An inside look at how MoviePass will make money distributing movies, and what will happen if the company goes bust (HMNY)

american animals the orchard moviepass final

MoviePass is getting in the movie distribution business with the Sundance hit, "American Animals," coming to theaters in June.
It is teaming with The Orchard to release the movie.
MoviePass is an equal partner in the release, paying for half the movie with The Orchard and will be splitting half of the box office, a source told Business Insider.
"American Animals" director Bart Layton told Business Insider that the movie would be released even if MoviePass were to go out of business.

At this year’s Sundance Film Festival, MoviePass announced the launch of a distribution arm of the company, called MoviePass Ventures. The plan was for the monthly movie-ticket subscription service to start teaming with film distributors to buy titles for theatrical release.

Days later at the festival, MoviePass announced it was working with The Orchard (“Cartel Land”) to buy North American rights to one of the festival’s acclaimed selections this year, "American Animals," a narrative/documentary hybrid that follows a group of friends who attempt to pull off an elaborate heist.

At the festival, Ted Farnsworth, CEO of MovePass’ parent company Helios and Matheson Analytics, told a room full of distributors and industry players, “We aren’t here at Sundance to compete with distributors, but rather to put skin in the game alongside them and to bring great films to the big screen across the country for our subscribers.”

But a lot has happened since Farnsworth made those remarks.

In April, his company filed its 10-K to the SEC and reported a loss of $150.8 million in 2017. That was followed by a new filing revealing that the company has been losing $20 million a month on average since September. Due to all of this, the company’s stock is down more than 98% since its high in October, but Farnsworth and MoviePass CEO Mitch Lowe are adamant that everything is fine, stating that MoviePass can tap $300 million that will keep it going for over a year (though the company's access to that money is far from certain).

Now “American Animals,” which will be the first release by MoviePass Ventures, is coming to theaters on June 1. And despite all these new developments, the movie’s director, Bart Layton, told Business Insider he had no regrets about taking the deal with MoviePass back at Sundance.

“I don’t have insight or understanding of their financial strategy, that’s for people more clever than I am, but they came in, they seemed very dynamic, they seemed to have a lot of enthusiasm,” Layton said on Wednesday. “As a filmmaker, your whole intention is for people to experience your movie in the theater, that was the thing that was very appealing to me. They are all about the theatrical experience.”

Bart Layton Nicholas Hunt Getty

Layton also said that if MoviePass were to shut down before or during the release of “American Animals,” it would not affect the movie’s theatrical release.

“The cinemas are booked, the movie will go out,” he said. “How it will affect us? I guess if it happened we would have a few less of their subscribers going to the movie. But hopefully at this stage those people are still engaged enough in the film that they want to see it badly enough that they would pay full price to see it.”

And it makes sense for distributors, especially the ones in the indie market, to be interested in teaming with MoviePass. With over 3 million subscribers, it’s not just a good tool for the movie’s promotion — it plans to plaster "American Animals" all over its app, and where it has partnerships — but the distributor its working with will have direct data from MoviePass on how the movie performed with its subscribers through the movie’s theatrical run (what day and time they went to see the movie, where they saw it, the ratio of males to females who saw the movie, and so on).

But how much skin does MoviePass really have in the game?

It turns out the answer is "a lot." For “American Animals,” specifically, according to a source familiar with the deal, the company is an equal partner with The Orchard in all costs related to the release, including prints and advertising (the physical delivery of the movie to the theaters and the advertising to promote it). In turn, it will split box office revenue with The Orchard down the middle.

If the company were to fold before or during the movie’s release, The Orchard would then have to cover the costs MoviePass was responsible for.

MoviePass has confirmed to Business Insider that it's jointly invested in the release of "American Animals" and the monitization of the movie with The Orchard.

MoviePass Ventures has also signed on to release “Gotti,” starring John Travolta, which is coming out June 15. It will team with distributor Vertical Entertainment on the release.

Have a tip about MoviePass or anything else? Email jguerrasio@businessinsider.com.

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