On this episode of Recode Media with Peter Kafka, MoviePass CEO Mitch Lowe talks about how he’s trying to make a profitable business out of charging $10/month for nearly unlimited visits to the movie theater.

You can read some of the highlights from the interview here, or listen to it in full in the audio player above. Below, we’ve provided a lightly edited complete transcript of their conversations.

If you like this, be sure to subscribe to Recode Media on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.

Peter Kafka: This is Recode Media with Peter Kafka. That’s me. I am part of the Vox Media podcast network. I’m here at Vox Media headquarters in New York City. In a couple days, I’ll be in Huntington Beach for the Code Media conference February 12th and 13th. You probably bought your ticket. If you haven’t bought your ticket, it may too late but you can still check by going to Recode.net. It’s going to be a great event. If you are not there in person, we will tell you about it later.

That’s like this podcast, we move on into the future. Today’s the present. I am here in New York City with Mitch Lowe, CEO of MoviePass. Before Mitch introduces himself, I’m going to share a reader email from Colin. I don’t know if Colin wanted us to use his last name so we’ll go with “Colin” for now. He has a guest request. “I’d love to hear you talk with Mitch Lowe, the MoviePass CEO. That’s such a weird business that I don’t understand and you’re good at probing people who have weird business models.” Mitch Lowe, welcome to the show. Let’s talk about your weird business model.

Mitch Lowe: Thank you. Yeah. It’s actually pretty simple. I don’t find it weird.

People are fascinated with your company, by the way, like Colin.

I love movies. I kind of grew up as a latchkey kid. My brother and I brought our first Betamax player. It was so heavy like it took two of us to carry it. For me, what’s really, really exciting is how people are actually going back to the movie theater when many people said it was on the way out.

Describe what MoviePass is. You have a million and a half subscribers so a million and a half people know what it is. For those who haven’t got a subscription, it’s 10 bucks a month or 90 bucks a year.

It’s $9.99 a month. From time to time, we’ll run specials for annual programs. Essentially, it’s like Netflix for the movie theater. You pay one flat fee, that’s 9.99 and you can go to about 91 percent of the movie theaters across the country and go to essentially a movie a day.

You can see up to 30-some, 28, 29, 31 movies a month.

Yeah, exactly.

One movie a day for 10 bucks per month.

That’s right. I know it seems like too good to be true, but the way it works, you download our app onto your phone, so you do need a smartphone. You do need a unique email address per account.

If you’re listening to this podcast, you have these things.

Yes. Then we send you a MasterCard debit card in the mail with your name on it. You decide you want to go to a movie. You find the movie, you find the theater, you find the showtime you want to go to. Then when you get within a hundred yards of the movie theater, you check in and magically that credit card works at that theater for about 30 minutes.

And you buy a ticket there.

You just walk up and say, “I want the 7:00 o’clock showing to ‘Lady Bird.’” They print out a ticket and you walk in. The beauty of it is, we’re paying the bill on that credit card. That’s how we pay.

This is a company that I’ve heard about for years. I would get an email from some PR person telling me about a company called MoviePass for five or six years and I’ve looked at it and ignored it because it didn’t make much sense. It was 40 bucks a month. It was sort of aimed at indie film people. You are not the founder of the company, you are the CEO. We can talk about the history of it, but you came in the last year or so, right?

Yeah. I can in about a year and a half ago. You’re right. The product had been focused on the heavy moviegoer. About 11 percent of people in the country go to 18 films a year and that’s how it was priced.

This was aimed at them.

Yeah.

You’re saying there’s another group of people who go to movies not that often.

Right.

We think it’s a great product for them. To be clear, in New York City, every movie ticket price is, I don’t know, 15 bucks.

Yeah. It’s crazy.

It’s crazily expensive.

Yeah. Just one movie and you’ve saved money.

Right. That’s the too good to be true part. Even the rest of the country, an average ticket is what, nine bucks?

No, the average price across the country is $8.73.

Almost $9.

So almost $9.

So there, if you go to more than one movie a month, you’re ahead of the game. I can see why consumers would like this. You guys launched this version of it last summer. It’s taken off really quickly, because again, it’s basically going to movies for free. Sounds too good to be true and there’s some caveats now that we can talk about.

