MoviePass: The Too-Good-To-Be-True "All You Can See Movies" Company and Dishonesty in Customers

MoviePass offered what the public wanted. Originally, for just $99 (beginning last August), you could go to one movie per day. Then in August 2017, the company went to $9.95 per month and its subscriptions soared. Ben Fritz, "Plot Thickens for MoviePass,"  Wall Street Journal, May 17, 2018, p. B1.   That's right!  Download the app and use that app to pay for your ticket.  MoveiPass then paid the theaters the full price of the ticket. In short time, MoviePass went to 20,000 subscribers, then to 2,000,000, and then to uh-oh!  Figure out the cash drain when the average movie ticket cost in the United States is $9.16.  The business model had a slight flaw:  No one anticipated how many movies folks would see.  It turns out that there are quite a few people with lots of movie time on their hands.  Or, was it dishonesty?

MoviePass has changed its terms of its original subscribers, back and forth.  Now you cannot see a movie more than once.  MoviePass said this is a good change because now the "little movies" can gain some traction at the box office. That new restriction came in tandem with issues of fraud.  Subscribers may have been sharing the app with friends.  Hence, the seeming habit of subscribers seeing movies more than once. In fact, MoviePass suspects that there are scalpers out there selling movie access for less than in the theaters using multiple MoveiPass subscriptions. Now, subscribers must take a picture of their ticket stub and send it through the app along with a photo, after every movie admission.  Failure to provide the photo results in subscription termination. Patrick Ryan, "MoveiPass Changes in Search of the Right Balance," USA Today, May 9, 2018, p. 4B. Can a company make such changes?  If the "subject to change" provision is built into the original agreement, yes.  However, in this case, the customer backlash is controlling, not the legal issues.  Backlash means the subscriber base cannot continue to grow.  

But MoviePass is now offering different terms to new subscribers.  In April MoviePass sold the service with a 4-movies per-month limitation and streaming music from iHeartRadio for $29.95 per month.  Sufficient backlash resulted in MoviePass reversing that subscription decision just two weeks later. Again, new subscribers can be legally bound to new terms, but it is the backlash the drives what start-ups dependent on new customers must respond to.  The company is clearly struggling. Helios (the company that offers MoviePass) external auditor stated that it had "substantial doubts" about its ability to continue operating. Helios lost $98.6 million on $48.6 million in revenue for the first quarter of 2018. The price of its shares have dropped 93% since January, with the stock plummeting from going from a high $33.00 per share in October 2017 to a May 16, 2018 price of $1.68. Helios and Matheson Analytics (a company run by a former Netflix vice president) purchased MoveiPass. 

 USA Today remains sold on MoviePass calling it a better deal than the Cinemark Movie Club and Sinemia.  Still, those two companies are not struggling to stay alive. A contract ends in bankruptcy even if you still had movies left on your subscription. 

DISCUSSION STARTERS

Explain why the terms for MovePass keep changing.

What are the legal rights of subscribers?  What do those right mean in light of the company's financial condition?