Today’s SEC filing suggests MoviePass’ time is running out

The MoviePass subscription service has not had a great year 2018. The constant changes in its terms of service have created a growing sense of uncertainty about what customers actually get with their MoviePass subscriptions. The level of the company's flagship sank, and then it was returned without any real explanation. And in April, an independent auditor for MoviePass' parent company, Helios & Matheson Analytics, raised the alarm by expressing "substantial doubt" that the company could continue in business. Bloomberg reports that a filing by the SEC today largely confirms that assessment, with Helios & Matheson acknowledging that it has only $ 15.5 million in the bank, even though it has been spending more than $ 21 million for month on average in the last seven months.

The future does not look promising for the company, and the price of its shares has responded accordingly, with shares falling more than 31 percent at the close of trading. The general assumption has been that MoviePass could never maintain its current long-term business strategy, but these latest financial revelations seem to indicate a true turning point. Each new report is damaging the most essential part of the MoviePass brand: the assumption that the service will remain operational in some way, and that new subscribers will be able to get the value of their money.

Nude finances on Form 8-K the presentation is tough. As of April 30, Helios & Matheson has $ 15.5 million in cash, with $ 27.9 million "in deposit" with the company's various commercial processors. The latter funds represent money from annual subscriptions and other long-term subscriptions that MoviePass customers have already paid, and that Helios and Matheson will receive during the course of the year. The problem is how much money is coming out. According to the presentation, the company spent an average of $ 21.7 million per month during the stretch between October 2017 and April 2018. Even if Helios received all its payments from the merchant processors, it barely has enough cash to stay afloat. two months before the well dries.

That explains many of the changes that MoviePass has made in recent months, even if the company was not completely transparent about them at that moment. The biggest one was the change in the number of times that MoviePass customers can watch a certain movie. Historically, the service was a real free buffet, which allows subscribers to buy a ticket per day for any 2D movie in a compatible theater, without a doubt. When the company changed those rules to limit the subscribers, so that they could only watch a certain movie once, no matter how much time they run in theaters, a support ticket said, "We hope this encourages you to watch movies new and enjoy something different! " It turns out that it was a blatant effort to reduce costs, and today's presentation explains that the measure "allowed us to reduce our cash deficit during the first week of May 2018 by more than 35 [percent]."

There are many ways to read that percentage, and in defense of MoviePass, the company has also said that the goal was to prevent people from using MoviePass to buy tickets for friends who are not subscribers. But in any case, a saving of more than a third represents a radical change. Combine that with the fact that the most popular movie of the first week of May was Avengers: Infinity War whose amazing box office performance is due to repeated visits, and the connection seems clearer: MoviePass tries openly Save money limiting the characteristics of its customers actively use . It is not a "test" or an "experiment", as the company has stated in the past; It is intentionally making the subscriptions that people have already paid less useful because their business model is unsustainable.

Helios & Matheson is not naive enough to think that the situation is sustainable, however. The presentation recognizes that the company will need new investments, or gains from stock sales, to stay afloat. It also notes that MoviePass has reinstated its "unlimited" plan of $ 9.95. As a result, the statement says, "we believe that our subscriber acquisitions and subscription revenue will continue to increase in the foreseeable future."

That may be the biggest reading error of all because, for the first time, MoviePass is facing a real perception problem. When Helios & Matheson took over for the first time and reduced the price of the service to $ 9.95 a month, MoviePass was hailed as a savior, a digital disruptor that offers customers a movie ticket value that seemed too good to be true . (The fact that it threatened to undermine the industry it benefited from did not make a big difference to customers at the time, but that's not a new phenomenon, ask book sellers how they feel about Amazon.) Consumers love a deal, and the way these transactions are carried out is largely forgotten.

But that only works if the optics game of a subscription service is a massive deal that stays alive. MoviePass has tried too much, and too fast. Blocked theaters without notifying subscribers, framed their numbers to make it seem more essential than it really was, limited access to a popular movie against a less popular movie that MoviePass was advertising, and tried to play hardball with AMC Theaters, the largest chain in the world. Some consumers may be eternally willing to give a free pass to the service because they joined early enough to make the most of what they offered. But new subscribers are essential to any of the planned benefits models of MoviePass, and can be difficult to achieve if the public does not believe that the service will still be available when their subscriptions expire.

An untapped business opportunity that is not mentioned in the SEC filing is the revenue sharing. Part of the MoviePass plan has been to get movie networks to reduce ticket sales and concession revenues, which would offer a new stream of revenue just when Helios & Matheson needs it most. But major theater chains have largely not been interested in such deals, and AMC flatly refused to even discuss it, which led to some of AMC's stunts about the movie blackout that MoviePass retired earlier in 2018.

It turned out that AMP did not get hurt because MoviePass did not play well. On May 7, the company announced revenue growth of 8 percent year-on-year for the first quarter of 2018, and CEO Adam Aron even took his time to shed some light. "Our views on the underwriting have not changed one bit since the August press release we launched the first day of MoviePass," in my opinion, a ridiculous price reduction, "he said. No problem with the subscription services themselves. "Actually, they can be quite positive if done in a rational and intelligible way. But they have to be done at a price that is sustainable. "

That notion of sustainability seeks to be more important than ever – for MoviePass, it can be an existential problem." If we can not get sufficient amounts of additional capital, "says the presentation. of Helios & Matheson, "we may be required to reduce the scope of our planned growth or alter our business model, objectives and operations."