Yeah.

This does not sound like a great business model for you guys. It seems like this is like a kozmo.com business plan where you lose money every time a consumer uses your service.

Right, right.

So?

There are actually dozens and dozens of businesses like ours that invest in building a large subscriber base. Whether it’s Netflix that buys $8 billion of content a year — and believe me, they have to borrow the money to do it — or companies like Facebook where it’s free but they’re monetizing all the advertising and all the data about you.

Right.

That’s exactly what we are.

There’s lots of money-losing internet companies and other startups, right?

Yeah.

By the way, you’re an early Netflix employee that worked at Redbox. I want to talk about those things as well.

Yeah.

Those companies, the theory is, you invest in capital, you invest in marketing. At some point, the business starts spinning, has enough momentum, enough pricing power that as you add users, you’re not adding cost and now you’re magically making billions of dollars.

Yeah.

You just walk through a system where every time someone uses your business, you lose money.

Well, I think everybody believes that all of our subscribers are going to gobs and gobs of movie, which is really what they do do in the first couple months they join. I kind of like ... In our customers’ behavior, there’s two trends. One of them is like if you went to a buffet breakfast every single morning for two or three weeks, the first couple days ...

You’re getting your waffles and the sausage.

You’re piling up. By the third or fourth day, you’re kind of down to a normal usage. That’s exactly how our customers, they start out, they go to a bunch of movies. They slowly edge down.

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.

Who won that challenge?

I don’t think he’s gotten to the 40th day yet so he’s still working on it.

I don’t know 40 movies. So it’s a little bit of the gym model where you’re not expecting me to show up as often as I pay for the service.

Well, yeah. The gym model, the only reason I don’t like that comparison is the gym model is you join in January, you pay for a year, and then by February, you’re not going at all so you’re not getting any value.

And by the way, you finance this thing and they really don’t expect you to show up at all. You’ve modeled it out so your business works if I come once a month.

Yeah. Our goal is to get to breakeven with the subscription and the cost of goods. Then 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.

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 ...

These are real movies produced by real studios and they’re saying, “Hey, MoviePass, we’d like you to promote this to our customers.” When you want to promote “Lady Bird” to me, are you giving me a discount to go or are you saying, “Here’s a movie you might like”?

Remember, it’s free to our customers. That’s why we’re not marketing ...

You’re consenting me in some way to go see “Lady Bird” or you’re saying, “Hey, check it out, Greta Gerwig.”

Our subscribers are looking for movies to go to and they’re very open to suggestions. When we say, “We’ll send out an email. We’ll highlight the title in our app so it’s at the top of our app. We’ll promote it in social media,” and our subscribers will go, “You know, I was really kind of thinking of going to that movie, but in the past I would’ve put it off and waited for it to come out on Netflix or HBO or Hulu” or something like that. Now because there’s no incremental cost to them, they take our suggestions and go to the movies. We go from 3 percent to 5 percent market share to over 10 percent.

It’s just you saying, “Check it out.”

Yeah.

You’re not rewarding me for going. You’re not giving free popcorn.

No. There are things that we are doing that are kind of separate from that. Those are private screenings and advanced screenings for our subscribers, but that’s a little bit of a difference.

You launched last summer, you’re at a million and a half subs. Now are you where you thought you would be nine months into it, six months into it?

Way beyond. When we sold half of the company to a data analytics company, in the contract we put in a clause where we would get a $2 million bonus if we hit 150,000 subscribers in 18 months. I thought, “Okay, that gives me about three or four months of padding.” I thought maybe it’d take us a year. We got there in two days. This is way beyond my expectations.

Again, especially if you’re in New York or LA, this just seems like obviously this would work for as long as it’s going to work because it is too good to be true, but if you’re going to basically let me see movies for free, of course I’m going to do it.

It’s a no-brainer.

We were talking before. I said, “This is like Groupon.”

Yeah.

Where of course you’re going to go take the two-for-one deal, for one. That also doesn’t seem sustainable.

