MoviePass Owner's Cash Runs Low After $9.95 Offer Takes Toll

(Bloomberg) -- The clock may be ticking for MoviePass Inc. and owner Helios & Matheson Analytics Inc.

Helios & Matheson said in a filing Tuesday that it had just $15.5 million in cash at the end of April, and the firm has been going through about $21.7 million a month. It also has $27.9 million on deposit with merchant processors.

The revelation sent shares of the technology company down 32 percent -- and sparked fresh concern about whether its MoviePass business can survive.

It’s no secret that MoviePass is unprofitable. The subscription service is famous for its seemingly too-good-to-be-true offer: For $9.95 a month, you can see a new movie in the theater every day.

But Helios & Matheson is hoping to build up MoviePass’s subscriber base enough that it can better capitalize on its customers -- either through partnerships with other brands or by selling the data it collects. The idea is to reach 5 million subscribers, and theoretically have enough scale to turn a profit.

Along the way, MoviePass is taking steps to stem its losses, according to Helios & Matheson Chief Executive Officer Ted Farnsworth. That includes efforts to reduce fraudulent use of its cards, prevent repeat viewing of movies, and stop the sharing of memberships and passwords.

‘The Other Side’

“I’ve always known that it was going to take a lot of money to put into it, to get it to the other side, to get it to 5 million subscribers and break even,” Farnsworth said in an interview.

Asked if the company would survive the month of May, Farnsworth said, “Oh God, yes. May, June, July.”

Farnsworth said the company can raise more money by selling more stock or by borrowing the cash. Its merchant processor also will release the deposits, opening up additional funds, he said.

It became clearer on Tuesday that the endeavor is an uphill fight. Helios & Matheson acknowledged in the filing that the MoviePass business model is “highly uncertain.”

“We are unable to estimate the actual funds we will require,” the company said.

Tough Proposition

Since MoviePass doesn’t have its own supply of movie tickets, it has to buy them from the theaters. That’s expensive, and there’s no easy way to recoup the costs.

The biggest movie-theater chain in the U.S. provided a glimpse this week at just how tough that proposition is. AMC Entertainment Holdings Inc. said on a conference call that MoviePass has been buying hundreds of thousands of tickets from the chain at about $12 apiece on average. And the subscribers are attending nearly three movies each month: They went 2.62 times in March and 2.75 times in April.

That implies a loss of over $20 per customer each month. To be sure, not all members are using AMC theaters -- and in many parts of the country, it’s cheaper to see a movie. The average U.S. ticket price is just over $9.

Even so, AMC Chief Executive Officer Adam Aron thinks MoviePass is unsustainable.

“There’s nothing wrong with subscription programs -- they can be quite positive actually if they’re done rationally and intelligently,” he said on the call. “But they have to be done at a price that is sustainable.”

©2018 Bloomberg L.P.