MoviePass has made a huge splash, and signed up a lot of new users, ever since it dropped its subscription price. However, the new price is so low that it would seem the service would have trouble actually making money. Since MoviePass pays the movie theater the price of a movie ticket, and those tickets can often exceed the $9.95 a month subscription fee, MoviePass would seem destined to lose money. However, the MoviePass CEO believes that while the first influx of new subscribers are certainly those people that will cost them money, following that they will see more users that will be more profitable. According to Mike Lowe...
When you do a subscription, especially an all-you-can-eat, the first subscribers you get, about 11% of the total, are going to be in high cost markets and they're going be people who see a lot of movies. It's like health insurance: The first sign ups are the people that are going go to the hospital. You have to weather the storm to get to the profitable subscribers. You've got to get enough breakeven customers to off-set the expensive ones.
It's no surprise that the idea behind making money at MoviePass is going to be those people that sign up, but then don't actually use the service. Even if you don't live in a place where a standard price movie ticket costs more than a month of MoviePass, if you go to enough movies, eventually you'll be making money on the service. Even if MoviePass starts to get discounts from theaters, which according to the story in Forbes, they now have with one unnamed theater chain, there will still be those who spend more MoviePass money on tickets than they are paying, the only way to balance that are with users who pay, but don't use the service at all.
Certainly, those people will exist. Maybe they signed up and used the service early on but then stopped going to as many movies but never got around to canceling. It's only $9.95, so it won't make a major impact on many people's monthly budget. Still, the health insurance analogy doesn't exactly fit perfectly. While those that pay for health insurance and don't need it help pay for those who do, those that don't use it are inclined to keep it because they know that if they need it, it will ultimately be worth it. If you cancel MoviePass and then decide to go to the movies anyway, it's unlikely to bankrupt you. There are also other subscription options that might entice users away.
It's possible that there could be enough "breakeven" customers to cover the ones that cost money, but even so, at that point, MoviePass would only break even. Profit would likely then come from advertising deals as well as the value of the data that MoviePass would be collecting on subscribers. viewing habits would be valuable data for movie studios, and the MoviePass app is now collecting it on over a million people.
