MoviePass' CEO says he will focus on the 'occasional moviegoer,' and has a new strategy for working with theaters

• MoviePass CEO Mitch Lowe told Business Insider the mission of the company is now to focus on the "occasional moviegoer."
• He said 40% of cost of goods sold were from the 15% of subscribers who used MoviePass four or more times per month.
• On Monday, MoviePass announced that it was keeping its monthly subscription price at $9.95, but limiting the number of movies you can see to three per month.
• Lowe said the company will also attempt to make deals with movie theaters and studios to get a more favorable marketing fee to promote movies.
• For some time, MoviePass has been trying to get discounted bulk ticketing prices but has not been successful.

---

MoviePass has a new mission: "Reenergize the occasional moviegoer."

That's how the company's CEO Mitch Lowe described it to Business Insider on Monday after announcing that his company was keeping the price at $9.95 a month (and nixing surge pricing and ticket verification), but capping subscribers at three movies a month, beginning August 15.

The app gained millions of new subscribers starting last August when it changed its monthly subscription price to $10 a month (to see one movie per day). But what MoviePass didn't realize was a small core group of its users would really take their viewing to the upper limits of the service, Lowe said.

15% of MoviePass subscribers see a lot of movies

A major reason why MoviePass has been burning through an estimated $45 a month is because it has to pay movie theaters the full ticket price for most of the millions of tickets its subscribers order.

"A small amount of our subscribers, that 15% that would go to four or more [per month], go to a lot of movies. A lot!" Lowe said. "It's almost half of our cost of goods, like 40% of our cost of goods are used by that 15%."

These subscribers went to everything from the biggest movies of the year like "Black Panther" and "Avengers: Infinity War" to hit indies like "Hereditary" and the documentary "Three Identical Strangers." Lowe said, initially the thought was that putting a surge price on the popular films would slow things down, however people were paying it.

Then, MoviePass got more dramatic and announced the monthly plan would go up to $14.95 and the big Hollywood releases would no longer be available on the app. But that didn't work, either.

"The e-ticketing theaters, which haven't been affected in this whole thing, have gone up almost 75% over the last couple of weeks," Lowe said. These e-ticketing theaters give MoviePass a discount in exchange for promotion in the app.

So to attract just the casual MoviePass users - who spend $40 to $50 a year at the movies - which Lowe said represent 85% of its subscribers, the monthly plan will stay at the attractive $9.95 monthly offer. (If you want to go to the movies more than three times a month, MoviePass will offer discounts of $2 to $5 a ticket if you book through the MoviePass app.)

Lowe said he's confident this will decrease the burn substantially and get Wall Street back on board.

"I have had billion-dollar VCs tell me, 'If you would only put a cap on your costs we would invest and be right behind you,'" Lowe said. "I never did it because my investors kept telling me, 'We're behind you, we know it's going to take a lot of time,' and then suddenly they stopped saying that."

The stock of MoviePass' parent company, Helios and Matheson (HMNY), plunged to 7 cents last Friday, an all-time low. This came after the company did a 1-for-250 reverse stock split to pull it out of danger of getting delisted from the Nasdaq starting mid-December. It didn't work. (The stock was trading around 8 cents on Monday).

Building new inroads with movie theaters and studios

With the pivot to focus on the occasional moviegoer, Lowe admitted it would be more of a challenge to get to his goal of 5 million subscribers by the end of the year. However, it may be more important to build better relationships within the industry than focus on subscription numbers.

For some time, MoviePass has tried to make bulk price movie ticket deals with theaters so it doesn't have to pay full ticket price on the millions its subscribers order on the app. Lowe said the progress has been happening "really slowly" to get exhibitors on board. So Lowe said MoviePass now has a new plan.

"We've learned that going to the exhibitors and looking for a discount is not the right approach, because that discount comes out of the studio share and then we expect the studios to pay us to promote the film and it's like double dipping, so we have changed our model," Lowe said. "We are just about to roll out to exhibitors that we'll continue to pay full price, but we want to negotiate with them a fair marketing fee.

So MoviePass wants to get a better marketing fee from exhibitors and studios on their movies it highlights on its app, social media, and other platforms. MoviePass boasts that it's responsible for 6% of the 2018 box office (which is up 8% from last year) and believes with the inroads it has made on the marketing side with movie theaters and studios, that it can land a good deal, versus discounted tickets. (According to Helios and Matheson's most recent quarterly report, marketing and promotion made up $1.4 million of MoviePass' revenue in the first three months of 2018).

"I went in with a pay-for-performance approach to both the exhibitors and the studios, and I found it didn't work within the system and it caused all kinds of challenges," Lowe said. "So we think we now have a way to do this that fits in with how business is done."

Despite all the challenges MoviePass has faced in the past few weeks, Lowe is optimistic and said new services like bring-a-friend, which allows MoviePass subscribers to pay for a non-subscriber ticket, and an option to order a ticket to a non-2D movie (like IMAX or Real 3D) will be available in the next month.

"We've got a couple of tricks up our sleeve," Lowe said.