Yeah. Well, if you think that there’s not enough money to support the growth, then yes, you would think so, but most people didn’t think we’d make it this far. Remember, if we’re buying one in every 19 movie tickets and it’s an $11 billion business, you can kind of calculate that’s a lot of money. We have been incredibly well funded. We have a backer that is prepared to go all the way to get us to cash-flow positive, which isn’t all that far in the future.

How big do you need to be for this to be a viable business?

I think by the end of this year, we’ll be big enough to where there’s ... It’s really about getting enough customers who are beyond their fourth or fifth month and getting more subscribers in the lower-cost markets, in the Omahas and Kansas Citys of the world. Remember, to date, we’ve never done advertising. In the next couple weeks, we’ll begin advertising.

That million and a half subscribers, that’s just people telling each other on Facebook or wherever, “Hey, there’s deals. It sounds unbelievable.”

Yeah, and it’s way beyond a million and a half. Yes. We’ve spent 11,000 here and there on social media, on Facebook, various tests like that, but no advertising, just because.

Do you want to share an updated subscriber for well beyond a million and a half?

No. I think we’ll do that soon.

Keep that for the press release. We’ve gone through some of the big questions I’ve got about your business, like, “Is it a real business?”

Right.

Yes. “Are you making money?” No.

No.

Other big question, what do the theaters chains think about this? It sounds like there’s two groups. There’s the small indie movie theaters and there’s three big theater chains and they have very different views about you.

Yeah. That’s absolutely true. I like to look at it as there’s three groups. There is the top three like you mentioned. There’s a mid-tier group that is Marcus Theaters with 800 screens, and a bunch of 50-theater chains.

The big theaters, AMC, Cinemark.

And Regal.

Regal.

Then there’s a bunch of midsized chains and then there’s all these independents. The independents and the midsized chains understand that we, in some ways, are one of the salvations for the industry.

Overall, movie attendance drops year after year. Sometimes the box office goes up because the ticket prices are going up, but fewer people go to the movies each year, generally trend line for reasons that if you’ve listened to this podcast, you have a sense of.

Yeah. There’s been a single-digit percentage decline. There’s been a year or two over the last 10 years where there’s been a slight uptick in ticket sales.

Last year was 6 percent, I think.

Well, yeah. Let’s say it’s flat to slight declining year over year. The theaters, their solution is to continue to slightly increase the price 25 cents a year, 40 cents a year. Over the last 18 years, the prices have almost double. That’s a dead end. The independents who are today fighting for market share, they pretty much have the same product as the big guys today. They see us as a great way to help them compete.

You are pitching yourselves to them as marketing partners?

Because when someone joins MoviePass, they use that doubling of their frequency to see the smaller films. That’s good for art house theaters, that’s good for independent theaters.

I’m going to go see “Star Wars” regardless. If I’ve got MoviePass, I’m going to find time for “Lady Bird.”

Yeah. We don’t change your behavior for Marvel films or “Star Wars” or any of those things. We get you to see “Lady Bird” where you would’ve put off seeing it until it came out on one of the streaming services. The independents and the midsize theaters are very supportive and want to work with us.

Do you do rev share deals with them, get a cut of the popcorn?

Yeah. We do a whole bunch of different things, but the primary is kind of a lower price. It’s pretty much like the bulk sales they do. If you come up to any theater and you say, “I want 10 tickets,” they’ll typically give you 20 percent or 25 percent discount. Even ... You go to Costco, you can buy booklets of AMC tickets and Cinemark, etc., and get the tickets for 25 percent off.

So local chain possibility that you’re not paying full for that ticket.

That’s right. For our partner theaters — and it’s a growing list of theaters — we are getting some form of a discount that varies. It could be based on the time of the day or the day of the week. They want to incentivize us to drive traffic to their empty seat times.

I’m sure you’re going to AMC or Cinemark or Regal saying, “Same thing, we’re going to help you bring people in. They’re going to see the Marvel movies and we can fill seats the rest of the time.” They have a resounding, “No.”

