Is MoviePass Hollywood's Future or Just "Too Good to Be True"?

As the theater subscription app burns through a $200 million war chest amid stock swings and studio skepticism, its 2 million customers (and growing) are impossible to ignore.

Striking a confident note onstage at CinemaCon on April 24, National Association of Theatre Owners president John Fithian hit back at the idea that "disruption" is necessary to "save" the film business. "The movie industry is not a zero-sum game," Fithian told exhibitors in Las Vegas, adding: "The idea that younger adults aren’t passionate moviegoers is a myth."

Left unsaid in the theater chief's remarks was any mention of the meteoric rise of MoviePass, the subscription service with the potential to disrupt the exhibition industry, if not the entire ecosystem of film.

Since Helios and Matheson first invested in MoviePass in August, double-digit gains, and drops, in its weekly stock price have been commonplace. Example: When the company revealed April 16 that Verizon owned about 9 percent of its shares, the stock surged 31 percent in a day; and when it said three days later it was raising $30 million in a secondary offering, the stock plunged 33 percent, also in a day.

Helios and Matheson, which provides customer data to companies including BMW and TD Waterhouse, has been trading publicly on the Nasdaq exchange since 1997, and in the crazy days of the internet bubble, the stock soared to $130, while April 23 it was at $2.46. But CEO Ted Farnsworth sees MoviePass as a chance to turn things around, and some on Wall Street are buying in: Canaccord Genuity has a $15 price target on Helios and Matheson, suggesting the stock could surge more than 500 percent in the next year.

In the past eight months, Helios and Matheson has sunk $160 million into purchasing 92 percent of MoviePass, which was founded by Stacy Spikes and Hamet Watt in 2011; soon, the $104 million company will purchase the remaining 8 percent of MoviePass. Farnsworth notes that MoviePass CEO Mitch Lowe has a solid track record of building companies, as he was on the ground floor of Redbox and Netflix (a $1,000 investment in the latter 16 years ago is worth about $330,000 today).

Still, detractors are perplexed at the business model, which consists of giving subscribers a movie ticket per day for just $9.95 a month, though the only plan available April 22 was one movie a week.

Farnsworth, though, tells The Hollywood Reporter that MoviePass is making a profit on 88 percent of its subscribers, those who are basically using just one ticket a month. As for the 12 percent of heavy users, "They are evangelists for the service," he says, noting that as recently as two years ago, when a subscription cost $49 a month, MoviePass was spending $51 to acquire each sub; that cost is now zero.

While MoviePass mostly pays full price for tickets, about $8.97 apiece, Farnsworth figures he will soon get about $6 of that back on every transaction as more theaters kick back not only some of the ticket revenue but also concession purchases. AMC Entertainment begs to differ. The giant theater chain says it has no intention of sharing anything with MoviePass, and it worries the service cheapens the moviegoing experience.

Helios and Matheson also will sell data it collects on MoviePass users, which concerns Fithian. "We also want respect for privacy," he said April 24. Partly in service of that effort, Helios and Matheson on April 5 paid $23 million for Moviefone, giving it access to that iconic company's 6 million monthly website visitors.

MoviePass' owner took about a $10 million cash loss in its most recent quarter, but it says it has $200 million banked, and it will presumably use some of that to keep the service afloat. MoviePass' rapid growth makes it impossible to ignore — it surpassed 2 million subscribers in February and expects 5 million by year's end. Lowe figures it can be profitable in 2019.

In a survey in partnership with THR, the National Research Group found that nearly half of all moviegoers are aware of MoviePass; that it boasts a satisfaction rate of 83 percent, better than Netflix, Spotify, Sling and Hulu; and that it has untapped pricing power, given that only 8 percent would cancel the service should the price rise from $9.95 a month to $15.

“They have a service people say is too good to be true,” says NRG CEO Jon Penn. He adds that subscribers buck the trend of typical moviegoers, seeing films alone and on weekdays for example, and experimenting with lesser-known titles. “Rotten Tomatoes is a lot less important to MoviePass users,” he says.

One flaw in the model, though, is “when they use MoviePass to see major movies they would have seen anyways. When MoviePass is subsidizing blockbusters, it will cost them a lot of money and they’ll be hurting,” says Penn. He’s also dubious of Farnsworth’s claim of 88 percent of users seeing just a movie a month, since his survey found the average user sees six more movies the first six months compared to how many they’d have seen had they not subscribed.

Contends Farnsworth, "MoviePass is the fastest growing company in the history of the Internet, and that includes Netflix and Spotify. Any time you catch lightning in a bottle like that, it can be nerve-wracking for a lot of people."

Pamela McClintock contributed to this report.

A version of this story first appeared in the April 25 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.