In a very interesting strategy piece covering the evolving landscape of Ski Resorts published by Bloomberg over the weekend, there are some striking similarities to the ski industry and the movie theater industry. Before you run off and say that is a huge stretch. Let me make my case.
Skiing, like going to the movies, is slowing dying, and for similar reasons to the theater business. Skiing is considered expensive, younger consumers who are locked onto their smartphones, and wasting their days away on social media while endlessly binge-watching Netflix and Amazon Prime – & waiting for Postmates to show up, are less and less likely to leave the house. The expense, the hassle of leaving home, and the attractive alternatives are simply making it easier to not go out and do anything. Skiing, moviegoing and all kind of other entertainment options (ie. going to the mall), as a result, are under pressure.
Vail Resorts and Alterra Mountain Company have come up with similar innovative pricing and packaging strategies that are making some good progress on stemming the tide of waning customers. For those not familiar with the latest developments of the ski resort industry, two companies have essentially created 2 networks of ski resorts across the country where a yearly pass can be purchased at a very substantial discount vs purchasing a daily ticket. The breakeven for the consumer can happen in as little as 3 days of skiing. Daily ski tickets can be as high as $200 ticket, a season’s pass from Ikon can be bought for a little as $599. So far this strategy seems to be working well for Vail Resorts, the stock has performed well over the past several years and the company is raking in record profits.
Surprisingly affordable season passes are working for ski resorts for a few key reasons. Network effects is the first big reason. As Bloomberg points out, “By consolidating, Vail engineered a network effect not unlike Amazon and Facebook, wherein its attraction increases with every skier it adds and each mountain it acquires. It made the relationship even stickier by selling a season pass that can be used at all of its properties—the lift-ticket equivalent of Prime membership. As Vail CEO and former PE wunderkind Rob Katz put it, “I wanted to find a way to bring resorts together where the whole would be greater than the sum of the parts.” This strategy has been amazingly effective. As a skier, I can tell you, many many skiers are very loyal to their ski pass. If they buy an Epic pass, they will stay within the system. It makes no sense to go to a mountain outside the system and pay $150 or more to ski for the day.
Another reason the pass has been successful is that the pricing strategy evens out the revenue flow for the resorts. Consumers have to purchase a pass before the ski season begins. Skiing of course is weather dependent, and climate change has made snow levels unpredictable. Getting a big chunk of revenues upfront and committed before knowing if the season will be a hit or not, is a big win for resorts.
The obvious other success factor for resorts is the number of ski days for pass holders goes up, that means more money being spent on the mountain where consumers buy overpriced lodge food and drinks, ski lessons and forgotten gloves or hand warmers. More days on the mountain equals more money for the resorts.
One downside Vail and Alterra are experiecing with their pricing strategy is the one time ticket price is so high it is becoming a barrier for new and novice skiers who are not ready to commit to a pass, thereby limiting trial of potential new customers. A company named Liftopia is working on helping here. From the Bloomberg article. “In the eyes of a potential new skier, that’s what skiing costs,” says Evan Reece, CEO of online lift-ticket marketplace Liftopia Inc. Reece spends his days trying to persuade resorts to price daily tickets the way airlines price seats, fluctuating constantly based on a range of factors including weather and how far in advance someone is purchasing. It’s an economically proven way to maximize value and get novices on the hill at a discount; it’s also a tough sell. Reece worries that as the industry rewards the loyalty of its core customers, fewer people will give skiing a try. “There’s some amount of the market that’s going to vaporize overnight if the industry keeps doubling down on season passes,” he says.
Moviepass – has some real parallels to what is going on in the ski world. Or at least it has a chance to create them. Theaters, like skiing, are barely hanging on to their audiences. Tickets sold at theaters is down. Price is up, and theater owners are desperately hoping to see the trend reverse by improving theater experience with better seats and food. The problem is, it is not working very well. And the pricing strategy they are relying on is largely busted. Ever increasing single price tickets, with some odd discounting around the edges, is just not working. AMC is really the only theater chain that has implemented a seasons pass strategy that could make sense. And frankly, if you have suitable AMC options in your area. It works.
Movies, like ski conditions, are unpredictable year to year, month to month. Blockbusters are like big snowstorms. They are great when they hit, but you never know when or how many you will get in a given year. If you don’t get them, you end up with a lot of empty seats. Movie seats, like chairlifts, are perishable, when a ski lift goes up empty, it is lost forever, movie seats are the same thing. So it makes sense to do everything possible to put butts in those seats.
Moviepass can deliver almost all the benefits Vail and Alterra are enjoying with their passes and share that value with Theater operators. That was the part of the original Moviepass business model story. Moviepass can get consumers committed to going out to the movies again, the pay monthly upfront, and as a result, they are committed to going to the theater. They don’t care if the snow/flick is good or bad, they will go because they paid for it. That’s good for theaters.
The problem, of course, was that theaters didn’t like the idea of a middle man participating in their revenue streams, even if they were creating value. Moviepass, unlike Vail and Alterra doesn’t have any physical assets of their own. They don’t own a single chair. And as it sits today, they certainly don’t have the funds to buy any. So from that perspective, Moviepass hasn’t really been able to get the ball rolling on creating the network effects like Vail did by combining a bunch of resorts on one pass, and then partnering with others they don’t own.
The Theater industry differs in another way, that also may challenge Moviepass. In theaters, there is a big head and a long tail. There are about 40,000 movie screens in the US, 20,000 of those screens are owned by AMC, Regal and Cinemark, the next 20,000 screens are distributed by a very long list of small theaters. These theaters probably have the most to benefit from Moviepass. Cinemark, with 4566 screens could also be a major player here. They could partner with Moviepass in some meaningful way to get the ball rolling.
The white label idea is bullshit or a ruse. Both Sinemia and Moviepass have been making some moves to get independent theaters onto their platforms where they can offer a subscription service of their own. Just like ski resorts who have tried to go it alone and failed in the world of Epic and Ikon, small theaters will face the same fate. Very few consumers will be loyal to small theater groups. Consumers value choice, and they also value content over the theater. Like skiers who value good snow over any particular resort. Consumers will go where the good films are. The network effects of more theaters is what creates value for the consumer. Theatergoers enjoy visiting a variety of different theaters for a variety of different reasons. The more theaters in the network, the more value the consumer receives. This is why Moviepass has stubbornly kept AMC in their network, they know the value it creates. Even if they hate them, & AMC is trying to kill Moviepass. This could change. But for now, Moviepass needs at least Regal or Cinemark to play ball to make that move. AMC is a big enough to be an incumbent to bully, and so far has played that part well.
So if Moviepass cannot yet be the Epic pass for theaters, maybe it can be something closer to www.liftopia.com while gradually moving toward Epic. Surely theaters can use some help selling seats based on variable pricing and market conditions. Moviepass can create value filling seats that would otherwise sit empty at theaters across the country. It can slowly build up a network of willing participants of both consumers and theaters, both who are motivated toward the same goal. Movies seen at just the right price.