Yeah. If you think back when Orbitz and Travelocity, Expedia were founded, the airlines and the hotels wished they didn’t exist. They want that one-to-one relationship with customers. That’s exactly the way the big theaters look at us. They go, “Geez, we want that one-to-one relationship. We don’t want a middleman.”

You even have it now. It’s like you’re coming between me and my Cinemark subscription, right? I just go to a random theater. I don’t care what the theater is.

That’s exactly why we succeed and why subscribers really like the idea of a service where I can see what’s going on at Cinemark, I can see what’s going on at AMC or an independent, and use any of them. I’m in control and it’s me that decides where I go.

AMC, Cinemark, Regal can’t block you from doing what you’re doing because you’re paying them cash for a ticket, right, and then basically reselling it to me, effectively?

Yeah. We’re paying them full price. They’re actually thrilled. They went from being angry and wanting to stop us, at least AMC. The day we launched, they said we were a fringe player and that we would never succeed. The subtext to that is, “Dear customer, you should continue to pay higher prices because these guys over here are trying to do an unsustainable model.”

I can see why they would not want you to be inserted between them and their customer. I’m sure that they all have plans to launch their own subscription service, but again, I can’t see those working for the same reason I subscribe to Spotify and not Universal Music group service.

Exactly.

I don’t care what the label is. I want the music.

Yeah.

They’re not your pals. You guys are still beefing. There was something happening in the last couple weeks where you pulled out of some of the more trafficked AMC theaters?

Well, not necessarily the more trafficked. We’re in roughly 660 AMCs.

You pulled out of 10.

Yeah. We pulled out of 10, a small fraction of them. What we started doing is kind of assessing where we spend our money. We bought a million tickets in the last 30 days at AMC theaters across the country. That’s like 10, $11 million we paid them for tickets. Our subscribers say that they spent on average $12 every time they went to an AMC, which is more than double their average of $4.88. Another $12 million in concessions that are 85 percent margin.

Just to be clear — because there was some confusion about who did what — but this is you actively saying, “We’re not going to support these 10 theaters,” and these aren’t 10 theaters in Omaha, right?

No. They’re all over the country, but there’s some in New York and L.A. and Chicago.

Big ones, right?

Yeah. AMC tends to have bigger theaters.

Right. They’re in Times Square in New York, Union Square. First of all, to be clear, is the idea here that you’re going to show AMC how much pricing power you have and what they’re missing out?

Yeah. I think the idea was that we want to work with them. Our customers want to go to their locations. What we wanted to understand is, how can we still give a great opportunity or accessibility to our subscribers and, at the time, demonstrate to AMC that really they should be our partner. We identified locations, there’s many more than these 10, that have plenty of competition around them. Those 10 were selected primarily because they had a Regal or a Cinemark or independents about.

You picked 10 in big high-traffic areas where you could say, “Sorry, you can’t go to the Times ...” What’s one of the ones in New York that you can’t go to?

I think 42nd.

“You can’t go see ‘Paddington.’” I tried to buy a ticket to go see “Paddington 2,” which I’ve already paid for. It’s not bad. At Times Square and you send them the message saying, “Sorry, doesn’t work there, but you can go down the street”?

Yeah. We have not sent messages to our subscribers but our subscribers can see the theaters that are available.

That theater doesn’t show up.

Yeah. We launched that, I believe, on a Thursday. Over the weekend, we looked to see, did those customers who typically would go to AMC, did they find another theater to go to? Almost every one of them found another theater to watch the movie.

This is a way for a small startup that has very little power to sort of leverage whatever power you do have and make a point.

Well, I can walk you through some amazing numbers, but if you look at their forecast for operating margin for Q1 of this year, which analysts say will be down about 10 percent compared to Q1 of last year.

This is AMC you’re talking about.

This is AMC. Last year, they reported $55 million in Q1 operating profit. If you use our numbers for concession purchases and our numbers for the tickets we bought, which we know that number. Our concessions is self-reported as our customers telling us. You use the margins that AMC reports in their earnings. We represented I think it was 34 or $35 million in Q1 of operating margin for them, 62 percent of their total U.S. company margin.

So you started this experiment when?

Couple weeks ago.

Couple weeks ago. Have you gone back to them and said, “Uncle, you got enough.”

