This should be make for a good case study for business schools some day. MoviePass was billed as using the gym membership model because it relied on paying customers who don't use the service. However they totally ignored what makes the gym membership model work.
It isn't that people are just too lazy to cancel a product they don't use. People feel an obligation to have a gym membership and many of those people don't use it because they simply don't enjoy working out. Canceling a gym membership is admitting failure in achieving a goal to work out. There is therefore a huge emotional investment in maintaining a gym membership. That pressure doesn't exist for MoviePass. Almost no one feels pressure to go to the movies so you don't get people signing up for the service out of obligation. And everyone who signs up enjoys going to the theater at some level so low usage members are hard to come by.
Meanwhile the marginal cost of an extra customer in the gym membership model decreases at scale. Adding a single heavy user that works out 10+ hours a week isn't really going to alter a gym's bottom line. This isn't the case for MoviePass. Each ticket costs the company the same amount. If you get one heavy user that buys a ticket everyday, MoviePass might need as many as 25 paying customers who barely use the service. It just doesn't scale.
> MoviePass was billed as using the gym membership model
This was never their business model. MP doesn't win if customers pay $9.95 but sometimes forget to go to the movies.
MP wins when they get revshare deals with theaters.
Naturally theaters don't want to share, so MP is buying negotiating leverage with free movie tickets.
MP is trying to get 20 million movie patrons hooked on an all-you-can-eat model so MP becomes the source of a large percentage of traffic. Then MP can threaten to shut off the tap if they don't get a cut.
Theater chains are betting that MP burns through their cash before they get big enough to make that threat.
What you are describing was their hope for the future business model, but it never materialized for a variety of reasons. The biggest being they were trying to brute force their way into making themselves a middleman in an industry without generating any value in that industry. All the extra value that theaters saw was not created by increased demand from consumers, it was simply paid for by MoviePass's investors. Like you said, the theaters are just betting they can wait that out. Maybe MoviePass thought it could be a middleman similar to Netflix or Spotify, but neither of those companies had to pay full retail cost for everything a customer watched/listened to.
> MoviePass was billed as using the gym membership model because it relied on paying customers who don't use the service.
No, it's more like Groupon. Theater attendance is at an all time low thanks to Netflix.[1] This is a way to sell seats through a discount channel -- or at least, that's the model they are trying to sell to theaters. Groupon and all those deal sites were successful in response to the 2008 recession when retailers & restaurants were suddenly left with a lot of excess inventory and seats to fill.
That's happening in theaters now. Netflix is the theater recession.
I'm not sure this announcement means that MoviePass is in trouble... yet. But like all those deal sites, it's a limited opportunity. Theaters will downsize and there will be less excess inventory. More immediately, there's a lot more consolidation in the theater world than in the general retail/restaurant landscape, so less need for a 3rd party discount channel.
>Meanwhile the marginal cost of an extra customer in the gym membership model decreases at scale. [...] This isn't the case for MoviePass. Each ticket costs the company the same amount.
I think it's reasonable to say that MoviePass's expenses don't scale as well as a gym's, but I bet they scale to some extent. Customers who want to see movies frequently were probably the first to sign up, while those who only go occasionally have less to gain by signing up and might wait longer or be more hesitant to do so. So their marginal customer probably has a lower usage rate than their overall customer base.
Ostensibly they're going to profit in the long run by selling data on the usage of their service, not on the service itself. I'm skeptical that this will pan out, but it's not completely implausible. The film industry is huge, it faces high fixed costs and low marginal costs, and I suspect that effective marketing can have a substantial impact on consumers' likelihood to see particular films. Data-driven marketing is likely to be highly profitable under those conditions, whether it's implemented by MoviePass, a different third party, or the studios themselves.
I think the real question is: should they have shut down in Summer 2017 when it was clear the $50/mo model didn't work, or should they have tried this. (If they knew of a better business alternative, they would have done that.)
I think that depends on which specifics of their business model you are considering. I don’t think the broad business model of an unlimited cinema subscription service is inherently a bad business model.
