slaughter. The hogs will be eliminated. The Wall Street crowd will see impressive stickiness to the service, sub numbers will be surprisingly resilient.

It will be a long battle still, but the good guys are going to win. The service will be freed from the socialists who were bringing it down. Cash Burn will dwindle toward zero. HMNY will no longer be hostages to the thieves of Wall Street.

The tables will turn quickly. When you don’t need money, everyone wants to loan you money. The dilution will slow to a trickle. The shorts will cover. The greed of Wall Street will kick into high gear snapping up shares on the cheap.

The snarky nasty media will change their tune as fast as they did the time before. Sins of the MP past will be forgotten.

Theaters starving to get that good Moviepass hit will come to partner. Films looking to buy an audience will come knocking. The platform will grow. Exclusive content and experiences will excite the masses. A new entertainment company will be born.

Mark tomorrow on your calendar.

8/15 Change Over Day!

It shall be remembered by all!

Why I see MoviePass utilization rate staying in the 1.2 to 1.5 range

I have now received a LOT of feedback on my MoviePass revenue model published on Seeking Alpha today.  By far the biggest area of feedback has been from people who disagree (sometimes violently and rudely) with the  utilization factor I used in the model.  This is the number of times per month on average MoviePass users will see a movie.  I used 1.4 in my model.  Many people emailed me and said I was crazy, the usage will be way higher the say! Lots of people gave me anecdotal evidence about how they use MoviePass all the time and so all of their friends!    It will be at least 4 a month!  Your model is junk!  2 is the lowest it will ever go!  booo !  Hiss!!    models like Mark Gomes ramp it to over 4.   and shorts have loved that logic!

Why do people care so much?  Investors know, the Utilzation rate has a massive impact on the model and on MoviePass’ fortunes, so I wanted to revisit my assumption here and more fully explore the topic.  As if I am way off, my model will be wrong, and it would not be good for the company or my long position in HMNY.

First, it is worth noting the company has claimed it sees utilization rate settling at 1.2 average over time.  

Many have pointed out that the company had mentioned a number over 2 in SEC reports, I have not been able to find those numbers as of yet. But if somebody has a link to send me, please do!  

In the most extensive interview done yet on the MoviePass business model Mitch Lowe and recode’s Peter Kafka –  Mitch explained the usage numbers this way.

Here’s the trick: 89 percent of American moviegoers only go to four or five movies a year. When they join MoviePass, they double their consumption and go to about 10 a year. That’s a little bit less than one a month. They balance out the 11 percent of the population that go 18 times before joining MoviePass and then after go three times a month. It works out. Over time, it actually works out to be about one movie per month per subscriber. Now, some people do go to 10, 15. We even have one guy who on this 40th birthday challenged himself to go to 40 movies in 40 days. We do have people with a fair amount of time on their hands.”

So if we use these numbers form the CEO! – It would put the Utilization factor at 1!

As you all know, I am believer and a bull on MoviePass.  But even I have a hard time accepting a usage factor of 1.  It just seems too low to me. That is a gut feeling.

Another interesting source for utilization rate was posted here on reddit.

This model does an extrapolation of total movie tickets sold and the % of tickets sold by MoviePass over a 4 month period and does a calculation from there to come up with an average number of tickets per subscriber.  This model lands at around 1.3 to 1.5 Movies per month. The author comes up with a final analysis stating.

“With a TLDR: Moviepass bought at most 14,499,069 tickets from movies released between Novemember 1st – March 24th which is an average of 1.53 movies per subscriber.

A better estimate using 6% of the box office for the missing data is 12,384,621 tickets sold for an average of 1.3 tickets/month per subscriber. Most likely the average subscriber goes to 1.3-1.53 movies per month”

In my model I factored in that MoviePass has capped users with the most recent promo with iHeartRadio at 4 movies a month.  That keeps the heavy users from skewing (& screwing) up the average. MoviePass has also made some significant moves to reduce fraud and started to get more aggressive enforcing its terms of service.  In some cases discontinuing Heavy Users subscriptions.

So the hard facts we have from the Company CEO, and from other detailed models do show that my estimated 1.4 Utilization Rate is actually pretty reasonable after all.  It is higher than what the Company publicly states, and within the high range of the most detailed model I could find.

Then there is a more subjective view I think is important to consider.  

Most people simply do not have the time to see more than 16 to 17 movies a year. Which is what a 1.4 utilization rate would bring.  In reality most don’t have the time to see more than 1 movie a month.

Let’s look at some data to backup that claim.   

The Average feature film is around 90 Minutes long.  That does not include previews, ads etc. that accompany most viewings, that easily ads 15 minutes to the experience.  If you add in the commute time to the theater, I estimate 15 minutes each way for 30 minutes total commuting time you get to a total time commitment of at least 2 hours, likely more, but I will use that number to be conservative.

A 1.4 Utilization Factor or about 16 movies a year x 2 Hours equals 32 hours a year committed to movie going.  Almost an entire work week spent at the movies? I just don’t think most people have that kind of time to spare.   

We have all read the research and seen the many articles on how busy Americans are.  The work week continues to get longer, people don’t take their allotted vacation days, we live in what is now called the “busy culture”.  Not to mention there is incredible competition for our free time and lots of attractive media options when you want that media escape.   

Going to the movies typically means finding somebody else to go with you – although more people are starting to go it alone with MP.  It also means finding a show and a time that works for you, it could mean getting a babysitter, and it may mean you have to leave your warm dry house and go through inclement weather just to see a show.  There are a LOT of good reasons that people think they will go do something, and finally reality sets in and they make other plans, admit it, it happens to you all the time!

Finally, If you are reading this article – know that you are NOT normal!  You likely care about movies more than most people. That is likely why you found out about MoviePass in the first place.  You are also a subset of the population who actually cares about individual stocks. You live in a small cohort world, you are not the “average” consumer.  So if your gut – subjectively is telling you people will see a lot more than 16 movies a year. You are probably wrong, and you just don’t know it. The data doesn’t back it, nor does a longer examination of the subjective thinking on the topic.  

So with that – thank you again to all who sent feedback – some of it angry 🙂 on how stupid my model is because my Utilization rate is a fantasy!   Maybe that fantasy is actually your own….

 

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