MoviePass pulls out of AMC’s top theaters as negotiations fail

MoviePass, the monthly subscription service for seeing movies in theaters, has pulled out of 10 high-traffic AMC theaters, as a negotiating tactic with the theater chain. AMC, so far, has shown no interest in working with MoviePass or sharing revenue with the service for the foot traffic it brings to theaters.

For instance, in a call with analysts in last year, AMC’s chief executive Adam Aron said that while the theater chain appreciated MoviePass customers’ business, “AMC has absolutely no intention — I repeat, no intention — of sharing any — I repeat, any — of our admissions revenue or our concessions revenue.”

AMC had also previously threatened legal action against the service, which it said devalued the movie-going experience.

Now MoviePass is fighting back by pulling its service from some of AMC’s most-visited theaters, including, per Variety:  The AMC Century City 15 in Los Angeles; AMC Mercado 20 in Santa Clara, Calif.;  AMC Disney Springs 24 in Orlando, Fl.: AMC Loews Boston Common 19 in Boston; AMC River East 21 in Chicago; AMC Mission Valley 20 in San Diego; AMC Tysons Corner 16 in McLean, Va.; AMC Veterans 24 in Tampa; AMC Loews Alderwood Mall 16 in Lynwood, Wash.

The theaters weren’t losing money due to MoviePass, to be clear – if anything, they were seeing increased visits.

The service, which now sports 1.5 million subscribers and is majority-owned by Helios & Matheson (HMNY), basically subsidizes the cost of the movie ticket thanks to HMNY’s investment. That means theaters get the full ticket price and MoviePass subscribers only pay $9.95 per month.

Obviously, that’s not enough for MoviePass to survive on, unless it finds another way to generate revenue in the near-term. It’s burning through cash fast.

HMNY’s hope is that it will eventually be able to sell the data it collects to studios, or monetize the service in other ways when it reaches critical mass. But considering HMNY has been willing to up its investment in MoviePass as needed, it’s unclear if or when they’ll give up on these plans and call it a loss. (Deadline reports that some studios are already “shuffling marketing dollars” towards MoviePass, indicating the service is pursuing a number of ways to increase its revenue beyond customer subscriptions. Most recently, those efforts have included buying distribution rights to films, as it just did with The Orchard’s “American Animals” at Sundance.)

MoviePass had wanted a $3 cut on AMC tickets and 20 percent of concessions, Deadline said. It has deals with nearly 1,000 indie cinemas already for a $3 cut and/or 25 percent of concessions, the report noted. But AMC didn’t want to negotiate.

According to MoviePass’s statement, released by HMNY CEO and Chairman Ted Farnsworth, the service is responsible for a hefty amount of AMC’s operating income.

It claims:

We know that we currently represent approximately 62% of AMC’s operating income, assuming that AMC is flat year over year. This equates to $34.4 million of gross profits to AMC in the upcoming quarter. On an annualized run rate basis, that’s over $135 million to AMC’s gross profits – which doesn’t include concession sales from MoviePass subscribers. In publicly disclosed 2017 financial documents, AMC claimed each customer spends $4.88 on concessions each visit – meaning MoviePass subscribers could bring an additional $17.1 million in AMC concession revenues for Q1 of 2018, which on an annual run rate means $68.4 million more — an annualized run rate going forward of over $203.4 million revenue from MoviePass subscribers.

In addition, Farnsworth pointed out to AMC that it’s going to lose business as a result of its unwillingness to strike a deal:

We’ve pulled 10 AMC theaters  — less than 2% of theaters. We already know in past testing that MoviePass subscribers are not theater-loyal; they’re happy to drive by a theater that may be closer to a theater that will accept MoviePass -because of the MoviePass value.

This tactic may not be limited to AMC going forward, either. For any theater that refuses to deal, MoviePass may consider pulling them from the list of supported venues, noted MoviePass CEO Mitch Lowe.

“As we continue to strive for mutually-beneficial relationships with theaters, the list of theaters we work with is subject to change,” he said. “We advise customers to always double-check the MoviePass app for the most up-to-date list of participating theaters.”

Of course, AMC may just be willing to wait this one out. After all, if MoviePass is burning that much on AMC alone, that means it’s spending hundreds of millions on ticket sales per year. If HMNY can’t strike enough deals, and soon (and doesn’t want to keep throwing millions towards the service), MoviePass could fail. And AMC would be just fine with that, it seems.