No.

How long will this go on for?

I don’t know. You know, we’re assessing other possible locations. There are actually quite a few that fit that same criteria where there is plenty of competitors.

Can you feel whatever discomfort your customers feel? You’re saying, “Look, we’re taking this theater away from you, but you’re not going to notice it.” That may be true, but you hear the message and you hear, “They’re not working with AMC theaters. If I’m about to buy a MoviePass subscription, maybe I’m rethinking it.” I don’t think you guys are going to go out of business but I’m crushed.

That’s true.

It’s a risky proposition for you.

It is risky. By the way, we have no plans to increase the quantity of AMC locations or to decrease the quantity of locations. All I’m saying is there’s an awful lot. I would love to sit down at a table and show the AMC folks how we can be great partners and drive more business into their locations. We were partners with them for two years. The previous CEO knows exactly just how positive we can be for their business. Our customers want to go to AMCs. We want to work with AMC, but at the same time, you can’t keep giving millions and millions a week to an entity who says over and over again how, “Yeah, we’re happy to take your money but we’re never going to share in that increase profit with you.”

I mean, from the movie theater’s perspective, they’re already facing this sort of structural problem. People are spending more time watching Netflix shows. There’s this constant discussion, I think: Shorten the window and decrease the amount of time you even have to see a movie in a theater. They’re fighting off all of that. You come in from the other side saying, “We’d like to participate in your business and we’d like to help insert ourselves between you and your customer. By the way, it’ll be good for you.” You can image their reluctance to see you as a friend.

Yeah, but to me that’s illogical. It all comes down to whether you believe us or not. If a business came into you and said, “I can double the amount of people that listen to your podcast and I want a small percentage of the increased advertising revenue that you get,” would you tell them, “Go away, I’ll never share any increase profit with you”? That’s essentially what they’re saying to us. We double the amount of times their customers go to AMCs. We more than double the amount of concessions they buy every time they go, and that is increased profit.

I like the more audience. I like being able to sell more ads. I can see giving you a cut. This is already an issue for media companies. Who’s mediating us? Who’s distributing us? What platform are we dependent on?

Yeah.

Another middleman wants to insert themselves between me and the audience. That’s the question I have because, by the way, you’re going to increase that takeover time.

Yeah. That’s the problem. You always find that the big incumbent players are thinking more about protecting their current business. We can’t possibly lower the price and make the deal better. Meanwhile, consumers have changed dramatically. People who are under 35 grew up with subscription and they think about consuming entertainment in a much different way than this a la carte transact.

Theaters are the only business that hasn’t evolved in the entertainment space to at least offering options. Unfortunately, these guys are very old school. They’re trying to protect their current business. They want to maintain higher prices and yet they have no plan for what’s in the future. Do we just keep, every year, raising prices? What happens when it’s $30? They’ve shown that they don’t have a solution to get more people back into the theaters. They tried more comfortable seating, different food. That’s helping, but MoviePass is the only thing out there that actually doubles the frequency of millions and millions of subscribers.

You’re talking about distortion. You worked at Netflix and later Redbox. What did you learn from those two experiences? What was your title at Netflix?

I was the VP of business development and strategic alliances.

This was as they were sort of moving into streaming, right?

No. I was there at the beginning.

Early days.

I was there from ’98 to 2003.

You got stock?

Yeah.

So you don’t need to work. That’s good.

That’s what I keep telling myself.

Then at Redbox?

I was COO and president for eight years and grew it from six kiosks. The year I left, we did a billion and a half in revenue and threw off 300 million in cash flow. By the way, we had the exact same thing from Blockbuster. Blockbuster said, “Don’t look at these guys who are renting movies for a dollar a night. Keep coming to us and pay $4.50 for the same movie.” People said, “There’s no way these guys can afford to rent the same movie for a buck.”

Besides having a general sort of enthusiasm for things that people look from the outside saying, “Doesn’t make any sense, that’s not going to work,” what else did you learn working at those two companies that’s applicable to this job?

