This is how MoviePass plans to make money with a $10-a-month unlimited plan that seems too good to be true

Moviepass

When MoviePass announced this week that it would be lowering the rates for its unlimited movie buffet to only $10 a month it immediately became a trending topic. With the average movie ticket in the US about $9, and a ticket in a city like New York costing more than $16, the deal was impossible to ignore.

MoviePass makes it all really easy. Select the theater and film you want to see on its app, and the cost for the ticket at that location magically appears on a special debit card they provide you with.

But for many people I spoke to, excitement about the deal is mixed with a good dose of suspicion. What's the catch? If you're only paying $10 a month, and MoviePass is paying the full price for each movie ticket you buy, how could it possibly stay in business?

As someone who has been a MoviePass subscriber for the better part of the past two years, I understood the gym membership model that they employed. Each month, I would pay MoviePass $50 and they would bank on me not using the service enough times to make it worthwhile.

At $10 a month though, that model seems less viable. Even if I only see one movie during the entire month, there's not much left over from my monthly fee for MoviePass to keep. Indeed, since I first wrote about the new plan, I've received a flood of questions from people who are intrigued by the service, but simply don't understand how it could really work.

The following is my best attempt at explaining how MoviePass' $10-a-month model works:

So how does it make money?

The short answer is, it's not clear if the company actually does make money. AMC Theatres has complained about the $9.95 pricepoint and called it unsustainable, but MoviePass CEO Mitch Lowe told Variety that they simply don't understand the business model.

"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," he explained.

MoviePass settled on the $9.95 price point in an effort to rope in as many consumers as possible. Because the company is after something much more valuable than your monthly fee: your data.

MoviePass is playing the long game

The same day it announced the $10-a-month plan, MoviePass raised cash by selling a majority stake to the data firm Helios and Matheson Analytics Inc.. With a new price-point designed to attract as many subscribers as possible, MoviePass is hoping to attract a large enough user base so as to be able to monetize it.

In an interview with Wired, Helios and Matheson CEO Ted Farnsworth explained how MoviePass hopes to turn its user base into a cash cow.

“If you get a trailer right now for Spiderman on Facebook, Facebook can’t tell if you ever actually go to the movie. We can,” he told Wired. “We can tell if you look at 'Spider-Man' and look at 'Wonder Woman' and 'Mission: Impossible,' we can tell you exactly what movie you went to out of all three trailers.”

Farnsworth envisions movie studios using MoviePass' valuable data to do targeted marketing for their films. Once MoviePass has millions of subscribers, its ability fill seats can make the difference between a hit movie or a flop, he explained. MoviePass plans to hold an IPO in March, he noted.

AMC's big worry about the new MoviePass model

When MoviePass still had a gym-style membership and was flying under-the-radar with only 20,000 subscribers, AMC Theatres tolerated the partnership. But when the subscription service announced its dirt-cheap rate on Tuesday, the theater chain spoke out.

"AMC believes that holding out to consumers that first-run movies can be watched in theaters at great quantities for a monthly price of $9.95 isn't doing moviegoers any favors," AMC said in a statement. "In AMC's view, that price level is unsustainable and only sets up consumers for ultimate disappointment down the road if or when the product can no longer be fulfilled."

In short, the theater giant is worried that MoviePass will go bankrupt before it is able to turn a profit, and that when it's gone, its subscribers will have developed an expectation that a visit to the theater should cost next-to-nothing.

AMC's nightmare is that in a post-MoviePass world, theatergoers will view even a $9 movie ticket as a ripoff, and will stop going altogether.

MoviePass envisions a future where a single subscription can take care of your entire night out

One thing that MoviePass CEO Lowe thinks could win over movie theaters is the fact that his company's subscribers spend an average of 123% more on snacks than the regular moviegoer. And with customers able to see more movies due to the unlimited service, it means more money in theaters' coffers.

Taking it one step further, Farnsworth told Wired that businesses such as restaurants and parking services will want to get in on the action once they see the data Helios and Matheson is able to provide.

“Helios’s mapping of the area around the theater, and all the different things you might encounter in that area, will allow us to do much more than we currently do," he explained. “You’re going to be able to pay for your concessions, pick your seats, and probably be able to pay for things at adjacent businesses and get one monthly bill.”

Whether or not this cheap, utopian future comes to fruition remains to be seen. But for now, you may as well see some movies.

You can read more about MoviePass on Wired and Variety.

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