What is going on with MoviePass? Many had their doubts about the service before signing up (who can beat $9.95 for a movie-a-day?) Recently, though, MoviePass’ parent company, Helios & Matheson, revealed some reluctance towards MoviePass’ longevity to Business Insider. The company’s share dipped 40% on Thursday after selling a ton of stock at a 28% discounted rate on the heels of an internal audit which cast doubt on MoviePass’ strategy.
This report comes in the midst of an article earlier this week stating that an independent auditor had doubts regarding their overall sustainability. They note that MoviePass accepts a significant risk by operating with the same procedures they began last summer. Helios & Matheson CEO Ted Farnsworth claimed to have enough finances to cover MoviePass’ financial loss for the next couple of years. MoviePass is expected to make a profit by 2019, according to Farnsworth.
Here is a quote from the report the auditor released:
“MoviePass currently spends more to retain a subscriber than the revenue derived from that subscriber and MoviePass’ other sources of revenue are currently inadequate to offset or exceed the costs of subscriber retention…This results in a negative gross profit margin…There is no assurance that MoviePass will be able to sufficiently increase its other sources of revenue or be able to achieve economies of scale that would reduce the cost of revenue sufficiently to generate a positive gross profit margin.”
Helios & Matheson reported a total revenue of $10.4 million, nearly $6 million of which is from the company’s subscription services. It’s actually quite amazing how Farnsworth feels about MoviePass’ CEO; here is a quote: “I’m the biggest fan because I see what’s going on from the inside and what Mitch [MoviePass CEO] is creating here.”
How do you think the MoviePass debacle will work out? Will they be able to eventually turn profit and sustain said profit while maintaining the current business model? Stay tuned.