- One of the lessons of the dot-com bust was that services that seem too good to be true probably are.
- Since it dropped its price to $10 a month, MoviePass, the subscription movie ticket service, has seemed to be just that — too good to be true.
- Executives insisted the service was rationally priced and the company was developing a valuable asset in its large and growing subscriber base.
- But documents released showed the company is doing just what skeptics suspected — losing gobs of money.
Of all the companies that came and went in the dot-com boom and bust, the one I most regret not using before it died was Kozmo.com.
Kozmo was essentially an online convenience store. At just about any hour, you could place an order for whatever it was you were in need of at that moment, and the company would deliver it — quickly and for free.
Because it didn’t have a minimum order size, you could get away with ordering a single candy bar or a pack of gum. A buddy of mine, after getting a song stuck in his head, would go on Kozmo and order a single CD to be delivered to his house.
The service was so amazing at the time, it sounded too good to be true.
And, of course, it was.
It turned out that once you factored in delivery costs, Kozmo was losing money on every sale. Its net loss in 1999, the last year it publicly disclosed, was $29 million which was 8 times the size of its meager total revenue for that year. By the time Kozmo shut down in 2001 — four years after it launched — it had burned through $250 million in venture capital funding and had little left to show for it.
The lessons of Kozmo and other, similar dot-com busts have kept coming back to me repeatedly in recent months, particularly as the craze over MoviePass continues.
MoviePass has been a big hit with consumers — but that’s its problem
By now, you’ve probably heard about MoviePass. It’s the company that offers a subscription service that allows you to attend one movie each day in the theaters for only $10 a month.
MoviePass has actually been around since 2011, but barely made a stir with the general public until it cut its rates to the $10 price in August. Since then, its service has taken off, hitting 1 million subscribers before the end of last year and 2 million by February. Just by itself, MoviePass bought 1 million tickets to “Black Panther” for subscribers.
But ever since MoviePass made a splash by announcing its $10 a month plan, I’ve thought there was something very Kozmo-like about it. The company’s service sounded just too good to be true.
The average price of a single movie ticket was almost $9 last year, according to the National Association of Theatre Owners. At that price, MoviePass subscribers starts saving money by using the service with the second movie they see each month. Each movie they see after that each month is essentially free.
Things are even better for customers in areas such as New York and San Francisco, where ticket prices are generally significantly more than the average, and often top $10. Subscribers in those areas can often save money on the very first movie ticket they buy each month if they use MoviePass. And if customers signed up for the annual plan that MoviePass temporarily offered — which averaged about $7.50 a month — they can save even more money.
That’s a great deal for consumers. But it’s a recipe for disaster for a company. The whole thinking behind MoviePass is to encourage consumers to get back into the habit of watching movies in theaters. But it loses money on anyone who sees more than one movie in a month. And the customers that use the service the most are the ones that cost the company the most money.
MoviePass has been publicly dismissing concerns
MoviePass CEO Mitch Lowe, a former Netflix executive, has been shrugging off these concerns. Instead of the price being irrationally low, Lowe has argued that the service is priced just right. The average casual moviegoer only sees about one movie a month, meaning that the service is priced at around breakeven for them and for the company.
Meanwhile, MoviePass is building up a valuable asset in the form of its large and growing subscriber base, Lowe has argued. Theaters and other companies will pay to advertise to them, he’s predicted. And theater chains will end up offering the company discounted tickets and a cut of concession sales, figuring that MoviePass is helping to bring in more viewers to their venues than they’d otherwise have, he’s said.
That’s a nice dream, but as MoviePass’ parent company made clear this week, its reality is much closer to what I believed it to be — MoviePass is losing money hand over fist.
But the company’s business model looks a lot like a dot-com bust
The company’s annual report indicates that MoviePass is spending far more money buying tickets than it’s getting in subscription revenues, a business model that Kozmo would have been familiar with.
Thanks to that, as Business Insider reported, MoviePass has been burning through about $20 million a month since September. Just between December 19 and February 20, parent company Helios and Matheson, which only took control of MoviePass on December 11, advanced MoviePass nearly $56 million to support its operations, Helios disclosed in its annual report this week. Helios gave MoviePass another $35 million between March 1 and April 12.
In fact, MoviePass is burning through money so quickly that Helios had to go to the public markets to raise more funds. And even after raising $30 million this week, it warned investors that it would need to keep raising money.
MoviePass has become such an albatross for Helios that the company’s auditors issued a warning in its annual report that there was substantial doubt it would remain in business over the next year.
That too was familiar. We saw a lot of similar “going concern” warnings during the dot-com bust.
Maybe I’m wrong. Maybe Lowe and MoviePass will pull this out. Maybe the company won’t be our era’s version of Kozmo.
But right now, I feel like I’ve seen this movie before, and I know the ending.
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