MoviePass CEO explains why his $10-a-month business model isn't as crazy as it sounds

Many in Hollywood are still scratching their heads about how MoviePass' new subscription model of $9.95-a-month, to see one film per day in theaters, can be successful - but the company's CEO Mitch Lowe isn't concerned.

In an interview with Variety, Lowe and Helios and Matheson Analytics CEO Ted Farnsworth (who this week took a majority stake in MoviePass for $27 million), boasted about a rise in subscriptions after news of the lowered fee.

The pair also shrugged off the threat by AMC Theaters, the world's largest movie chain, which is considering taking legal action to make it impossible for MoviePass to be used in its theaters.

AMC's biggest complaint is the $9.95 price, and that sentiment is echoed throughout the exhibition industry from those Business Insider has spoken to. AMC and others simply think it's too low, and that at some point MoviePass will have to raise the subscription price to stay in business.

Lowe, who is a cofounder of Netflix and former CEO of Redbox, says this isn't true.

"They don't understand our business model," Lowe told the trade. "Even active moviegoers had to think is $14.95 really worth it? At $9.95, even people who rarely go say I'd be crazy not to do that. We need to offset costs in Manhattan and L.A. by getting a lot of people in Kansas City and Omaha, and places where the average ticket price is five or six bucks to sign up."

Lowe said before making the announcement he and his team talked to independent theaters, and the other major chains like Cinemark and Regal, which are all taking a wait-and-see approach, he said. Lowe believes AMC's stance against MoviePass is "all bluster."

"The fascinating thing is we use a MasterCard debit card. We pay full price for the tickets we buy," Lowe said. "They would essentially have to not take MasterCard in order to block us. I don't think you can cancel that agreement without severe penalties."

Lowe and Farnsworth believe it's time for the movie theater industry to realize that subscription packages are in its best interest. Farnsworth said that 75% of MoviePass subscribers are millennials, who are accustomed to having subscriptions for all their entertainment, whether it be Netflix, Hulu, or Amazon.

The company plans to go public by the end of January 2018, and promises a huge growth in subscription numbers. As of December last year, MoviePass had 20,000 subscribers. It hopes to hit 100,000 by next year. Farnsworth is confident that goal can be met.

"I can tell you that we're way ahead of our business model. In the first day, we exceeded our business model," he said.