Mitch Lowe: 'Movie Distribution System Broken'

19 Oct, 2017 By: Erik Gruenwedel

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MoviePass, the fledgling subscription-based theatrical movie ticket service, will continue to rely on debt or equity offerings and increased revenue from subscribers to fund operations, CEO Mitch Lowe told “.”

Speaking Oct. 16, Lowe, former president of Redbox and chairman of the Video Software Dealers Association (precursor to the Entertainment Merchants Association), said the $10 monthly service giving subs access to one theatrical movie per day has doubled attendance and increased high-margin concession sales more than 120% among subs.

“We also get them to go to nearby restaurants and use Uber,” Lowe said.

The executive said MoviePass represents an opportunity for studios to reduce the $50 million to $100 million spent marketing a movie to consumers through a lower-cost subscription service.

“The movie distribution system is broken,” Lowe said.

At the same time, MoviePass continues to face resistance from major theatrical chains — notably AMC Theatres — uneasy about the fiscal impact a subscription service has on box office revenue.

Independent theaters, however, eye MoviePass as a magnet driving foot traffic into smaller venues.

“[They] see it as a great competitive edge,” Lowe said.

He said MoviePass is where Netflix and Redbox in their early days had to prove to studios and content holders the value of revenue sharing. To do that, Lowe said MoviePass is putting its “money where its mouth is” for the next six months.

Indeed, MoviePass’ immediate future requires significant funding — not dissimilar to Netflix’s early days when it produced negative gross margins, according to Lowe.

“Still today, Netflix borrows huge amounts of money, billions of dollars a year,” he said. “So, it’s not abnormal for a company that’s building great value with consumers; re-energizing a [theatrical] business, to need to fund that.”

To fund operations, MoviePass in August quietly entered into an agreement with Helios and Matheson Analytics, giving the private equity firm 51.71% ownership of the company for $28 million, including an $11 million loan, $5 million promissory note and $12 million in HMNY common stock.

MoviePass, which reported 400,000 subs in September, also gave HMNY an option to purchase additional common stock shares for $20 million, while CEO Ted Farnsworth joined the MoviePass board.

Lowe said concern from major theaters chains is reminiscent of the days when Blockbuster questioned how Redbox could compete charging $1 for a movie rental.

“How you possibly do that? You’ll fail,” Lowe remembered the now-shuttered chain telling him. “It’s all about putting technology and data behind your retail business.”

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