MoviePass, the company that lets subscribers see one movie a day for $10 a month, recently announced that it will introduce a Peak Pricing model. The surge pricing will trigger whenever there is large demand for a movie and means that users will have to pay a few extra dollars (from $2 to $6) to book the ticket for that movie. The criteria for what constitutes "large demand" is not known.
Movie Pass is rolling out this model because since its monthly rate is priced so low, the company essentially loses money when its customers use a pass, because it pays theaters for the tickers it customers use. Its parent companies, Helios and Matheson Analytics (NASDAQ: HMNY), said in a SEC filing that MoviePass' monthly losses soared to $40 million in May because of its subscriber growth, which surpassed 3 million this month. The company also announced a $164 million bond sale in which it issued 20,500 shares of preferred stock to institutional investors.
Wall Street has always criticized MoviePass' business model as one that is too good to be true. But MoviePass CEO Mitch Lowe argues that it is possible to have a business model where subscribers pay only $10 a month. Lowe explained that this decision was intended to let MoviePass' theater partners attract more traffic for big blockbusters after their opening day. Lowe commented, "We intend to keep the $9.95 model live and running. At the same time, we are launching new, on-demand options that members can add to their baseline subscription. The new optional add-ons will allow members to invite a friend to the theaters, upgrade to premium 3D and IMAX showings, or order tickets specifically for certain high-demand showings for a small additional fee." MoviePass is simultaneously introducing a new feature that allows users to add friends when purchasing a ticket through the app so that they can choose adjacent seats for theaters that require seat selection.
Entertainment company and movie theater operator AMC (NYSE: AMC) has been MoviePass' biggest critic since the company launched. They have said that MoviePass would not last and complained that the only thing it would do is drive down the value of a ticket in the customers' minds. Despite its criticisms of the subscription model, AMC recently revealed that it will be launching its own monthly subscription plan called AMC Stubs A-List, which will let subscribers see three movies a week for $20 a month, including Imax or Real 3D titles. Lowe discussed his challenges with AMC in an interview, saying, "It's been tough when you have the president of AMC essentially for eight or nine months telling everybody that our subscription was not sustainable, and then he comes out with a program that essentially could cost him $60 or $80 a month to pay the studios their minimums and collecting $19.95."
Still, even with the new surge pricing features, it's expected that customers will continue to flock to the cheaper MoviePass programs.