Friday, May 18, 2018

How to Fix MoviePass

HBR.org
How to Fix MoviePass
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MoviePass, an upstart movie theater subscription service, has been a controversial topic lately. One Wall Street analyst called MoviePass a joke that would be out of business in 18 months. It lost nearly $100 million in its most recent quarter, its parent company’s stock has plummeted, and its auditor recently voiced skepticism over its ability to stay in business.

The company suffers from three fundamental problems. The first is a flawed business model. Its average subscriber sees three movies a month; for every ticket a subscriber uses, MoviePass pays the full retail price to the theater. The problem is that MoviePass collects only $9.95 per month per subscriber, and three movie tickets costs nearly $30, on average, meaning it’s losing nearly $20 per month per subscriber on a variable cost basis. This is a problem that scale (meaning more subscribers) cannot solve.

The second problem: Movie theater operators don’t want MoviePass to succeed because they fear its model will permanently devalue ticket prices.

The third problem: Although MoviePass touts its potential as a platform or advertising business, there is no clear definition of what that would look like or when it could happen.

But the current pessimism about MoviePass misses an important point: The company might find a viable model if it works harder to understand the economics, motivations, and aspirations of its superconsumer customers. We’ve done research into this group of people, and that makes us see potential here that others are missing. One key message from this research: Going to the movies is less about the movie itself, and more about the total experience.

For instance, the movie industry makes all of its profits on concessions. (Ticket sales don’t cover the costs of operating a theater.) Superconsumers, who we define as people who go to movies once or twice a month, and constitute the top 10% of spenders in the category, are a key driver of concession sales. Not only do they spend twice as much as the average consumer on concessions, but they buy a much wider breadth of food and beverage. Specifically, they buy just as much popcorn as average moviegoers, but they are 1.5x more likely to buy soda and candy or chocolate than the average consumer, five times more likely to buy hot snacks (for example, hot dogs), and 10 times more likely to buy alcoholic beverages (where offered).

Superconsumer motivations also yield helpful insights. The top reason why regular consumers go to a movie theater is they couldn’t wait to see a new movie. Superconsumers clearly care about seeing a new release, but they seek many more benefits. They are 2x more likely to want a great movie theater experience. They are 2.5x more likely to be a superfan of an actor, director, or movie franchise. And they are 10x more likely to want to rewatch a movie.

These insights into their economic behaviors and motivations can be the foundation for beginning to fix the flawed MoviePass value proposition, as well as getting movie theaters on the same team.

MoviePass’s value proposition needs to be as much about the concession revenue it’s delivering to theater owners as it is about letting subscribers see many movies for a fixed monthly price. Concessions are nearly pure profit and the most impulse-driven, expandable piece of a theater’s revenue. Movies are an excuse to eat like a kid and pretend calories don’t count, and MoviePass needs convince theater owners to factor that into the way it views the MoviePass model — and potentially to expand their assortment and upgrade their quality to make concessions even more appealing.

The revenue pie could be so much bigger if MoviePass, movie theater operators, and superconsumers all collaborated to create an entirely new type of movie experience.

For instance, how much more concessions could you sell if the experience length was doubled by adding an intermission, and then showing the “extras” that ordinarily only appear on the DVD?

What if the subscription had an add-on for unlimited popcorn (which, due to the salt, only increases demand for high-margin beverages), perhaps only for shows during the week in off-peak times?

Or, what if a customer could pay extra for the right to bring a limited number of their own snacks, which is a pure profit with no costs to serve?

What if the theater offered unlimited drinks to allow people to work and hang out, like a Starbucks?

What if you reimagined the concession stand and turned it into a full-blown candy store with exponentially more assortment of brands? We’re pretty sure confection companies would be happy to help create more distribution points.

This optimized movie theater experience would trickle down to attract far more consumers than just the superconsumer.

Superconsumer aspirations and imagination can also help MoviePass solve its final problem, which is a clearer articulation of its future state. Scaling to the point at which it has millions of subscribers could enable it to offer an advertising business, but we have yet to meet a superconsumer who aspires to be ‘advertised to.’ But a platform business model, where serious movie fans can interact with each other, is the real opportunity.

A movie theater is an inherently social experience, and MoviePass might create a social currency by match-making like-minded audience members. How much more of a premium could a theater charge for inviting only superfans to a showing of “The Rocky Horror Picture Show”? Connecting superfans together for a shared experience could be an amazing platform business and provide real differentiation for a movie theater operator.

Given its cash crunch, MoviePass doesn’t have much time. First, it needs to level with its current subscribers that they are in a beta mode, and some changes to its initial model are inevitable. One smart move would be to immediately shift to a good/better/best pricing model — one that limits the number of movies one can see for the $10 per month basic package, and then offers increasing benefits for a $20 and $30 per month package. Real superconsumers are not purely motivated by price.

Second, MoviePass needs to find a smaller movie theater operator who is willing to test and learn, in order to co-create a movie theater experience 2.0. Work together to understand why superconsumers go so much, so you know how to optimize your offer. Ask them about their origin story of how they became a superconsumer, so you know how to convert others. Ask them what would need to change to get them to double their spending on movie theater experiences. The average consumer would laugh at you, but a superconsumer will entertain that thought. When they do, they may reveal a future version of MoviePass that cinema buffs, theater operators, and Wall Street could all fall in love with.