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….

 

3 Replies to “Why I see MoviePass utilization rate staying in the 1.2 to 1.5 range”

  1. Bob, you asked for a link.

    Check out the March 1st, 2018, Screen Junkies interview, at the end, at the 39:30 mark:

    https://m.youtube.com/watch?v=kzqHpGME0NM

    Mitch says MP paying “our average price is over $11 (per ticket)…”

    There are other interviews as well, where Mitch and separately Ted have also stated average ticket price is over $11.

    1. Thanks for the link, I will check it out. I am going to work on a couple more models that will show different variables at different levels. Thanks again for sharing.

  2. I agree with your analysis Bob. But one assumption that you didn’t address is that Mitch concedes it takes 3-4 months for new users to settle down into a mean utilization rate. So for those first 3 or 4 months, it’s could be something like 2 or 3 on avg for heavy users and 2 for the 89% until they get over the “kid in the candy store” feeling of having MP.

    And the extent to which folks with MP buck the trend, and go to movies alone and during the week, is significant. You do mention this” “Going to the movies typically means finding somebody else to go with you – although more people are starting to go it alone with MP.”

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