Yeah. There was really two keys. The first one is if you as a customer know that there’s a different way, don’t take for granted that the way it’s been done in the past is the best way. Keep your eyes open to what consumers really want. Focus on the consumer. Focus on what the customer wants. In the Netflix days, it was pretty much an accepted practice that if you had a video store and you were renting movies, you had to live off of late fees.

In the same way that the gym model was, “We don’t expect you to come. We expect you to be stuck in financing this membership. That’s actually how we make our money.” The movie rental business was based on you not returning the movie and paying outrageous fees.

Yeah. It was 15 percent to 20 percent of the revenue and it was almost all the profit. We took a look at it and we said, “You know what? It doesn’t have to be that way.” By eliminating the late fees, we essentially removed all that anxiety of renting and thinking, “Oh god, if I don’t watch it tonight or tomorrow, I’m going to pay a late fee.” As a result, people started experimenting with films they never would’ve seen in an a la carte model. That’s exactly what we’re seeing in MoviePass where we’re eliminating or significantly reducing the anxiety of making a bad choice of going to the movies.

You told me a good Reed Hastings story the last time I talked to you about ... You were going to say same-day delivery?

We were going to do kiosks.

The whole idea was you had figured out a local delivery model and backed out of it.

Oh, okay. Yeah.

I just don’t know the whole story.

During the a la carte days — because for ’98 and ’99, we were renting movies for $4.99 for a weekly rental plus a shipping charge. What we found is that the people who got the movies within one day, that in those markets with a one-day delivery, we had a significantly higher market share than all the other markets. We’re trying to figure out, how do you get movies quickly to people? There was really a couple different ways. One of the ways was to have a kiosk in your local grocery store where you could just pick them up and return them.

That became Redbox.

We called that Netflix Express but it was kind of a stealth side business that we ultimately closed because it was shortly after we went public in ’02 and we got word that analysts heard about this and thought we were going backwards to the physical world instead of forward. The valuation was pretty much built upon going to a digital feature.

They wanted you to be an internet company, not a rental company.

Yeah, not a physical location company. Yeah.

That was something that Reed Hastings sort of figured out?

Yeah. The guy is a genius when it comes to focus, which is really the second thing I learned is you’ve got to focus on the one thing you can do better than anybody else. In Netflix’s case, it was having the biggest inventory delivered at the fastest speed. He was a genius in keeping everybody laser focused on that.

You mentioned this earlier, this is not a company you founded. You came in later.

Yeah.

It had founders, it had a different business plan that it punted around for a while. How did you come to this company?

I think this is my third participation in MoviePass. Early on after I left Redbox, a friend of mine, Tony Conrad, who’s a partner at True Ventures in San Francisco ...

I interviewed his partner at True Ventures.

Yeah. True was both the seed and the A round of investors for MoviePass.

With that original business plan, 40 bucks a month?

Yeah. Back in 2011. They tried all kinds of prices, by the way, 25, 35, 45, etc. Tony thought I would make a great adviser to both Stacy and Hamet, who are the co-founders. Stacy is here in New York and Hamet is in California. At the time, I was doing advising and consulting of companies along with Mark Randolph, who’s really the founder of Netflix. He’s the guy who really had the idea. We started advising the MoviePass folks and it was pretty clear to us right off the bat that this needed to be a mass-market product and get to at least a $19.99 price point or lower.

You looked at it early on and said, “This business you have will not work.”

We essentially said for it to be fun, you needed to make it big. To get big, you had to go beyond the moviegoer who goes a lot. You need to get to a broader audience because for us, when you’re helping millions of subscribers, it’s a lot more fun than hundreds of thousands. We advised the two founders for about six or eight months in 2012. At the end of about six months, we realized that we weren’t making a lot of headway.

Headway for getting those guys to change?

Because it’s a tough decision.

Because you start a business, you think you have a great idea. These guys come in from the outside saying, “No, no. You got to scale it up, make it bigger.”

Right. Back up. We’re used to people pushing back on our ideas, but we were looking for things that would be fun and interesting. We walked away, and about a year later got drawn back in by one of their investors who wanted us to help them with some ideas with the company. That fell apart as well. Then in January of 2016, I met Chris Kelly, a former chief privacy officer at Facebook, he had become the major shareholder in the meantime. He and I met at Sundance, totally hit it off, saw eye to eye on the opportunity to making it more a mass-market product. Then I invested shortly after that and came in as CEO in June of 2016, June or July.

So you’re someone that comes in and says, “I’m going to put up money and I’m also going to take over the company and we’re also going to change the direction of the company.” The founders at that time say, “Great!” or, “We don’t like this idea but we can’t say no.” How does that happen? How does that discussion go?

Yeah. Those kind of discussions can run the gamut depending on the founder and their receptivity, and of course no one gets into that situation if you’re doing great.

“You’ve been at it for five or six years, it’s not working.”

Yeah. Just plugging along and not making ... They had grown. They had grown to about nine million in revenue, but they constantly needed cash. They were actually very receptive, very positive. Of course, they had known me through several iterations over the previous couple years. I guess four years. They were just super positive and receptive. In reality, I had been in that position before in the past and it’s not the greatest feeling when someone who hasn’t paid their dues in that particular company comes in and thinks they know everything.

Again, they put in their time and their money and it’s enormous work to start a company like this and their baby. Then allowing you to come in, in some ways, is a concession. “It’s not working, we need to do something different.”

Yeah. They were very positive about that.

Are they still involved in the company?

They are as advisers and I get some great input from them. They actually developed a pretty amazing infrastructure to be able to make this work.

When you come in and you take over a company like this and it’s basically a pivot, do you have to sort of think about the DNA of the company, the existing employees and how you’re going to reorient them? Or do you just bring in all new people?

Well, I think you can do it in lots of different ways. In this scenario, I don’t think anything other than a few consultants who were out in California left. It was everybody.

Everybody stayed.

Everybody stayed. We were only nine people. We added one or two people over the course of the first year because we were still small. We were mostly experimenting, testing different price plans. I tried a $99 plan that including IMAX, did a $14.95 plan, tried all kinds of things. For the first year, I think we brought on two or three people and then just tested like crazy until we were ready to roll out the $9.95 plan.

You said an earlier incarnation of the company had nine million in revenue but they kept having to get money. You’ve got a business plan that requires you to go back and get more funding periodically, right? Recording this early February. The stock markets are in a nose dive. Things look sort of wobbly at best in the media world. You hear people saying it’s very difficult to raise money. Are you at all concerned that you are going to go back to the well and at some point, someone’s going to say, “No, no. We’re going to stop funding the money losing enterprise. We’re done with it.”

We have a really, really potentially big business. We’ve grown faster than Spotify. We’re the fastest-growing entertainment service and with no free trials. Everybody’s paying. There’s a lot of interest at many different levels from media companies to studios to huge organizations that want to be affiliated with us, so we have lots of options at this point. We have a deep-pocketed backer that is prepared to fund us all the way.

Is there an ancillary business where you also figure out my babysitter situation because, of all the reasons that I have for not going to movies, it’s really expensive to see a movie in New York but the ticket price is the smallest part of it. Everything else that’s involved. If you look in a different city, it’d be parking as well. Are there add-on businesses you can layer on here?

Yeah. Besides the marketing on behalf of the studios, I always looked at going to the movies as a centerpiece to a night out or a day out. You need a babysitter, you might take a Lyft to get there. You might go to dinner or have some drinks. We want to build out what we kind of want to evolve from, let’s say, Orbitz for the movie theater to OpenTable for the movie theater.

We know which movies you might like. We know where you are. We could suggest, “Hey, in two hours a great movie is starting at the AMC theater. There’s a great restaurant across the street. Use our card, use our payment system and get a free appetizer and then click here to get the tickets.” We think we can build out a whole ecosystem around — and of course include babysitting through one of the services, Care or one of those others.

All right. Well, when you figure out the babysitting component, let me know and I will sign up.

Okay.

Mitch, great to talk to you.

Thank you.

Colin, I hope we’ve scratched whatever intellectual itch you had.

Sign up for the newsletter Recode Daily Email (required) By signing up, you agree to our Privacy Notice and European users agree to the data transfer policy. Subscribe